Audacy Inc (AUD) 2003 Q1 法說會逐字稿

Good morning and welcome to the Entercom First Quarter Earnings Release Conference Call. All participants will be able to listen-only until the question and answer session of the call. This conference is being recorded. I would like to introduce your first speaker for today's call, Mr. Steve Fisher, Chief Financial Officer. Sir, you may begin.

Thank you and thank you for joining us here today. First I liked to note the matters we'll be discussing here today contain certain forward-looking statements that are based on current expectations and that involve certain risks and uncertainties within the meaning of the United States Private Securities Litigation Reform Act of 1995.

Important to note that additional information in key risks are described in the company's filings on forms 8-K, 10-Q and 10-K with the U.S. Securities and Exchange Commission.

Listeners should note that these statements may by affected by several factors including changes in the economic and regulatory climate and the business of radio broadcasting in general. Accordingly, the companies actual performance and results may differ materially from those stated or implied here in. Entercom assumes no obligation to publicly update or revise any forward-looking statements.

In addition this year with the implementation of SEC Regulation G, certain terms used in the past by Entercom and the radio industry as a whole may have changed. We would refer you to our quarterly earnings press release for further details or to our website at www.entercom.com.

Now David Field, President and Chief Executive Officer.

Thank you for joining us for our first quarter earnings call. We're very pleased to report an outstanding quarter of performance. Our net revenues for the quarter increased by 9% to $81 million while our station operating income grew 14% to $29.6 million. And finally free cash flow increased by 23% while diluted earnings per-share surged 50%.

Each of these results represents a new record breaking performance for Entercom first quarter. In the same station basis, revenues up 7% and station all rating income up 10%. We congratulate the entire Entercom team on delivering another stellar quarter of industry leading performance overcoming the disruptive impact of the Iraqi war.

The first quarter started strongly but fizzled as advertiser sentiment turned weary as war rhetoric and troops build up began to dominate headlines in February. We achieved double digit same station revenue gains in both January and February and until early March pacing very strongly in March of Q2.

As advertising orders slowed, we still managed to sustain 3% revenue growth for March even at the difficult ad environment caused ad revenues in the markets we serve to decline slightly. We achieved these results by gaining significant, in fact substantial market revenue share across our platform. The Entercom team gained revenue share in 15 of our 17 measured markets, a new company record. This is truly an extraordinary achievement enabling us to gain 75 basis points of market share for the quarter.

Another interesting observation comes from comparing our growth rates with those of the radio markets in which we compete. Just two of the markets in which we compete experienced double-digit market revenue growth for the quarter. For those of you who are curious, those markets were Milwaukee and Greenville. By comparison, Entercom station groups achieved double-digit growth in 11 of our markets so two markets grew double digits -- the market revenue up double digits and 11 clustering gaining double digits for the quarter

Our growth was broad based. Virtually all of our markets made positive contributions to the quarter's growth. We were led by particularly strong gains in Denver, Greenville, Norfolk, Kansas City, Portland, Greensboro and Milwaukee. We also experienced growth across a broad base of advertising categories led by home furnishings and home improvement, television and cable, drugstores and financial services.

Automotive advertising was flat for the quarter. National ad sales slightly outpaced sales growth for the quarter. We also continued Enhanced our operating margin to 30 basis points to 31.7% in our seasonally weakest quarter. We remained elated with our progress in Denver. We made substantial changes to update management, sales practices an enhance our brands during 2002 including the launch of a new station the mountain. Now, Denver is emerged as one of our stronger financial performers during the first quarter of 2003. However, I do not want to leave you with the impression that Denver was any more than one of several markets that contributed to our successful quarter.

In looking ahead we anticipate a strong operating performance from Denver, the remainder of 2003 and 2004.

Turn to go current market conditions, business over the past few weeks has been steady and reasonably healthy. Our pacing held firm other the past few weeks but we have been unable to recoup the lost orders for March. However, unlike past years where May has been essential been sold out by this date, we enter May of 2003 with unused inventory and we are seeing an unusual amount of last minute business activity that should enhance our final results.

