Audacy Inc (AUD) 2004 Q1 法說會逐字稿

Good morning, and welcome to Entercom's first quarter earnings release conference call. All participants will be able to listen only until the question-and-answer session of the conference. This call is being recorded. I would like to introduce your first speaker for today's conference, Mr. Stephen Fisher, Executive Vice President and CFO. Sir, you may begin.

Thank you, operator. Welcome and good morning, everybody. Thank you for joining us for Entercom's first quarter 2004 conference call. Before I throw it to David Field, I would like to remind you that the matters we'll be discussing here today contain certain forward-looking statements that are based on current expectations and involve certain risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.

Additional information and key risks are described in the company's filings on form 8-K, 10-Q and 10-K filed with the U.S. Securities and Exchange Commission. Listeners should note that these statements may be impacted by several factors, including: changes in the economic and regulatory climate and the business of radio broadcasting in general. Accordingly, the company's actual performance and results may differ materially from those stated or implied herein.

Entercom assumes no obligation to publicly update or revise any forward-looking statements. During this call, we may reference certain non-GAAP financial measures.

We refer to you to our website at www.entercom.com for a presentation of the most directly comparable GAAP financial measures and a reconciliation of GAAP to each such non-GAAP financial measure. In addition, on our website, includes useful tables providing prior-period, pro forma financial information adjusted for acquisitions and divestures. And with that, we turn the call over to David Field, the President and Chief Executive Officer.

Thank you, Steve. Good morning and thanks everyone for joining us today for Entercom's first quarter earnings call. This has been a busy period for our company with significant positive developments on multiple fronts.

In addition to a strong quarter of operating and financial performance, we have announced three acquisitions and made measurable progress in our efforts to continuously improve Entercom's revenue-generating capabilities. Focusing first on our financial results of Q1, our net revenues for the quarter increased by 7%, to $87 million while our net income grew 28% to 23 cents per share.

Free cash flow increased 40% to $21.5 million. On a same-station basis, revenues were up 6% and operating income was up 10%. These results exceed our original quarterly guidance and represent a new record-breaking performance for an Entercom first quarter.

Our 6% same-station revenue growth compared favorably with the industry, which grow at a 4.5% rate during the quarter. As Entercom continued its multiyear track record of consistently gaining revenue share. We're particularly pleased with these results in light of the tough comparison we were faced with last year. In Q1, '03, Entercom posted same station of 7% revenue growth well ahead of our peer group.

First-quarter performance was led by strong growth in Boston, Buffalo, Norfolk, Rochester, and Sacramento. We experienced nice growth from a number of categories led by automotive, financial services, travel and insurance. We also achieved solid growth in both local and national sales.

While local slightly outpaced national, we are pleased to note that our national rep firm delivered improved performance during the quarter. We also continued to enhance our operating margin. On a same-station basis, we expanded our margin by 150 basis points to 37.4% in this, our seasonably weakest quarter.

Turning to acquisitions, we have recently announced three acquisitions, each of which of has creative elements that uniquely add value. Last week, we announced the acquisition of three stations in Indianapolis locally-owned MyStar Communications for $73.5 million. This is a sweet spot acquisition for Entercom, and we are excited for several reasons.

First, these are excellent facilities in a highly-desireable top-50 market. In fact, its number 31 market by revenues that are underdeveloped. With superior potential to improve operating performance. Essentially, we paid 17 times first-year operating income for WPPL, which a well-positioned heritage station in the market, with significant remaining potential upside.

The balance of the purchase price equated a stick value for WPPI-FM and WXNT-AM. Our present intention is to keep WPPI in its current soft AT format and improve its performance. We will, of course, reserve our options should better opportunities develop in the future.

We believe this transaction will be mildly accretive to shareholders during of our first 12 months of operations and substantially accretive in future years. We expect to being operations sometime in June under a time brokerage agreement and then close sometime in mid to late third quarter. Let me make one other comment on this deal. We accomplished this acquisition by working directly with the seller on a one-on-one negotiated basis to reach agreement at a fair and reasonable price point.

There were no brokers, there was no auction process. This is worth noting since potentially there were as many as four in-market competitors plus, of course, additional aggressive out-of-market competitors. And while My Star saw top dollar for their station, like many potential sellers, they also cared about the stewardship of their staff and their station. And they chose Entercom as the best choice for their people and for their assets.

We also made an earlier announcement of the acquisition of WNSA in Buffalo, from Adelphia Communications for $9 million, subject to bankruptcy court approval. Now Citadel Communications, which also owns stations in Buffalo, submitted a higher bid to the court two weeks ago triggering a formal auction process. We prevailed in the auction for a revised price of $10.5 million.

We expect to commence operations under a TBA in May. This deal enables us to significanlty improve our position in Buffalo. WNSA is a direct competitor to our station WGR in SportsTalk. We will change the WNSA format and launch a new brand in the market in May.

We will also relocate certain NSA content, most notely the play-by-play rights to the Buffalo Sabers to WGR significantly boosting that station's prospects. Finally, we commence operatoins at another recently announced acquisition, WWRX-FM in Providence on April 16th by launching a sports talk format featuring content from our own WEEI in Boston. This brand extension strategy will enable us to leverage our outstanding content on EEI into this important adjacent markt that shares a passion for the region's team.

Soon to be renamed WEEI-FM, the station will have itsown separate sales team focused on the Providence customer base.. Now, should anyone of you wonder whether WEEI is sufficiently strong, to justify a brand extension strategy, I would refer to you the winner Arbitron ratings released just yesterday in Boston.

