Audacy Inc (AUD) 2004 Q2 法說會逐字稿

Good morning, and welcome to Entercom Communications's second 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, CFO and Executive Vice President. Sir, you may begin.

Good morning, and thank you everybody for joining us a little earlier than we normally do this this morning, and special thanks to the West Coast, for those of you listening live. For those who are listening on the replay, you missed a great one.

First, the matters we will 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 -- we refer you to our web site at www.entercom.com for a presentation of the most directly comparable GAAP financial measures, and a reconciliation to GAAP of each such non-GAAP financial measures. In addition, our web site includes useful tables of prior year pro forma financial information, adjusted for acquisitions and divestitures.

And with that, to take you through the quarter, David Field, President and Chief Executive Officer.

Thanks, Steve. And good morning, all. Thanks for joining us for Entercom's second quarter earnings call. I'm pleased to record that Entercom achieved record-breaking financial results during the second quarter. Net revenues for the quarter increased by 6% to $113.7 million, while net income per share grew 27% to 47 cents. On a same station basis, revenues were up 5%, expenses up 3%, and operating income up 6%.

Our 5% same station revenue growth compares very favorably with the industry's performance during the quarter, as Entercom continued its multi-year track record of consistently outpacing our peer group. Total radio revenues in the markets in which we compete grew at a 3% rate, again compared to our 5% rate, as we gained significant revenue share across our platform during the quarter. Our second quarter performance was led by strong growth in Boston, Denver, Buffalo, and Norfolk. Local revenues were up 6%, while national revenues were flat.

We also continued to enhance our operating margin. On a same station basis, we expanded our margin by 50 basis points to 45.5% for the quarter. In sum, we are pleased with our execution and the fact that we delivered decent results in a challenging marketplace. Now, outside of operation, this was also an active quarter for Entercom on several other fronts. We announced new acquisitions in two new markets, Indianapolis and Providence, and one existing one in Buffalo.

During the quarter, we commenced operations in each of these acquisitions, and are very pleased with initial developments. We believe the extension of the WEEI Boston sports brand into the Providence market will be highly successful based on the regional New England passion for Boston sports.

In fact, in the most recent rating, WEEI remains the number-one rated station in the Boston Market with men 25-54 and -- with adults 25-54, and the highest rated sports station in the United States. We have witnessed a considerable ground swell of enthusiasm for the station in Providence from the thousands of area residents already quite familiar with the station from their travels through the Boston metro.

In Indianapolis, we commenced operations in June, and have already implemented a number of changes to enhance performance. These changes include a variety of steps to improve our programming quality, reduce unnecessary expenses and accelerate revenue growth by implementing our proprietary sales practices. While it is still early in the game, we are pleased by our progress to date, and remain quite optimistic about our future potential in the market.

We also moved to create additional shareholder value by commencing a stock buyback program, which Steve will discuss further during his remarks. Turning to industry issues, this has been a challenging time for radio, as business conditions have remained tepid and stock valuations have declined dramatically. Certainly, we share the frustrations that industry growth rates have not accelerated more quickly this year; and yet notwithstanding this frustration, there seems to be a myopic focus on negativity that ignores what we believe remains a very compelling growth story in the industry.

Radio historically has been an excellent barometer of local business conditions. When business in the industry slowed in May, there was a great deal of disappointment. Many pundits concluded that the radio model was broken, stating a variety of reasons, some of which held no water, others of which were legitimate but not significant enough to explain a material change in the industry's performance.

Now that we have seen the release of a variety of national economic indicators, it appears that perhaps the predominant issue all along has been the underlying economy. Radio may have been merely an early economic indicator reflecting deteriorating consumer spending, which rose at an anemic 1% rate in Q2, its slowest growth in three years. This goes a long way to explaining what has happened over the past few months, but we are seeing other media exhibiting similar issues. But this is not to say that the industry is waiting on its heels for economic conditions to improve.

There has been an exceedingly positive development within the business that industry leaders are taking unprecedented steps to invest in the medium's future and enhance its competitive position and growth prospects. Historically, the highly fragmented structure of the industry precluded companies obtaining sufficient scale to justify this type of forward-thinking investment.

Today, we are very focused on the industry's challenges and opportunities, and committed to making substantive improvements. We are very encouraged by the acceleration of these positive industry developments. First, we salute Clear Channel's recently announced initiative to significantly reduce commercial inventories. This is the potential to be a sea change event in the industry by significantly enhancing the medium's appeal to both listeners and advertisers. Entercom has always maintained a disciplined [INAUDIBLE] inventory policy, and we believe Clear Channel's announcement reflects a promising trend in the business.

