Audacy Inc (AUD) 2004 Q3 法說會逐字稿

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

Thank you operator, and before we start today's call, and thanking you for joining us, I would first like to make the following notes. The matters we'll be discussing here today contain certain forward-looking statement that are based upon 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 fillings 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, included changes in the economic and regulatory climate of 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 you to our website, 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 measure. In addition, our website includes useful tables of prior period pro forma financial information, adjustments for acquisitions and divestitures. And now to begin today's call, David Field, President and Chief Executive Officer.

Thanks, Steve. Good morning, and thank you, everyone, for joining us for Entercom's third quarter earnings call. We achieved record breaking net revenues and station operating income for the third quarter, as net revenues increased by 4 percent to $112.5 million, and station operating income increased by 5 percent to $49 million. In addition, EPS grew from 41 to 43 cents per share, excluding special charges. On a same station basis, net revenues increased 3 percent, while operating expenses increased by only 2 percent, enabling us to grow station operating income by 4 percent. Our same station revenue growth of 3 percent significantly outpaced our markets, which were flat for the quarter. Furthermore, we gained revenue share in 13 of our 18 measured markets. In fact, 5 of our mid-sized markets achieved double digit revenue growth for the quarter. We are very pleased with our third quarter results in the context of the challenging business climate that adversely affected a broad range of advertising supported media, including not just radio, but of course television, newspaper, and others as well.

We increased local revenues by 5 percent during the quarter, enabling us to overcome a difficult national ad market which caused our national revenues to decline by 6 percent. We also did an effective job of managing expenses, as I mentioned earlier during the quarter, enabling us to expand our margins despite the minimal revenue growth. In sum, our team did a strong job of executing during Q3. Now, looking beyond the numbers, there are many exciting things going on both within our company and within the industry that bode well for the future. Throughout our history, we have added great value at Entercom by creating compelling new station formats, enhancing sales practices, and developing the talent of our people. We continue to see dynamic growth opportunities, and are focusing on needle moving innovation in each of these areas to drive performance. For example, in the programming area, we are achieving significant success creative new formats and brands in several markets. You may recall that we acquired 2 stations in Portland from Fisher Broadcasting last year, including one that had been the perennial number two country station in the market. While we kept the country format, we enhanced the programming, and invigorated the brand by reimaging it as The Wolf. In the recently released summer Arbitron ratings, the station surged head. Not only did The Wolf beat its country rival, but even more significantly, it jumped to number one in the entire market. We are already achieving financial results well beyond our expectation on that acquisition, and based on the summer ratings, this deal is looking more and more like a home run for Entercom.

In addition this summer, we launched a new station called The Lake on the signal we acquired from Adelphia in Buffalo earlier this year. The Lake is an iconic classic progressive radio station specializing in deep album tracks, similar to its sister station, The Mountain in Denver, that we have talked about on prior calls. In its debut ratings, The Lake quadrupled its audience from a 2 percent share of men 25 to 54 which it had under Adelphia's ownership in sports programming to an 8 percent share in that demographic as The Lake, jumping to fourth place among men 25 to 54. While The Lake will have no financial impact in 2004, it will help accelerate our revenue growth and cash flow growth in Buffalo during 2005.

Finally in Greenville, we are developing a success story with innovative new format that blends contemporary Christian music with compatible country songs. The station, which we call The Walk, has steadily improved its ratings since launched in 2003, and we are very excited about its progress. Overall, we feel that Entercom's ability to create dynamic original programming with a strong track record of is a powerful differentiator and an important competitive capability for the future. Switching to the sales front, we continue to achieve great success with our shred business development initiative, that has enabled us to attract scores of new advertisers to radio, and generate millions of dollars in new business. Most significantly, we are very excited by the reactions of so many of these advertisers who have told us how pleased they have been with the results of their radio marketing campaign, and that they intended to renew or expand their spending in radio in 2005.

On an industry level, we are very excited by progress on key initiatives that are fundamentally enhancing radio's appeal to advertisers and listeners. While there are many good things happening, I will briefly update you on three of them. This past summer, the Radio add Effectiveness Lab, which we call REL, released the first major new study on radio in many, many years. The Worthland study is very positive for radio, and demonstrated radio's unique ability to emotionally connect advertisers' products to the listeners. This study has already been presented to hundreds of advertisers across the country, and has received excellent feedback. A second major study by REL, being done by the pretesting group, will be released this December. Another area where radio is building momentum is through the Radio Advertising Bureau's, or RAB's, radio growth initiative. Through this initiative, RAB has expanded its senior marketing team from one individual to seven, which has given radio the ability to communicate effectively to senior brand managers and Fortune 500 marketing manages across the country for the first time in its history. Based on the feedback we have been receiving, there are several large advertiser that have interest in expanding their investments in radio.

