Ladies and gentlemen, greetings and welcome to Salem Media Group, Inc. First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this program is being recorded.

It is now my pleasure to introduce your host, Evan Masyr, EVP and CFO. Thank you. You may begin..

Thank you and thank you all for joining us for today's Salem Media Group's First Quarter 2019 Earnings Conference Call. As a reminder, if you get disconnected at any time, you can dial back in or listen from our website at www.salemmedia.com.

With me today are Edward Atsinger, Chief Executive Officer; David Santrella, President of Broadcast Media; and David Evans, President of Interactive and Publishing. 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 relate 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.

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 website at www.salemmedia.com. With that, I'll now turn the call over to Edward Atsinger.

Ed?.

Exodus and Charlotte Pence's Marlon Bundo's A Day in the Life of the Vice President. Both books have follow-up titles that both are being released in the second quarter this year. And so again, a quarter-by-quarter comparison, the first quarter is disadvantaged. But then to the extent it is, second quarter should pick that up.

The 13.7% decline in expenses again was largely due to reduced - well, was largely due to this timing issue, reduced print schedule in the first quarter of the year. With respect to M&A, we made only one small acquisition, pjmedia.com, for $100,000. We are more active on the sales side during the quarter.

On February 27, we sold the website HumanEvents for $330,000. And on March 21, we sold Eagle Wellness for $925,000. We also entered into an agreement on March 21 to sell radio station WSPZ-AM in Washington D.C. for $750,000. And on April 12, the buyer began operating the station under a time brokerage agreement.

We expect to close - as the FCC approved that sale, we expect to close that in the next couple of days. During the first quarter, we used the cash proceeds from these asset sales along with free cash flow to repurchase $6.7 million of our bonds in the open market for $6.1 million in cash or an average price of $0.918 on the dollar.

That brings our total debt repurchases to $23.1 million for $21.6 million, which equates to an average price of $0.934 on the dollar. As we generate more free cash flow, we intend to continue delevering. I will conclude my prepared remarks with a brief comment on our dividend or more appropriately, our cash distribution.

As I mentioned above, our quarterly distributions are currently characterized as returns of capital and therefore, have a more favorable tax treatment. We paid $1.7 million in quarterly dividends or $6.05 per share on March 29, 2019.

At $0.26 per share annually, this represents an attractive - very attractive 12.6% dividend yield based upon the current stock price. It's also worth noting that in the last 12 months, we have generated $13.9 million in free cash flow or $0.53 per share. That equates to a free cash flow yield of 25.7% based on the current stock price.

And with that, I'll turn the call back to Evan for additional details on the quarter's performance and to provide guidance for the second quarter 2019.

Evan?.

Thank you, Ed. For the first quarter, total revenue decreased 5.2% to $60.5 million. Operating expenses on a recurring basis decreased 1% to $53.0 million, which resulted in a 25.4% decrease in adjusted EBITDA to $7.6 million.

Net broadcast revenue decreased 4.1% to $46.1 million, and broadcast operating expenses increased 2.0% to $36.4 million, resulting in SOI of $9.6 million. On a Same Station basis, net broadcast revenue decreased 2.9% to $45.5 million, and SOI decreased 22.7% to $9.9 million.

These Same Station results include broadcast revenue from 108 of our 116 radio stations and our network operations representing 99% of our broadcast revenue. I will briefly review revenue performance of our strategic formats. 39 of our radio stations are programmed in our foundational Christian teaching and talk format.

These stations contributed 42% of total broadcast revenue and decreased 4.8% for the quarter. Our 33 news talk stations had a decrease of 10.8% in revenue for the quarter. Overall, these stations contributed 18% of total Broadcast revenue.

Revenue from our 13 contemporary Christian music stations contributed 19% of total broadcast revenue and decreased 9.3% for the quarter. Our network revenue decreased 6.6% for the quarter and represents 9% of total broadcast revenue.

Revenue from our Digital Media business - businesses decreased 1.5% to $10.2 million and represents 17% of our total revenue. Our Publishing revenue decreased 22.7% to $4.1 million and represents 7% of total revenue. As of March 31, 2019, we had $231.9 million outstanding on our bond and $16 million outstanding under the revolver.

Our leverage ratio was 5.94. For the second quarter of 2019, we're projecting total revenue to be between a decrease of 1% and an increase of 1% from second quarter 2018 total revenue of $66.3 million.

Excluding the impact of political revenue, and recent acquisitions and dispositions, we would be projecting total revenue to increase between 1% and 3%.

We're also projecting operating expenses before gains or losses on the sale or disposal of assets, stock-based compensation expense, changes in the estimated fair value of contingent earn-out consideration, impairments, depreciation expense and amortization expense to be between flat and an increase of 3% compared to the second quarter 2018 non-GAAP operating expenses of $55.1 million.

And this concludes our prepared remarks and we will now be open to answer any questions anyone has. So I will turn it back to the operator.

Adam?.

Thank you. Ladies and gentlemen, we will now be conducting our Q&A session. [Operator Instructions] Our first question comes from the line of Michael Kupinski from Noble Capital Markets. You are now live..

Thank you. Just a couple of quick questions here, I was wondering if you can give a little bit more color around your Surround offering. In particular, obviously, very strong growth there, but it sounds like you may invest to kind of give that a little bit of more light as we go into the subsequent quarters.