EEI finished first among adults, 25-54, which may be the first time any sports station in the U.S. finished first in adults. The fact that this occurred in the winter before the Red Sox season began makes this accomplishment for extraordinary.

In other recent developments, we've enhanced our Board of Directors with the edition of Rob Riesenthol, DFO at Sony and Chief Strategy Officer of Sony Broadband Entertainment. In addition, we have enhanced our station listening experience by launching a new feature that provides digital song title and artist displays for listeners on all of our music stations.

The technology works on all RDS-equipped cars radios. We also announced we will be deploying Ibiquity's HD radio system in Denver and Portland over the next several months. We have alreadly rolled the technology out in Boston and Seattle.

In addition, our recent format changes continue to perform well, and we are experiencing excellent early results from our new business development initiatives. In sum, we continue to enhance our competitive position and boost our future prospects. Turning to current business conditions, they have improved in recent weeks. Demand has grown steadily and we are beginning to see pricing improve as inventory becomes increasingly limited for the remainder of second quarter.

I would note that the improvement we are seeing has been measured in gradual incremental progress. We are not yet in a robust seller's market, but we are encouraged by what we're seeing, we're clearly moving in the right direction. In conclusion, we remain committed at Entercom to focusing on the things we do to produce superior results.

Recruiting and developing outstanding leaders continuously improving our sales practices, and creatively building and developing our brands. We are vigilantly committed to building sustainable competitive advantages and capabilities to enable us to outperform our peer group and take full advantage of the opportunities we believe exist to generate additional revenues at the expense of other advertising media.

We will continue to hold ourselves accountable for outpacing the industry and delivering superior results for our shareholders. In closing, I'd like to salute the Entercom team for their performance. Steve.

Thank you, before I begin, A reminder on Regulation FD as mentioned at the beginning of this call, where we do provide guidance, we accept no responsibility to update this guidance on a regular basis. Please visit our website, www.entercom.com for GAAP reconciliations.

The three -- I would like to note before I give guidance for the second quarter, that the three acquisitions that David just discussed are not in our second-quarter same-station guidance. The reconciliation of the timing of those is still a little unknown for a couple of the properties as to when they'll hit in the second quarter. Overall results will be fairly immaterial to your models.

Guidance for the second quarter, the company expects to report a same-station net revenue increase of approximately 6%. And we forecast same-station operating expenses up 5% for the second quarter. Now this quarterly expense growth forecast is a little higher than some of your models, but this is merely due to timing within the year.

The second quarter expense guidance would have -- the second half, excuse me, the first half expense guidance given the second quarter guidance we just gave is just a little over 4%. And we expect to report lower second-half expense growth but offer you no quarterly breakdown at this time. And I would note that in the 4th quarter of 2003, we had just 1% expense growth.

We've got an outstanding track record on expense management and converting revenues to cash flow and free cash flow. And on a macro level, we have the highest return on invested capital. So with the improved revenue outlook David talked about, we've accelerated some projects which we believe will enhance results later in the year.

We should report EPS of 40 to 45 cents per diluted share for the quarter versus prior-year EPS at 37 cents. Earlier in the year, we raised our guidance for GAAP tax rate to 38% and noted that it would fluctuate by quarter and, indeed, it was higher in the first quarter. We would expect our GAAP tax rate in the second quarter to be approximately 38.5%.

And for your models for the full-year 2004, we expect 35 to 37 million in deferred taxes. David covered the first-quarter operating results very well. Just to highlight, our expense management was 3% same-station in the first quarter. Our quarter's capex was 1.7 million, and we're guiding 10 to 12 million for the full-year.

It's interesting to step back and look at the Entercom business model and step away from comparisons to just the prior quarter and put the business model in perspective. Let's take four years back. We're currently in an election cycle this year nationally.

And if you think back to four years ago, Clinton was president, Bush and Gore were battling for their party's nomination, and there was no talk four years ago in a looming recession or Al Qaeda for that matter. So let's compare Entercom's first quarter 2004 to four years ago, the first quarter, 2000. Through the tumultous four year periord of recession, two wars, and 9/11, Entercom grew its revenue at a compounded rate of 5%. Our station-operating income, formally known as DCF, by 7%.

Our margin's increased from 34.8 to 37.4%. EPS grew from break-even to 23 cents per share and free cash flow grew by 30% on a compounded basis. I think that's a great tribute to the radio and Entercom business model. Through what has been a very interesting four year period I'm sure you'll agree. With leverage at then end of the quarter we ended with leverage net of cash on the balance sheet of approximately 2.2 times. Obviously that will end up at the higher end of the 2 range once we close on the accounced transactions. So that's a quick summary. Operator, Michelle, I'll now turn it over to you to open the lines for any questions.

Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star then 1. You will be prompted to record your name. To withdraw your request, press star and then 2. One moment, please, for our first question. Our first question comes from Paul Sweeney of Credit Suisse First Boston.

Thank you very much, good morning, everyone. A couple of questions. First, just on Indianapolis. You suggested that, I guess, keep the format on EPI. Can you talk about the AM station? Just thinking about any incremental investments in those stations during the first year. And number two, as it relates to Indianapolis with three stations here, puts you roughly, I guess, on a revenue share basis to fifth cluster in the group. I know you typically would like to have stronger clusters your market.