A third area of progress is the impact of Clear Channel's less is more initiative. We remain very supportive of this effort and believe it will have a positive effect on industry dynamics in 2005. We are already seeing some advertisers placing buys of 30-second commercials. The shift to shorter commercials should benefit listeners, advertisers, and broadcasters by reducing the number of commercial minutes, and reducing the costs for advertisers who opt to shorten their messages, all of it the without adversely affecting the revenue potential or business model for the stations. So in sum, enhanced industry marketing, major radio effectiveness research study, and less is more are just a few of the industry initiatives that we believe will enhance radio's future. We would expect to begin to see some positive impact of these initiatives on industry performance in 2005.

A few other notes. During the quarter we aggressively implemented our stock buy back program, completing the $100 million repurchase that was authorized in May. I am please to announce today a new $100 million stock buyback authorization. The fact is that Entercom's current stack valuation does not adequately reflect the fundamental strength of our company or the radio industry, and thus it remains highly attractive for us to continue to buy back our stock. Also, on September 3, we completed the acquisition of our 3 three new stations in Indianapolis, and we are pleased with our progress in that market from a financial and an operation point of view.

Finally, a few words on the current business climate. Business conditions for fourth quarter have improved moderately over the past few weeks. September and October both strengthened in month as a significant amount if of last minute business was placed. Our November and December results will largely depend on retail sales conditions over the next few weeks as advertisers make last minute decisions based upon the activity levels. Looking ahead to 2005. While it is still very, very early, there are some very positive indicators worth noting. Pacings for Q1 are substantially ahead of last year, although only about 15 percent of our Q1 business has been written to date. We are also encouraged by the early results of our 2005 rate negotiations. In general, we are seeing rate increases of between 5 and 10 percent, and in several cases even higher on our 2005 annuals. We have seen this level of rate growth across the a significant number of accounts and markets.

In conclusion, I would like to salute the Entercom team for their performance during Q3, and for continuing our multi-year record of continuously outpacing the peer group. Entercom remains committed 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 also steadfastly committed to working with others in the radio industry to develop and implement industry initiatives and enhancement to optimize our future potential. In sum, we'll continue to hold ourselves accountable for delivering superior results for our shareholders. Steve?

Thank you. First let me make a few comments on guidance in the quarter, then we'll open up for your questions. For the fourth quarter of 2004, the Company expects to report same station net revenue increase in the low single digit range. I would remind you that prior year same station data was 107.5 million for net revenues and 62.4 million for station operating expenses. Our expense growth in the fourth quarter will probably be around 4 percent reported over prior year, but I would note that last year's fourth quarter included a significant favorable credit to expenses upon settling the industry's music license contract. Some of our peers, I know, took that in the third quarter; we reflected that in the fourth quarter of 2003. Therefore, real year-over-year expense growth is in the 2 to 3 percent range, which includes expense of the new brand launches that David talked to you about, baseball playoffs, and other sports rights, so we think we're doing a great job in managing our expenses. With this guidance, Entercom's expense growth for the year would be at 3 percent.

Interest expense for the fourth quarter, and again interest net interest expense for the fourth quarter, should increase to about 6.1 to 6.2 million, with the completion of the initial $100 million stock buyback, and the closing our Indianapolis transaction in September. This guidance for interest does not assume any further share buyback. As a result of government and audit requirement, we would expect to see our normalized corporal expense run rate of approximately 4 to 4.1 million for the fourth quarter. We expect capital expenditures for the year of approximately 12 million. And a significant portion of that will hit in the fourth quarter, a little over 6 million. The majority of this fourth CapEx results from the beginning of our planned consolidation of two facilities in Kansas City. We ended up with two facilities from the 2000 acquisition of the Sinclair [ph] properties, in a market where we already had a facility, into one new broadcast center. This project is start -- is anticipated to start in the fourth quarter, and continue into 2005.

In the third quarter results, David gave you highlights on the operating performance. I again, it was a record quarter for Entercom on many parameters. On expense management, we reported 2 percent same station expense growth, and I'm pleased to note that our station operating income margin, or the old BCF operating margin reference, increased to 43.5 percent, and represents a record high for a third quarter for Entercom, even with the expenses of new acquisitions and formats. In the third quarter, we put into place a new $800 million revolving credit facility. This facility can be expanded under certain circumstances. Our outstanding bank debt under the facility at the end of the third quarter was 355 million in senior, and in addition, we had another 150 million of senior subnotes. We ended the quarter with leverage of approximately 2.9 times operating cash flow. Early in the third quarter, as David mentioned, we completed our initial share buyback, which was announced in May, thus retiring almost 2.6 million, or 5 percent of the outstanding shares of the Company. For your guidance at the end of September, our new basic share count is approximately 49 million. So let's recap just briefly on the balance sheet the highlights of the first 9 months. A hundred million dollars in acquisitions, on track and performing superbly; a hundred million dollars in buyback, and we still have leverage of three times, so great flexibility as we enter into the new year. Operator, with that we will open up the phone lines for any questions.