In addition, we are seeing a dramatic acceleration in the adoption rate of ubiquity or high definition radio. You may have seen it yesterday, we announced a commitment to roll out HD radio at the vast majority of our stations over the next four years. This follows similar announcement by Clear Channel, and it is reasonable to assume other announcements will soon follow. In short, the digital future of the industry appears to be assured.

Third, to simplify the purchasing process for our customers, and thereby make radio more user-friendly for advertisers, the industry is rapidly implementing a electronic invoicing for both national and local customers. I want to acknowledge Steve Fisher, who has done a terrific job in pioneering this effort on behalf of the industry over the last couple of years. Fourth, the industry sales marketing arm, the Radio Advertising Bureau, has dramatically enhanced their business development capabilities over the past 60 days. RAB has established a senior marketing team and deployed them, as well as an ambitious marketing and development plan.

These changes are a direct result of industry conversations earlier in the year in which RAB was given an aggressive mandate to actively market the medium to advertising and marketing decision makers across the country. Early results are promising. Other industry improvements are being discussed as well. Simply put, this is a far different industry today than in the past. While we remain fierce competitors, this is an industry far more committed to investing in its future and improving its competitive position versus other media choices.

As and when business conditions improve, these industry enhancements should enable us to accelerate our growth rates. Unfortunately, it does not look like we will see much improvement during July or August, as these months are pretty slow. But September continues to look very strong, and may be a harbinger of better times. Of course, it's still early and we have limited visibility, so it's too soon to tell.

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.

And we will continue to hold ourselves accountable for outpacing the industry and delivering superior results for our shareholdesr. In closing, I would like to once again salute the Entercom team for their performance, and turn it over to Steve.

Thanks, David. Before I begin, I would note on Regulation FD, as mentioned at the beginning of this call, while we do provide guidance, we accept no responsibility to update the guidance on a regular basis. Please visit our company web site for GAAP reconciliations and to obtain a schedule outling our same station results by quarter, adjusted for all acquisitions and divestitures.

For the third quarter of 2004, the company expects to report a same station net revenue increase of between 2 and 3%. Let me give you some additional color to help with your models for the quarter. We would forecast same station operating expenses to increase between 3 to 3.5% for the third quarter. And this guidance includes all prior year results for all acquisitions, closed or unclosed -- that includes Indianapolis.

Interest expense for the third quarter should increase from its current run rate to about 5.6 to 5.7 million, given the stock buyback and our anticipated closing this quarter on Indianapolis. We've been operating the Indianapolis stations under a time brokerage agreement since June 1, and we would expect to close in the next 30 to 45 days; and therefore, for your models, we are guiding you to a third quarter TBA fee of approximately $700,000.

For corporate expense as a result of governance and the audit requirements, we would expect to see our normalized corporate expense run rate increase to about 4 million per quarter for the balance of 2004. As mentioned in our press release, we are currently in the process of completing a new senior credit facility, replacing our existing bank agreement from 1999.

We expect to close on this new facility in August; and as a result, this will necessitate the write-off of up to $2 million in unamortized debt issuance expense during the third quarter, which will obviously impact our reported EPS. On the second quarter, David gave you the highlights. Again, it was a record quarter -- record revenues, station operating income, and EPS for Entercom.

On the expense management side, we reported 3% same station expense growth, which was well below our original guidance, and I'm pleased to report that our station operating income margin represented a record high for the second quarter, even with the impact of expenses in bringing out the two new acquisition formats. On May 13, the board of directors of Entercom authorized a one-year buyback of up to 100 million of company stock.

We're pleased to report that we completed about half the program, representing 1.2 million shares, just in this first quarter. Now, this buyback has reduced our outstanding shares at the end of the quarter to 50.3 million. 50.3 million at the end of the quarter. While that's the number at the end of the quarter, the weighted average during the quarter for purposes of per share calculation was a little higher -- 51.1 million, basic, 51.4 million diluted shares for the quarter.

We ended up the quarter with leverage of 2.5 times net of cash. And obviously, our leverage and our future outstanding shares could change based on the flow of our buyback program. So with that, Paul, the operator, will now open up the phone lines for any questions.

At this time, I would like to begin the question and answer session. If you would like to ask a question, please press star one. You will be announced prior to asking your question. To withdraw your question, you may press star two. Once again, if you would like to ask a question, please press star one. Our first question comes from Paul Sweeney with Credit Suisse First Boston. You may ask your question.

