Audacy Inc (AUD) 2005 Q4 法說會逐字稿

Good morning and welcome to Entercom's fourth quarter earnings release conference call. [OPERATOR INSTRUCTIONS] This conference is being recorded. I would now like to turn the call over to your first speaker, Mr. Steve Fisher, CFO and Executive Vice President. Sir, you may begin.

Thank you, operator. Good morning everybody. And welcome. Thank you for joining us for today's fourth quarter Entercom Communications earnings conference call. First, I'd like to read the required disclaimers. The matters we'll be discussing here today contain certain forward-looking statements that are based on expectations and involve certain risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Additional information and key risks are described in the Company's filings on Forms 8-K, 10-Q, and 10-K filed with the U.S. Securities and Exchange Commission. Listeners should note that these statements may be impacted by several factors, including changes in the economic and regulatory climate and the business of radio broadcasting in general. Accordingly, the Company's actual performance and results may differ materially from those stated or implied herein, Entercom assumes no obligation to publicly update or revise any forward-looking statements.

During this call, we may reference certain non-GAAP financial measures. We refer you to our website at www.entercom.com for a presentation of the most directly comparable GAAP financial performance measures and a reconciliation to GAAP of each such non-GAAP measure. In addition, our website includes useful tables of prior period pro forma financial information adjusted for acquisitions and divestitures. With that I turn it over to David Field, President and Chief Executive Officer.

Thanks Steve. Good morning everybody, thanks for joining us. Q4 was a challenging quarter for Entercom. As we discussed in our early December call, our Q4 results were adversely affected by several factors, including the impact of Hurricane Katrina on our New Orleans operations which I think, as you know, represent 6% of our revenues. In addition, we were hurt by the nonrecurrence of approximately $4 million in prior year revenues from political and additional Red Sox playoff games plus a commercial free launch of our new format in Seattle. As a result, same station net revenues decreased 5% during the quarter.

Frankly, under the circumstances, I think our team executed pretty well. Eliminating the impact of Katrina, Red Sox, political, and the Seattle format launch, our total revenues were essentially flat for the quarter, and local revenues were up 2%. Strong operating expense controls enabled us to cut same station expenses by 2% during the quarter.

For the total year 2005, notwithstanding disappointing industry conditions, Entercom posted strong relative operating performance. We outpaced our market's revenue growth rates for the seventh straight year in this case by 200 basis points and that is worth saying again. We outpaced our markets revenue growth for the seventh straight year by 200 basis points. Our same station net revenues grew 2% versus flat revenues in our markets and we gained revenue share in 12 of our 17 measured markets. We continued our substantial share buyback program purchasing close to 6 million shares of our stock helping to drive double digit growth in earnings per share in 2005. We also continued to invest in our future growth by launching multiple new brands and compelling new product offerings and are excited by the early results.

We enhanced our business development and Internet capabilities and accelerated the rollout of our HD radio platforms and the associated HD 2 channels. We showed our true colors under duress when our team in New Orleans exhibited the highest standards of public service, journalism, and frankly, courage, providing a vital and unique lifeline to the people of greater New Orleans during the wrath of Katrina and its aftermath. All in all a pretty good year given market conditions.

Let's turn to ABC radio. Frankly, I'm very much at peace with where we ended up here. I'm not going to pretend we weren't disappointed, because we were. It is no secret that we spent a tremendous amount of time and effort over many months and frankly even years pursuing that transaction. But while we perceived a strong strategic fit and believed we could create significant synergies and saw compelling development opportunities, the fact is we were not willing to overextend ourselves to prevail in an auction. Ultimately, as in all similar competitive situations, one must assess the risk/reward profile of the transaction, the alternatives to the deal, and the strategic value creation and make a sober, disciplined, even if it's difficult decision.

We went as far as I believe we could prudently go and still complete a deal that created value for our shareholders over a reasonable time horizon. Citadel was willing to pay $100 million more for the Company and perhaps even more significantly to collar the deal, and we simply were not willing to do that. We made the right business decision for our shareholders. Those of you on our November call may remember that we contemplated this outcome and provided some thoughts on our strategic philosophy. On that call I summarized our perspective as follows. That we would only pursue acquisitions that created value for shareholders, and I noted that we had demonstrated our discipline on many occasions, most notably and recently on the Susquehanna deal and earlier on transactions like the Clear Channel AM/FM spinout.