[Operator Instructions]. Paul Sweeney, Credit Suisse.

Thanks very much. Good morning. Two questions. First, David, just on less is more, just wondered if you could summarize as you guys get into your budget process what you think the impact will be on Entercom in '05? To what extent, if any, will you have to maybe address your spot loads and you stop sets, and that type of thing? And then just a follow-up to that would be where are you today in your mix of 60s versus 30s on your stations, and do you foresee a more sustained effort to kind of move to the 30s? And then last, just on shred, you mentioned your shred effort. Is that getting any additional traction, give some of the circulation issues from the new -- newspapers you have been dealing with this year?

Let me jump to to the last question first be Paul. The first one's going to take a little longer. It's a little early for us to say whether we are getting additional traction. I think clearly there are a -- all year long, as we've been going through this, there are a substantial number of advertisers who are frustrated with their newspaper advertising, and who are interested in looking at alternatives. Radio presents itself as a very attractive alternative because of our pricing, because of our reach, because of our frequency, our target ability and so on and so forth. The circulation issues can only make us that much more attractive. Less is more is obviously a fascinating topic, and again, we very much applaud what Clear Channel is doing. I think unequivocally, this is a positive for Entercom in 2005, and I also thinks it's a positive for the industry, and I can't speak for Clear Channel, but I also believe it will be a positive for them. Why do I say that? First off, from our standpoint, with the reduction if their supply, obviously the scarcity value of radio advertising becomes greater, that's a positive. We have, for many years, frankly, throughout our history, maintained a vigilant policy of being a leader in low commercial loads, so that we have no need or foreseeable intent in any way, shape, or form, to reduce the amount of commercials that we run on our radio stations, because we already are market leading in that category. Having said that, we do believe that a shift to 30s is an excellent thing for the industry, and we are starting to see it happen. Right now, to your question, on our FM music stations, virtually all of the advertising -- let's say well over 95 percent is 60 second commercials. As advertisers begin to see this as a compelling choice, where they can buy -- they can message to consumers for, let's, say, 75 cents on the dollar, and just more effectively target their message in a shorter period of time, it creates a win for them; it will enable to us reduce the length of our commercials, which will be a win for our listeners; and finally from a business model standpoint, it will be enhanced -- it will enhance radio's appeal, because we will -- because if you think about it, if we can get 75 percent as much money for 50 percent as much time, you do the math, it creates an opportunity for everybody to benefit, so we're excited about it, and I think it's starting to happen.

Great. Thank you.

Alissa Goldwasser, William Blair.

Just a question on your comments about the annuals that you've seen come in so far. Given the amount of late buying we've seen this year, what do you think is giving advertisers the confidence to commitment to annuals at significantly higher rates, and secondly, how does the volume of annuals at this point this year compare to the volume of annuals this point last year?

It's always hard to crawl into the mind of advertisers. I mean, frankly, I think they stole our business this year and got away with a real bargain. I think perhaps reality is sitting in a little bit, and as they look to 2005 and look at their business models, what have you, for whatever reason, they are stepping up and paying, a, you know, moderately higher rate as we go into next year, which reflects a fair -- I think a fair balance between demand and supply. As to the -- I'm sorry, Alissa, the last question was the volume of these?

Yeah, I mean are you seeing as many inquiries about annual deals this year as you did last year?

I think probably a little more so than we have in the past, from what we're hearing.

Great. Thank you.

Drew Marcus, Deutsche Bank.

Good morning.

Hey, drew.

The question is, given the state of the growth of the industry at this point, and the outlook in the acquisition marketplace, and your desire to buy back stock, what's the right amount of leverage you would be willing to to go up to in buying back stock?

Yeah, it's a great theoretical question, I'm not going to give you a definitive number. I will just say that we have always run the business in a conservative fashion, giving ourselves enough flexibility to do acquisitions or buy back. I think the business model and the free cash flow generation easily supports leverage in the 4 to 5 times range. Would we take it there for an an acquisition? I'd have to leave that to the Board and the acquisition specific, and we will continue to do share buybacks through the period, but we don't want to give a target, because I think that's too much signalling.

And then secondly, I have to ask about the Red Sox. What's the financial ramifications of the World Series victory, and what does it mean for next year's broadcast of the Red Sox?

I'll jump on this, because David is too rabid a Red Sox fan to be able to answer that with clarity --

-- or objectivity.