You know, how do you feel like you -- give us a sense of what you think your competitive position is in that market, number one, and number two. Do you need and is there an opportunity for to you bulk up in that market? And then just a second overall, just kind of you know trying to get a sense of the business conditions. David, you suggested things, have been gradually getting better over the last several weeks in particular. Can you just give us the metrics as to perhaps how you're going into the month in terms of sellout? Is visibility improving? Just give us the metrics on pricing that might give you confidence this is, in fact, improving.

Sure. Let's start with Indianapolis first and, you're right in noting that it is the number five cluster in the market. But I think the unique, the unique competitive situation in Indianapolis gives us great comfort. Unlike most markets where there are frankly three players, of markets of this size, there are five full-fledged players in this market. Most have two or three FM radio stations.

And so, for us to enter the market with two FM stations and a good strong AM, we think, is certainly the critical mass to compete effectively in the market. Furthermore, I suspect over some period of time, there will be some consolidation in the market and we're as well equipped to play in that game, of course, as anybody else, so, you know, we like the position we have in the market. I think most notably, of course, is the underdeveloped nature of the position. And as we noted and as you pointed out in your question, we have some great opportunity with WTPI, which is a wonderful signal station with soft heritage, and soft AC. But which right now, isn't getting the job done, you know.

We think that we will be investing in that radio station to improve his performance. But, you know, of course reserve the right like we did in Denver, when we took a mediocre performer and found an opportunity to go into a new area and created a brand new novel format and now the Mountain is one of the three leading stations in the Denver market from a ratings standpoint. So we'll have to see. The AM also is a facility that is basically breaking even.

And maybe even losing a couple of bucks. And it's got a strong signal and there really are only one or two strong AM players in the market right now. But we think there's a lot of opportunity there. And you know, we suspect we'll be doing soem interesting things there in the future to capitalize on it and make it, you know, while it's not going to be a major driver for the company, obviously just given its scale. We think it will be a nice, solid contributor going forward.

Turning to business conditions, we feel very, very good about where -- about where the markets are right now. This is not a case like in first quarter when we were when we have guided, and I think speaking for Entercom as well as the industry, we guided. A lot of that was on the comm.

A lot of that was the anticipation of acceleration in March, which, in fact, occurred and we had a terrific March, but in this quarter, we're looking at pacings right now, that are very in which line with our guidance for the quarter. And, you know, we're seeing pricing firming. We're seeing that your question about percentage going into the month, you know, we'll go into May.

You know, with -- , I would say, well over 80% of the month's done. You know, June, we're already well on our way and probably at this point, about half of our June is Done, you know, and still we're sittling here in April. In fact let me rephrase that. we're probably going to about 2/3 done with June as of, I would say, the middle of this week. So feeling very good about our business conditions and like what we're seeing.

Great. Thanks very much.

Our next question comes from Drew Marcus of Deutsche Banc.

Hi, good morning, gentlemen.

Morning, Drew.

Dave, I know you that spent some time with some of the other industry leaders trying to determine some initiatives for the industry. I know the industry is also trying to do a better job on inventory management as a whole to thus drive pricing. Can you update us on some of these industry initiatives?

Yeah, I mean there are a lot of encouraging progress there. Yes, there have been a number of meetings and conversations between the group heads from the, you know, most of the 10 largest companies in the industry and this is a medium. I won't get on my soap box here. Cuase I think most of you, if not all of you have heard the story before.

But this is an industry that has done very well over the years despite the fact it hasn't really asserted itself and marketed itself as a medium. And that oversight, , I think, makes our growth historically even more remarkable, but also speaks to the opportunity going ahead. So, I think the most fundamental change we're seeing right now, specifically is at RAB.

Where we have pushed RAB to redirect a significant portion of their funding. To put it into marketing the medium. They have now hired several additional senior-level marking people in the core medium markets in the United States to go out and market the medium to key decision makers at Fortune 500 companies. And when you consider that historically the industry has only had essentially one person in that role, and now we'll have somewhere north of five, I think that's an encouraging development.

In addition, we're providing some additional funding to enable RAEL, which is the Radio Ad Effectiveness Laboratory to pursue some terrific research that will be working with some of these Fortune 500 companies and doing some other studies, to, provide more support for the use of radio in higher dollar amounts than we have seen historically. So all of that is exciting.

In addition, there's going to be more advertising and marketing money spent by RAB to position the radio at key conferences like the 4-A Conferences and so on. On the -- on another front, we have pushed to have CAS and Interrupt come together as they now have to create a unified standard for electronic invoicing to help facilitate the buying process of the medium, which we think when it's completed which will happen this year. That will make radio easier to buy and therefore more compelling to national advertisers.

So those are just two of the developments. But I think important ones that are significant in and of themselves, but also significant in what they suggest is going on at a senior level in the industry. As we rally together to make radio a more effective competitor with newspaper, television and other mediums.

These initiatives, these seeds you that planted, how long will it take them to germinate? Will we see the results this spring or will it take longer?

It's a good question, you know, I think to see a meaningful impact, we'll probably be talking '05. You know, with -- with greater impact into '06 and '07. This is a long-term effort. Having said that, will there be anecdotal evidence in the second half of the year, that you know potentially a couple of accounts shifts some additional dollars? It's possible, but with longer-term planning cycles, I don't think we should really expect anything until '05.

Thank you.

Our next question comes from Tim Wallace of UBS.

Thank you. David or Steve, could you comment on how the second quarter is pacing? And could you remind us what kind of comparisons you're going against versus last year's Q1 and Q2? And then I guess the final part of my question is really your guidance seems, at least on the top-line, relatively conservative. Given the fact that you did 6% growth in the first quarter and I would imagine your comparisons are easier in the second. So maybe you could give us commentary on that? Thanks.

