Salem Communications Announces a 10.9% Increase in Fourth Quarter 2006 Total Revenue
CAMARILLO, Calif.--(BUSINESS WIRE)--
Salem Communications Corporation (Nasdaq:SALM), a leading U.S. radio broadcaster, Internet content provider, and magazine and book publisher targeting audiences interested in Christian and family-themed content and conservative values, today announced results for the three months and year ended December 31, 2006.
Commenting on the company's results, Edward G. Atsinger III, president and CEO said, "We achieved total revenue growth of 10.9% in the fourth quarter of 2006 due to the strong performance of our non-broadcast media business, continued development of our News Talk stations and our consistent block programming business. Our Internet and publishing businesses posted $6.0 million in revenue, more than doubling their revenue from the prior year. Radio broadcasting grew revenue by 5.5% to $53.7 million, led by a 19.6% increase in revenue from News Talk stations and by a 9.3% increase in revenue from block programming on our Christian Teaching and Talk stations. This revenue growth was offset by increased investment in marketing, promotion and local programming talent at certain of our News Talk stations, which reduced our station operating income for the quarter. We consider these investments an important step in driving our less developed radio stations to long-term profitability."
Fourth Quarter 2006 Results
For the quarter ended December 31, 2006 compared to the quarter ended December 31, 2005:
-- Total revenue increased 10.9% to $59.8 million from $53.9
million;
-- Operating income decreased 17.5% to $10.1 million from $12.2
million;
-- Net income decreased 0.9% to $3.3 million;
-- Net income per diluted share increased 5.7% to $0.14 from
$0.13;
-- EBITDA increased 1.3% to $15.5 million from $15.3 million;
-- Adjusted EBITDA decreased 0.4% to $15.2 million;
Broadcasting
-- Net broadcasting revenue increased 5.5% to $53.7 from $50.9
million;
-- Station operating income ("SOI") decreased 1.4% to $19.6
million from $19.9 million;
-- Same station net broadcasting revenue increased 4.8% to $52.5
million from $50.2 million;
-- Same station SOI decreased 2.7% to $19.6 million from $20.2
million;
-- Same station SOI margin decreased to 37.3% from 40.2%;
Non-broadcast Media
-- Non-broadcast revenue increased 102.7% to $6.0 million from
$3.0 million; and
-- Non-broadcast operating income increased 3.6% to $0.4 million.
Included in the results for the quarter ended December 31, 2006
are:
-- A $0.2 million loss ($0.1 million loss, net of tax, or $0.01
per share) on the disposal of assets;
-- A $1.3 million gain ($0.06 gain per diluted share) from
discontinued operations, net of tax; and
-- A $0.8 million non-cash compensation charge ($0.5 million, net
of tax, or $0.02 per share) related to the expensing of stock
options consisting of:
-- $0.6 million non-cash compensation included in corporate
expenses; and
-- $0.2 million non-cash compensation included in
broadcasting operating expenses.
These results reflect the reclassification of the operations of certain stations to discontinued operations for all periods presented. Combined, these stations had net broadcasting revenue of approximately $0.1 million and lost $0.1 million for the quarter ended December 31, 2006. These stations had net broadcasting revenue of approximately $1.0 million and were breakeven for the quarter ended December 31, 2005.
Per share numbers are calculated based on 23,852,840 diluted weighted average shares for the quarter ended December 31, 2006, and 25,433,317 diluted weighted average shares for the comparable 2005 period.
Full Year 2006 Results
For the year ended December 31, 2006 compared to the year ended December 31, 2005:
-- Total revenue increased 8.6% to $227.8 million from $209.6
million;
-- Operating income increased 30.1% to $57.9 million from $44.5
million;
-- Net income increased 50.0% to $19.0 million, or $0.78 net
income per diluted share, from net income of $12.7 million, or
$0.49 net income per diluted share;
-- EBITDA increased 26.3% to $71.5 million from $56.6 million;
-- Adjusted EBITDA increased 0.3% to $58.4 million from $58.2
million;
Broadcasting
-- Net broadcasting revenue increased 4.8% to $208.4 from $198.9
million;
-- SOI decreased 0.1% to $77.3 million from $77.4 million;
-- Same station net broadcasting revenue increased 2.4% to $200.6
million from $195.8 million;
-- Same station SOI decreased 0.6% to $77.4 million from $77.9
million;
-- Same station SOI margin decreased to 38.6% from 39.8%;
Non-broadcast Media
-- Non-broadcast revenue increased 79.5% to $19.4 million from
$10.8 million; and
-- Non-broadcast operating income increased 32.9% to $1.2 million
from $0.9 million.