- or objectivity. In terms of the financial performance to Entercom, you may recall that there were 9 playoff games last year, and approximately the same this year. Then the Red Sox went to the World Series. We don't achieve as much on the World Series because that is a network broadcast. Let me point out that WEEI had a spectacular book in the winter before the Red Sox started playing. We obviously would anticipate a strong book through the fall. WEEI, which we purchased in 1998 and did material rebranding, has been on a significant growth trajectory, along with the rest of our brands in Boston as well. So, we yes, I would expect to see WEEI without the Red Sox be a major contributor next year. The dilemma we're all going to have as financial players and as team cheerleaders is will they make it to the playoffs so we won't have pro forma adjustments next year? And that, I'll let David prognosticate on that. Are we going to the playoffs in '05?

We'll see.

That was a -- that was not an exciting endorsement there. Drew, obviously, I would say to summarize, the Red Sox were pretty much a push in the fourth quarter, but obviously it's going to generate a lot of excitement into next year.

Thank you.

Victor Miller, Bear Stearns.

Good morning. I'm predicting the Sox will win the World Series again in -- within the next 86 years. Anyway, as a -- you're probably -- we did a little analysis, about 44 percent of your revenues were in the swing states, the big swing states. Wondering what you're seeing in terms of political recently on radio, and also maybe you could talk about the core categories beyond November 2, and see what you think the shape of those are in. And secondly we just did a recalculation of an analysis we did early where the satellite radio business, right now, the enterprise value is about $15.6 billion dollars, and they're projected to lose about $741 million in EBITDA this year. Beasley, Citadel, Cox, Cumulous, Entercom, Region, Salem, Spanish and Radio One are all worth $13.2 billion, so they're worth about $2.4 billion less than the satellite business, yet they deliver almost $900 million of EBITDA, so it's about $1.600 billion EBITDA disparity between the two industries. What is this -- what is this in your mind telling us about what investors are thinking about the satellite and terrestrial radio and business, and what can be done about it, if anything?

Let's deal with those in order. As far as political is concerned, yeah, we're in some battleground states, on the other hand -- and yes, we've seen some acceleration of political spending late in October. On the other hand, if you look at the epicenter of the battles, Florida we have a -- essentially a negligible position; Pennsylvania, we have a very small position, and of course we're not in Ohio, we're not in Minnesota, we're not in Iowa, and so on, and so forth, so I think on balance we're probably going to get a slightly below average impact from political in October, but it's been okay. As far as satellite is concerned, you know, Victor, you framed it very, very well. Obviously, you know, there appears to be a huge discrepancy in terms of marketplace valuations on where satellite and free radio is today. I think they are benefiting from, to some extent, the halo effect that they have, and the market is giving them somewhat of a pass in terms of generating, as you said, hundreds and hundreds of millions of dollars of losses each year. You know, all I can say is that we can't influence where the market values these businesses. All we can tell you is about the sanctity of ours, and as we look out in the future in terms of our ability to leverage the platforms and the business model we have and continue to grow revenues and cash flow on a steady and attractive rate over time, we do not believe the satellite industry, even in an aggressive scenario, materially impacts that prognosis.

And the core categories beyond November 2?

Core categories in terms of?

Just how they look past -- there's some concern that the core categories in local TV and radio might be suffering a little bit after, because the political has been so huge.

Right. You know, it's too early for us to talk about where we are in Q4. I would be happy to give you some Q3 color if you would like that.

That would great.

We saw some significant growth in automotive during Q3, and it's interesting, I think some of that may be that our shred efforts to be developing new local accounts from newspaper may have given us an incremental impact in terms of our ability to grow automotive against, maybe, some of our competitors. In addition, we've seen strong growth in health and medical, home furnishings and improvement. Professional services. In terms of declines during Q3, we saw a little bit of slippage in travel, and also in telecom.

Thank you.

Tim Wallace, UBS.

Thank you very much. Could you comment on how Seattle is doing since that's one of your important markets? And then secondly, David, it seems as though the second quarter, I've heard comments that December is still kind of soft, but it looks like the -- excuse me, the fourth quarter looks like it's softer than what you're seeing in the first quarter, which is an interesting dynamic. Could you maybe elaborate on that a little bit, and explain why that might be happening?

Sure. Tim, as far as Seattle is concerned, Seattle, I would say, as a market is essentially in line with the industry -- industry growth that we're seeing. As far as the -- you know, Q4 versus Q1, again, I was a little hesitant to introduce the Q1 data points on this call, because it is early, and as is I mentioned, only 15 percent of our Q1 business has been booked as of this time. Nonetheless, I think that the magnitude of the growth we're seeing, and particularly the fact that rate increases -- healthy rate increases seem to be sticking across the board are worthy of mention. Why is that occurring? You know, I think candidly we're asking for fair rates of increases given that we are the low cost provider for advertising, and we have been getting -- and we have not been getting the rate increases over the last year or so that we would have anticipated, and I think maybe there's a little bit of a catch up coming here.