Thanks very much. Good morning, everyone. First, just David, on the national business continues to be sluggish for the industry. You know, again, you know, as you sit back and take a look at it over the last several quarter, how much would you kind of ascribe to just, you know, the weakening economic conditions as you mentioned? And how much can perhaps be addressed by some of these industry initiatives, whether it's, you know, reducing inventory or electronic invoicing, or, you know, the RAB doing a better job marketing? I mean, how do you think about some of these initiatives and their ability to impact, you know, the national business in radio? Or do we simply have to wait for better economic conditions? Then just second, on the September strength, we've heard from several operators, including yourself, that September looks a little bit better. How would you -- we've been -- we've seen many head fakes in the past -- you know, how do you view September business in terms of real underlying improvement, or is it simply, you know, kind of a tightening of the market related to the political and things like that? How do you get a sense as to September might be real or not? Thanks.

I will take your questions in reverse order, Paul. You know, September looks real. It's -- there is real demand. There's real growth. Rates are going up, meaning it looks good. Having said that, you know, in good conscience, I can't sit here and -- you know, this is first week of August -- and tell that you it couldn't slow down. On the other hand, I can't sit here and tell that you it won't accelerate. It's -- you know, there's only so much that we can tell based on what we know, but you know, as of now, the month for us is about 60% done, and what we have so far looks very, very good and very promising. And that's about as much as we can say on it in good conscience. As far as national is concerned, you know, it's interesting, it seems as though it's no secret that national was very soft during July and August, although I would point out that it is up significantly in September. Again, positive but early. The largest culprit for that is automotive, which has been soft nationally over the summer. Beyond that, if you look at most other categories, they look pretty good. But I think that the key point I would like to make goes back to your question on the initiatives. We think the initiatives are going to have a meaningful effect on our ability to have sustainably better growth rates in national business going forward. I mean essentially, if you think about it, radio has had this great opportunity for many years to market itself at the senior levels of the ad world, and we have never been able to build the infrastructure and the team to do that in an appropriate and an effective manner. Now, we're doing that. And we're also mitigating against some of the concerns that advertisers have had about the medium -- all of that is positive. It wil,l over time, enhance the karma of the industry on Madison avenue, and that should lead to new accounts moving into radio, and existing accounts take -- you know, using radio in greater amounts. Obviously, there are no panaceas out there, but we think it will be -- it will make a meaningful impact on industry performance going forward.

Great. Thanks very much.

Drew Marcus with Deutsche Bank, you may ask your question.

Good morning. David, can you talk about Clear Channel -- you gave us a statistic that 29% of their inventory was nonrevenue producing. Can you give us a sense on how, you know, if you had a number like that, Entercom would compare to that number?

Well, we don't track that statistic, Drew. But I would say that it's likely our number is lower than theirs, because we have, you know -- we have had a tighter inventory policy going -- you know, historically.

And also, as far as advertising categories, have you seen any advertisers that have been particularly weak, you know, which has maybe caused some of the softness in July or August, and as part of the September strength -- the strengthing, have you seen that there are any certain categories that are all of a sudden picking up?

As far as the weakness goes, yeah, I mean, I think the weakness is predominantly national in July and August, and that is predominantly automotive. As far as categories picking up in September, I don't really have any meaningful data to share with you one way or another on that.

I do have something, while you didn't ask the question, Drew, I would note that we currently have very little political book, you know. Radio does not do much in political -- I think everybody's aware of that. We estimated we might do up to 3 million this year. We've really seen very little of it at this point. So it's not political on our books that's driving any September growth at this point.

And political does tend to come in at the very last minute?

Sure. Yeah.

Okay. Thanks, guys.

Victor Miller with Bear Stearns, you may ask your question.

Good morning, thanks for taking the question. You mentioned that some of the better markets included Boston and Denver, which have not been the standout markets as of late. Could you talk about what you're seeing those markets in terms of the extent of the turn? Also, Seattle, there's an estimate that up to 500 million dollars will be infused in the Seattle market, because of the Microsoft dividend. I wonder if you're -- you know, seeing anything different in that marketplace or what you anticipate there. And then if you can just talk about your buyback, the approach, obviously you kind of bought it at the very highest level, just -- it looks like you did most of it just after you announced the stock, 7% lower now than it was then, and you've done half your buyback program. Do you expect to finish it here with the stock at this area -- at this leve? Thanks.

Let me grab the first two and Steve will do the third. As far as Boston and Denver are concerned, you know, Denver remains a pretty strong market. Boston is okay, but you know, frankly, the growth we're achieving in Boston, I think, is more based upon our performance than the underlying, you know, vigor of the marketplace at this point. As far as Seattle is concerned, yeah, we're optimistic as well, Victor, that the Microsoft dividend, [INAUDIBLE] the margin, will have some positive impact there, but it's too early to see that because those dollars have not flowed yet.