Included in the results for the year ended December 31, 2006 are:
-- An $18.6 million gain primarily from the disposal and exchange
of assets in the Sacramento, Cleveland and Dallas markets
($11.1 million gain, net of tax, or $0.46 gain per diluted
share);
-- A $3.6 million loss ($2.2 million loss, net of tax, or $0.09
loss per share) from the early redemption of $94.3 million of
9.0% senior subordinated notes due 2011;
-- A $2.5 million gain ($0.10 per diluted share) from
discontinued operations, net of tax related to the disposition
of assets in the Baltimore, Jacksonville and Richmond markets,
and
-- A $4.3 million non-cash compensation charge ($2.6 million, net
of tax, or $0.11 per share) related to the expensing of stock
options consisting of:
-- $3.5 million non-cash compensation included in corporate
expenses; and
-- $0.8 million non-cash compensation included in
broadcasting operating expenses.
Included in the results for the year ended December 31, 2005 are:
-- Litigation costs of $0.7 million ($0.4 million loss, net of
tax, or $0.02 loss per share);
-- A $0.5 million loss ($0.3 million loss, net of tax, or $0.01
loss per share) on disposal of assets; and
-- A $0.4 million loss ($0.01 loss per share) from discontinued
operations, net of tax.
These results reflect the reclassification of the operations of certain stations to discontinued operations for all periods presented. Combined, these stations had net broadcasting revenue of approximately $2.0 million and lost $0.2 million for the year ended December 31, 2006. These stations had net broadcasting revenue of approximately $3.5 million and lost $0.5 million for the year ended December 31, 2005.
Other comprehensive income of $0.5 million, net of tax, for the year ended December 31, 2006 is due to the change in fair market value of the company's interest rate swaps.
Per share numbers are calculated based on 24,223,751 diluted weighted average shares for the year ended December 31, 2006, and 25,794,875 diluted weighted average shares for the comparable 2005 period.
SOI Margin Composition Analysis
The following table, which is for analytical purposes only, has been created by assigning each station in the company's radio station portfolio to one of four categories based upon the station's fourth quarter SOI margin. The company believes this table is helpful in assessing the portfolio's financial and operational development.
Three Months Ended December 31,
(Net Broadcasting Revenue and SOI in millions)
----------------------------------------------------------------------
2005
------------------------------
Average
SOI Margin % Stations Revenue SOI SOI %
-------------------------------------- -------- ------- ----- -------
50% or greater 19 20.2 13.1 64.7%
30% to 49% 29 13.8 5.9 42.9%
0% to 29% 31 10.3 1.9 18.4%
Less than 0% 18 2.5 (0.7) (27.7%)
-------- ------- ----- -------
Subtotal 97 46.8 20.2 43.2%
Other - 4.1 (0.3) (6.6%)
-------- ------- ----- -------
Total 97 50.9 19.9 39.1%
======== ======= ===== =======
2006
-------------------------------
Average
SOI Margin % Stations Revenue SOI SOI %
----------------------------------------------- ------- ------ -------
50% or greater 30 $23.4 $14.5 62.0%
30% to 49% 20 11.9 4.8 40.7%
0% to 29% 32 9.8 1.6 16.9%
Less than 0% 17 3.8 (0.8) (21.7%)
-------- ------- ------ -------
Subtotal 99 48.9 20.1 41.2%
Other - 4.8 (0.5) (11.2%)
-------- ------- ------ -------
Total 99 $53.7 $19.6 36.3%
======== ======= ====== =======
Balance Sheet
As of December 31, 2006, the company had net debt of $360.3 million and was in compliance with the covenants of its credit facilities and bond indentures. The company's bank leverage ratio was 5.88 versus a compliance covenant of 6.75 and its bond leverage ratio was 5.46 versus a compliance covenant of 7.0.