Maybe a follow-up question on October and November. How did they -- how were those months a month or two ago relative to how they ended? For instance, October, and where November is now.

October, as I mentioned, has definitely accelerated during the month, and ends up being sort of in line wealth our guidance, and was significantly below that several weeks ago. November and December have been pretty steady. November looking better than December at this point in time. But again, the problem you have is that we have the swing factor of how retail will perform over the next few weeks. And obviously if the consumer steps up and advertisers get aggressive, then we could end up seeing some incremental pop. On the other hand, if they don't, obviously we won't.

Thank you very much.

Jonathan Jacoby, Banc of America Securities.

Two questions here. Three questions, actually. The first one, you're making some investments in programming. Do you think that's something the industry has to continue, and perhaps that's something we'll see more of over the next few years as -- you know, there's more, probably, competition from -- between satellite radio, MP3 players, and how the consumer sort of demands music? Second question is on the annual side of business, obviously, it's really nice to see these pricing increases. When you're sitting with advertisers, are they becoming more interested in the 30s? Are you seeing a higher take rate than normal? Are you pricing them at that 70, 75 percent level of 60s? Do advertisers also look through sort of the ratings declines for the radio industry over the last few years? Is that something that plays in the conversation and then the last question is on pricing sell out trends. What you're seeing in the third quarter and fourth quarter.

Alright, Jonathan, that's a lot. Let me try to do those in order. First, in terms of product innovation, absolutely it's important, and we're going to live in a world that is going to be competitive. Guess what, we've lived in a world that has been competitive for many years, as well, and it's going to be important that we have compelling product on the year, and we start with the foundation of a billion radios that are ubiquitous. We are free, we are local, competing with a lot of businesses that don't have that opportunity. We have some great brands, we have some terrific personalities, we've got a great platform, but yeah we're going to need to take some risks and do some innovate effect things to drive some listening. And if you look at what the industry is doing over the last year, it's happening. Far from being a homogenous business, this is an industry that has embraced progressive talk in Air America. Rolling that out in a very aggressive clip over the last several months. Iconic classic radio stations that break with formulas, such as the progressive classic stations that we have in Denver and Buffalo that we talked about on this call. And what we call the Jack, Bob, Dave stations that are popping up around the country that are, again, breaking rules and playing broader libraries and doing different things. These are exciting developments. We've got great growth in gospel music, Hispanic music, hip-hop. There are interesting programming R&D projects underway at our company, and I'm sure at our competitors, as well, so I think that radio will continue to evolve and continue to dynamically innovate over time to meet the needs and the desires of listeners.

Turning to 30s. We're not out aggressively pushing 30s, but we're seeing the ripple effect of what Clear Channel is doing, and yes we're starting to see advertisers opt in where they see the opportunity to run their message in 30 seconds, reach the same number of people, deliver a message that is just as effective, and save about 25 percent of that. So, yes, we're starting to see a build -- it's early, but we're starting to see the impact of that. You also mentioned ratings decline in radio. And I again, I think it's very important that we frame that. Yes, there is a very slow and gradual attrition rate in the level of radio listening that has occurred over the last few years, but it's important to frame that against a society that has an extraordinary, expanding, diffusion of time across everything from video games, DVD players, and you name it, a thousand different distractions, and if you look at the ratings tracks of radio, versus what is happening to our principal competitors, I think it's safe to say that from a relative standpoint, radio is actually is increasing rather than decreasing its share of time with the consumer. And your last question was in terms of Q3 and Q4 sellout rates. At this point, there's not much color that I can lend to that that adds much value. You know, this is not a bull market right now that we're in, but, you know, I think there's a healthy amount of demand, and, you know, right now, again, depending on what happens over the next few weeks, as retailer see how business is for them.

Thank you very much.

Jim Boyle, Wachovia.

Hi, it's Marci Ryvicker. Good morning. You mentioned about ad rates for the annual contracts. Can you talk about how they were there in Q3, and how they are now, and also can you just tell us if business has been placed any earlier?

Business, I think, is getting placed a little bit earlier, as we look to first quarter and again, it's early. As to the Q3 results, I mean, basically, the rates we were receiving were flattish to, let's say, anemic single digit growth. Obviously, there were some variance in those rate increases, but more or less that was the case, and, you know, I would say on average probably a low single-digit rate increase consistent with the low single digit increase in our revenues. There's no question that what we're seeing book for '05 so far, and -- again, it's early, is demonstratively better.