On the buyback, Victor, you know, we are not trying to time the market with the buyback. We just think it made good sense for shareholders to redeploy our free cash flow -- our amazing free cash flow -- in that direction. And you're right, we did more of the buyback earlier in the quarter, when the prices were higher. Your second part of your question, do we anticipate the buyback going forward? And the answer to that would be yes, most definitely.

Thank you.

Tim Wallace with UBS, you may ask your question.

Thank you. In terms of the strength you're seeing in September, either David or Steve, could you comment on how much of that is local versus how much is coming from national? And do you have any visibility at all into the fourth quarter? And if you could remind us what your year over year comparison -- growth comparisons will be in the fourth quarter. Thanks.

September strengthening is both local and national. Actually, national right now, a little bit ahead of local, but, you know, overall, we're in a low double digit growth rate in September, and you know, both local and national are up double digits at this point in time.

Q4 last year, what we'll be comping against, if you recall, the industry was off. Entercom was down 1% on same station revenues, down 4% on station operating income in Q4, 2003.

An Steve, just, do you have any indications yet for October?

Yeah, I mean its pacings are positive, it's early. But yeah, it's positive -- it's just too early for us to -- to pound the drum.

Okay. Good. Thank you.

Jonathan Jacobi of Banc of America, you may ask your question.

Good morning, thanks for taking my questions. A few questions here. Rating improvements in Boston look great, but curious on your thoughts on what's going on in Kansas City. Second question is, where are you in terms of local EDI? National EDI has been getting a lot of press, obviously, from the rep agencies, wanted to know sort of when you guys are taking a leading initiative there on the local side. And the last question, we've been hearing a lot that this year, there has been some movement from national buys into local buys, in terms of advertisers. Do you think that's part of what's going on in terms of -- instead of looking sort of national versus local in terms of buckets, just looking at the overall pie?

Let me grab one and three, Jonathan and Steve will grab number two. As far as Kansas City ratings are concerned, we're actually very pleased. We are the number one -- we have the number one adult station, the number one female station, the number one male station in the market. So, you know, tough to beat that. We have some great ratings there. And if you look at one of our developing stories, you may recall that we did a couple of format changes last summer, and we're now starting to -- well, not now -- we are continuing to see some positive evolution there, WDAF, the country station we moved to the FM band, had its best book ever in the just-released numbers, and we are now the number one country radio station in Kansas City, which is --

That's great.

-- which is a pretty terrific.

I'm sorry, I didn't have the spring book on that one. Okay.

Yeah, so we're real happy with the Kansas City results. As far as the national versus local, it's a good point. Because sometimes we tend to be myopic in looking at national versus local as two entirely discrete buckets -- and you're right, there is some migration between them that can lead to some confusion. And I think, you know, there are always a couple of accounts that are sort of moving back and forth. Fortunately, historically, it tends to be noise level-type movement, and so it's still meaningful to look at local and national, but you're right. They're not rigidly discrete buckets.

On the -- your question on electronic data interchange, or EDI, it's correct, for everybody's benefit. The two rep firms have come together as a result of cooperation among the radio industry CEOs, so cats and inter rap on a cooperative basis established a common platform earlier this year, primarily to facilitate national. Let me say -- and your question was good, Jonathan, in that there is this other side which is local. Every Entercom station is using EDI. We have seen tremendous month over month, year over year growth, and sequential growth throughout the year in our volume out there, so we're quite confident now that we have the technology in place, both locally and nationally, to satisfy that advertiser request.

Thank you.

Jason Hosstein with CIBC World Markets, you may ask your question.

Thanks, two questions. The first, Steve, what's your comfort level on leverage? So kind of how far would you be willing to use buybacks to take your leverage to, let's say over the next two years, assuming you didn't find find attractive acquisition opportunities? And then my question question relates just to -- just perhaps you can give us some footnotes, what -- what are the adjustments being made in between the 113.6, take it to the 112.7, as far as the same store revenue for this quarter? Thanks.

For this quarter, it would be the acquisitions in Buffalo, Providence, and Indianapolis; and then last year, we had the Kansas City Royals, this year we don't have it, so it's massaging all those factors. As far as the leverage, I think that will be determined by the board. I think based on situations in time, we've historically run at very conservative leverage, giving ourselves ample dry gunpowder for acquisitions. Generically, I think to operate into the fours on leverage, we're not uncomfortable. We did that earlier in the year 2000, with the acquisition of Sinclair, the high fours, low fives. I don't see us running that there, just on share buyback. But to answer your question, between a combination of share buyback and leverage, we still see ample head room on our leverage to accomplish our strategic goals.

