Audacy Inc (AUD) 2005 Q1 法說會逐字稿

Good morning and welcome to Entercoms first quarter earnings results conference call. I would like to introduce your first speaker for today's call, Mr. Stephen Fisher, CFO and Executive Vice President. Sir, you may begin.

And a happy Monday morning to all of you, and thank you for joining us early here, and the temperature forecast is to be above 70 degrees for the first time in May, in Philadelphia. Now first this disclaimer before we begin the call. The matters we'll be discussing here today contain certain forward-looking statements that are based on current expectations that involve certain risk and uncertainties within the meanings of the U.S. Private Securities Litigation Reform Act of 1995. Additional information and key risks are described in the Company's filings and Form 8-K 10-Q and 10-K filed with the U.S. securities and exchange commissions. 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, and we refer you to our Company's 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 used. . In addition, our Web site includes useful tables of prior year and period pro forma financial information, adjusted for acquisitions and divestitures. I'll turn the call over to David Field, President and Chief Executive Officer.

Thanks, Steve Good morning, and thanks for joining us, everybody. I'm very pleased to report Entercom's first quarter results. In addition to delivering stronger earnings, we continue to make important investments in new formats, new compelling content, proprietary sales initiatives, and new technology to enhance our future prospects. We also continue to deploy our free cashflow to buy back our stock, which we believe is highly undervalued at these levels. The summer[ph] was a very good quarter for the company, and we made excellent progress towards both our short and long term financial and strategic goals. Focusing first on our Q1 financial results. We delivered 6% same-station revenue growth, and also kept our same-station expense growth to 3%, Enabling us to achieve double digit same-station operating income growth of 10%. Earnings per share grew 48%, from $0.23 to $0.34 per share. Excluding the affective assets sales during the quarter, EPS still grew by 17%. It is also worth pointing out that we achieved the results, on top of a pretty solid Q1 in 2004, when we also delivered 6% same-station revenue, and 10% station operating income growth. We accomplished these results by once again significantly outpacing our markets. In fact, we doubled the growth of our markets, and they grew at a rate of 3% during the quarter. Our performance gains were broad based, as 13 out of our 18 measured markets grew share. Local revenues grew 7% during the quarter, while national revenues up 4%. I think it is important to note that our share gains were generally not attributable to the zero sum game of out-wrestling our radio peers for ad dollars already targeted for radio. I believe a principle reason for Entercom's continuing success in outpacing our peer group has been our effective focus on developing business from non-radio users. We have converted hundreds of advertisers and markets all across the country, from non users of radio, to enthusiastic partisans in our medium. Most of these advertisers are now committing substantial shares of their marketing dollar, intercom and radio.

Some of you may wonder to what extent Clear Channels less is more program contributed to our Q1 performance, and the simplest way to answer this is to note that our revenue growth was precisely 6%, in both the markets in which Clear Channel is a major competitor, and the markets where they are not. I would add that we continue to applaud Clear Channels leadership and vision on this issue. There is an old canard in the radio industry that listeners can't tell the difference between 30 second and 60 second commercials, and that's pure unadulterated garbage. There is now a substantial body of research completed in the past few months from highly respected organizations such as Burke, Arbitron, Edison and others, that unequivocally demonstrates that listeners both recognize and appreciate shorter ads. Just go to Europe, Mexico, Canada, Australia,or virtually anywhere else in the world where 30 second spots are the standard, and you will realize what a difference shorter commercials make in radios' appeal. Now at Entercom we're achieving great success in many markets, converting advertisers to 30 second spots, at rates of 75%, or in some cases as high as 90 or even 100% of the 60 second rate. It works for the listeners, it works for the customers, and it works for our shareholders. Some additional color on the quarter.