Okay, also, you mentioned that you gained revenue share in 13 of your 18 markets this quarter. How does this compare to the previous two quarters of this year, and also last year?

I don't know if we have that is data in front of us right now, but if you look back over quarter after quarter, year after year, one of the things we're most proud about is the fact that in -- I think, virtually every single quarter since we've been a public company, we have grown share within the radio industry with the -- somewhere between the majority and the enormous majority of our stations -- of our markets, rather, gaining share, but the aggregate Entercom gaining share, I think, again, in virtually every single quarter since 1998.

And lastly, Clear Channel's less is more initiative is set to start in mid-December. Have your GMs noticed any of public or private groups preparing early and reducing inventory already, and if so, what type of impact has this had on your market?

I'm not aware of any other groups making any moves at this time. Obviously, Clear Channel's move has been widely publicized. I know there have been some comments from Infinity that they selectively pruned inventory at certain of their stations, but beyond that I'm not aware of any other moves at this time.

Okay. Thank you.

Jason Helfstein, CIBC World Markets.

Thanks. Three questions. First, what was the annual pricing -- or pricing up for annuals last year? That's question number one. Question number two, Steve, it looks like you guys have done a really good job this year managing expenses with the anemic revenue growth. Any kind of reassessment of what you think the core expense growth is of this business going forward, and perhaps just to throw out a guess for next year? And then lastly, something a little more big picture, now that the copyright has been -- or the copyright fee has been settled, your thoughts on a streaming strategy, and have you guys ever seen any statistics for that that show that that's interesting in any way to you guys? Thanks.

Let me jump on first and third question, Jason, there. As far as annuals, I don't -- we don't have data in front of us as to where we were last year going into annuals season, but I think it's safe to say that the tone of annuals going to last year was probably a little bit weaker, but, again, we don't have accurate data in front of us, so I really don't want to go there. On the copyright issues, with streaming, we are advancing towards a decision where we will probably be streaming many of our radio stations here, over -- starting within the next couple of months. Nothing definitive yet, but we are heading down that road, believing that on balance it is something that's worthy of doing. And as --

-- On the business model question, we're not giving guidance for next year, but we don't see any material change to our business model. There's no categories, line items, et cetera, that -- while we will monitor each one, there's nothing unique in our business model that would change next year over this year.

Would you say then for example this quarter, as far as expense control was like a normal quarter for you, or was there something -- did you guys do anything more draconian this quarter because of the top line.

No, I think we were -- we were normal.

I'd add by though, we expanded marketing spending during the third quarter, so it wasn't like we were looking that I discretionary items and pulling back.

That's correct.

Michael Russell, Morgan Stanley.

Thank you. David, one of the things that people have kind of noticed is that local markets and smaller markets are seemingly a little stronger, have easier comparisons -- I don't know how you want to describe it -- than the larger markets, where national is a little bit weaker. Could you give us an idea? It seems like the national has some tougher comps in the third quarter, and that a lot of that should take care of itself by the fourth quarter, but just as you represent servicing a lot of large markets and a lot of little bit more national, could you give us an idea of what's going on there?

I think, Michael, that's definitely fair as we were looking at third quarter with national being meaningfully weaker, that being in markets that were less affected by national was to one's benefit. As national has rallied a little bit over the last few weeks, that phenomenon, may -- there may be some mitigation against that trend. Too early to tell. I would also say that while in general the mid-sized markets are a little stronger than the larger markets, it is really all off a lot. When we look back at -- what our markets achieved in third quarter, you know, you've got some mid-sided markets that were terrible, and you've got some larger markets that did pretty well, so there's no hard and fast rule here.

Okay. And Steve, just one detail. You have the $1.5 million in the adjustment for the same station. Just give us an idea how much of that is from the M&A, and how much is that from the change in the contracts? Have we cycled past the change in the contracts as part of the same station?

This will be the last quarter where we have the cycle, and specifically for those listening, Mike's referencing the Kansas City Royals which we had dropped this year, that we carried last year, so the changes for our same station data would be Indianapolis, Providence, and Buffalo, which will be in our -- in our numbers on a pro forma basis now, and then we have dropped the Royals and the sale of KNWX in Seattle last year.

Okay. And then could you just give us then what is the pro forma growth that goes along with that 3 percent same station?

That is all pro forma and same station.

Okay. Great. Thank you.

Bishop Cheen, Wachovia Securities.

Good morning, David and Steve.

Good morning, Bishop.

Question, David, to you. I know that you said that you outperformed your markets. Do you have any idea if some of the other media, television, newspapers in particular, I guess also cable, also seem to have a better outing recently, or did they underperform their markets? And question to you, Steve, if you can just tell us the -- on your new facility, what the cost of that facility is?