While we were less than thrilled by the growth rate in radio ad dollars this quarter we're keeping it in perspective. We achieved excellent growth rates from Q3 in 2002 through February of 2003 and our Q2 and Q3, 2003 pay schemes seemed terrific until the war became imminent. The war taken toll on Q2 numbers we remain optimistic for the prospects of the second half of 2003. As we put the current war related speed bumps in radio ad spending behind us we expect to return to more typical growth rates enhanced by fundamental secular growth in radio share ad spending.

Entercom competes for a position of great strength with the industry strongest balance sheet, marketing in clusters and top market, a portfolio of strong brands and most importantly an aggressive and talented team. We will continue to look for attractive opportunities to expand our radio portfolio and we will continue to hold ourselves accountable for outpacing the industry beginning mature revenue share and delivering superior shares to our shareholders.

Let me salute our team for the quarter and I'm turn it over to Steve.

Again, congratulations for the operating team and let me address our guidance for the second quarter for 2003 and then we will get to your questions. First note at the beginning of this call where we do provide guidance we accept not responsibility to update this guidance on a regular basis.

Earnings release we put out earlier this morning and is available on our website, for the second quarter of 2003 the company expects to report net revenues of approximately 104 to $107 million with same station operating expenses of 59.5 to 60 million. This guidance would represent same station revenue growth of approximately flat to up 3%.

In addition during the second quarter, we'll take a charge of 3.8 million on the early extinguishment of debt as a result of our redemption of the outstanding convertible procured securities on April the 7th. Again a charge of $8.3 million for one time for the second quarter. As a result of this redemption and the conversion of one half of the preferred holders into newly issued common shares, you new basic shares outstanding for the quarter is approximately 51. 3 million shares.

As you'll note we completed our Denver acquisition in late March show we would drop the time brokerage expenses in Denver going forward.

The above revenue guidance for us gives second quarter EPS in the rage of 33 to 36 cents per-share which I will note does include the $3.8 million charge for the early extinguishment of debt.

On capital expenditures in the second quarter we expected to be around 3.5 million again as in the first quarter and for the year we anticipate CAPEX in the range of ten to $12 million.

An important note on our tax rate, affective with the beginning of this year, Entercom is changed its a tax rate accrual to 237.5%, again, 237.5%, I'd note that this is a reduction from a 40% rate used in past years.

Regarding station expenses, on our last call we indicated to you that we had budgeted and planned for our operating expenses to be higher in the first half of the year versus the second half of the year reflecting our budgeting plans in marketing and product. Our Q1 revenues were up around 7% with expenses up around 5% with our guidance for Q2 expenses we should be up around 4%. And based on street estimates for the balance of the year reflecting mid to high-single digit top-line growth, you would expect to see second half expenses to be up around 4%.

A note on the balance sheet. We ended the first quarter with cash balance of 51 million and our senior bank debt outstanding of 272 million. However, as noted earlier in early April, we redeemed our convertible preferred. So that affectivity our pro forma debt on March 31st assuming conversion of the convertible preferred and the redemption of those still outstanding, we would have pro forma debt of 305 million on the senior and the 150 million senior sub representing pro forma leverage at the end of March of approximately 3.0 times trailing EBITA.

David indicated earlier, our industry leading operational performance, I'd like to take this opportunity to highlight Entercom's leading performance on some other key financial metrics. We've got the best balance sheet in the business. We have the leading EBITA of free cash flow conversion rate. We've also got the lowest percentage of corporate expense of our peer group and we have the lowest capital expenditures as a percentage of sales as our peer -- of our peer group. So again, reflecting strong management of our balance sheet and our financials to go with the top line.

With that, operator, we'll open up the lines for questions.

+++ q-and-a.

Thank you, sir of if you would like to ask a question, please press star one. You'll be announced prior to asking your question. To withdraw your question, press star two. Once again, to ask a question, press star one. One moment, please.

Our first question comes from Drew Marcus of Deutsche Bank.