Our Q1 results were led by strong performances in Boston, Denver, Indianapolis, Norfolk, Portland and Sacramento. We're particularly pleased by the Indianapolis results, and we're capitalizing on the significant upside we identified and articulated during our 2004 acquisition. We're looking forward to commencing operations at our recently announced acquisition in Greenville-Spartanburg sometime during the second half of 2005 This still in acquisition, we reunite our strong news talk, top 40 and adult contemporary stations, with Barnstables leading rock stations, to form the market's number one cluster, and provide a very attractive return on investment. We've also remained active in our stock buy back program. During the quarter, we completed our second $100 million buy back, and announced the third. As long as the market continues to significantly undervalue our stock, we intend to continue to repurchase shares. We also have once again accelerated our HD radio deployment. We now plan to have a significant majority of our FM stations broadcasting in HD digital by the end of this year, and we'll complete our HD rollout during 2006. We've also been actively engaged in new content and format development. Many of you are familiar with the eclectic hits format, that has been launched by several broadcasters in markets across the country, under a variety of goofy names, including Jack, Bob, Mike, etcetera, etcetera. We've launched our own local versions of these stations in Boston, Portland, Greensboro, Rochester and Madison. We've also launched our first Internet only station. When we made our recent format change in Boston and retired star 93.7FM, we maintain that station in an internet stream only mode. We believe the unique content of this locally branded [inaudible] station, will attract a significant Internet audience. We will offer local advertising and marketing opportunities on the stations's stream and Web site. We're also pleased with our results from the winter ratings books. In particular, we're excited by the ratings in Portland, where we achieved an unprecedented sweep of the leader board, grabbing each of the top 4 positions among adults 18 to 49, and three of the top four among adults 25 to 54.

Turning to pacings. Business conditions remain solid. April posted 5% same-station revenue growth, and the rest of the quarter is pacing at similar levels. These pacing levels reflect the dampening effect of our recent format changes, that have lowered our Q2 growth rate by approximately 1% top line. Now while it is way too early to attach much significance to it, we're pleased to note that Q3 is currently pacing up mid to high single digits. From an industry perspective, things are looking fairly bright. New formats are being developed, spot-loads are shortening, and HD radio offers great potential. And most importantly, the opportunity for radio to gain share from other media remains enormous, and I think looking at first quarter results it's starting to happen again. We are living and breathing this everyday at Entercom, through the success of our new business development efforts, to bring new advertisers into radio. The facts are pretty simple once you ignore all the noise. Despite all the hype about competition from other audio sources, radio continues to reach a very stable 96% of Americans every week, for roughly 20 hour per week. This compares extremely favorably to a newspaper industry that has seen its readership plummet over the years, and a television industry that now has lower ratings than cable. And we deliver our audience at a fraction of their cost. We also have extraordinary new research from the radio ad effect of this lab, that compellingly demonstrates radios effectiveness, and high RI for advertisers. And now there's new research from Arbitron and Edison that demonstrate that the principle impact of new audio gadgets such as Internet, satellite radio, MP3 players and the like, is an increase in the consumption of audio. These gadgets are only having a very small impact on listening levels for free local radio. So in conclusion, I'd like to solute the entire Entercom team for a strong Q1, and a great start to 2005. 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're also steadfastly committed to working with others in the industry, to develop and implement industry initiative and enhancement, to optimize our future potential. In sum, we'll continue to hold ourselves accountable for delivering superior results for our shareholders. Steve.