Secondly, I stated that shareholders should expect us to increase our leverage and accelerate our efforts to return cash to our shareholders. I made it very clear that this would happen regardless of whether we did a major acquisition or we did not. True to our word, we repurchased 3.1 million shares or roughly 7% of our stock in the fourth quarter alone. We have continued our buyback in 2006, purchasing an additional 1.2 million shares so far this quarter.

I am very pleased to announce today the initiation of a regular quarterly dividend on our common stock of $0.38 per share. Frankly, our stock has been grossly undervalued for some time and now offers a free cash flow yield of roughly 9%. Highlighting the power of our business model, the new dividend provides a highly attractive cash yield in excess of 5% and yet will only tap a bit over 50% of our free cash flow. After spending over $300 million in buybacks over the past 18 months, to buyback close to 20% of our stock, the dividend enables us to reward our long-term shareholders and provide additional tangible value to investors at Entercom. We retain a powerful balance sheet and significant additional free cash flow and intend to continue to buyback our stock as well. In addition, we will continue to pursue opportunities to expand Entercom's platform in the radio industry but only on a selective basis. We will remain disciplined and only pursue transactions that create value for our shareholders.

Turning to current business conditions, Q1 pacings are disappointing. January was flat for Entercom ex New Orleans. The markets in which we compete were also flat for the month, again, ex New Orleans. However, February is quite weak. March will be better, but it will still be down. We are forecasting net revenues of between 90 and $91 million for the quarter. Representing a decline of approximately 5% versus last year on a same station basis. About 1.5% that's 1.5% of this decline is attributable to ongoing Katrina issues in New Orleans, principally related to our oldies station Kool FM which was severely damaged by the storm and remains off the air. We expect to relaunch Kool sometime in early second quarter.

Why are our Q1 results weak? Well, beyond New Orleans, our results are hampered by generally weak industry conditions during the quarter, exacerbated by significant market weakness in the Boston market which represents a high percentage of our revenues. We continue to execute well in Boston, but market conditions are a challenge. The good news here is Boston looks very healthy in Q2 albeit it is early.

Now, it's also interesting to take a multiyear viewpoint on Q1. Entercom's Q1 results have been uniquely strong in recent years. In fact more so than any other quarter. Last year it's worth dusting off your records on this. Last year or Q1 revenues were up 6% on a same station basis dramatically ahead of the peer group. Furthermore, if you look back over the past three years, Entercom same station Q1 growth has averaged about 6.5% per year versus industry average growth of about half of that. So to some extent, if you look at it over a long-term basis, I think you get a different vantage point on performance.

But having said all of this, candidly these are just excuses. We are paid to deliver results and overcome adversity, and this quarter we are not getting it done. There are a lot of terrific performances from our team but not enough of them to produce a successful result companywide, and that is not acceptable.

Looking beyond Q1, I'm more optimistic about the remainder of the year. While it is early, business conditions look brighter for Q2. Conditions in New Orleans continue to improve, and we will have our oldies station back on the air. In addition, we will begin to capture political revenues and will be beyond the Olympics which are adversely impacting radio revenues this quarter.

I also believe Entercom's momentum will accelerate during the year as we begin to capitalize on the large number of new formats that we launched during 2005. While we believe these format moves enhance future performance, they have hindered short-term results. For the most part, we are pleased with our progress on these new brand launches. Most notably Charlie in Portland, which is one of our five new eclectic, we play anything stations. Charlie has now posted its second outstanding book in a row, finishing second among adults 25 to 54 after posting a number 1 position in the summer. We also expect big things from the Adam Corolla show which we have added to mornings in Seattle and Sacramento.

Let me update you on a few other recent developments. First we are pleased with our progress at our newest acquisition in Greenville/Spartanburg. We have integrated our operations into a single facility and are already achieving significant expense savings. We are also gaining share and expect to drive strong and sound operating income growth in the year ahead. We also announced a new acquisition last week in Springfield, Mass. It's a small deal, but the station will be the newest a affiliate of our Boston sports powerhouse, WEEI as we look to duplicate the success we have achieved in Providence where we have created significant value by acquiring an unsuccessful property and converting it into a major player in the market by repurposing content in Boston.