Hi, good morning gentlemen it's actually James Dix stepping in for Drew marks. I want to know a couple of things. First, in terms of your second quarter pacings can you provide any color on how national is doing versus local and also what the comps were by month if you have them on what your revenue growth was last year for April, may and June just to see if there is any -- anything we should be aware of. Then more broadly there has been some discussion in the industry lately of the advantages of cluster versus non-cluster selling, whether clusters are trying to price more to gain share in a down market. I wanted to know what your view of that was, you know, what you're seeing from your competitors in terms of holding rate versus pricing for share?

That is a seminar not a question. The first as far as national/local, they're pretty much in line with each other for second quarter but let me just a broader question, James, because there has been a lot of conversation about it and I think one of the problems has been that the discussion has not been framed properly because I think one needs to distinguish between cluster sales as it pertains to the transactional selling we do and our negotiating for the ad agencies versus our developmental sales as we do our missionary work in trying to create now revenue categories, new advertisers to the radio industry.

On the transactional side clearly having the power and leverage of a multi-station cluster gives you great opportunities. If it's handled properly by, you know, by smart business people, it can be played to a great advantage. We have said seen time and time again where we have been able to accrue incremental revenue dollars just by leveraging the power of the cluster intelligently. On the other hand, there is no question if it is mishandled an one fumbles that power and all the various opportunities one has to sale the cluster of a radio group, it can work to your disadvantage. So I think that really comes down to a question of execution and talent.

But I think the more fundamentally interesting question if you're looking at the thesis of this consolidations of value for radio is on the developmental side. Without belaboring the question and giving a 30 minute discourse on this which I'm sure you would all love to hear, but the reality is that there are examples time and time again of where we're able to walk into advertisers with a concise, cogent strategy and sell them on the attributes of a radio platform with a reach that accedes the newspapers and targetability and a host of opportunities off and on-air that give them the power of the medium and to do that at a price point which is roughly a third to one half of what our competitors in television and newspaper are charging so we see many cases where that that has enabled us to take former newspaper advertiser like Sleep Country in the Northwest, Helms Jewelers and others, take those dollars that radio never competed affectivity for and turn those into radio accounts. The power of that is huge and we think that is the leading edge of where the industry goes if we're able to leverage that opportunity successfully.

And just -- I don't know whether, Steve, you have this, just April, May, June, versus last year how you finished?

I don't have it by month for last year.

Thank you.

Paul Sweeney of Credit Suisse First Boston, you may ask your question.

Thanks very much. Good morning. In terms of the industry, David and Steve, in terms of the weak start to the second quarter, you know, when do you guys start to shift your level of concern or analysis from perhaps a war scenario to maybe it's the economy? What kind of things are you looking at and is June kind of the make-or-break month for that and just how do you think about that? Second, just haven't really talked about it too much recently, could you just update us given some of your larger market focus where you're going to be with digital radio, are you going to roll that out this year and that is in your capex numbers and third the deal market has been absolutely morbid I guess the last 12 months at least. Just give us a sense of where the deal market is today and what might be the needed catalyst to get that market going. Thanks.

Take those in order, Paul, I think as far as being able to determine when we're truly past the war, I think it's well into third quarter and I don't mean to suggest therefore that we have bad months coming ahead. It's just that buys that were being planned in March and April were disrupted and as a result it absolutely has a ripple effect that is pervasive in second quarter and probably has some lingering elements into July. But for the most part I think in Q3, we should have a truer perspective on what the world looks like in a post-Iraq.

On the digital radio front, it is in our CAPEX numbers and we're rolling it out in Boston, Denver and Seattle -- I'm corrected, Boston and Seattle for now and looking to continue that as we go forward. You know, the deal market we continue to have conversations with folks on little things and on big things and, you know, we think we are ideally positioned to be a cash buyer in the right situations and be a merger inquirer, if you will, in the right situations if we can find deals that add shareholders value and that are compelling for us going forward. You know, yes, there has been a little bit of a jam of late and no where to tell where that goes in the future but I think fundamentally when you look at this business you have about 25 companies that have between 50 million and half a billion dollars in revenue and it does not make a lot of sense so there will be catalyst that will get some of those companies to move on and to merge and, you know, we think that will play out over the next couple of years.