I can't add anything on sort of the relative performance of our peers in other businesses that you wouldn't already have. So let me ask -- Steve has --

Yeah, other than the headlines that you've seen -- as I've seen some newspaper and television companies come out with warnings on Q3, and also talking about sluggish advertising growth. But those are national. I can't focus in on specific markets. And then on the new bank facility, we increased the size from 650 million to 800 million, so we'll be playing -- paying more for the unused facility fee just from the fact that it's a larger facility, also by put in place a new facility now, as a note, our last facility was 1999, we have obviously the amortization of the fees to put that in place. The pricing grid itself is very similar to our prior grid meaning incrementally know now, our borrowing costs given LIBOR rates today is around 2 percent.

Okay. And it's -- your grid is on a LIBOR plus what to what?

And again, it's a range from LIBOR plus 35 up.

Okay. Thank you, guys.

David Miller, Sanders Morris and Harris.

Hi. Congratulations on the solid results, guys, especially given the very difficult environment throughout the quarter. David, you had mentioned that the pacing situation in Seattle was quote, in line in general. Would you say the same thing about both your Portland cluster and your Denver cluster? Thank you.

Yes.

No other color to that?

Yeah, they're all pretty much in line.

Okay. Thanks a lot.

Bill Meyers, Lehman Brothers.

Thanks. A few quick questions. The first on Indianapolis. Steve, what kind of revenue and capital contribution should we assume for the fourth quarter, and then sort I guess on the financial side, keeping with that, can you remind us what percent of your business is represented by the annual contracts and how much of that is booked for '05? And then just for David, you've been very involved in a number of key initiatives for the radio industry. As you look beyond 2005, what do you really see as the sort of 2 to 3 percent -- I'm sorry, the 2 to 3 of growth area for the industry on more of a sort of a normalized basis.

Well, that's an interesting Freudian slip, huh? Steve, do you want to add --

On Indianapolis, we don't give specific guidance by market. As we indicated when we purchased that, we had one cash flow station, a stick, and then an AM, and we have grown those nicely, those 3, in the 6 months we've had that.

You know, Bill, as far as future growth rates, hard to say. My view is this: we are going to see radio gaining share again within the advertising pie, because if you look at the overall construct, you have industries like broadcast television, newspaper, yellow pages, direct mail, et cetera that are, I think, positioned -- that we are positioned better than. Then you have industries like the internet and cable, which are probably going to grow more rapidly than we are. But the former group constitutes the vast majority of current add spend, and the latter group is a very, very small part of the pie. So there are going to be winners and losers as we look over the next few years, and we firmly believe that radio will be a winner in that -- in that advertising share battle. And as such, I think that we will see, you know, growth rates reflective of that, and it begs the question of what we're going to see in terms of underlying economic growth in the United States, but I see no reason why we can't return to a more normalized level, somewhere in the upper single digits going forward.

Thanks. And then Steve, just in terms of the percent of business represented by the annual contracts?

Annual in the radio industry, just not Entercom, is not a large category. Tends to focus more on the national side of business, with some market by market negotiations of rates. So I don't have a specific, and you know what? Even in our own markets, it varies around the horn as some agencies and some markets negotiate annual rates not. So I don't have a specific number. I'll give you my gut, and I'll turn to David for his gut, but I would say it's probably less than 15 percent of our total business.

That's probably bet about right, yeah. A little higher thatn that probably in some markets, but overall, that's probably about right.

Thank you very much.

David Bank, RBC Capital Markets.

Thank you. Good morning. Can you guys comment on the typical sellout you like to enter, you know, the month with, and the month 30 days out, and the one 60 days out, and what your sellout rates are right now for -- for, I guess, November and December? And, also, you know, traditionally -- obviously, you've been one of the, you know, leading consolidators, and tending to keep being a leading consolidator. Do you have any comment on anything out of Infinity in terms of the stations that are sort of, you know, potentially for sale there, the underperformers that they've been talking about potentially divesting?

We like to go into a month roughly with 80 percent of our inventory sold, and maybe the prior month, you know two months out, go in with about 60 percent sold, give or take, and there's some seasonality in those numbers, of course, as we go through the year. As far as Infinity is concerned, you know, we're -- we're obviously monitoring the situation, and we're interested to see what's going to happen there, and, you know, if -- if in fact anything gets sold, and if they are sold at price points which we believe make sense for our shareholders, and for our future growth, we'd obviously be interested.

Can you just comment on where you are relative to that 80 and that 60 that you like to see?

You know, I think we're pretty much in line.

Okay. Thank you.

Larry Haverty, State Street Research.

Yeah, hi, Steve, David. I'm just curious about two categories. One, automotive, where I detect a lot of inroads being made by internet folks, and the second, entertainment, where there's been just a period of very, very weak product that's about to end pretty substantially, just how those two things are going?