Okay great, thanks. First let me give you a few notes and some additional color on our second quarter guidance. In the second quarter of 2005, the Company expects to report a same-station net revenue increase of, approximately, 4%. Now as David mentioned, with five format changes in recent weeks, we expect a very slight dilution to our revenues in this quarter, and a small uptick in the normal quarterly expenses, resulting from the format changes. Prior year same station information was $114.9 million in revenue, and $63.4 million in expense. You can see full same-station information in the reconciliation too, as reported on our Company Website. On expenses. During the year 2004, as we did in 2003 and 2002, we managed our expenses prudently, with an overall expense growth rate of 3%, while there was quarter fluctuations of between 2 and 4%. We do see any change to our business model in 2005, although there will be quarterly fluctuations, due to timing of format changing, marketing, NTR and shift and timing of other items. As noted in the Press Release, our corporate G&A expense was negatively impacted in the first Q1 by extraordinarily legal expenses to provide documentation associated with the New York State Attorney General inquiry, and a record company promotional practices. Approximately $700,000 for the quarter. There will be some residual effect on legal expenses in the second quarter, and I currently estimate Q2 G&A at about $4.7 to $4.8 million. For the modeling purposes ongoing, I would estimate our normalized corporate expense rate at around $4.2 to $4.3 million per quarter. With the aggressive share buyback program during the Q1 that David mentioned, we would expect then an increase in our second Q2 interest expense, an increase we expect to be to around $7.3 million for Q2. For purposes of guidance, this figures do not assume any further share buy back. Our CapEx was $1.9 million for the quarter, in the first quarter, and again we expect capital expenditures in the range of $14 to $16 million for 2005, the majority of which is facility-related. This range may move up slightly, if we're able to relocate our Barnstable acquisition in Greenville, and to our current facility when that deal closes later in year, the timing on this is still uncertain at this time.

A few brief notes on the first quarter before we go to your questions and answers. The first quarter results of 6% revenue and 10% station operating income, come on top of last year's very strong first quarter results, which were also up by the same amount, 6 on revenue, and 10 on station operating income. And a note if you look back over the last three years, our station operating income margin, which was a record 38%, in the first quarter of 2005, is up almost 300 basis points over the last three years. For the first quarter, local was up by 7%, and nation up by 4%, with a gain in share in both categories. We smartly deployed our significant free cashflow over the past year, to repurchase now almost 11% of the outstanding shares of the Company, including $2.6 million shares in the first quarter. This buyback program has reduced our basic shares outstanding to $46 million at the end of the first quarter; yet our leverage remains among the industry low. The end of the first quarter, 3.1 times. So we've got a strong balance sheet, continued strong operating results, and with continued performance among our brands and our people, we're excited about what's ahead. With that Operator, we'll open up the phone lines for any questions.

Thank you. At this time we're ready to begin the Q&A session. Our first question comes from Victor Miller of Bear Stearns.

Good morning, thank you for taking my questions. I have two. One: On the 30s you've talked about David, could you give a sense of where were you in terms of the percentage of your units being 30 second spots in maybe '04, where you think it might be in '05. Especially on the FM stations, which I don't think you particularly sold many 30s on proportionately to the AM's. And then could you just talk about how you view doing additional buy-backs with the stock at 12 time cashflow this year, versus looking at assets such as Infinity or Susquehanna assets which obviously are alleged to be much more expensive propositions than 12 times? Thanks.

Sure Victor. As far as the 30s are concerned, and you touched on the key point when you mentioned FM stations. FM music stations historically has sold virtually no 30-second commercials. Now as we transition into the new world, we're seeing in some markets, pushing 10% of the commercials being sold at 30-second lance, and we see that trend continuing in an evolutionary manner as more and more advertisers find the way. I'll give you one great anecdote. Just the other some day I heard a story about a mortgage company on the west coast that was spending $7,000 a year with one of our markets. We showed them how switching from 60s to 30s, they could be more efficient in delivering a message, which they only needed 30 seconds to communicate. They're now spending $120,000 a year with us. The win for our listeners, a win for our advertisers, a win for shareholders. On your second point, as far as acquisitions versus buy-backs, obviously we're going to take a good, hard look at Susquehanna and any Infinity spin-outs in the marketplace. But I'll tell you, as you point out, with the stock at their current prices, buy-backs are very, very compelling. We're going to take a very thorough look on an after-tax bases, as to whether we can buy these assets at a price which will create value for our shareholders, and if we can, if we can do it smart, terrific, And if we can't, we have zero problems sleeping well at night, letting somebody else go in and overpay for them, and running what is a pretty attractive business for right now, growing at nice rates, and continuing to use our free cashflow to buy back our stock and create huge value for shareholders as we're doing right now. So, we're sleeping very comfortably, and we'll be very, I think, prudent in the way we approach.