Great, thanks very much.

Marc Nabi of Merrill Lynch. You may ask your question.

Thanks very much. Just a couple of questions. One relates, Steve, to the tax rate. The 37.5%, that is something that is going to be permanent beyond 2003, number one? Number two, with respect to corporate overhead, I guess is it going to be still within the range that you've talked about or presented here today about three's to $3.5 million per quarter and last one maybe David if you want to talk about just regions of the U.S. that have maybe done better in radio and voice, we heard about the West Coast was doing a little better than the Northeast was versus the Midwest. Is there a pocket that you could talk about? Obviously within the markets that you represent.

Sure, let me jump to your second question and Steve will handle your first. No, I don't think there are regions. I don't think there necessarily a big or small market. I think any efforts to try to gain the system and figure out the nuances of pockets of the market which are stronger than others I think is difficult because I'm not sure they're sustainable in any given quarter you have markets that do better than other markets and small markets that do better than other small markets and so on so we don't see any meaningful pattern in our markets today.

We have talk in the past about Seattle, but the Seattle market was positive in Q1 but it was not up more than the company average. In fact, it would have been slightly diluted to the average -- our markets I'm talking about, interim radio markets. Your same questions on the tax rate, yes, this will be our tax rate going forward until we have gone through enough awe tits and tested it. I would not expect it to change in the next couple of years unless we acquire stations in other states and change our state tax profile.

Any corporate overhead?

Corporate overhead 3.5 million is a good number for each balance of the year.

Just one thing related to David you were talking before about categories. You are saying you're trying to go after beginning market share, things of that nature. Fred Reynolds, who heads u[p Viacom TV groups is talking about going after categories and he's mentioned supermarkets that is several -- decades ago TV station companies really went after and they kind of lost their way and they're trying to pick that up. Are there categories that are have been under represented in radio and you're seeing strength back in that to help you?

I'll answer your question more generically on that, yes, we're category focused but a market by market situation but based on the market economy and based on media, an active category in market A is a newspaper category if you will in market B so we're cognizant of that. The other thing that affects our strategy be is the nature of our station group. If we're more male based in our market versus more female base, that might have implications on which categories we pursue.

Great. Thanks you very much.

Vinton Vickers of J.P. Morgan. You may ask your question.

Good morning. A couple of questions here. First off, can you comment on a bit in your business, I know you don't have a significant amount of inventory sale for May but are you seeing some momentum in the business May over April and secondly you guys do a fairly good jobs of picking up market share. Can you kind of quantify this over the last year or two how much market share you have picked up in the market for the prospects of gaining more in the marked going forward? Thanks.

Sure, let me jump on the second question first and the -- we think we're doing an excellent job to be honest with you on gaining market share and sometimes it is a little awkward to be self-congratulatory but I have to hand it gain share of 15 in 17 markets is a staggering achievement and we're doing that against companies that we have a ton of respect for and out there with good people working very hard to do the same thing to us. We really feel terrifically about the job that our folks are doing across the country on share. Having just made that little speak there I forgot the other question was?

We have done it consistently since 2000.

And it is pretty much been, you know, in the 50 to 75 basis point range, quarter after quarter after quarter and we started tracking this data in 2000. I don't remember a quarter in which Entercom lost share.

And is it coming from -- I know obviously your ratings have been pretty strong but is it coming from the sales side? Are you seeing a higher power ratio? How is that sort of being worked there?

I think it's largely sales driven. I think that we like to think that we see opportunities to grow brands and to grow people and to grow sales and it all sort of comes together. And it's about executing -- it's executing well across all three of those, you know, key drivers.

Then in terms of just the momentum in your business?

You know, week to week I think we see some gradual slow improvement. I don't think we're in a buyers market today. I don't think we're in a seller's market today. I think we were in a buyers market during the war. I think that we've evolved into somewhat of a neutral business climate today, and, you know, I don't think we're going to pound the table and say it is robust because it is not. But, you know, it's healthy.