First of all, I believe last year we were up 3% with the quarter on the same-station basis.

First quarter or second?

I'm sorry. Second quarter. Entercom was up 3% as a company. For that. And, again, the pacings that we are looking at right now are very much in line with the 6% revenue growth that we have forecast. You know it's tough to go beyond that in terms of giving you additional color rather than to say we feel very good about the business right now.

We feel good about the fact that demand is increasing. You know, anecdotally, when you speak to our managers and speak to people on the other side, you get a good sense about the direction the trends are going. And we're increasingly optimistic about acceleration in the industry revenue model and business model, by the way, for the remainder of the year. You know, the only -- the only caveat is I would not expect us to have hockey stick-type growth. I think this is a far more sustainable evolutionary process, which we take as a great positive.

Maybe one follow-up. Could you comment on the Northwest, how your performance is doing in Seattle and portland and maybe Denver? I know you spoke a little about Denver, but -- .

Yeah, I mean we -- we're feeling very good about Denver as a market. Both in tomorrows of the market and in terms of our performance. Portland, ditto. Seattle remains a little more sluggish than we would like to see. And I think the strength we saw in Q1 and the strength we're forecasting in Q2, , is -- is, despite the fact that Seattle remains a bit sluggish, I think speaks again to the performance of our team and our upside potential when Seattle becomes a bit less sluggish.

Is Seattle stronger in the second quarter than it was in the first?

I think it's about in line, Tim.

Okay.

And then just a side note, we did talk about Denver, I think, extensively in the third and fourth quarter. I think the term was a speed bump, but we're seeing acceleration in the Denver market. We're not seeing a high bait in Seattle I think we're just seeing gradual improvement.

Seattle as a market was slightly below as a market. The overall Entercom average, so was Portland. So again, I think we've seen incremental improvement in the markets over the past couple of years but not a hockey stick. We saw real acceleration in Denver over the past month.

Thank you very much.

Our next question comes from Mark [Knobby] of Merrill Lynch.

Hey, it's Mark [Knobby]. [ Laughter ]

Hello, Mark [Knobby].

I wanted to talk a little bit about something you talked about before, David with respect to the RAB and the initiatives there. Could you talk a little about shred or the initiatives that you're doing for the newspapers, you're leading the charge there? And what have you seen now and maybe in a couple of quarters, what you're anticipating to see as far as transitioning over newspaper advertisers towards your business? And how it's going to proliferate through the entire radio business.

First, let me comment, Mark. That's a proprietary initiative and not an industry wide initiative that we have embarked upon. It's -- and shred is our initiative, again, to develop major accounts in our markets. In many cases, newspaper clients, but not -- not uniformally newspaper clients but jsut growing our marketing partnerships with our clients to a higher level that historically we have been able to achieve.

Given the more fragmented business model radio had five, 10 years ago. We're seeing great success from that. We had put a hurdle in front of ourselves of several million dollars of incremental revenues over the course of the first year of the program. Which we -- we started early in 2004. And we are running ahead of our schedule and feel very, very good about what we're seeing what.

What's terrific is how many advertisers that we can talk to and present radio as a medium. And discuss the issues they're having with the media they're in now. And the number of those meetings where you have a genuine sense that there is a catharsis, or I should say an epiphany rather, an epiphany on the behalf of the advertiser as they realize that they have a very compelling option to switch their dollars into a medium which will be, A, more effective and B, more efficient to them than what they're currently using. We have built already in the few months a long list of testimonials from some of those advertisers in terms of what they are finding as they shift dollars over to radio. And that's very encouraging to me.

Great. Also iBiquity. You talked about some of the markets you're rolling out. Do you plan on just doing a digital as well as an analog same-station? Or are you going to change the format to offer data or other types of applications with the spectrum that you're going to be given?

Our game flan plan is to just enhance the listening experience for our listeners by providing them a digital feed of the same programming that they would be getting on an analog basis right now. Having said that, over time as penetration rates increase, it's -- there are certainly opportunities for there to be some data pipeline opportunities that we could exploit, but I don't see any of them in the near future. And I do not anticipate us splitting signals and putting additional format out, albeit, years and years from now anything's possible.

And last, Kansas city had a reformat there. Could you talk a little about what's going on in that market a little as well?

There are actually two stations that we reformatted there. We took our AM country station and moved it to the FM band. And then put a sports format on the AM in its place. And we're very happy with where we are right now. The FM country station has already reached a point of being in the hunt, if you will, with the other two country stations in the market and is right on plan. The AM is actually ahead of plan having surged a bit in revenues beyond our expectations in the early going and it's become a, you know, a player in sports talk in Kansas city. Largely based upon our ability to -- I have to be careful how the lawyers will let me put this, but having cleverly recruited, you know, three of the key personalities away from the other sports talk stations in the market.

Great. Thanks very much.

Our next question comes from Richard Rosenstein of Goldman Sachs.

Thank you. Good morning. I want to follow-up on some of the questions about inventory, if I may, and specifically, David, you had mentioned that inventory for you is starting to tighten up in the second quarter, has tightened up in the second quarter. And I was wondering to what extent, you know, how closely you monitor inventory loads on competing stations in your markets? And what you have seen if do you. What you see in terms of inventory levels throughout your markets. Recently and then over the past eight years.