Stock Repurchases
During the quarter ended December 31, 2006, the company did not repurchase shares of its Class A common stock. As of March 9, 2007 Salem had repurchased 2,130,418 shares of Class A common stock for approximately $32.2 million at an average price of $15.12 per share and had 23,842,520 shares of its Class A and Class B common stock outstanding.
Acquisitions and Divestitures
During the quarter ended December 31, 2006, Salem completed the following divestiture and exchange transactions:
-- KORL (690 AM) in Honolulu, Hawaii was acquired on October 1,
2006 by exchanging KHCM (1170 AM) in Honolulu, Hawaii plus
$1.0 million (Salem retained the call letters KHCM, which are
used on 690 AM);
-- WZAZ (1400 AM) in Jacksonville, Florida was sold on December
5, 2006 for $1.0 million (this station was operated by
acquirer under a Local Marketing Agreement ("LMA") as of
October 1, 2006);
-- WJGR (1320 AM) and WZNZ (1460 AM) in Jacksonville, Florida
were sold on December 5, 2006 for $1.8 million (these stations
were operated by acquirer under an LMA as of October 1, 2006);
and
-- WITH (1230 AM) in Baltimore, Maryland was sold on December 22,
2006 for $3.0 million.
The following divestiture transaction was pending as of December 31, 2006:
-- WKNR (850 AM) in Cleveland, Ohio was sold on February 7, 2007
for $7.0 million.
The following acquisition and divestiture transactions were entered into after December 31, 2006:
-- KKSN (910 AM) in Portland, Oregon will be acquired for
approximately $4.5 million (this station is operated by Salem
under an LMA as of February 1, 2007 with call letters KTRO);
and
-- ChristianMusicPlanet.com was acquired on February 8, 2007 for
$0.3 million; and
-- WVRY (105.1 FM) in Nashville, Tennessee to be sold for $0.9
million.
First Quarter 2007 Outlook
For the first quarter of 2007, Salem is projecting:
-- Total revenue to be between $55.5 million and $56.0 million
compared to first quarter 2006 total revenue of $52.0 million;
-- Adjusted EBITDA to be between $10.8 million and $11.3 million
compared to first quarter 2006 Adjusted EBITDA of $11.8
million; and
-- Net income per diluted share to be approximately zero.
First quarter 2007 outlook reflects the following:
-- Same station net broadcasting revenue increasing to $49.0
million to $49.5 million from a base of $47.8 million in first
quarter 2006;
-- Non-broadcast revenue increasing to approximately $5.5 million
from a base of $3.3 million in first quarter 2006;
-- Same station SOI declining to $15.9 million to $16.4 million
from a base of $17.4 million in first quarter 2006;
-- Non-cash compensation expense of $0.7 million compared to
first quarter 2006 non-cash compensation expense of $1.3
million;
-- Increased marketing and programming costs of $1.2 million
primarily on News Talk stations in Chicago, Dallas, Denver,
Los Angeles, Louisville and Phoenix, and on Contemporary
Christian Music stations in Atlanta, Dallas, Los Angeles and
Portland;
-- Continued growth from our core block programming business and
our underdeveloped radio stations, particularly our News Talk
stations;
-- Ongoing softness in the radio advertising market; and
-- The impact of recent acquisition, exchange and divestiture
transactions.
Conference Call Information
Salem will host a teleconference to discuss its results today, on March 12, 2007 at 5:00 p.m. Eastern Time. To access the teleconference, please dial 973-935-8511 ten minutes prior to the start time or listen via the investor relations portion of the company's website, located at www.salem.cc. A replay of the teleconference will be available through March 26, 2007 and can be heard by dialing 973-341-3080, pass code 8515586 or on the investor relations portion of the company's website, located at www.salem.cc.
Salem Communications Corporation (Nasdaq: SALM) is a leading U.S. radio broadcaster, Internet content provider, and magazine and book publisher targeting audiences interested in Christian and family-themed content and conservative values. In addition to its radio properties, Salem owns Salem Radio Network(R), which syndicates talk, news and music programming to approximately 2,000 affiliates; Salem Radio Representatives(TM), a national radio advertising sales force; Salem Web Network(TM), an Internet provider of Christian content and online streaming; and Salem Publishing(TM), a publisher of Christian-themed magazines. Upon the close of all announced transactions, the company will own 97 radio stations, including 61 stations in 23 of the top 25 markets. Additional information about Salem may be accessed at the company's website, www.salem.cc.