Great. Thank you very much.

Michael Russell of Morgan Stanley. You may ask your question.

Thanks. This is more I guess for Steve. Can you help us, Steve, understanding the DNA, seems there is a little bit of lumpiness between three and 4 million. How should we think about that on a quarterly basis throughout the year?

Gee, I wish we could smooth it out and not worry about it. A flip answer. We closed on several acquisitions, primarily in Denver, the timing of which is has occurred in different quarters. For instance N this first quarter, late in the quarter we closed on KTUMT. When we have an acquisition and do valuations there are certain short-term intangibles we can write-off for book purposes. Depreciation dropped to about 3.5. I would expect it to jump up-closer to about 4 million in the second quarter as we have the depreciation from the Denver acquisition including that shorter term and actually could trim down there slightly in Q3 and four and I'm talking about the high range, 3.8 to 3.9 million.

David, when you take over ownership of the station the first earnings book or two after a change of ownership is kind of important thing that the advertisers focus on. Do you lineup a promotional budget in exception of that or how do you manage -- you have a couple of things that you have acquired in the past year that you kind of working through and approving. Do you kind of pattern a promotion spending to go along with an anticipated improvement in ratings?

Mike, it's really case by case. We do a thorough assessment of the brand and what its opportunities are, what its threats are and build a business plan in the marketplace which we think is optimal and execute it. It really is not anything beyond that that I can give you as a generic statement of fact.

Is there a little more color you can give us on specific area of Denver because that is the probably the most notable change in ownership you have had recently.

Specifically we changed our promotion strategy in that market?

Yes.

I'm not going to disclose where we're going as we go forward but I can tell you as we look backwards, we launched KQTV the mountain and we're thrilled how that station evolved and we marketed that station out of the Gates. We are continuing to market Cozy and Al list which are the other two FM's in the marketplace and they have had a healthy bit of support which has been essentially in line with the dollar spent on those brands historically.

So there hasn't been any up-ticks and there won't be any down tick in promotion spending in Denver again?

Again, we're not going to comment on our future marketing plans and it's always subject to be increased, accelerated or decelerated but we spent a lot of healthy amount of marketing in the fast past and will do so in the future to keep the brands robust and strong.

Great, thanks very much.

Ashef Cheen. Wachovia. You may ask your question.

Good morning, David and Steve. David, I want to commend you on cluster selling. It was great and to the point. Question, on the -- Steve, you gave the pro forma GAAP which was very helpful. The pro forma cash is that somewhere in the 20's there?

Pretty much use used the majority of our balance at the redemption of our tide and they we dipped into our revolver.

So just for purposes of muddling just negligible cash?

We usually run a cash balance debt rate report of about 10 million cash in the pipeline.

Okay. Then other than I think some long-term deal you guying are still working on is there any new term outflows coming up for -- for, you know, deals or any other significant capital outlay other than the CAPEX that --

Other than the CAPEX and the normal working capital noise and we have -- we are now amortizing our term loan which as you know we have been paying off actually ahead of time given our cash position so we've got nothing stressing the balance sheet over the next couple of years.

Okay.

I think our first -- it will be -- we will be debt free on most estimates in three to four years and we have the 150 million of our senior subdebt which I think is a bullet in 2014.

Right. At that pace you will be debt free long before --

Long before that, Bishop.

Long before the analysts to cover you.

But I would like to go back to David's earlier comment, we see the best use of our balance sheet in acquiring radio properties that set up profile both in a management team perspective and a balance sheet perspective so I don't want to imply that we're taking this to zero debt. Actually we wouldn't mind a little more leverage.

No, I understand. You've done a good job in managing your balance sheet and you do stand out as one of the lower -- I guess the lowered levered name in your rating category.

Thanks.

Thank you.

Alissa Goldwasser. William Blair.

Good morning. How your stations performed in April and also if you could comment on briefly on the winter book and talk about which markets will be a focus going forward from our ratings perspective.