We've also recently announced a multiyear agreement with the Seattle SuperSonics to become the team's new radio partner beginning next season and that is on a new rights fee win/win basis. On the HD radio front, we are very excited about the accelerating progress of the alliance. We are making rapid gains and driving consumer, manufacturer, and retailer adoption, and are more optimistic than ever about the ultimate success of this new platform. We are offering the consumer an exciting new value proposition. Nearly twice the number of choices, compelling new formats that do not currently exist, far better audio qualify and free. On our own Entercom HD 2 channels, we are launching a number of new stations including comedy, live rock, blues, and international hits. We expect to have virtually all of our significant FM stations broadcasting digitally within one year.

In sum, we remain highly focused on creating shareholder value. We achieved double digit EPS growth in 2005, established a brand new 5% dividend, have bought back 19% of our stock, maintained a terrific balance sheet, and demonstrated a highly disciplined approach to acquisitions. On the operating side, we are off to a slow start in 2006 but have solid expectations for the remainder of the year based upon accelerating momentum from new and enhanced station brands, improving conditions in New Orleans, a political year, and returns from our ongoing investments in proprietary sales and business development initiatives such as our shred program and our small but growing integrated marketing revenues. Steve.

Thanks, David. A lot of what I'm going to be covering is a lot of housekeeping items to help you in your modeling for 2006, particularly the first quarter. As noted in the release, our guidance for the first quarter on net revenues is in the range of 90 to $91 million, and we would expect Q1 expenses of about 59.5 million which would represent an increase of less than 1% over prior year. A note on our expense model for the year. As we've done in the past, we do not foresee any significant changes to our ongoing business model and believe we will demonstrate once again solid expense management throughout the year. Our prior year same station information is 95.3 million in revenues and 59.1 million in expenses. I would direct you to our website which has a reconciliation of all as reported information and same station by quarter for 2005 to adjust for all the acquisitions and divestitures that we made.

Our normalized corporate expenses excluding extraordinary items in recent quarters has been about 4.6 million on average. I would guide you to an extraordinary charge which we expect to take in the first quarter of 2006 in our corporate G&A line item of approximately 1.5 million on top of whatever we would normally report. This is in recognition of write-offs of certain transaction related expenses to the ABC project.

This year up to the time of this release, we have bought back approximately 1.2 million shares in the first quarter. So assuming no further buybacks in the quarter, we would expect to guide you to interest of approximately 9.2 million in the first quarter, and that would give us again with buybacks to date weighted average shares for the first quarter of approximately 42.1 million shares. Now a note for your model as obviously you can anticipate with the launch of our dividend program this morning, you'll need to adjust your models to reflect distribution of this quarterly cash to shareholders in the future rather than to be used for debt paydown in your model.

A few color notes on depreciation and amortization. With our acquisition of the Greenville properties in the fourth quarter, we amortized some short live items of acquired intangibles in the fourth quarter which pushed our D&A up to 4.8 million in the fourth quarter. For future modeling purposes, we would this expect our normalized quarterly D&A to be about 4.2 million throughout 2006, again, 4.2 million throughout 2006. Our CapEx was 5 million for the fourth quarter and 12.7 million for the year. For the year 2006, while it could be lumpy and we can't predict the quarters, we would expect CapEx in the range of 11 to 13 million. As we complete our major facility relocation project in Kansas City and continue HD deployment plus ongoing maintenance CapEx. For taxes, as with the year 2005, we would expect our GAAP tax rate to approximate 38.5% for the year, although there will be quarterly fluctuations. Indeed in the first quarter, we would expect a higher GAAP tax rate of approximately 39.5%. Again 39.5% in the first quarter. And we would probably have an offsetting lower tax rate in the fourth quarter for structural reasons. Our deferred taxes for 2006 which are driven by our intangible amortizations will approximate $37 million.

Now a few comments on 123R, the new FASB accounting for stock-based compensation which we and all companies will adopt effective this year. It is a confusing new area for many of you and your models. In anticipation of this new accounting requirement, on December 13, 2005 the Company's Board of Directors approved the acceleration of vesting for all unvested and out of the money options. This represented the vast majority of our outstanding options. The effect of this action was to significantly reduce the required future expense recognition of those past options. That's the good news from the accounting point of view.

Now the bad news. At this time, the Company cannot provide you guidance on noncash compensation expense for the first quarter or for the year 2006 since the Company's compensation committee has not yet met to make their recommendation to the Board of Directors for any awards to be granted this year or whether those awards will be in the form of stock options, restricted stock, or a combination of both. Once that decision is made, we will be notifying you so you can factor that into your models. I can point out to you our past history whereby the Company has historically issued approximately 1 million option awards per year in the past several years. And you will see in our past 10-K filings that the pre-tax expense -- again, the pre-tax expense of those past awards was approximately 16.5 million in 2005 and 22.6 million in 2004, again based on Black-Scholes volatility and volatility assumptions.

