Evan Masyr - Chief Financial Officer Edward Atsinger - Chief Executive Officer David Evans - President of Interactive and Publishing.

David Schubert - Wells Fargo Lisa Springer - Singular Research.

Greetings, and welcome to the Salem Media’s Fourth Quarter Earnings Conference Call At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Evan Masyr, Chief Financial Officer..

Thank you. And thank all of you for joining us today for Salem Media Group's Fourth Quarter 2017 Earnings Call. As a reminder, if you get disconnected at any time, you can dial back in or listen from our Web site at www.salemmedia.com. With me today are Edward Atsinger, Chief Executive Officer and David Evans, President of Interactive and Publishing.

David Santrella, President of Broadcast Media unable to be with us on the call today. We'll begin in just a moment with our prepared remarks. Once we are done, the conference call operator will come back on the line to instruct you on how to submit questions.

Please be advised that statements made on this call that relates to future plans, events, financial results, prospects or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on currently available information.

Actual results may differ materially from those anticipated, and reported results should not be considered an indication of future performance.

We do not intend and undertake no obligation to update our forward-looking statements, including forecasts of future performance, the potential for growth of existing markets, the opening of new markets or the potential growth from future acquisitions.

More information on risks and uncertainties that may affect our business and financial results are included in our annual report on Form 10-K and other public filings we have made with the Securities and Exchange Commission.

This conference call also contains non-GAAP financial measures within the meaning of Regulation G, specifically station operating income or SOI, EBITDA, adjusted EBITDA and adjusted free cash flow.

In conformity with Regulation G, information required to accompany the disclosure of non-GAAP financial measures is available on the Investor Relations portion of the Company's Web site at www.salemmedia.com. And with that, now I'll now turn the call over to Edward Atsinger..

Thank you, Evan, and thanks, again, to all of you for joining us for today. I’ll begin my prepared remarks by touching on the highlights of our fourth quarter 2017 performance. I will include in that discussion comments that we will update or M&A activity for you. And then I will finish my prepared remarks with a brief update on our dividend.

And at that point, I’ll turn the call back to Evan and Evan will provide some additional and more detailed information on Q4 and Evan will also provide you with guidance for the first quarter of 2018.

So with that said, our fourth quarter 2017 total revenue was down 4.9%, expenses were down about 2.8%, resulting in a decline in adjusted EBITDA of 12.6%. The 4.9% revenue decline represented approximately $3.5 million.

And we’ve identified four key contributing factors due to the decline, but some of the largest factor was go back in 2017 was a non-political year followed by a presidential election year. This affected the revenue performance on virtually all of our divisions.

The broadcast division, which consists of both radio and network, reported $500,000 less in political revenue in Q4 2017 compared to Q4 2016.

In our digital division, the revenue decline in Q4 2017 over 2016 was approximately $1.3 million, driven both by less political spending in ’17 and also a decline in page views on our conservative opinion Web sites. And I should add that there is always a page view decline in a year following the election, particularly in presidential election year.

There is a certain amount of listener fatigue that takes place after the intensity subsides after the election is over. A second factor contributed to the decline in Q4 revenue was directly related to our decision to discontinue the published and the full loss making magazines in May, 2017. This resulted in Q4 revenue declining $400,000.

And then a third contributing factor is the fact that we’re no longer operating our cluster of radio station in Louisville, Kentucky, instead we are elevating the stations to a third party. Revenue in the fourth quarter of 2017 was down $300,000 directly related to this LMA.

Again I should point out that profitability of the Louisville clusters has actually improved, because the LMA fee that comes in or under the LMA, the total revenue is always lower and that we only record the next revenue with the LMA. There are no expenses, because the LMA or less been as case pays all of the expenses.

So the number that we get is always a net level, representing our profit but it does exacerbate revenue comparison, so there is technically no revenue. And then finally, revenue was negatively impacted in Q4 2017 and continues to be negatively impacted as we move into 2018 by the increased competition for ad dollars from Facebook and Google.

Facebook’s U.S. advertising revenue increased 41% in the fourth quarter 2017 while Google’s U.S. revenue increased 24% during that same period. It’s fairly clear to us that they are taking the revenue from both our radio and our digital businesses. We are taking a number of steps to address the revenue shortfall.

And one of the most obvious things of course that we always do when we’re expecting the revenue decline is to manage expenses more tightly. Expenses this quarter were down 2.8% so we were pleased with that.