Our rating performs was at the high-end of our range of forecast range for the quarter. And as far as when the ratings are concerned, it is a good question but it is a little bit premature because we only have half of our rating books in house at this time and we're still evaluating them. As usual, you know, there is -- you have your frustrations and you have your thrills and they tend to balance out any one given book of course in the life of a radio station is generally not important. What you look for of course are the trend lines on the to what extent you've got meaningful deterioration or improvement over time and we'll have a better sense of that here in the next few days.

One follow up. Could you joust describe the business conditions in the Pacific Northwest that you're seeing?

The business conditions in the Northwest today are, you know, I'd say probably at this point essentially in line with maybe a little bit softer than the general national radio ad economy.

We have seen -- I think over the calls that we have had with you over the years, we identified Portland. Portland is a pretty high beta market. It's hot. When you're hot you're hot and when you're not you're not. It's a little softer in Seattle. Seattle as I indicated earlier was positive in the first quarter. It is not given some people have commented on the easy comps of last year, quote-unquote. It is not leading our growth rate. I don't want to leave you with that impression. The Pacific Northwest gets written up quite often as having some of the weakest economies, state economies in the nation but I think beyond that our team is -- they're not extremely troubled economic radio models and our team is performing very well.

Thank you.

Bill Meyers of Lehman Brothers. You may ask your question.

Thanks, a couple of quick ones. First on the format side, your re-launch in Denver to the mountain was 75% year-over-year. Have you been able to monazite those gains and should we expect to see other reformats and David, along the lines, given the current environment does that change your interest or willingness to change? Are there other formats?

We are in the process of monetizing KQMT, the mountain in Denver and we're thrilled with its development. You know, again, everything is case by case and we have an open-mind to looking for opportunities to enhance our performance in any given station in the country. You know, we're blessed in that we have so many really great stations that are in quantity positions that have strong brands but a significant developmental upside to them. But I don't -- I would not anticipate any meaningful number of format changes going forward. They always tend to be the exception rather than the rule when you see a great opportunity out there that you want to grab.

And, Steve, on the tax side, is there any change in your -- I guess in your protected cash tax position?

I guess on street projections now we'll use up our losses in the second quarter for your help going forward on street estimates for the year which are mid to high-single digit revenue growth in Q3 and Q4, we would probably pay cash taxes around two until empty in the third quarter and seven to 8 million in the fourth quarter.

Thank you.

Michael Winesberg of ISG you may ask your question.

A couple of things. Were you surprised at the relatively slow pace recovery from the war in the industry, not yourself, because conditions were pretty strong through February and my sense is that overall conditions are less strong now than they were before the war and I'm just wondering, you know, have you been a little surprised by the lack of pickup industry-wide?

In a word, yes. You know, there is no question the business climate our pacings looked stronger before the war than they do today. But I think it's really important to take a longer term perspective on that and recognize that, yes, we're still dealing in the after-shock, if you will, of the war and I think that while others have articulated a theory is that advertiser are their best during the war and radio is hard getting in and getting out and held in TV and got out in radio and of course that is -- it is trivial and oversimplifying but to some extent that occurred. We have to wait for those shock wave to say wear out. As I said, business has been healthy over the last few weeks. Pacings are firm week to week and we anticipate a return to a more typical growth rate here in the not too distant future. It's just going to take a few more weeks than perhaps we would have wished if we were looking at this in March.

Was there a fair amount of price conduct in the March period, early April period and did that sort of bring down numbers and take the wind out of the industry? Could you maybe talk about what has happened in pricing in the last two or three months?

Well, I don't really think so. I think it was just advertisers on the sightlines was the issues, not pricing per se. And if you talk to our markets today the price climate is again neutral as articulated before. it is not a buyers market or a sellers market. It's sort of a balanced market today.

Great I thanks a lot.

David Bank of RBC Capitol Markets. You may ask your question.

Thanks very much. I guess David I direct the question at you. Over the past two or so weeks, you know, we've heard a bunch of company's report lie VIACOM and Clear Channel. No one has talked about specific numbers there kind of been a change in a little bit of a tone, a sense of optimistic that, you know, things were kind of mixed in May but people were hearing that things were going to pick up in June and there is a little bit more excitement. We're coming out of the function. I was wondering if you were hearing anything more concrete now that we're two weeks after that. I realize those were other companies. Are you guys starting to see anything more country create that shows that June is coming back?