David pointed out earlier the strength of our business model and our balance sheet which has permitted the aggressive buyback of our stock and now today's announcement of the initiation of a dividend that returns significant cash to our shareholder base. Besides a strong history of operating results we're also proud of our actions over the past 18 months, and returning cash to shareholders, and the fact that Wall Street research continues to show Entercom as operating at the highest levels in the peer group in the industry of returns on invested capital. So as we leave 2005, we're pleased to note that the Company achieved record revenues, record station operating income, record station operating income margins, record EPS, as we've retired almost 19% of our outstanding shares, enter the year with leverage in the low 3 times range and now launched a dividend yielding approximately 5%. So it's a very exciting business model. With that quick summary and those detailed notes, operator, we'll now open the line up for your questions.

[OPERATOR INSTRUCTIONS] Our first question comes from Victor Miller of Bear Stearns.

Good morning, David and Steve. First of all, Steve, would you mind giving us a little bit more breakdown of the revenue and expense to the degree that the expense discussion is even relevant of the Red Sox, New Orleans, Seattle, and political in third -- in fourth quarter and on the cost side, too, on the Disney side, was there any money in the third quarter also recognized for Disney and are there any impacts of those four factors in first quarter that we should know about? And secondly your hangup's roughly we think 60% of your free cash flow for dividend. What do you want to do with the other 40%? Thanks.

Yes, and it's a lot of free cash flow. First let me address Disney. As mentioned, we had accrued those expenses. Now with the loss of that deal in the first quarter we'll be recognizing that amortization of those past expenditures, and that's the 1.5 million additional corporate G&A over whatever you would expect us to book in this first quarter. So we really didn't have any that was significant in the third or fourth quarter. We would have say small intangible or small operating expenses, our travel and stuff like that which we would have had. As to expenses on the Red Sox, while we do not break that out separately for competitive reasons, so yes there would have been -- and David pointed out that we had significant revenue adjustments in the fourth quarter from New Orleans, political, Red Sox. There would have been, you're correct in pointing out, some offsetting expenses from Red Sox fees from the 11 games we had this year that we did not have last year.

But just add to that, without divulging too much here, the playoff games are highly profitable to us, and so the absence of those definitely hurt us more so than perhaps regular season games. As to your other question, Victor, regarding the other 40, 50% of our free cash flow, obviously it gives us a lot of options. Over time, we'd like to see that number grow. That can go towards higher dividends, it can go to buybacks, it can go to smart prudent acquisitions, it could go to debt payment. Obviously we have some flexibility, and we'll see where our best opportunities are.

Steve, I'm sorry, on the first question on revenue, could you give us any kind of magnitude, obviously the $4 million number is obvious. Can you give us any sense of the other areas of the impact? It looked like you might have taken it in the back in your breakout. Looks like there's a $1.7 million additional charge for Katrina in the fourth quarter. Is that right?

The Katrina charge was in the third quarter, and that was the writedown of the estimated reserves on intangibles. We've also taken some facility write down as you noted and as David noted earlier some write down on the damage to the transmitter site that's still off the air.

Can you give us any magnitude of the Red Sox, New Orleans -- in other words break down some of these numbers more specifically. Political is 4 million obviously but can you give us a sense of the scale of any of the other factors?

Well, as David said earlier, it -- we put it in a bucket that said -- of approximately 4 million, but we're not providing further breakout of the Red Sox beyond that.

Thanks.

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

Good morning. Just two questions here. The first -- and just maybe you can give a little color just to hear your thoughts. If we look at January, for the first time it seems like in a very long time you're having no market outperformance, and you mentioned your very difficult comps. I'm wondering if this is sort of the cycling of less is more and so basically it's a reversion to the mean almost from what happened last year. And then the second question is where do you think the overall radio industry has to go with less is more? David, at the RAB conference a few weeks ago, you sort of mentioned that you thought six to seven minutes might be an appropriate level over the next several years. Thank you.

Sure. Well, first, I would point to seven straight years of significant improvement so I don't think we should look at a less is more reversion to the mean scenario here insofar as Entercom is concerned. We've proven through good economies and bad economies, all sorts of other cycles that we've been able to perform by doing what we do -- doing what we do well, and I see no reason why expectations outside of this company or for that matter I can tell you inside this company are going to be anything different for the remainder of 2006.