Okay. And just to follow-up on the same store question, so basically what that is, is you've added in to those three acquisition, and then this year, and then subtracted out last year, the Kansas City Royals, correct?

That's correct.

And so it's kind of going down --

I don't think that's all the pieces -- I'm turning it. Yeah, I think that's -- yeah, that's it. I'm trying to remember if we had Portland coming in. I'm looking down the table, was that last year or not?

That was December.

Yeah, that was December.

Okay. So is there a way -- is there -- because I know you had basically the attached footnotes that kind of showed like an all-in pro forma, which the growth in that was pretty consistent with, what, you know, you showed in the press release, as far as like 4.6 revenue, 6.7. Is there a way to think about the growth in the quarter if you take out all the acquisitions? So if you exclude everything --

If we take out the acquisitions, I think we're on a -- which hit in the quarter, since we've done no acquisitions in the last year, that that is -- the same station number is the same.

Okay. So the 970,000, that is the revenue from all the acquisitions in the quarter.

Net of the divestiture of the Kansas City Royals.

Okay, thanks.

Joe Stauff with Schwab Soundview, you may ask your question.

Good morning, thank you. David, I just wanted to be clear in terms of your comments on Clear Channel and their inventory adjustments in general. Are you saying that, you know, none of your stations, basically, are running at unit loads which you would expect to trim is my first question. Can you just sort of comment about -- you had mentioned certainly some of the geographic strengths. How about some of the weaker parts and maybe what is going on there in particular? Thank you.

You know, the reason -- let me do your questions backwards. There is no regional negative story, other than sort of the ongoing lackadaisical growth rate from the Pacific Northwest, which, you know, we're tired of singing that song and you're all tired of hearing it, but the facts are the facts. Portland, Seattle, dragged behind, in terms of their market growth rates for the quarter, which, you know, again, we're optimistic that will turn, but, you know, it will happen when it happens. But that is what it is. I forgot your first question, Joe.

Trimming in the inventory.

Oh, the inventory. No, I mean, here, the Clear Channel initiative, we've been asked, does it provide a competitive advantage for Entercom? Reality is it provides a competitive advantage for the radio industry, because it begins to mitigate against a source of advertiser and listener concern that -- in a wonderful way. And I think that it is an unmitigated positive for the industry. From the standpoint of what they've committed to on an inventory level in terms of minutes, they will now be essentially in line with what our internal policy has been for years. So we don't -- there is no move we would need to make to get in to -- let's say, to be at a competitive balance with them at this point in time. Having said that, the second part of their announcement, we think may in the long run be equally significant, and that is, their intent on pushing forward on shorter commercial lengths. And you know, that is something that, for a long time, I have been enthusiastic about as well, because it's always seemed to us that in a world in which advertising time and television, other media, and just the world around us has gotten shorter and edit times on movies and television have gotten shorter, why people need to work their way through a full 60-second commercial. And we believe over time you will see shorter commercial lengths, which will, I think, accrue to the benefit, again, of listeners and the business model and advertisers.

Great, that's helpful Actually, one follow-up, if I may. Steve, you had mentioned you guys had expected about 3 million in political this year. I mean, considering that about 45% of your stations are in sort of battle ground states, is that a number that could increase or decrease, or is that -- and when sort of the timing of that would you expect to see some of that political --

I got a couple of data points. One, for the first half of the year, on net revenue, we've been -- we've seen about 600,000. So let's call that pretty small. That's local races, gubernatorial race, senate race, as well as presidential. Yeah, we are in some battle ground states; but don't forget, we were in battle ground states as well, when the candidates spent heavily and there were some hot political -- hot senate seats and gubernatorial seats. So look, we're not going to make make or break the year on political revenue. It's a factor. My point in mentioning it is, we've yet to see the Q3, Q4 political layer in. We believe there is some out there that will come our way, we just haven't seen it yet.

Thanks.

Lee Westerfield of Harris Nesbitt, you may ask your request question.

Gentlemen, thank you. Actually, two questions. Briefly, Steve, in the second quarter, your expense management came, as you mentioned, under original guidance. Is it possible to add color? What came in below your guidance as far as expense controls in the second quarter? And would the same be occurring perhaps for the -- or what elements of that may transfer to the third quarter? And then David, the leadership in terms of -- the showing in terms of bringing ubiquity and digitization into radio, what can we expect over the next several years in terms of the rollout in the digitization progress? Is that going to be -- if you were back end loaded in the third and fourth years, what should we allocate in terms of cap ex programs over the next four years?