We do monitor it, although to be candid, it's somewhat of an ad hoc and sporadic effort. We don't have a formal process to monitor our peers in this regard. I think that there is a -- I think there is a growing sensitivity to the issue at senior levels, and I think it's very encouraging to see that some of our competitors are, I think, doing a better job of making sure that they are -- that they are monitoring this area and that they are trimming inventories to sustainable levels where, you know, in the cases where, perhaps, they weren't historically. And that's -- I think that's a character development for the industry.

On that point to the extent that there had been say too much inventory in the past. How much do you think that that contributed to the softness in the business both at Entercom and more broadly in the industry over say the last year or so?

I think it's a big factor at certain times. You know, when you have -- when you have sales managers that do not believe they have finite inventory and, therefore, are not pricing accordingly as demand rises, of course it undermines the ability of those stations to, you know, drive rates as demand increases, you know, state the obvious. Do I think that's been a big problem? I think it's been a problem in certain spotty instances, but I'm hopeful based upon what we're seeing that it's a diminishing issue.

And to the advertisers that you're salespeople are talking to, do they have a growing sense of urgency to book the inventory because less of it may become available than they might have seen in the past?

You know, it's hard to say Rich. Because it's somewhat of a moving target. I think there is no question that as inventories tighten for May and for June, that advertisers, you know, react accordingly and, you know, we'll, you know, I mean -- basic Economics 101, prices will go up as inventory tightens and advertisers will start buying earlier fearing that they'll be crowded out.

Great. Thank you.

Our next question comes from Victor Miller of Bear Stearns.

Good morning. To ask the second quarter pacing question in another way. The company tends to give, if you look historically back, tends to give higher expense growth guidance when the business trends are improving with the idea you that would want to invest as the market heats up.

So, I guess what I would like to ask you is: You talked about June being 2/3 done and May being done, 80% done. What would that normally be versus what you would see to see how far along we are relative to that? The industry is 38% more demand in the second quarter with 28% in the industry revenue and second quarter versus about 20% first quarter. Why wouldn't you be pacing better than you were in the first quarter? Just given the fact that there's so much more incremental demand on the same, hopefully the same level of inventory. Thanks. Well I guess, Victor, it's all relative, though. Because you're right. Second quarter is a better quarter than the first quarter, but then again, that's true in prior years as well. So we're only dealing with relative change. Again, we're feeling very good about where second quarter is and where second quarter going, you know, and what we're seeing beyond that. I also think you -- you -- was there a question there about the cost side or was -- ?

You tend to have higher expense guidance in quarters where you're feeling more comfortable about the tone of the future business.

Well, if that's a historical pattern, I think we fell into that same pattern. We feel, because we feel good about what we see in the outlook, we have accelerated and moved up some spending where we think it will even accelerate our performance in later years. Also, you know, you can get into this fine art of pacing, Victor, and I know you and and I others who have spoken about it a lot. There was incremental last year with the war hitting late March, a push out of orders into April-May as they were canceled in late March because of the war. So I think that introduced some artificially high inventory pressure last year.

So if you want to get into those kind of comps, I think you can you get into some of that esoteric stuff. But to echo, our current pacings are in line or above our current forecast. We feel good about our current guidance. We feel good about what we see. And we felt comfortable accelerating some csots into this quarter. There is not a lot of costs we can move around, but some projects and brand developments. And as we indicated in the press release to give you comfort by not changing our business model, you will see costs decelerate then to a lower or normalized growth rate in the third and fourth quarter.

Just to follow up on the expensing, last year, the high watermark for expense guidance originally was also second quarter, which you said to be up 5% versus revenue guidance of 0-3%. Is there something about second quarter in particular that you like to invest more in the properties. And secondly what, ad categories do you think have the most upside for radio given the increasing attention at the RAB in your industry is going to impress on the advertisers?

Well, I'll go first on costs, Victor. I think maybe we're all victim to, we plan on a January through December basis. So, as we look to meet or exceed our plans for the year, now's the time to make that investment in order to capture it for the full year. So, I think there is some of that.

And second as you all know, the spring book is one of the more important ratings periods for our industry. We're in that right now so that spending, say advertising, marketing, promotional spending in the second quarter, we think, gives us the bigger bang for the buck. And -- and to your second question, Victor, I think it's a little premature to speculate on where this enhanced RAB effort is going to focus.

It doesn't necessarily have to be on an industry which, is a major growth curve. It could well be an industry which is just proportionally low in its share of spending with radio. Or it can be an industry that has been a strong supporter of radio but the upside is still great. So, I think those guys are going to have to put their heads together at RAB and sort of develop a strategic plan for where they see the greatest opportunity.

I asked about June being 2/3 and May being 80% done. How is that relative to the past?

You did ask that. And I think it's pretty consistent.

Not materially different one way or another. I mean we're -- obviously we're pacing ahead as we indicated, but I wouldn't say that it's a material difference.

Versus a normal, like what you would expect from a normal year?

Correct. I think we're -- you know my point of view on pacing.

I do.

I think we made that point, but to the extent then that it's been extremely distorted over the past year because of the unique events of the past year. It's starting to move more towards normal whatever that is.

Okay. Thanks.

Our next question comes from Johnathan [Jacobi] with Bank of America.

Good morning, I'm going to lay off the pacing questions and the expense questions. One, I have two questions here. First one on tax. Are there any tax benefits on these recent acquisitisons in terms of holding off some cash taxes? And my second question, everybody's talking about pricing but as you go forward, is there anything, are you rolling out something specific for your company in terms of pricing inventory management? My understanding, is a lot of stations are decentralized. So is there more of an effort by corporate mangement to sort of try to hold the line into '05? So that on the inventory management side to sort of drive pricing?