As far as the political revenue impact goes that will be somewhat self collecting in the 2018 is a little election year albeit a midterm election year, it won’t be quite as intense as the presidential election year, and it likely will be more back loaded with revenue showing up more in Q3 and Q4, which is for typical of a midyear election.

We normally do well with political revenue in midterm elections, not quite as well as we do in a hardly contestant presidential election, but we still do well as I say there’ll be some self correction in terms of revenue there.

We’re also focusing on fixing a number of small problems in problem markets where they have a little more time to focus and with revenue when you have a revenue decline you take the time. A good example is our national operation, which includes -- that would include a three radio stations, two music networks and a number of magazines.

As I mentioned earlier in the middle of 2017, we closed down or sold all of the loss making magazines and we have made some organizational changes in the music networks to improve efficiency and profitability. The early results have been promising.

For example, we had a loss of $400,000 in the first quarter of 2017 in Nashville but we turned that into a profit by about $100,000 in the fourth quarter 2017. We’re taking that approach in other markets as well. You may have noticed that we announced the sale of WBIX-AM in Boston recently for $685,000.

We acquired that station from Radio Disney in 2015 for $500,000. So in addition, we’re selling it at a profit but we also eliminated losses of approximately $100,000. We tried to work with the format idea there we gave it about a year didn’t work very well. So it was best to exit the market cut the losses and then report a bit of a profit on the sale.

We’re also selling our 1360AM frequency, our AM station in Miami for $3.5 million and we’re moving the format and the call letters from that 1360 position to 1080AM which is, by the way, a better facility. The call letters will remain WKAT, so very profitable format for us. The new facility is a better facility.

We’ve been operating four stations in Miami for some period of time. Three have been productive. One has been lagging in productivity. So spinning this station off will not have any negative impact on profitability or efficiency on that market.

By making that change and a few other adjustments, we expect to significantly improve the profitability as well as record a gain on sale of the property. Additionally, we are addressing the move of advertising dollars, moving from digital by expanding our local digital product offerings.

To-date, our local digital modernization efforts have been largely focused on selling, advertising on our Web sites, our apps, our streams but it’s become increasingly clear to us as new digital products become available to all advertisers, particularly our local small advertising customers and large customers for that matter, they’re looking for digital help beyond what they and the resources they have.

The effective digital advertising requires a good bit of expertise and we’ve developed local market specialists now in all the markets we're in. And we're in the process of rounding that out in a number of other places.

We’ve hired a new VP of local digital that we’re very impress with that will lead the effort and we’ve established regional specialists that will then help train all of our folks to be able to assist our customer base and their own digital ad campaigns.

So this represents a revenue source for us and we also think it represents an opportunity integrate their total promotional efforts together with the radio products and the Internet products that we sell. So we’re hopeful that we will be able to see some good results there.

With respect to other M&A activity, I mention the sale of Boston and then I mentioned the sale of Miami. We also closed on one transaction during the quarter. We acquired WSPZ-AM. We changed the call letters to WWRC in the Washington DC market. We acquired that on November 28th for $620,000.

We have previously purchased the transmitter site for that station on September 15th for $1.5 million. On December 28th, we sold just the tower site for $1.9 million and we obtained a very favorable attractive leaseback arrangement for the station. So all-in-all, we’re very pleased with that transaction.

We do simply in March have entered into an agreement to purchase KZTS-FM in Little Rock, Arkansas market to round out the cluster that we’ve been building there since acquiring the Radio Disney station a number of years ago.

And then finally on December 29th, we paid $1.7 million of quarterly dividends or $0.0605 per share and $0.26 per share annually that represents an attractive 6.5% dividend yield based on the current stock price. So with that, I conclude my remarks.

I will turn the call back to Evan, who will give you the detail on reported performance and also provide guidance for first quarter 2018.

Evan?.

Thank you, Ed. For the fourth quarter, total revenue decreased 4.9% to $67.2 million. Operating expenses, on a recurring basis, decreased 2.8% to $53.9 million and adjusted EBITDA decreased 12.6% to $13.3 million.

Net broadcast revenue decreased 2.9% to $50.7 million and broadcast operating expenses decreased 0.4% to $36.7 million, resulting in a 9% decline in station operating income to $14 million. On a same-station basis, net broadcast revenue decreased 2.4% to $50.6 million and SOI decreased 9% to $14.1 million.

These same-station results include broadcast revenue from 114 of our 119 stations in our network operations, and represents 99.8% of our total net broadcast revenue. I am going to briefly review performance of our strategic formats. 41 of our radio stations are programmed in our foundational Christian-teaching and talk format.