Let me deal with the latter first. We don't really have any guidance for you today on that. This is all pretty fresh, and it's going to depend upon, you know, equipment availability and other factors that are being considered at this time. And we'll come back to you when we have more guidance on that. But, you know, just if I can -- I want to elaborate a little bit on that. You know, there's been some discussion -- one of our peer companies made a comment about ubiquity, about the fact that there is an issue there with short-term licenses, and I just wanted to note that there really is no controversy in the industry at all on ubiquity, that the licenses that we are going to be receiving are long-term perpetual licenses, and it's a real win-win deal for the industry, and for ubiquity and for the future of digital radio. And again, we're very optimistic we are going to see the vast majority of the industry jumping on board and making announcements here in the not too distant future.

Lee, on the capital side, while we haven't -- we've never given long-term cap ex forecast, I think you've seen our general run rate, on the platform as we know it today, be in the 10 to 12 million range. We see no reason that that would not be a good range of numbers to use for several years going forward, including the rollout of ubiquity. A great flip side, a vast majority of our cap ex over the past couple of years has been directed towards facilities consolidation of our acquisitions, and we've digested the vast majority of that. The question, the first part of your question was on earnings -- or excuse me, expenses for the second quarter. You're right, it was under our original guidance. Two factors. One, we did have some rain-outs -- Memorial Day, you might recall, was quite rainy in the Northeast. We had some concerts and events rained out. I would note we didn't get the revenues on that that we anticipated, nor did we carry some of the expenses for acts and other things. So that was a factor. A little bit of expense management as we saw May/June slow down as we pulled stuff back, and a very little bit of marketing that was deferred to Q3; and that's why I gave earlier the color that we would expect Q3 expenses to be in the 3 to 3.5% range. At this point, we're very comfortable with that range for Q4 as well. Although we've not really established guidance for the fourth quarter, we don't see anything changing in our business model.

Okay. Gentlemen, thank you very much.

Michael Russell with Morgan Stanley, you may ask your.

Just a follow-up, Steve, on the expenses, your first quarter guidance you talked about 4% guidance for the second half of the year, so if money's shifting from a little bit on marketing from 2Q to 3Q, that the numbers are coming down. It seems like there's maybe another $2 million you'e kind of taken out of the expenses from what you were thinking or guiding to in the first quarter. Can you just give us a little color on that?

Well, the revenues came in under what the we expected as well; and as I said, we managed some stuff, some expenses that we pushed off, and some expenses we just decided not to do.

Okay.

There is really nothing material.

Okay. So -- but the promotional expenditures or the spending around the different ratings books continues kind of --

Yeah, in my comment on marketing, it was a very, very small amount that shifted. Now we spent the money on marketing -- we're not trying to manage our earnings through our marketing expenditures, those just really were tactical as opposed to financial.

Okay, great. And then on WEEI, obviously, you've had really great ratings strength simulcasting in Providence, and all the initiatives, I think, are really showing up in a very strong audience, and is probably your most important radio station. Can you just give us an idea of how the ratings kind of -- , you know, will we continue to see ratings gains or will that start to cycle through? When do we see a revenue lift? Or how should we think about just WEEI, somewhat in isolation between ratings and revenues?

Well, first, I wouldn't overstate it its significance. Is it one of our most important brands? Absolutely. Does -- can you make the case as goes EEI, so goes Entercom? Absolutely not. Because it's still a pretty small portion of our overall picture. I would not expect ratings growth beyond this level. I mean right now, again, it is the highest rated sports station in the United States, and, you know, it's hard to imagine how much higher it could go in ratings. What I do think is that the, you know, revenue acceleration that we've seen over the last, you know, periods, will probably continue for some period of time. There's just a lot of momentum behind that radio station. It's the -- you know, arguably the hottest media property in the Boston Market right now, and it's a nice place to be.

Okay. Great. Thank you very much.

David Miller with Sanders Morris Harris, you may ask your question.

Yeah, Steve, I just wanted to make sure I heard you correctly. The -- last year's Q3 pro forma number, on the revenue side of 109.3 million, includes Buffalo, includes Providence, but subtracts the activity from the Kansas City Royals? Is that correct?

Includes Buffalo, includes Providence, includes Indianapolis, which I believe did you not say, and yes, does eliminate the Kansas City rRyals.

Okay. Great. And also, could you just refresh our memories as to what your debt covenants are at this time? Thanks.

Kind of irrelevant, given that we're replacing the facility. I will note that our current debt leverage ratio is at 4.0 in terms of the covenant -- under the current agreement, which will go away in the next couple of weeks.

Okay. Wonderful thanks very much.