Well, first, Certainly the answer is yes. Are there some tax benefits. We realize those over a 15-year period beginning on when we close and let's say effectively at the end of the second quarter, early in the third quarter. I would estimate the annualized impact of that to be a million dollars or less in deferred taxes. But hey, I'll take the million dollars.

On pricing and inventory, it is largely decentralized. But with a heavy dose of immersion from our rEgional Vice Presidents to our, you know, intimately involved in the pricing strategies of the -- of the individual markets and our, you know, in essentially daily contact with each of their markets and discussing how they want to deploy their, you know, overall pricing strategy.

Thank you.

Our next question comes from Bill Meyers of Lehman Brothers.

Thanks. A couple of quicky question questions. First off, the acquisition in Indianapolis. First off, how did you determine the $31 million stick value for the two noncore properties? Why they conserve stick? Is it due to programming? Is it due to sales? Is it due to the overall facility? And then I'll come back with my follow-ups.

The way we looked at it, Bill, you have one performing station, which, again, we think has a lot of upside. Bit it's a performing station and 17 times cash flow is the price we paid for that station. Hence, the balance of the consideration is what is left of the other two. We think that if you look at that amount of money against the stick value for, you know, the AM and the FM, we think it's a pretty attractive, attractive deal for our company. Did I miss a part B there of that question?

No. Oh, but in terms of why they're considered stick stations. Is it because they're lacking productivity?

Yeah, because they're not performing.

As David indicated, the AM, marginally, in fact losing some money. The FM TP6 as indicated not performing. We either have to increase the performance or change the format, hence the stick.

Okay. And then --

You can assume that between the two of those, as currently configured on a trailing basis, there is no cash flow between those two. But obviously, we believe we can change that.

Okay, and then just some very quick follow-ups in terms of your growth at 6%, I think you mentioned the industry was up 4.5%. What were your markets up in that same period of time?

Markets were up 5.

Okay. In then just, two very quick things, in terms of the iBiquity investments: what's your general cost per station for the digital upgrade?

That's a good question. Let's say it's less than 100,000 per station. The difficulty, I think, all of us as operators have in answering that is we make other upgrades at the time. So we might spend more than that on things that overtime we would have to do. The actual incremental expense would be probably about 50,000. But in making that investment, you tend to upgrade other parts of your audio or transmitter chain as well. Don't have to but we tend to.

Okay, and then just the last thing. Some of the new initiatives. Have there been signs of WalMart entering any of your markets? From a spending standpoint?

No.

Thank you very much.

Our next question comes from [Joe Stopf] of Schwab.

Good morning. You mentioned David, that your national rep firm had started to perform I guess, or improving performance in the first quarter. Can you just give us sort of the national locals revenue split in the first quarter of last year? And then one follow-up.

The first quarter last year. I don't have that in front of us Joe.

Okay. How about this quarter?

Pretty much in line with our overall reported numbers. We're pretty much event the first quarter.

And then how about on a percentage of revenue bases?

You know, we're 80/20 local/national for the year. I don't have it in first quarter, I wouldn't imagine that it would be substantially different.

Okay. Great. And then is there an initiative internally, I guess, to implement, you know, I guess a firmwide traffic system?

No.

No. Thanks very much.

Our next question comes from Alissa Goldwasser of William Blair.

Hi, just one question. I was wondering if you could characterize the nature of the investments in the second quarter? Is it preparing for new stations? Is it supporting the format switches? Or is it maybe heading off competitive situations?

Let me also get back. One thing as we look ahead, we're anticipating that promotion expenses in the fourth quarter as of October-November, will probably be more expensive as we use television or outdoors, given the political races. So, I think it might be the normal course of business.

Just the wisdom to spend the money now and get more bang for the buck than face the higher expenses and crowding in the fourth quarter. I would characterize it more as that, Alissa, than anything. Yeah, are there strategic, tactical battles going on where we do it? Yeah, but I would characterize it more as the former rather than the latter.

Great. Thank you.

Our next question comes from David Bank of RBC Capital Markets.

Thanks very much. Morning, guys. I have a couple of questions primarily related to the acquisitions. No pacings and no expenses.

Oh, come on.

First, can you actually clarify what the TVACs -- I mean I'll just read them off.

Sure, yes.

If you can clarify the TVACs in 2Q and 3Q for all acquisitions. The second, on Indy Dave, I think if I heard this right, you attribute about 40 some-odd million dollars in value at a 17 times multiple to the heritage station. It sounds like it's doing 2 1/2 million of, you know, first year BCF. I just wanted to make sure I got that right.

The second thing on Indy is, David, I think you said that the deal would be mildly accretive in year one. Can you just explain if that was on FCF or EBITDA or EPS or what exactly you were talking about? And I guess the next question is should we assume that whatever BCF, the heritage station has thrown off, the other stations are, you know, no revenue and about the equivalent of expenses? Then, I guess, on Buffalo and Boston, could you just give a little more incremental revenue and expense expectations over the next 12 months for those kind of stations? Like generally what they do to model. And the last question, sorry about that, guys. Does the EPS guidance, include the impact of those acquisitions?

Whew! Why don't -- take those back and give us a pacing question. I don't know if I wrote them all down fast enough. Let me jump in on a few and we'll ying and yang here. First, Buffalo and Providence. We're not giving real detailed guidance. We'll beef that up in our next call.