And these stations contributed 41% of total broadcast revenue and decreased 5% for the quarter. It’s worth noting that national programming administration revenue remains stable and was flat for the quarter.

Local spot and local broad programming revenue combined was down 9% and some of our customers are moving marketing dollars to digital that adds a little bit to Google Search, programmatic display ads and Facebook. Our 32 news talk stations had a decrease of less than 1% in revenue for the quarter.

Overall, these stations contributed 19% of total broadcast revenue. And revenue from our 13 contemporary Christian music stations contributed 20% of total broadcast revenue and decreased 2% for the quarter. Our network revenue increased 3.4% for the quarter and now represents 10% of total broadcast revenue.

Revenue from our digital media business decreased 12.8% to $11.1 million and represents 16% of our total revenue. Excluding the impact of political, revenue would have declined to 2.8%. Our publishing revenues decreased 5.8% to $5.4 million and represents 8% of our total revenue.

As of December 31, 2017, we had $255 million outstanding on our 6.75% notes and had $9 million outstanding under our revolver. The leverage ratio was 5.66. And looking at the first quarter of 2018, we are projecting total revenue to decline between 1% to 3% from the first quarter 2017 total revenue of $65 million.

We are also projecting operating expenses before gains or losses on the sale of disposal of assets, stock based compensation expense, changes in the estimated fair value of contingent earn-out considerations, impairments, depreciation expense and amortization expense, to be between a decline of 1% and an increase of 2% compared to the first quarter 2017 non-GAAP operating expenses of $54.6 million.

And this concludes our prepared remarks. And we would now like to answer any questions anyone has.

Operator?.

At this time, we’ll be conducting a question-and-answer session [Operator Instructions]. Our first question comes from David Schubert, Wells Fargo. Please proceed with your question..

I wanted to ask around -- you gave first quarter guidance. I just want to ask around the trajectory of leverage, seems it could had a little higher in first quarter but I know political revenue may come in through the remainder of the year.

So just if you could walk us through the balance sheet and how you anticipate leverage playing out over the year, that would be great. Thank you..

You are right I mean with the guidance that gave, I think we certainly can see leverage inching up a little bit during the first quarter. However, we do expect the balance of the year to have a better performance. And we’re also going to be aggressive on continuing to pay down our debt. You've seen the revolver balance drop quite a bit.

There is $9 million at the end of the year and you will continue to see us working on paying down debt..

And I apologies if I missed this. But the Dallas music station, KLTY, any update there. I know that rating start to improve and maybe financial improvement would follow thereafter. So I’m not sure if there is any update there, that would be great. Thank you..

Well, the revenues -- the Nielsen ratings have stabilized and improved back to its old pattern and we’re encouraged with that. The revenue decline in Q4 was smallest in the long time. I think it was a single digit decline of about 7%. So there is progress there.

We would hope that that operation like many of our radio markets has been impacted by dollar switching to digital. And when that happens, there is a little bit more aggressive competition for the remaining dollars and that has a little bit of a depressing impact.

But it’s stabilized in terms of ratings, the revenue decline is the smallest decline it’s had in about six to seven quarters. So it seems to be moving in the right direction..

Our next question is from Lisa Springer, Singular Research. Please proceed with your question..

Could you remind us what bump you saw from political ad spending in the last midterm, which I guess, would have been 2014.

And if you think this is going to be the same or might be better future?.

We saw about $3.25 million in the last mid terms. I’m not sure if we have an opinion yet on if it’s going to be better or worse. It really depends where some of the key races end up being. We have no reason to think overall spending is going to be significantly different in overall political spending..

I mean, it should be half contestant mid-term, the house seems to be more in play with the special election that just played out in Pennsylvania. But probably it’s been more comparable to hold the senate, but you’ve got lot of competitive races in a lot of states. So we do expect it.

I’d be surprised if the spending is less than it was in the last mid-term..

And could you comment on the line up for the publishing group or going to be books coming out in tune with the mid-term election that you’re going to be able to leverage that?.

Yes. We do expect to have some type of zero then focus on the mid-term election. They normally come along pre like, so the only one that will be announced is a book by Sean Spicer, which we have -- which we’re very optimistic about..

So that will be more in the second half of the year?.

Yes..

Ladies and gentleman, we have reached the end of question-and-answer session. And I would like to turn the call back to Edward Atsinger for closing remarks..

Again, thanks to all of you for joining the call. And we’ll look forward to reporting our performance as we finish Q1 and have our earnings call for that time. So thank you. We will talk to you soon..

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..