Forward Looking Statements
Statements used in this press release 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. Actual results may differ materially from those anticipated as a result of certain risks and uncertainties, including but not limited to the ability of Salem to close and integrate announced transactions, market acceptance of Salem's radio station formats, competition from new technologies, adverse economic conditions, and other risks and uncertainties detailed from time to time in Salem's reports on Forms 10-K, 10-Q, 8-K and other filings filed with or furnished to the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Salem undertakes no obligation to update or revise any forward-looking statements to reflect new information, changed circumstances or unanticipated events.
Regulation G
Station operating income, non-broadcast operating income, EBITDA and Adjusted EBITDA are financial measures not prepared in accordance with generally accepted accounting principles ("GAAP"). Station operating income is defined as net broadcasting revenues minus broadcasting operating expenses. Non-broadcast operating income is defined as non-broadcast revenue minus non-broadcast operating expenses. EBITDA is defined as net income before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before loss on early redemption of long-term debt, discontinued operations (net of tax), litigation costs, gain or loss on the disposal of assets and non-cash compensation expense. In addition, Salem has provided supplemental information as an attachment to this press release, reconciling these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP. The company believes these non-GAAP financial measures, when considered in conjunction with the most directly comparable GAAP financial measures, provide useful measures of the company's operating performance.
Station operating income, non-broadcast operating income, EBITDA and Adjusted EBITDA are generally recognized by the broadcasting industry as important measures of performance and are used by investors as well as analysts who report on the industry to provide meaningful comparisons between broadcasting. Station operating income, non-broadcast operating income, EBITDA and Adjusted EBITDA are not a measure of liquidity or of performance in accordance with GAAP, and should be viewed as a supplement to and not a substitute for, or superior to, the company's results of operations presented on a GAAP basis such as operating income and net income. In addition, Salem's definitions of station operating income, non-broadcast operating income, EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures reported by other companies.
Salem Communications Corporation
Condensed Consolidated Statements of Operations
(in thousands, except share, per share and margin data)
Three Months Ended Year Ended
December 31, December 31,
2005 2006 2005 2006
------------ ----------- ----------- -----------
(unaudited)
Net broadcasting
revenue $50,915 $53,736 $198,852 $208,400
Non-broadcast revenue 2,975 6,031 10,790 19,369
------------ ----------- ----------- -----------
Total revenue 53,890 59,767 209,642 227,769
Operating expenses:
Broadcasting
operating expenses 31,005 34,104 121,462 131,117
Non-broadcast
operating expenses 2,561 5,602 9,889 18,172
Legal settlement - - 650 -
Corporate expenses 4,936 5,710 19,607 24,043
Depreciation and
amortization 3,234 4,075 13,017 15,193
(Gain) loss on
disposal of assets (32) 225 527 (18,647)
------------ ----------- ----------- -----------
Total operating
expenses 41,704 49,716 165,152 169,878
------------ ----------- ----------- -----------
Operating income 12,186 10,051 44,490 57,891
Other income
(expense):
Interest income 70 96 207 210
Interest expense (5,998) (6,485) (22,559) (26,342)
Loss on early
redemption of long-
term debt - - (24) (3,625)
Other expense, net (143) 46 (506) (420)
------------ ----------- ----------- -----------
Income from continuing
operations before
income taxes 6,115 3,708 21,608 27,714
Provision for income
taxes 2,858 1,789 8,570 11,167
------------ ----------- ----------- -----------