And let me add a couple data points for those listening on the call in the prudence David mentions as we go through it. First, let me point out that Entercom Management has the highest proportion of equity ownership of this Company of all the of the mid-cap radio players, and second, as many of your Wall street friends have shown, among the highest return on invested capital. So I think you can sleep well at night, knowing we have skin in the game. We have a track record of the acquisitions we've done, and also the acquisitions we've not done.

David, just on the 30s, what is the -- what's your -- is there any goals or do you think targets by the year-end FM load will be percentage-wise? And do you expect that you'd ultimately use the pricing differential of 75% to 100%? You said you've gotten versus a 60 to eventually trim over time, additional minutes out? Or are you happy with all of your inventory loads at this point?

Well, our approach in the beginning has been to be flexible and to look at this from the standpoint of the advertiser. Rather than us drive the advertiser, we want the advertiser to drive us. Let it be their choice. And as a result, we're seeing more and more advertisers who are opting in to a 30 second model. As the long term goals, again, it's going to be somewhat organic Victor, but I think that by 2007 or 2008, it is not unlikely that we will see FM radio stations in this country programming seven minutes of commercials an hour, consisting principally of 30 second spots, with an improvement in the business model.

Thank you.

Our next question comes from Jonathan Jacoby of Banc of America Securities.

Good morning. Just a few questions here. First on the expenses, and I know some you mentioned on the operating expense line related to reformats. How should we look at that, and I know you talked about sort of poor gains at the end of the year, but are you sort of set in that 2, 3% percent range now, sort of with that little fluctuation in Q2? Secondly on categories, any particular category you're strong or weak, the big ones, sort of there being focused on being audio? And then lastly following up on Victor's questions, I'm sort of looking at acquisitions. What sort of a terminal multiple do you look at in a five-year timeframe if your doing an IRR analysis or something to that effect? Thanks.

First on expenses, yes. let me go back and state I would expect that would represent a quarterly high, if you will, if you laid out the year and we would see a reduction. In other words, in the format changes, there's nothing that we see ongoing to the expense model from the changes just in the quarter, as we've had the past five. You have severance and promotional research, that kind of stuff. Your second question was on categories Jonathan, and I think the best way to categorize it is as you've heard and I've read, as our peers released, we did see a decrease in telecom. Beyond that, I would say the rest of it was meaningless data points of a mix of some up some down, but nothing in significant movement. As has been the case in the past whenever there's consolidation in an industry, like what's going through with a couple of the wireless carriers, marketing goes on hold during the period of uncertainty, until new ownership is determined. And then frankly we see a rebound in snap pack as the acquirer and the competitors try to capitalize on market share. Your third question of, I guess we're now getting to all three-part questions. Your third questions was on terminal multiples, and I don't think we can give you a data point that will help you. We model a range of it. High-case, low--case, expected-case, and those cases change overtime. Obviously, our multiples are different today than we would have used in our model two years ago. So again, we use a pretty rigorous operational due-diligence, competitive due-diligence, balance sheet due-diligence, return on capital, what our financing cost is, so I don't think any one data point would be helpful.

Thank you.

Our next question comes from Sean Feely of Credit Suisse First Boston.

Can you hear me??

Yep.

Just a quick question. Q1, local outpaced national by a couple basis points. One on one, how [inaudible]business is split into looking into Q2? And then maybe David, you could just weigh in on the national rep business and how you think that has to change, if indeed you do think it has to change or evolve, thanks.

In second quarter Sean, our local is facing the both opt, but local is considerably stronger than national. There's been a tough week for the Enter-rep guys, so I'm not going to pile on and aggravate the situation. In fact, I'll give the other side of of the coin. There are an awful lot of really talented, hardworking dedicated folks there been working 24/7 for us in the field and doing great things for us, and I want to solute those folks. I think they get lost in the shuffle as we talk about, some of the senior management issus and some of the global changes going on at Entercom, so I want to make that point. As to how the model changes, I think that we need to see a more developed mental mentality in terms of growing business. We talk about our own internal efforts locally and success we're having there. I think that Interep and Cast both deserve credit for the steps they've taken to develop new business for the industry. I think going forward, we're just going to need to do more of it.