Going to your other question regarding the long-term industry issue of spots, I think that the point I made at RAB, at that conference was meant to be a -- was meant to sort of provoke as a thought starter for the room was we need as an industry to continue to steward and evolution to shorter commercials. I do not believe there's any disruption to our business model if we do so in a wise manner in the same way that television has evolved over time to shorter commercials, and we're seeing that in radio. So I could envision a scenario in the future where there are significantly fewer minutes but significantly more -- significantly fewer minutes of time just because we shorten the commercials, not that we charge less for them, because the value of those commercials is just as great.

Well, then just as a quick follow-up, are you seeing any increased demand on 30 second units?

Absolutely. We're seeing increased demand across the country for 30. We're seeing increased demand across the country for 10s and we're seeing to some extent for 5s as well. But really 10s, 15s, and 30s are growing rapidly in the marketplace.

Thank you so much.

Our next question comes from Marci Ryvicker of Wachovia Securities.

I just have one question. Can you update us on Seattle, how the Wolf is doing and if it's still commercial free and has any financial impact on Q1?

Sure, Marci. The answer is we think it's doing great. Of course we don't really have any ratings yet for the station and won't until April, but our anecdotal information is it's strong. We began to add commercials in the beginning of January, and so we're off to actually a very good start in terms of the revenues. As you'd expect, the station will be behind its last years comps as would be the case in any startup, but we don't have the extraordinary scenario that we did last December when we ran commercial free.

Great. Thank you.

Our next question comes from Kit Spring of Stifel Nicholas.

Can you review how long your deferred tax shield lasts until? And what your fully taxed free cash flow per share would be? And then secondly just talk about your ratings in the most recent book, how they've changed overall the way that you guys look at them.

Why don't we do this sequentially.

I don't have in front of me the calculation on fully taxed. You can all do that by applying our GAAP tax rates. That I think you all can do. In terms of our deferred taxes, that I indicated earlier approximately 37 a year, those run significantly out to about 2011, 12 and then begin to step down incrementally over a few years. Let me give you the background on that. As we make acquisitions, a large portion of the acquisitions is assigned to the FCC license which we amortized for 15 years for tax purposes, not for book purposes. That's what drives the majority of it. If you go back to our acquisitions over the past -- and we have been acquisitive, those lives stagger out for 15 years on each specific acquisition. But the 37 million is good through 2011, 12 and then as I said begins to tail down. If you want further specifics, you can call me afterwards.

And as to the ratings, they were good and they were bad as they always are in any given quarter. We had a bunch of terrific outcomes at a great number of stations, and we also had our share of disappointments as well. I would say that on balance it's a push.

Thank you.

Our next question comes from Lee Westerfield of Harris Nesbitt.

Good morning. I have just a detail question on the HD initiatives, Steve, if you can outline your budget for this year in terms of investment? And, David, your ongoing thoughts in the HD alliance and how many markets you'll have with multicasting you think by year end?

Well, David indicated earlier we'll have the majority of it. As I indicated in my notes on the call, a significant portion of our CapEx is going to HD, but it's not a significant portion in terms of our overall business model. So I think probably in the $3 million range this year. What gets difficult, Lee, is to say, well, what is truly HD? You might take steps to upgrade part of your transmitter chain or do some other things. The incremental cost on the lowest form of life basis, let's say, might be a 75 or 100,000. David laughed at this. Right, that's the wrong phrase to use, but you might choose to do other things. Again, I think you've seen us manage our CapEx well over recent years, 11 to 13 this year. The biggest portion of that frankly, is going to the facility relocation we're doing in Kansas City.

And, Lee, as to the question on multicasting, I think I would guess that we would probably have two-thirds or three-quarters of our stations multicasting at some point this year.

Fabulous. Okay. Thank you very much.

Our next question comes from Eileen Furukawa of Citigroup.

Hi. I have a couple questions. Can you just give us a little more color on what you're seeing for revenue growth in the first quarter? Specifically, is there an issue more with your rate or with the sell-through? And is the weakness coming more from your national or your local business? And also you mentioned before that you planned to hold to really strict pricing at 75% over 60. Do you think that the industry is doing the same? If not, is it making it harder for you to sell in your markets relative to your peers?

Good questions, Eileen. Let me deal with those in order. As far as rate versus sell through, I'd say it's a little bit of both, and it all depends upon the stations that you're dealing with. But I would say overall you can assume that it's about equal. I would have the same answer for you on national/local. We're not seeing either materially outperforming or underperforming in Q1. They're in the same rough ballpark.