Well, you know, it's interesting your comment on automotive, because it may well be true that internet is going to increase its share of ad dollars from automotive, but that of course begs the question, Larry, of what happens to -- where radio fits into that -- into that pie, and if I look at our, you know, track record here over the last year, we've been -- you know, automotive growth for us has been greater than our average growth rate, and I think that has a lot to do with this fact that advertisers may be shifting out of certain media, but when you look at radio being the low cost provider by a significant margin, being targeted, being immediate, and you look at all of the research that's now being done by REL, which is further testifying to radio's effectiveness, I wouldn't be surprised at all if we closed our eyes and looked out a few years to see internet more, radio more, and certain perhaps certain businesses like newspaper and maybe others less. And I think that's most likely what we're going to see here.

We think radio makes an excellent brand building tool with internet. We -- we -- I hesitate to make the next statement, because we cannot yet draw a cause and effect, but you've heard us now talk on several quarter's calls about our newspaper initiative. I would note that some of the our peers and talked about automotive as a category, down. You've heard us say that automotive as a category being up. The largest -- we know as a hard data point that the largest category where we've had success on newspaper has been in automotive. It may be a cause and effect. I don't know.

And your other comment was on entertainment, and that's been pretty steady for us as of late. No meaningful trend to point to.

Thanks a lot.

Laraine Mancini, Merrill Lynch.

Thanks. I have two quick questions. First one, as the radio industry looks to control spot inventory, do you expect stations to look to cut barter contracts, and what percent of your revenue or what percent of your programming is under barter contracts? And the second question is in terms of your '05 annual rate increases, do you sense that maybe advertisers are trying to look in rates before that we really see with the impact of Clear Channel's inventory to cuts are?

Yeah, it's plausible. I don't know what individual strategies are, but I think that that's a plausible scenario, and as far as barter commercials, I think what will happen in the industry is we're just going to be smarter about our business model. I think there was a certain lackadaisical approach by certain local managers who were not as prudent as they should have been with managing their inventory effectively. So if they see low ROI uses of inventory, you will probably see those pruned back and therefore leaving more for the higher ROI activities. Barter for us is really a trivial part of our business model. I think it's 1 -- under 1 percent, something like that?

It's not material.

So I don't think you'll see any material movement there one way or the other.

Spencer Wang, J.P. Morgan.

Just a quick question for Steve. On the balance sheet data that you provided in the earnings release, there was about a $50 million increase in working capital. Can you just tell us what that was related to, and how did that impact free cash flow, also? Thanks.

Well, it's a building up in receivables with the 3 new acquisitions. We build up receivables in the quarter -- the normal seasonality of the build, and the second part of your question was?

I guess your free cash flow estimates don't include the impact of working capital, so --

Correct.

-- so I guess -- so that increase is a net use of cash, right?

Yeah, and that would be one time. As you bring on acquisitions, you typically have to build for accounts receivable and working capital.

Thanks.

And I think we have time for one more question, operator.

Thank you, sir. Michael Kupinski, A. G. Edwards.

Thank you for taking the call. It seems that you have been much more successful in gaining advertising share in your markets than some of your peers, and I was wondering if advertising promotions for your stations may be the difference between you and the other radio -- and I'm not referring to on-air promotions, but more radio spending growth on other -- spending on other media. And I was wondering if you could give me an idea of what your advertising and promotion dollars were, excluding on-air promotions, and if you gauge advertising as a percent of revenues, and what is it been trending over the past few years, and if we will be be seeing a little bit more dollars allocated to media promotion for your stations going into 2005?

You know, Michael, yes, we invest in our brands, but that's not why we gain share. Yes, we consistently nurture our brands. But the reason why we gain share is because we focus and we execute, and we do radio well. It's because we invest in getting great people to run our stations and work there. It's because we do, I think, creative things in building our brands and making them more compelling to listeners, and it's because we create sales initiatives like our shred program that enable us to perhaps to develop business at a -- in a very successful manner, and you add all of that together, and it enables us to achieve a little more than our peer group average each quarter, and we've been able to do that consistently quarter after quarter, year after year, we ask see no reason why that trend should ever change.

Can you to talk a little bit about your promotion dollars, though, excluding on air promotion? Has it been trending up ward over the last couple years or --?

Yeah, we have not cut back in that area, we try to spend the money prudently, and we spend millions and millions of dollars marketing our radio stations, and as a percentage of revenues, I think it's held pretty consistent over the last couple of years, maybe tracked up very modestly, but not -- it has not been a dramatic shift one way or the other.

So with that, thank you all very much for your time this morning, and we'll look forward to reporting back to you early next year.