Thank you

Our next question from Jim Boyle of Wachovia.

Good morning, it's Marci Ryvicker. David, you had talked about some new advertisers to your stations. What medium are they primarily coming from? Would you say prints, direct mail, yellow pages? All?

I'd say all, but I think most of it from newspaper.

And is it just a result of shred, or are you doing other initiatives?

Shred is a good chunk of it, but it comes from frankly, a rain making mentality that we have throughout our Company. You know, there's a very powerful medium that works very very well, and very very efficient, and we need to be in front of decision makers telling the story about radio first, and Entercom and our brand second. And shred is an umbrella that we put over that, but It's really just about talking to folks who make decisions, and it's very rewarding and gratifying to see how many of these advertisers jumped ship from media and have made radio the main-stand of their marketing programs.

And I would also jump in and say as we enter now our second year of shred, which I guess 'we've now talked about on the past several calls and has been most expecting operationally within the Company to have that rallying point of converting newspaper dollars to fans of radio, to now start seeing renewals coming in and people increasing their expenditures, so we're excited by what we see out at that program.

Great. Can you also tell us what your sellout rate was as you entered the month of March, April, and May, and how this deferred from the first couple months of the year?

Well, the data point is somewhat skewed. You could sell out in essence the amount of business booked, as you know is seasonally lower in the first quarter as annual and quarterly budgets are released, and I think we're back to that normal metric of 85 to 90% at the beginning of the month. Filling out in the month, and 70% on the second month out. In other words, we're at a normal pattern.

Great, thank you.

Our next question comes from David Miller of Sanders Morris Harris.

Hi, good morning. You guys did looks like 6% same station growth in the quarter. David, can you talk about how your markets did in the quarter, and how you did versus the markets. And also, in how many markets did you gain share in the quarter, and I just have a couple of follow-ups, thanks.

Sure. I think we may have mentioned a couple of these data points on the initial remarks.

I apologize.

We're in and up about 3%, David. and we gained share in 13 out of the 18 markets in which we get measured data.

Okay, great. And then Steve, could you possibly disclose where your basis is at this time for the share repurchases? I'm talking about the three share repurchases that you -- I should say the 2 and a quarter share repurchases that you done today. And also, could you describe where Seattle is pacing-wise, relative to the general market, thanks.

Well, first I'll do the basis, and the short answer is, I don't know off the top of my hand. It will be in -- you can back into it from the 10-Q, which we'll file later today. But let me start this. We start our share buy-back program last May, when the stock was at, approximately, $42. So whatever our basis is, it would be on an average above today's trading price of $32.81 at the moment. But, again, we've seen value in the buy-back program from last May, up to and including the first quarter.

And Seattle pacing situation?

In range I'd say, of overall performance.

Okay. Thanks a lot, guys.

Our next question comes from Bishop Cheen of Wachovia Securities.

Good morning David and Steve. Steve, just question of the balance sheet. How much now, do you have to spend on closings aside from Greenburg and Spartanburg? How much is that? And any of the closings that you're winning?

The only outstanding commitment on our balance sheet would be a $45 million for the Barnestable close. We have made a deposit on that. That will be reflected in the balance sheet you'll see on the filing. That will close sometime in the second half. It will actually offset our reduce our cash-out, because we're simultaneously selling two small non-full signal stations in the market, so that will net it down. So part, that is our only commit of our balance sheet, Bishop.

Have you mentioned what the selling price is for the two stations, or you haven't done that, yet?

We have not.

Okay. Four to five--

I would imagine it's not going to be a number that's significant. As I said, those are not full signal stations, but we've not signaled the number.

The 45 is net of the deposit?

45 is the headline amount. We've deposited, I believe approximately $5 million against that.

Okay. And has generally you had something like 25% of your debt. Is that amount changed any as rates pick up?