As far as the pricing is concerned, 30s, that is an issue, I would say. I think it's imperative with the business going forward that if we're going to give advertisers the opportunities to run 30s and 15s and 10s, we must charge what they're worth. And we are adamant about that as a company. And I think that it remains to be seen sort of how that plays in the marketplace, but I think it's critically important, and we are going to stand firm on pricing those spots for what they're worth. There's empirical research that shows that you can communicate in 30 seconds every bit as effectively as you can in 60 seconds in the world we live in today and we should be paid accordingly.

Do you think holding to that strict policy is sort of making it harder for you relative to others right now at least?

I suspect at the margin we probably do lose a little bit of business over that, but I don't think it's a material factor.

Thank you very much.

Our next question comes from Anthony DiClemente of Lehman Brothers.

Good morning. I just have one question. That is, as you look out beyond March, what do you see as the top three drivers of organic growth in the radio business? And if you answer that question, putting aside the impact of the positive impact of political and then also the incremental improvement in New Orleans, just whether it be on a category or local versus national, what do you see as the growth drivers? Thanks.

Well, that's a tough question of course. There are a lot of ways to come at that. Let me frame it this way. The radio business is in many ways the most undervalued medium that advertisers have today. And when you look at our value proposition against television, newspapers, direct mail, Yellow Pages, and virtually all traditional media, we look terrific and very, very attractive. As we continue to drive the wonderful effectiveness research that is coming out of RAEL and communicate that more effectively, I think there's a great opportunity for advertisers to take advantage of this undervalued and terrificly effective medium.

I think that beyond that the business development efforts that we are pursuing both locally and nationally are of terrific importance as well. And I think longer term, I think as we look at electronic measurement, as we look at HD radio, and as we look at integrated marketing and the wonderful nexus between radio and the various interactive opportunities, whether it be streaming, podcasting, database, websites and so forth, there is a tremendous opportunity to drive rate growth on that platform as well as the business development platform as we take advantage of our stronger value proposition against most of our competitors.

Thank you.

Our next question comes from Maurice McKenzie of FBR.

Good morning and thanks for taking the question. Could you speak about the category strengths you're seeing across the entire platform? And more specifically, are there any categories that you see coming back strongly or at least at a moderate pace in New Orleans? Thank you.

Yes. I was going to say, on New Orleans, let's just kind of set aside categories overall. Obviously we're getting home repair, insurance, those kind of things, help wanted. So I think there it's just so -- business is coming back, but I don't think there's any co owned categories. It's interesting, Maurice, you don't know my little diatribe on categories, because as I say we might get one set of facts and then MS or Cox or Citadel or Cumulus give others. So there's no consistent patterns. But it is interesting to note, yes, automotive was down in the fourth quarter, and we expect to be down in the first quarter. But as a percent of composition, looking at the data, it's not materially different. Maybe it says something about the economy but one of the categories that was up the most in the fourth quarter was casino business. Take that for what it's worth.

Thank you very much.

Our next question comes from James Dix of Deutsche Bank.

Good morning, gentlemen. I had just a couple questions. First, just on how you see your cluster in Katrina developing over the course of the year, I know you're going to get your one station back online in the second quarter, but it seems like the impact from Katrina in your guidance for the first quarter is actually maybe a little smaller than I thought. Because I think you said it may have accounted for around 150 basis points of impact. So I'm just trying to get a sense from you as the year goes forward how do you see that station, how do you see that cluster developing, and when do you think that becomes less of a drag on growth than it is now?

I guess secondly, David, you said you saw for kind of second quarter onward signs of -- for optimism, signs that you think your growth is going to improve. Do you see any signs that your markets are improving or are these simply company specific things which you see developing? And then finally, do you think less is more has had any impact on your pricing power in local markets, your ability to set rate or to control rates?

As far as less is more having an influence on our rates, I don't think it has an effect one way or the other on that. New Orleans, the magnitude diminishes over time. With Kool coming back on the air, I'd like to see and at this point in time believe that it would be under 1% of a drag on Q2. Hopefully by the and end of the year on a run rate basis, New Orleans becomes a -- has no influence. The optimist in me looks at '07, '08, '09 and says New Orleans is going to be a Boomtown along the lines of potentially a Las Vegas due to the enormous amount of funds that are going to go to rebuilding that city. You could argue there is no city that is more in line for growth in the future with more certainty than New Orleans, Louisiana.