So just wondering, can you give us some thought about where do you think that revenue opportunity might be for 2019 and maybe if you can look into 2020?.

Yeah, Michael, it's Dave Santrella. Yeah, we're really pleased with the progress we're seeing with Salem Surround. We offer about 13 different products and services in the digital area with that.

Right now, we're on track for that to be a very healthy growing part of our business in 2019 and project that we'll see it grow at significant numbers for the next couple of years, just based on the momentum we're having right now.

We have relationships with a number of direct accounts, who don't have the sophisticated marketing departments that larger advertisers have, and therefore, our services are very necessary and welcome for those clients..

Got you. And then, maybe a little color on Q2 guidance on the revenues. I was wondering if you can just give us a little bit more color on maybe the different divisions. It sounds like maybe the Publishing division should have a stronger growth in the second quarter, just based on the timing of the books.

But in the first quarter, it looks like your radio division, while down was a little bit better than what I was looking for. I was just wondering if you can discuss the trends that you're seeing in the radio, maybe the spot market, block sales, and just kind of break that down for me..

Yeah, the spot market continues to be a difficult market for us. There are a lot of predatory practices going on right now. Most of the broadcasters who have reported have talked about a tough spot environment.

Anytime there's a tough spot environment, those that have more assets in the market use those assets to try and get a larger share of the business. And they're doing that. And for Salem's case, there are very few places that we play for ratings-generated business. And typically, we have one, maybe two assets in the market that can go up against that.

And so, we're at a bit of a disadvantage to those that are willing to give away multiple radio stations for free to get most or all of the share of that spot business. So, we continue to see that as a challenge, which is why, again, we're so aggressively running down the road of Salem Surround..

And to add just a little bit more color, Michael, on - if I look at the projections by division compared to Q1, we're expecting each division to do better from a revenue perspective than what we saw in Q1. Obviously, you mentioned the timing of these books on Publishing, which we already alluded to when Ed gave his prepared remarks.

We've got the timing of Easter working in our favor on the digital side. So we just see that each division should have a better Q2 than Q1..

Got you. And final question, in terms of asset sales, obviously, you're - it looks like you're repositioning your portfolio. Where are you in terms of asset sales? Are there still some that are earmarked? Obviously, you have a few in the pipeline, like you mentioned, Washington D.C.

But can you talk a little bit about others that - or are there other potentials that we should look for the remainder of the year? Or kind of give us a flavor of what might be in the pipeline for asset sales?.

As I called it during our last call, we have identified a number of what we would call non-mission critical formats. In a lot of markets, we clustered up just to get a little more scale. And in some cases, if we can sell those assets for - at a multiple that's better than their performance, we're looking at that and we've identified a number of those.

The question is, can we? Are there buyers that would be willing to look at them and pay a price that will be a better return for us than operating them? And we've got a number of buyers that, Evan said, got a call, we've had a number of people call. And there are conversations going on.

We don't have anything firm at this point that we want to report, but there are conversations going on. And yes, we do have a handful of additional stations that we would be willing to spin off..

And Ed, final question.

In terms of the Disney stations, obviously, we're a couple years now into the acquisition and was wondering, what percentage of the stations are kind of hitting the mark, so to speak, in terms of the progress that you anticipate and showing breakeven and then profitability, that sort of thing? Can you give us a flavor of where those stations are in that progress?.

Well, they're all making money with the exception probably of the station we acquired in St. Louis. We added a second station shortly thereafter and we developed two translators. So that's a work in progress. Most of the others are profitable to varying degrees, so we're reasonably satisfied with them.

And we continue to work - we bought a station in Little Rock, Arkansas from Disney, one of the first ones we bought, but then we clustered up to get some scale. We added two more FMs and we added an AM and two very good translators, so because, we've added those additional stations, that's a work in progress.

But it's at breakeven, and that may be the only one. But that's not simply Disney. It's because we've clustered up and added additional stations. I think all the others are making money, some more than others, some have been quite productive. Atlanta is very good. A little bit pleased with Pittsburgh. Denver is okay and fine. We're okay.

We spun off the station in Boston, because it did underperform. And I don't think - we got to breakeven, but couldn't do much more with it. So we're satisfied with that - those acquisitions..

Okay. All right. That's all I had. Thank you..

Thank you..

Thank you. Our next question comes from the line of Lisa Springer with Singular Research. You're now live..

Thank you. I just wanted to ask about the sale of the Mike Turner assets and what that might mean for building that investment products area..

It was a very small piece of the business for us. So we essentially handed those products back to Mike Turner, with him taking on full responsibility for fulfilling all the existing subscriptions.

So that disposal - that disposition had immaterial impact on the financial publications business and was more than offset with the acquisition of the Hilary Kramer newsletters, a much more significant portfolio. And those newsletters are performing extremely well. So we've definitely made some very good progress in that business over the last year..

Okay. Thank you..

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I'd like to turn the floor back over to Edward Atsinger, CEO, for closing..

Well, again, thank you, operator, and thanks to all of you for joining us. We look forward to meeting with you again when we give our second quarter financial performance..

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your line at this time. Thank you for your participation, and have a wonderful day..