I would consider those not material. Those were pretty small acquisitions. They're unique. We think they'll be great value creators but not material to your business model. We'll probably give more color, as you know, we have not announced what we're doing in Buffalo at this time. In TBA expenses, the timing on all of these are a little -- are still up in the air.

Providence, we have taken over with no TBA expense. We started that April 16th. For Buffalo, we anticipate no TBA with the seller given the unique nature of the bankruptcy court. That will probably have to go to close. We're still uncertain. We're trying to move that up if we can.

We would not anticipate any significant TBA there. For Indianapolis, we have still have not completed all that, so the timing and dollars are up in the air. I would anticipate something around 100,000 per month. So for this quarter, given that the earliest we could take over is June 1, it would not be a material event.

For accretive dilutive, we would anticipate mildly accrete identify both EPS and free cash flow nature of the transaction as we anticipate ramping hard on that acquisition and I think, David, your question was on valuation. On Indianapolis.

Yeah, that's correct.

You can assume roughly 2 1/2 million first year, which is 17 times, gets you to about 42.5 million.

Okay, so -- and for the other two stations, should we just assume they're kind of not real-

For this quarter there are push.

Okay.

And, again, any change up or down would not be material to our overall business model at this point.

Okay, they're more about future growth in '05, '06? Fair enough.

Bit both are starting out of the box basically from zero. We've obviously got some ideas on what we're doing with them.

Okay. Wow, thanks a lot. You got them all.

We tried.

Our next question comes from Jason Helfstein of CIBC world Markets.

Thanks. Just two questions. One, Steve, what do you consider your IRR hurdle for acquisitions. Or potentially, what kind of rate of return do you need to see? And then secondly in the -- are Portland and Sacramento, as far as Portland, Alameda, closed in June of '03 then Sacramento, that closed May of '03, I think there was no Alamdeda on that. Kind of -- I would assume those would need to be on a pro forma base but not on a same-station base. How should we think about them, what is essentially the revenue impact would be on the second quarter, year-over-year?

Those are all in our same-station numbers. We results of operations once they're in, a full-quarter of operations. So those were and then that -- so that is in our adjusted base that we have put on our website. And have been for several quarters.

So basically when -- on your press release, you're showing 15,000, that's the revenue associated with those?

Well, the press release would have about a net of all the additions and the divestures of all the transactions. That's correct.

Okay. And then your IRR. How you think about it.

Yeah, it's a great question, Jason. Let me first point out the track record that I believe on many Wall Street research reports, Entercom has the highest return on invested capital, which translates, I think, loosely to -- we have made smart deals and made them work. We have also been, I think, the most acquisitive when you look at the acquisitions as a percentage of our overall revenue base.

We have obviously grown this company significantly since 1998. With over 80% of our revenue acquired during that period of time, $1.7 billion dollars or $1.8 billion worth of transactions, I guess, with this quarter's announcement and we'll change the metric to $1.9 billion worth of transactions. There is no one hurdle or metric. We look at it on return on equity, return on assets, return on invested, return on invested capital, BCF multiples.

So Jason, I hesitate to give you a number. Let's just say that we want to have a return that exceeds our capital on a risk-free basis, or on a basis where we feel very comfortable we can go to our board, look them in the eye and say this is a value-creating transaction for our shareholders. And indeed, I think we're the only company, we do give a metric out occasionally as we do our investor conferences, where we'll show a slide. I think we're the only company that does it.

Going back to 1996, even before we were public, here's the BCF multiples at the time we acquired and here's what they are on the latest trailing 12-month basis. Because in each deal, we'll have a different cost to capital in play on each one. So that kind of becomes the default metric that the street looks to. And we're proud of that track record and we're very excited about these three, albeit small transactions, but we're excited about these three current deals on the table.

I guess just a quick follow to that. How much do you let the current low level of interest rates affect your IRR decision? And does that allow you to pay a higher multiple just because you can currently get pretty inexpensive financing?

That cost to capital factors in current and future outlook for money costs, but, sure, I think that's a factor for us and everybody else. It also, as I said, I think would be a factor for any other buyer. Yes, we have a low-cost to capital, finance on a borrowing basis. We have a higher cost of capital on an equity basis and we look at those.

Thank you.

Our next question comes from David Miller of [Sanbers, Bourne, Harris].

Hi, good morning, congratulations on a solid quarter. Steve, I believe in a previous conversation, you had expressed a high degree of confidence that Seattle would finish positive. So just following on Tim's question. Could you confirm that Seattle in fact did finish positive for the quarter? And if you could give us raw numbers, that would be great. If you could give us Boston numbers, that would be helpful as well. And then also on the statistic you gave us with regard to over the last four years, you know, since 1999, free cash flow has increased 30% on a compounded basis. How much of that has to do with the low interest rate cycles? Thanks very much.

Let me take the latter first, obviously. Interest rates have fallen since 2000 . First quarter 2000 as we moved our free cash flow, tripled up during that period of time. But as interest rates have come down because of the troubled economic environment there. So there's kind of a linkage.

I think you would have seen higher top-line growth had you seen higher interest rates. So yes, some of that is a factor. I don't acknowledge, but it's free cash flow that our shareholders enjoy. Let's switch back to color on the markets as we indicated. Our markets were up 5%. Seattle was kind of at that overall company average and Boston was above the company average.

I would note that for the first quarter we basically had all our markets were positive. One was, you know, pretty close to break-even, but -- and they, you know, there is a high data, there always is every quarter as there always has been in this industry. Because so much of the business is local and subject to certain market swings.