We haven't -- we're not targeting a percentage. You can say in one way we've fixed about 40 to 45% of our overall debt between our high yield, and we also have some swaps on approximately $30 million of the senior at this point in time. We may look to change that as we increase our leverage or look the buy-backs or the use of the balance sheet.

Okay. Real good. Thanks you Steve.

Our next question comes from Bill Meyers of Lehman Brothers.

Thanks. A couple quick questions. First up David, you mentioned your recent focus on the Jack format. What is the average of life cycle of your station format? In other words, of your approximately 100 stations, how many are formatted each year? And then just kind of switching over to Clear Channel issue. Clear Channel on the call was especially supportive of you in terms of supporting a less-is-more strategy. In addition to increasing your third second offerings, have you reduced your commercial minutes? And is there any change or any difference in your behavior versus your peers in the same markets?

In terms of life span of formats Bill, obviously it's all over the lot, but I'd say on a typical year, out of 100 radio stations, we'll probably change three or four formats. So we're running a little bit heavier this year, and that's frankly not-- that's because we're being opportunistic. And there were a couple of those changes which we didn't have to make. We just think this format potential is significant enough to warrant the change, and we had to make some tough decisions. A Davidson format to Kinley is a pretty compelling audience levels, and we believe this format is going to be a nice driver for us, of course, it won't really kick in financially until '06. On the Clear Channel point, we do find ourselves very supportive of exactly what Clear Channel is doing, and think this is essential for the industry's health and future prosperity. We have for the most part, been shifting by giving our advertisers a choice to shift from 60 second commercial into 30's and 15's, and again having success with that as we've reflected on prior comments on this call. We have really not been reducing the unit counts per se, we're reducing the minutes per hour, as excused. And one of the reasons we've been able to do that is because historically we have main a very disciplined sustainable level of units at our stations,so find ourselves in the enviable position of being able to capitalize on the shift, without having to trim the overall level of units on the radio stations. As far as other advertisers -- other companies, there are some differing opinions in this industry as you well know. But I think the inexorable tread is in this direction, and even those companies that aren't necessarily unabashed stands of what Clear Channel is doing in terms of pricing 30s less, I think there's a practical reality to it, that as that demand builds for 30s, the market will respond. I think every broadcaster with which we compete would acknowledge that.

And David, how who would you estimate your decline in total commercial minutes as you've changed the duration of spots?

Well, Bill, it's evolutionary, and it will depend upon the market and upon the station. But I think, right now maybe it is 5% or 10% again, below the already comfortable levels we've been at. And again, we think it's competitive advantage, and the shorter we make it, the better.

Great. Thanks very much.

Our next question comes from Jason Helfstein CIBC World Markets.

Two questions. Just one follow-up on the 30s. Are you seeing greater demand on the local direct side, or is it on the national side, and perhaps through Enter Rep, through your national effort? And secondly, on some of the newer formats you're doing, Jack, Bob type formats, because those are more broadly targeted, for example like adults 25 to 54 versus men or women in a certain age. Does that have an impact on the kind of rates you can charge for the units because they're more broad and less targeted? Thanks.

Let me deal with those in reverse order. You know with the Jack, Bob, Dave, Mike, Simon, Charlie format, it is a nice thing that we can develop. But again, it's early and we're going to develop for about 11 minutes at this point ,so it's probably a little unfair for us to comment too much. But based on what we're seeing in other markets and other broadcasters is, yeah I think the nice thing is that you can play on adult business, male business and female business, which gives you little more resilience, I think in your ad model going forward, Jason. On the other front, there's no question that in the early days, once less is more is announced and in our own way the advertisers choice initiative that we do, there's no question that initially, there was more success on the local front and principally the local direct front. I think there were some advertising agencies that took a stance against this shift. Again, initially. But overtime we're now seeing more and more national and big national players say, hey, you know what, this makes a heck of a lot of sense. We have a message that can be articulated well in third seconds. Let's just do that, and have a better, more effective advertisement to our customer base. So, I think it's becoming a broader and broader success story.

Thank you.

Our next question comes from James Dix of Deutsche Banc.