The last question, James, you mentioned was I guess just on confidence, on acceleration and where it's coming from, it's a lot of little things. I think I've already sort of gone through that. It's a political year. It's that we're seeing little signs in terms of our involvement efforts in some of our conversations with people. It's the fact that we had an unprecedented number of new formats in '05 and going through the life cycle of those products we can start to hit the sweet spot of growth as we get into '06 here. It's those kind of things that give us some confidence that we are going to see some acceleration as we go through the year.

Thank you.

Our next question comes from Bishop Cheen of Wachovia.

Good morning, David. Thanks for your candor. We appreciate it. Let me ask three general questions. One, talk about your comfort with leverage as -- there's no ABC in your future, no big kahuna media acquisitions so where you think your leverage might be headed this year? Two, any feelings or bias one way or the other of whether you would rather see that existing small bond in your capitol structure after its First Call in '07? And, three, is there any insurance recovery inflow that will come to you and how would that be gapped into your income statement?

I'll let Steve answer this and I'll add any comments.

Hello, Bishop. A couple things, one, on insurance, we do have some insurance claims. Not business interruption per se but some other stuff. I'll call it de minimus. We cannot observe against that. So if we do obtain that insurance funding in the future, that would flow through the P&L at that time. Again, not significant for your business models, but we'll go get it. Second, regarding target leverage, I know it's frustrating to you but we've never given it. What I can tell you is our bank facility allows to us do dividends and buybacks up to five times. Over overall bank facility is a five-time leverage test. You know because you follow the high yields that's a seven times test. You do point out that that high yield, 7 5/8ths piece of paper does have a call in March 2007, and we've taken no public position on that at this time, and frankly it's far enough out that we haven't given it that much consideration although we do have thoughts and ideas. I don't know if that helped you a lot. I wasn't making a list of your questions, Bishop. Did we get them all?

You got them all.

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

Thank you. Good morning.

Good morning.

Just a little bit of follow-up on Bishop's question. Do you think that the dividend is about 65 million in annual cash flow? And I guess your current leverage is probably on a trailing basis probably something like a little over 3.6 times, Steve, if I did my math right. Do you think that -- does it change your target for what you've been thinking about in terms of stock buybacks?

Well, certainly I think we have to moderate the stock buyback. I don't think we can or will be as aggressive just on the math of overall leverage given the upper constraint of our current facility of five times, so I think that is a correct one to point out. I will tell you that the Company management and the Board has been very aggressive on buybacks in the future, we would intend to buyback in the -- in the past. We would intend to buyback in the future but at a much more moderated pace just given the numbers.

Can you just repeat, I'm sure it's in there the amount of authorized buyback you have left?

It's approximately 70 -- 65, 70 million based on what we've bought back since the last authorization.

Our next question comes from Mark Wienkes of Goldman Sachs.

With Susquehanna and ABC now off the table, are there any other potential transactions of a similar scale that are also held in the hands of more unnatural owners that you think might come up later in '06 or '0? And what do you think might make those assets come to market?

Mark, I'm sorry, I didn't catch the end of that question.

What might make those assets come to market?

Well, I think we all can take a look at the leaderboard in the industry and run through them in terms of ownership and futures. I'm not sure it's appropriate for me to sort of run down the list and give any sort of comment on them individually other than to say that it's a fluid industry, and I think you are going to see considerably more consolidation, considerably more consolidation in the space over the course of the next couple of years, and I think that offers great opportunities for companies to grow and to build scale. I think that we're very well-positioned to take advantage of that and will look at it as some of these opportunities develop to put together smart deals to grow, again to create larger companies that have greater synergies and great competitive opportunities.

Fair enough. If I could just follow-up on--?

Was that sufficiently vague for you?

Yes, it was sufficient. What do you think of the primary drivers of the weakness in Boston right now in 1Q? And do you think any of the factors that are sort of driving the weakness there might appear in any larger markets or is it just more specific to Boston?

I don't know. What I can tell you is it isn't unique to radio. The Boston market appears to be in a funk right now. You scratch your head and try to figure out why, and there isn't always a rational answer. But again, just as bizarre as the funk appears to us today, if you look at Q2 pastings, you'd say it appears as though it's short-lived. So having said that, it may continue into the second quarter, but we just don't know.