Okay.

Larry Hagerty of State Street Research, you may ask your question.

Yeah, Steve, is that the only advantage in the new -- in the new line? Or do you have more favorable spreads as well?

On the new facility, we will have an increase in capacity. First, our existing debt facility was established in 1999. It was a term and step down over time. So we began to bump up into just raw limited capacity. Second, as to pricing, it will be fairly similar, and -- under our current leverage. It will be more favorable at lower leverage, and more favorable at increased leverage. It will be a larger facility, and it will be a revolver.

Okay. And then on the [INAUDIBLE] front, are you too conservative on the EI? Because the talk meter has gone up measurably since the Red Sox gave away Nomar.

You know, the beauty of Boston, as you well know, Larry is there is always another story, there is always another controversy. There is no shortage of drama in the -- in the Red Sox nation.

The curse continues.

Thanks a lot, Steve, David.

Alissa Goldwasser with William Blair, you may ask your question.

Hi, greetings from Chicago. Just curious, what percentage of your revenue currently is nonspot? And what the trends in that business have been, whether that has been growing faster than your spot revenue? And also what the margins look like comparable to your spot revenue?

I guess in order to answer the question, Alissa, it needs to bake it down a little more, because for us, you know, developing sort of nontransactional business of a nonspot nature, has been an important driver for us. It is still a relatively small portion of our business, but one that is, you know, maybe three or four percent of our business, but growing a little more rapidly than our overall model. And we think it's an important area for us to continue to drive going forward. And we continue to look at creative ways to do that. It's not necessarily just events and other initiatives of that sort, but it's other just creative programs to develop with advertisers that enabled them to move their goods and services and for us to find new sources of revenue that does not put pressure on our inventory.

And the margins vary all over the place, Alissa, because there are so many categories within NTR. You can have fairly low margins, let's say, on a concert or a an event; but yet, it's a good brand extension, so it is a good thing to do. You can have high margins, one could argue, incrementally on something like Internet web sales, things like that. So it does range. We monitor that. We make smart business decisions, both financially and for the brands.

Okay, thanks.

Lorraine Manseney of Merrill Lynch, you may ask your question.

Thank you. A couple of questions. First, you stated that auto activity has picked up a lot in September, and it was kind of soft in July and August. Do you think that that's sort of a new trend, or is it possible that money was just kind of held back and waiting for the car launches that are coming this fall? Second, are you seeing any signs, anecdotal or otherwise, of Internet search engines targeting the local ad base in your markets? And then third, you can just kind of quantify what percent of your growth came from more price increases or improved sell-out?

Sure. As far as autos is concerned, I don't think we ever said that automotive national was up in September. We actually said the converse, that we had just stated that it was soft in July, and in August. There is talk of more incentives coming out of Detroit and so on. And I think there is a positive buzz out there, but I think it's too early to tell whether auto spending is back in a big way as we look to September and beyond. Internet search engines as a competitor, a total nonfactor. We don't see it, we don't feel it, it's a nonissue for us at this time. As far as price and sell-in are concerned, you know, we are seeing -- I guess it depends upon what time period we're talking about. If we're talking about Q2, early part of Q3, we're seeing sort of, you know, anemic growth in -- you know, it is a balance, let's put it that way, between price -- and unit sales are pretty flat.

Thank you.

Jim Goss of Barrington Research, you may ask your question.

Thank you for taking the call. A couple of questions. One, going back to the Clear Channel spot load issue, how unified, David, do you sense the industry is on this concept? And are you concerned at all that any competitive response will undercut the effort? Second, related to Internet advertising, is there any positive that's coming out of the resumption of favorable ad trend on the Internet side that is having any favorable impact on your stations? Probably nothing like 2000, but in any way? Then also in terms of the September comps, I think it's interesting that you're seeing the strength, especially on the national side, because looking back at the RAB figures, national was up 13% in September last year, and 26% the year before, and I'm not sure when we get to a normal stage, so I'm just sort of wondering what you think in that terms.

Clear Channel response, you know, obviously every company is going to do what they think is right for them. But our -- you know, my gut on this is, that you're not going to see anybody exploiting it for short-term benefit, long-term detriment to their business model. But you know, we'll see. But we're pretty optimistic on that. Internet ads are increasing. That is a growing category for us. But as you pointed out, Jim, it is off of a -- you know, a pretty small base and obviously nothing near the '99, 2000-type levels. And as far as September is concerned, yeah, I mean you've pointed out some interesting historic numbers, but, you know, again it appears to be pretty strong this year and for whatever reason, it is becoming, you know, a more -- it is a pretty good growth month -- you know, we'll see when the dust clears.