Good morning, gentleman. I had two questions. First following up on the new advertisers you're bringing in whether through shred or other initiatives. Do you have any color to roughly how much in total or how much contribution to your revenue year-over-year come from people who are new to the air the past quarter? Then secondly David, you indicated you're accelerating your conversion to HD somewhat. Have you accelerated at all your thinking as to what you're going to do with those signals, in particular the secondary audio channels?

On an annual basis, shred contributing several million dollars per year. The challenge for us of course is that -- and I don't want to get too much into the beliefs here, but we've always been developing business. It's not a new phenomenon for us. So it's hard to sometimes to say a dollar was booked part of a shred initiative, great. But would we have booked a similar dollar two years ago under a different umbrella. Maybe. So it's hard to know. But I say this: I'm very confident in asserting that they're several million dollars of incremental revenue per year that we're developing through this program. On the HD signal front, it is -- I think I'm pretty consistent in that regard. I'm incredibly excited about what a panoply of new formats over our digital bandwidth will mean for radios' growth in the future. I think that there are several different ways to skin the cat. I think the most compelling business model will be some form of industry consortium, which enables us to create a rationale diversity of content, that will be appealing to listeners across the country. And whether that is ad supported, subscription supported, some combination thereof, remains to be seen, and there are a lot of other bright people that need to weigh in on that, but I'm encouraged by that opportunity, and I'm encouraged by the number of industry leaders who are committed to pulling this together in a way that makes great sense for the industry's future And I suspect by the end of the year, that will be some interesting announcements is that regard.

Thank you.

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

Hi, This is John [inaudible] for Spencer Wang. Just a couple of questions. First of all on the balance sheet, it's pretty strong. I was wondering what your target leverage ratio is, assuming acquisition opportunities come up throughout the course of the year, maybe the high-end of your leverage ratio would be and what you generally target, and that's it for now.

Yeah. John, we've never really given a specific number. First, we are not investment-grade rated, so we're not chasing that tail, so to speak. Second, we've always historically operated in very low level of leverage to allow ourselves financial flexibility for acquisitions, and now most recently, share buy backs. I would say that this industry has demonstrated an ability to operate comfortably up to 5 the 6 range, so I'm not saying that's our comfort level, I'm just saying the industry's certainly has demonstrated that. Others are above that, I don't think you'd see us above that range.

Yes, Okay. And just last question. I forget if you guys mentioned this, put pricing on the 30 second ads. What are you guys pricing those out at, relative to the 60s?

We are getting 75% of our 60 second rate, and occasionally getting more than that, depending upon supply -- demand perimeters in the market.

Thank you very much.

Our next question comes from Mark Linkous (ph.) of Goldman Sachs.

Good morning. First, just a follow-up. You mentioned that local is up conservatively more than national in the second quarter. Is that GAAP on the order of like 200 basis points or 500 basis points. Can you quantify that? Second, you mentioned you do differentiate in price between your 30s and your 60s, and that's in contradiction to some of your competitors who sell the inventory more as units, and regardless of spot links, so how do you see the pricing for 30 changing across the industry as some operators sell at discounts, and others try to hold the pricing flat versus the 60s?

Mark, on the first, it's probably closer to 500 basis points spread. You know pricing dynamic's going to be interesting, because again, I think it's a inexorable trend, because when major advertisers come to the market and say, I want to buy 30s, and I'm willing to pay $0.80 to the dollar. We'll clear that business, Clear Channel will clear the business, several of our others competitors will clear that business, to the extend that other companies chose to walk on business. That is of course their prerogative. But I think as the bucket of 30 second demand continues to grow, I think it's tough to maintain that posture. And again I also think that again it goes back to the canard reference to my opening remarks. If you look at all of the research that's been done, I think it's been pretty conclusively proven that a 30 second commercial is much less is a much better alternative for a listener than 60 second commercial, and it works better for the advertisers. I think we get there. I think everybody gets there in their own way, but I think we end up in a world which 75 to 80% becomes sort of a norm. Maybe one day in the future, with 30 seconds become the absolute standard, then the question is how do 60 second pricing relate to the third second standard, and not the other way around.