One of the great frustrations of this for analysts and for management is why markets diverge so much. The acceleration and deceleration among markets for reasons you cannot trace back to. So we sit there. We ponder it. We accept it. We can't predict it, though. But as David said, the good news is we've seen quite a few markets. We just happened to mention Boston because it's a larger one of ours. I remember two years ago pointing out a quarter or so where the whole Denver market was soft, and then it came back fine. I think we are not signaling at all any structural concerns on Boston and singling that out. In fact as David said, the Q2 data would exactly go the opposite way.

Understood. Thank you.

[OPERATOR INSTRUCTIONS] Our next question comes from Laraine Mancini of Merrill Lynch.

A couple questions. On M&A, you mentioned that there are opportunities to grow scale. In your view, is scale important? Or can you, if no other opportunities come up can the remaining radio guys stay at their size and still be competitive and second you seem to expect acceleration through 2006. Do you believe that you can still achieve the types of outperformance relative to the industry, the 200 basis points that you've seen in the past?

You left me a couple of easy questions there Laraine. As far as scale is concerned, it's the tradeoff between the synergies and the benefits of scale which in this industry are not as dramatic as they are in other businesses, but obviously have some value. And weighing that against the shareholder value considerations that for better or for worse, and we think it's for better, we made a decision vis-a-vis the Walt Disney Company. As we look at other transactions, we'll consider it from the same measured and disciplined approach and make decisions along the way.

So a shorter way to answer that is scale is not imperative in the business, but it's advantageous at the margin if you can buy wisely. As far as our outperformance this year is concerned, I'm not going to sit here and tell you that it's easy. I suspect we'll end up -- who knows where we end up in Q1. Obviously Clear Channel is putting up some pretty strong numbers which we think is great. Because we think Clear Channel needs to succeed and perform well in order for all of us to do well. We'll see, as everybody else rolls out first quarter, where we stack up. But do I have confidence that going forward on a run rate basis we'll be once again achieving the same overperformance as we've done historically? Yes.

Great. Thank you.

Operator, I think we have time for about one more question if you would.

Thank you. Our last question comes from David Miller from Sanders Morris Harris.

David, you're up early on the West Coast.

Yes. Hey, guys. David, just a general philosophical question for you, since most of the other fundamental questions have been answered. I'm sure you're well-aware of the desire by many sports teams to own their own station. It's been reported in the press particularly with the Washington Redskins and there is a strong rumor that John Henry of the Boston Red Sox is interested in acquiring a radio station so as to own the ad dollars. Should that happen -- number one, can you just kind of educate me on other than the notion of owning the ad dollars why any particular flagship sports team would want to do this? And secondly, should this happen in the Boston area, which is obviously a very important DMA for you guys. How would that affect the income statement if at all in fiscal 2007? Thanks very much.

Well, first, David, we don't make a lot of money running the Boston Red Sox games.

Right.

It's prestigious, it's a wonderful partnership. We love those guys, and we very much hope that we can sustain what has been a very symbiotic relationship between the Boston Red Sox and Entercom into the future. We're in negotiation with them right now, and we think there's a very high probability that we will end up working out a deal with them. There's also a possibility that we will go separate ways. And if we do, we've talked about that internally, and we're very comfortable with that. If you look at WEEI's success in books outside of Red Sox, we do exceedingly well. Last year, we were number one with adults 25 to 54 in Boston in the winter. There is not a sports radio station in America that comes close to that even when they have play by play on. So we're not concerned about it. We'd love to keep the Red Sox. But if we don't, I don't think there's a meaningful effect on our financial performance going forward.

I would also point out, David, as you heard earlier on the winter book in Providence we've had a very -- David mentioned earlier where we are going to be extending the WEEI franchise into other parts of New England where we can do that and capture that value of that brand with the stations. In Providence, where we have now spent over a year rebroadcasting WEEI into Providence a major market with existing, very strong news talk competitors, we do not carry the Boston Red Sox. Those were already licensed to another station and have had very, very strong performance there. I agree with what David said. It's a great asset to own. I think the history of all broadcasters with sports franchises is that they're a push financially. They do bring other things. But the WEEI brand probably more than any other station in the country does well. I would point to another one just as an aside, I think, and it's the next earnings call you'll hear at 11:00. Cox made a difficult decision in Atlanta to walk away from the very successful Atlanta Braves. And I think that you've tracked their success at WSP and beyond that. Ask Bob and Neal on the 11:00 conference call.

Thanks very much.

That concludes our call today. Thanks everybody, and we'll look forward to reporting back to you in three months.