Okay. Thanks very much.

Our next question comes from Spencer Wayne of J.P. Morgan. Morgan.

Hi, one quick question. With respect to capex, I think you gave full-year guidance for 10 to $12 million. The annualized first quarter number is I think 7 million. Is that just a timing issue or could capex come in a littlbe bit lower? And how do the acquisitions impact the capex? Thanks.

Yeah, good question. The acquisitions -- let me go back and just have a footnote as, I think, we over time accorded ourselves well in running some of the lowest capex as a percentage of the sale as a mid-cap radio operators. Most of our capex has been project related, most of that related to new facilities driven by new acquisitions. We don't anticipate any for Buffalo. We don't anticipate any for Providence.

And at this time, we don't anticipate any for Indianapolis. The first quarter is lower than the annualized guidance run rate. Some of that is due to timing. For instance, the upgrades in iBiquity and we probably will be announcing some more.

We have some office relocations in a couple of our markets coming up that could hit in the latter part of this year. So, I think that's why we give guidance of 10-12. We anticipate a higher ramp in Q2, 3, 4.

Thanks.

Our next question comes from Jim Goss of Barrington Research.

Thank you. One housekeeping detail. Did you mean to imply that the full-year tax rate estimate right now would be about 39%? And also, with regard to the acquisitions, do you expect the more modest type positions you have been pursuing recently to become more typical of the pattern going forward? Or do you think bigger fish to fry will become available as the industry revenue pace begins to recoverer? And then finally, with regard to HD radio; do you expect that the iBiquity product and service will be your primary real response to satellite radio? I noticed you took an initiative to advertise against some of the initiatives satellite radio has done. I'm wondering how you're look at the whole issue?

I will go to the tax rate first, Jim what. What I indicated was we expect tax rate in the second quarter to to be 38.5. We will, on the next conference call, update that for the full year. We're still studying the tax impact of moving into these additional states.

The new State of Indiana, the new State of Rhode Island, and then we'll have more exposure in the State of New York. All states with higher tax rates than norm. So we might see, you know, I'm just estimating we might see a small tick-up, whether that's from 38.5 to 39, don't really know yet, Jim, but I would feel comfortable, as I said, earlier for the second quarter of 38.5.

Jim, I got your third question. Could you reiterate your second question on acquisitions, please.

I was just wondering if, like the negotiated transaction in Indianapolis and the two smaller stations, are going to be more typical of the sort of things you're going to be pursuing. Or do you think there is going to be an opportunity for some larger-scale acquisitions to become available?

Yeah, don't know. We pursue small and large acquisitions that we think make sense for our shareholders, and you know, you never know exactly when it's going to happen. I have been working on the My Star deal for four years. So, who knew that it would break this month. Three months ago, I wouldn't have known.

So, it's hard to speculate as to what is going break in the future. Other than we do our -- are feeling good about the fact that there will be continuing acquisition opportunities both large and small in the future. And, you know, obviously the large ones are the ones where we get the most excited about.

Okay.

As to the iBiquity question, iBiquity is a nice enhancement to our service, which we think is good thing. Irrespective of satellite radio. And I don't view it as a response to satellite radio but rather just as a technological evolution which makes sense for our medium.

On the -- broader question of satellite, you referenced the commercials that we have run on our stayings which, essentially point out some of the negatives on satellite. You know, there's not a lot to that other than the following fact; we've done some research and satellite and there are a number of issues and objections and concerns that consumers have about the product. That does not get reported in the mainstream press, which tends to buy into the hype and PR that comes out of the, you know, the well-funded PR machine satellite radio.

And, you know, it's to some extent, human nature. Something that is new, gets that [inaudible] and we just felt it would be a good thing to have consumers have a more balanced view about the, you know, the minuses as well as the pluses of the product.

And you know, our own -- it's interesting when you look at the latest releases I saw from satellite radio, seeing churn rates are going up. And some of the subscriber numbers do not appear to being hit. So, you know, our own internal research, as we talk to people, we're finding that some of the messages that we're now broadcasting are essentially just for reflection, again, of what -- both potential and actual customers are feeling. And we think it's healthy for the marketplace to hear that point of view.

Thank you.

Our final question comes from Michael Kapinsky of A.G. Edwards.

Thanks, I just have one quick question. How much was nontraditional revenues in the first quarter and how significant as a percentage of revenues? Was it up year-over-year? And then also if can you talk a little about the second quarter. If you're expecting growth in nontraditional revenues? And what the percentage was. Are you anticipating it will be a percent percent of revenues in the second quarter?

Yeah, Mike, this is Dave. I don't have the exact number but I think as we close the quarter, it's probably pretty much in line. We typically see it run between 3 and 5%. I think over the past couple of years, you have seen the industry refocus on core business and kind of jettison NTR projects that didn't build incremental value either for the brands or for shareholders. I think we have done a great job and we're excited about initiatives.

Let's take, you know, David was even talking about our major account development. That's not NTR but an initiative that is nontraditional, if you will. We're not going count that as NTR.

Right.

But I think across our stations we, see a lot of those that we're excited about the returns it's bringing. But In terms of overall business model, I would say within any quarter it's going bounce between 3 and 5%.

Are you factoring it to have growth in the second quarter?

I don't have that answer, and I would doubt because I'm not aware any of, anything that is significant.

Okay. Thank you.

Okay, well, I think that was the last question. Thank you all very much and we look forward to reporting back to you in three months.