Income from continuing
operations 3,257 1,919 13,038 16,547
Discontinued
operations, net of
tax 37 1,346 (376) 2,452
------------ ----------- ----------- -----------
Net income $3,294 $3,265 $12,662 $18,999
============ =========== =========== ===========
Other comprehensive
income (loss), net of
tax 436 (5) 318 457
------------ ----------- ----------- -----------
Comprehensive income $3,730 $3,260 $12,980 $19,456
============ =========== =========== ===========
Basic income per share
before discontinued
operations $0.13 $0.08 $0.51 $0.68
Discontinued
operations, net of
tax $- $0.06 $(0.01) $0.10
Basic income per share
after discontinued
operations $0.13 $0.14 $0.49 $0.78
Diluted income per
share before
discontinued
operations $0.13 $0.08 $0.51 $0.68
Discontinued
operations, net of
tax $- $0.06 $(0.01) $0.10
Diluted income per
share after
discontinued
operations $0.13 $0.14 $0.49 $0.78
Basic weighted average
shares outstanding 25,376,973 23,847,520 25,735,641 24,215,867
============ =========== =========== ===========
Diluted weighted
average shares
outstanding 25,433,317 23,852,840 25,794,875 24,223,751
============ =========== =========== ===========
Other Data:
Station operating
income $19,910 $19,632 $77,390 $77,283
Station operating
margin 39.1% 36.5% 38.9% 37.1%
Salem Communications Corporation
Condensed Consolidated Balance Sheets
(in thousands)
December 31, December 31,
2005 2006
------------ ------------
Assets
Cash $3,979 $710
Accounts receivable, net 30,953 31,984
Deferred income taxes 4,614 5,020
Other current assets 4,047 2,881
Assets of discontinued operations 12,456 -
Property, plant and equipment, net 116,245 128,713
Intangible assets, net 463,139 508,410
Bond issue costs 2,742 593
Bank loan fees 3,709 2,996
Fair value of interest rate swaps 743 1,290
Other assets 3,303 3,667
------------ ------------
Total assets $645,930 $686,264
============ ============
Liabilities and Stockholders' Equity
Current liabilities $20,658 $27,295
Long-term debt and capital lease obligations 326,685 358,978
Deferred income taxes 40,810 53,935
Other liabilities 8,659 8,340
Stockholders' equity 249,118 237,716
------------ ------------
Total liabilities and stockholders' equity $645,930 $686,264
============ ============
Salem Communications Corporation
Supplemental Information
(in thousands)
Three Months Ended Year Ended
December 31, December 31,
2005 2006 2005 2006
----------------------- ------------------
(unaudited)
Capital expenditures
Acquisition related / income
producing $10,266 $2,813 $16,010 $14,608
Maintenance 691 2,180 6,212 6,514
----------------------- ------------------
Total capital expenditures $10,957 $4,993 $22,222 $21,122
======================= ==================
Tax information
Cash tax expense $177 $57 $341 $256
Deferred tax expense 2,681 1,732 8,229 10,911
----------------------- ------------------
894
Provision for income taxes $2,858 $1,789 $8,570 $11,167
======================= ==================
Tax benefit of non-book
amortization $4,542 $3,499 $13,602 $14,119
======================= ==================
Reconciliation of Same
Station Net Broadcasting
Revenue to
Total Net Broadcasting
Revenue
Net broadcasting revenue -
same station $50,159 $52,542 $195,832 $200,620
Net broadcasting revenue -
acquisitions 16 633 446 6,041
Net broadcasting revenue -
dispositions 663 456 2,497 456
Net broadcasting revenue -
format changes 77 105 77 1,283
----------------------- ------------------
Total net broadcasting
revenue $50,915 $53,736 $198,852 $208,400
======================= ==================
Reconciliation of Same
Station Broadcasting
Operating Expenses to
Total Broadcasting
Operating Expenses
Broadcasting operating
expenses - same station $29,990 $32,926 $117,978 $123,263
Broadcasting operating
expenses - acquisitions 36 586 817 6,414
Broadcasting operating
expenses - dispositions 847 481 2,484 458
Broadcasting operating
expenses - format changes 132 111 183 982
----------------------- ------------------
Total broadcasting operating
expenses $31,005 $34,104 $121,462 $131,117
======================= ==================