Okay. Thank you.

Dustin Wang with J.P. Morgan, you may ask your question.

Thanks. Just two questions for Steve. Steve, the run rate on cap ex year to date is well under that 10 to 12 million dollar figure, so should we expect an acceleration in the second half, or do you think the full-year number comes in a little bit lower than that? And secondly, there was an increase in the cash tax numbers, both for the second quarter and -- I guess mostly for the second quarter. Where do you think that number shakes out for the year? Thanks.

Cap ex for the year, we feel very comfortable, at $12 million, as we will file in our 10-Q soon. You're right. Some of that is back-ended. A couple of -- coupled with our HD radio, announcement that we made yesterday of where we're going to roll in a couple of markets and a couple of other things that we will stack up in Q3, Q4. We have one more major facility project that we may trigger year and spill into next year, and that's consolidating Kansas City, where on the Sinclair acquisition of 2000, we ended up with two facilities. We want to get everybody under one recover. Cap taxes will be determined. We have a run rate now on deferred taxes of approximately 35 to 36 million. That's an annual figure. And it's just going to be a question of what the income before tax will be. You're right. We're up on taxes Q2 over prior year -- last year, we had NOLs and did not pay any cash taxes. So we became a cash taxpayer spencer in Q4 of last year the. The deferred taxes run out, stagger for between 10 and 15 years, frankly. Indianapolis, we will start the 15-year clock on that. So we still have significant tax shields going out for quite some period of time, but we are a cash taxpayer.

And Steve to follow-up, on that the 35 to 36 million deferred run rate benefit, does that include all the acquisitions you've announced to date?

Yes.

Okay. Thanks.

Once again, if you would like to ask a question, please press star one. David Bank with RBC Capital Markets, you may ask your question.

Thanks, good morning. Two questions. The first is, sometimes I think we look at the national local split kind of granularly as a follow-up to the last question, and I get the sense that some accounts may actually have shifted their buys from a national to a local, or a local to a national, sort of exaggerating the -- exaggerating a swing in results. And I was wondering, have you sort of heard of any major accounts that perhaps last year were buying nationally and may be we're going more locally, or vice versa would be the first question? And the second question is, as a follow-up on the sort of spot load issue, when you potentially move the unit from a 60-second to, you know, something closer to a 30-second unit, what do you think that does to pricing on the unit ultimately?

As far as local, national shift -- again, it's pretty much noise level. There may be, you know, I think you one or two maybe telecom accounts went national to local, but it tends to be equal and opposite for the most part. Your question on pricing, on shorter units is, of course, an interesting one. You know, and it's a transitional question, and, you know, over time if you can demonstrate to advertisers that a 30-second ad can be just as effective for them as a 60-second ad, then the value would be essentially the same, and therefore the pricing should be essentially the same. Obviously, that's a challenge. Obviously, that's a hurdle for us. And there will be a process here, and, you know, we'll see how it evolves. I don't think there is a downside scenario here, because I think if there is a great resistance on the part of creative -- of the creative shots to this, then we will essentially stay where we are today, which is fine. But there is upside there, if we are able to transition into -- into an environment with shorter commercial lengths, where pricing holds, you know, at or -- you know, very close to current, you know, current levels for longer commercial units.

Thank you.

Chris Dine of A.G. Edwards, you may ask your question.

Hi, thanks. I was just wondering what the sell-out was for August? And is there any surprise potential left in that month, or is it pretty much all based on September? And then also, does anyone other than ubiquity going to be working or driving the deployment of HD radio units? And is there anything that the industry at large is kind of doing to work with the OEMs to kind of accelerate that process?

Yeah, it's -- there is a lot of stuff going on, you know, ubiquity obviously speaks to obviously all of the consumer electronics manufacturing companies, Detroit, et cetera, et cetera. And I think that the announcements that you've now seen from Clear Channel and from Entercom and most likely from others coming up, I think will give great fodder to their efforts to accelerate commercial deployment of the technology. As you probably know, there are a small handful of commercially available receivers in the marketplace today. But again, with the -- with the acceleration in the roll-out of stations putting out the technology, we think the adoption rate will accelerate here in the future. You know, as far as August is concerned, you know, sell-out rates, we are, you know, right where we would expect to be about at this time, as we enter the month, you know, with roughly three quarter was our inventory behind us. Maybe 80% behind us.

Thanks.

I think that's our last question. And so we thank you you all very much for joining us here this morning. Again, thanks to the folks on the West Coast who joined us early, and we look forward to reporting back to you in three months. Thanks.

This concludes the conference call for today. You may disconnect at this time.