Right, thank you.

Next question comes from David Bank of RBC Capital Markets.

Thanks guys, just one last question on the 30s. Is there any particular advertiser you think that the 30s have been easy to sell to and working particularly well for and are there multiples of those? And are there any that there just doesn't seem to be working real well for, and why in each case.

David at the end of the day the only advertiser who this doesn't work for, is the advertiser who has disclaimers that force them to do more than 30 seconds long. Every other advertisers, it is strictly a question of their creative teams, and what message they're trying to communicate. Again, we don't force them to use 30s. We believe that there are certain creative stories that require 60 seconds to tell their story, and we think that's great strength of the medium that we offer that to them. but in more cases than not, you don't need that extra time, use the 15 and use the 30.

Okay. Thanks.

Our next question comes from Jim Goss of Barrington Research.

Thank you. Question about the units and mix shift. There seems to be some debate over the number and length of pads, and I'm wondering if your research is showing that it's better to have more of it shorter pads, or a fewer longer pads? And then separately, with the internet only project you're doing and, Dave, Bob, whatever. I know it's early, but what sort of economic model to you think you might be looking for in national ads or tying with the other stations, or what?

Jim, your first question, our research is mixed on that topic. Not clear whether it's better to have fewer spots, and more commercial breaks or vice-versa. It is ambiguous, I think. To some extent, depends on the format. And as far as the Internet-only model, I think it's early to really give you any meaningful commentary on that. I think it will initially be predominantly local. But there based on national advertisers who could roll in as well. We're excited about that. And we think that with their unique promotional and branding capabilities, and some of the other interesting synergies with our existing stations that it offers some value creation opportunities for us going forward.

Okay. Thanks.

Our next question comes from Kit Spring of Stifel Nicolaus.

Hey guys, you mentioned that both Clear Channel and non-Clear Channel stations grew 6%. Can you tell us what the market growth was in those markets to see if the location in the markets had anything to do with the lack of disparity? Thanks.

You know they're pretty similar. Again we saw pretty equivalent results, across both of those buckets if you will, of markets which there's not a clear pattern. Again, there some outliers but it's pretty consistent.

Great. Thanks.

Our next question comes from Michael Kupinski of A.G. Edwards & Sons

I know you provided some color on your second quarter pacings, and you indicated that it sounded like Q3 was pacing a little bit Better. I was wondering if you can, looking out that far, I understand that, but if you can talk about Q3, and if are you starting to see an acceleration in national advertising in particular? And then I have a nebulous question about rating trends and expectations going into the fall, especially with the format change. I was just wondering to you anticipate that the format changes will have a lasting impact on revenue growth for the balance of the year, and what are your expectations for prospect of improvement in rate and revenue growth, and in what timeframe do you think that these stations will start kicking in?

Mike, to the first question, I don't want to get any more granular then the very general comment I gave about third quarters pacings. I understand your curiosity, but again, it's early that I really don't want to put anything out there that might have more meaning attached than it deserves, other than to say yes, third quarter is pacing a little better than second quarter. As far as the ratings that will come out of these format changes, we'll get our first glimpse of that in July, and it will begin to affect fourth quarter, but we really don't expect these new stations to have any sort of positive, potential positive impact on our growth until 2006. So the question is, to what extent would they dampen our expectations for this year? I think we're very comfortable given our overall portfolio, and that is how we look at it. We have a portfolio of 100 radio stations. At any given point in time, a certain number of them, generally small sub-set will be in some level of flux, based upon format development that we're pursuing. And we think that what we're pursuing right now is the realm of the norm. And we wouldn't expect there to be any real risk or disruption associated with it beyond maybe the 1% level, mitigation if you will, of growth that we'll see for probably this quarter and next quarter, but we still hold ourselves accountable, and we'll deliver very strong growth outpacing our peers.

Great, thank you.

I think that's was our final question. Thanks everybody for the time this morning, and we'll look forward to speaking with you again at the end of Q2. Thanks.