Again we do see positive improvement in the marketplace today. as I said before, I wouldn't define it as robust growth at this point but we see steady improvement week to week. We're seeing a lot of last minute business coming in and we're again cautiously optimistic where the trend lines are taking us.

I think the other side-bar would be when we hear back from our managers who are constantly talking talk to agencies, we see a lot of the talk it's not our (inaudible) the is fairly robust. People are talking about advertising plans that include radio so, you know, that is the thing I think gives us comfort and I agree with David's characterization of a speed bump. We'll get through it. The radio fundamental appear to look fine.

Thanks, guy.

Victor Miller of Bear Stearns. You may ask your question.

Hi, a couple. Last week Cox mentioned that they had seen a wide disparity between their markets and between the markets that widened during the first quarter. I'm wondering what kind of consistency are you seeing across your markets. Secondly the expense growth for the year, you're going to sustain the course and investment in your station base no matter what the ad market trend looks like and lastly could you give us an update on KWOV FM in Sacramento which looked like it was nearing some kind of a resolution.

I'll go to the expense, as I'd I said in my earlier comments, Victor, we expect to see it in the range of 4%. I think as we look out we don't seat business model changing on the attach line so we chose to continue to investment in the bottom line. I think if we had different feedback from our clients and advertisers we would take a different approach on the cost side. The fact that we're not tells you that we as the people who are running the business believe that the fundamentals are fine so, you're right, we're continuing to spend the money on people, on product and on the market.

To your other question, yes, there is some discrepancy market-to-market in our growth in the inner line growth rates and on quad, we just had arguments in front of the California courts and we are optimistic that this -- that on this latest appeal we will persevere and we will finally be in a position to close on KWOV this summer.

For those on the call, we had a contract to close. It has been the subject of litigation. The courts have awarded the contract to us. It's under appeal and we think we're getting down to the last appeal of the appeals.

Thanks.

Kit Spring of Stifel Nicolaus. You may continue.

How can you outpace the industry with your existing portfolio and then secondly, are there any more refinancing you can do at a reasonable cost?

To answer your first question, yes. We've done it year after year. There is no reason why we cannot continue to do it year after year. I don't make that as an arrogant statement because it is a challenge for us every quarter to do that. But I think if we continue to do the smart things we have been doing that there is no reason to suspect that we cannot continue our track record of performance.

As for the balance sheet, as you know, we did a -- if -- a refinancing bile converting the convertible preferred which was the affect of exchanging the 6.25 interest rate for the lower rate to our term loaded loan we continue to look at whatever makes sense in the balance sheet not only with our current balance sheet but where we believe will be in the future of other acquisitions.

Excellent.

Jason Helfstein of CIBC World Markets you may ask your questions.

Two questions. Steve, if you would comment on section 404, we heard from other operators that this requires some time and a little bit of difficult to comply but a it differs per operator. Can you give us an idea your view on that how much of your time is going to be spent on that. And then just the second question, have you guys thought about looking down market as far as acquisitions into smaller markets? Thanks.

I'm sure everybody will -- is just dying to hear me give my dissertation for -- 404 on the call is audit standard which is auditing the process and procedures that a public company goes through. Yes, it is going to be a use of time for us and probably some incremental expense. The total of which we don't really know yet. The final regulations on 404 aren't out. I will say though, let me get my hand to our internal folks who are well down the path. We don't see a problem with compliance and at this point I'm not waving flag as a material reflection of my time or a material expenditure of your expenses.

And Jason, the second part of your question, no, we see no reason for us to evolve our thinking which is that we should stay focusing in the top 50 to 75 markets because that is where -- that is where the money is.

Okay, thanks.

Once again to ask a question, please press star one. One moment, please.

Terrific well thank you all very much for joining us again this morning and we'll look forward to reporting back to you again in 90 days.

Thank you everybody.