Reconciliation of Same
Station Station Operating
Income to Total Station
Operating Income
Station operating income -
same station $20,169 $19,616 $77,854 $77,357
Station operating income -
acquisitions (20) 47 (371) (373)
Station operating income -
dispositions (184) (25) 13 (2)
Station operating income -
format changes (55) (6) (106) 301
----------------------- ------------------
Total station operating
income $19,910 $19,632 $77,390 $77,283
======================= ==================
Reconciliation of Station
Operating Income and Non-
Broadcast
Operating Income to
Operating Income
Station operating income $19,910 $19,632 $77,390 $77,283
Non-broadcast operating
income 414 429 901 1,197
Less:
Corporate expenses (4,936) (5,710) (19,607) (24,043)
Legal settlement - - (650) -
Depreciation and
amortization (3,234) (4,075) (13,017) (15,193)
Gain (loss) on disposal of
assets 32 (225) (527) 18,647
----------------------- ------------------
Operating income $12,186 $10,051 $44,490 $57,891
======================= ==================
Reconciliation of Adjusted
EBITDA to EBITDA to Net
Income
Adjusted EBITDA $15,245 $15,185 $58,178 $58,351
Less:
Stock-based compensation - (788) - (4,334)
Discontinued operations,
net of tax 37 1,346 (376) 2,452
Gain (loss) on disposal of
assets 32 (225) (527) 18,647
Legal settlement - - (650) -
Loss on early redemption
of long-term debt - - (24) (3,625)
EBITDA 15,314 15,518 56,601 71,491
Plus:
Interest income 70 96 207 210
Less:
Depreciation and
amortization (3,234) (4,075) (13,017) (15,193)
Interest expense (5,998) (6,485) (22,559) (26,342)
Provision for income taxes (2,858) (1,789) (8,570) (11,167)
----------------------- ------------------
Net income $3,294 $3,265 $12,662 $18,999
======================= ==================
Outstanding Applicable
at Interest
12/31/2006 Rate
-----------------------
Selected Debt and Swap Data
7 3/4% senior subordinated
notes $100,000 7.75%
Senior bank term loan B
debt (1) 73,125 7.13%
Senior bank term loan C
debt (swap matures
7/1/2012) (2) 30,000 6.74%
Senior bank term loan C
debt (swap matures
7/1/2012) (2) 30,000 6.45%
Senior bank term loan C
debt (swap matures
7/1/2012) (2) 30,000 6.28%
Senior bank term C debt
(at variable rates) (1) 75,000 7.22%
Senior bank revolving debt
(at variable rates) (1) 19,100 7.25%
Swingline credit facility
(3) 1,241 8.25%
(1) Subject to rolling LIBOR plus a spread
currently at 1.75% and incorporated into the rate
set forth above.
(2) Under its swap agreements, the Company pays a fixed rate
plus a spread based on the Company's leverage, as defined in
its credit agreement. As of December 31, 2006, that spread
was 1.75% and is incorporated into the applicable interest
rates set forth above.
(3) Subject to prime interest rate.
Salem Communications Corporation
Supplemental Information
(in millions)
Projected
Three Months
Ending Three Months
March 31, 2007 Ended
Low High March 31, 2007
----------- ------ --------------
(unaudited)
Reconciliation of Station Operating
Income to Operating Income
Station operating income $16.2 $16.7
Plus:
Non-broadcast revenue 5.5 5.5
Less:
Non-broadcast operating expenses (5.5) (5.5)
Corporate expenses (5.7) (5.7)
Stock-based compensation (corporate
expense portion) (0.5) (0.5)
Depreciation and amortization (3.7) (3.7)
----------- ------
Operating income $6.3 $6.8
=========== ======
Reconciliation of Same Station Net
Broadcasting Revenue to
Total Net Broadcasting Revenue
Net broadcasting revenue - same
station $49.0 $49.5 $47.8
Net broadcasting revenue -
acquisitions / dispositions / format
changes 1.0 1.0 1.0
----------- ------ --------------
Total net broadcasting revenue $50.0 $50.5 $48.8
=========== ====== ==============
Reconciliation of Same Station
Station Operating Income to
Total Station Operating Income
Station operating income - same
station $15.9 $16.4 $17.4
Station operating income -
acquisitions / dispositions / format
changes 0.3 0.3 (0.3)
----------- ------ --------------
Total station operating income $16.2 $16.7 $17.1
=========== ====== ==============
Source: Salem Communications Corporation
Released March 12, 2007