Audacy Inc (AUD) 2006 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 call. This conference is being recorded. I would like to introduce your first speaker for today's call, Mr. Steve Fisher, Executive Vice President and CFO. Sir, you may begin.

Thank you, operator, and good morning, everyone, and welcome to our third-quarter earnings conference call.

Let me first make a few points. The matters we move will be discussing here today contain certain forward-looking statements that are based on current expectations, and involve certain risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Additional information and key risks are described in the Company's filings on 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 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 for a presentation of the most directly comparable GAAP financial measures and reconciliation to GAAP of each such non-GAAP financial measure. In addition, our website includes useful tables of prior period pro forma financial information, adjusted for acquisitions and divestitures.

And with that, we will now turn it over to David Field, President and Chief Executive Officer.

Thanks, Steve. Good morning, everyone. Thanks for joining us. This has been a particularly active time for Entercom. And so after reviewing Q3, will provide an update on recent events and also add some color on the current business climate.

First, Q3 -- our results improved sequentially in the third quarter, with same-station net revenues decreasing 2% versus the year-ago quarter. Strong expense management enabled us to hold same-station operating expenses flat. As a result, same-station operating income decreased 5%.

A few headlines on Q3 -- we moderately outperformed our markets, gaining modest share in the quarter. We were led by strong performances in Boston, Providence, Rochester, and Sacramento. And national revenues outpaced local during the quarter.

Beyond the numbers, however, this has been a very productive time at Entercom, as we have made a number of moves and made great progress in a number of developmental fronts to enhance our future growth prospects. Strategically, we're focused in three core areas to accelerate our growth -- enhancing our brands and our content, building our business development efforts, and significantly improving and expanding our Internet capabilities. We firmly believe our future success is rooted in the three areas.

We have made a significant investment in new brands and content over the past 18 months, and are now beginning to reap the rewards of these efforts. We had a very good set of spring ratings books, and have seen continued strength at a number of key stations in the recently released summer books. We are positioned for solid revenue and cash flow growth in a number of new and improved brands across the country, including Mike in Boston, Mix in Milwaukee, KISW and The Wolf in Seattle, Track in Indianapolis, Bayou in New Orleans, and Charlie in Portland, just to name a few. We also continue to invest in our business development and digital capabilities, both key performance drivers in our business model.

On the acquisition front, as you know, we announced in August that we would be acquiring 15 radio stations from CBS and Austin, Cincinnati, Memphis, and Rochester for $262 million. This past Wednesday, we commenced operations under a time brokerage agreement at 11 of those stations.

We have already taken a number of steps to create value in these markets. We have trimmed expenses in each of the markets, enabling us to increase pro forma operating income in excess of $1 million annually with additional synergies to come.

In Memphis, where the three acquired CBS stations will join three existing Entercom properties, we made a format change last week to capitalize on our newly enhanced platform in the market. And just three days ago, we reached an agreement with Cumulus Media Partners to trade two stations in Cincinnati, giving them an oldies station which we're acquiring from CBS and receiving in exchange Cumulus's country station in that market. This was a classic win-win for both companies, enabling us to strengthen our competitive position in the market. We will now own both of Cincinnati's country stations as part of our four-station position in the market.

In Rochester, we have received Justice Department approval of our plan to divest some of our recently acquired properties from CBS and move forward in discussions to make those required divestitures. When the dust clears on all of this, we expect the CBS transaction to be meaningfully accretive to our company.

Separately, as many of you know, two years ago, we purchased an FM station in Providence and used it to simulcast the content from one of our Boston stations, WEEI, which is the highest-rated sport station in the United States. The Providence station has been extremely successful.

On October 26 of this year, we added another wholly owned affiliate to the WEEI Boston Sports Network in Springfield, Massachusetts. The property is currently being run under a time brokerage agreement with closing speculated this quarter, and we have high expectations for the station's performance in the years to come.

Turning to current business conditions, we are very pleased to report that we have seen a material improvement in business conditions over the past 60 days. Demand has increased considerably in Q4. It is worth noting that the improvement applies to all three months of the quarter, not just prior to the election. We anticipate materially stronger results for Entercom in the fourth quarter due to these accelerating business conditions and also growth from our investments in new brands and content and escalating business development revenues. The improving results are broad-based, with significant revenue growth expected in the vast majority of our markets in the fourth quarter.

We currently expect fourth-quarter same-station net revenues to increase by mid single digits versus the prior quarter. Now there will be some speculation as to how much of Entercom acceleration is related to political revenues, and comparisons in New Orleans in the wake of post-Katrina.

While both of these factors will make contributions, I want to reiterate that our improvement is broad-based. In fact, excluding -- and I repeat, excluding the effects of political revenue and revenues in New Orleans, we posted solid mid single digit growth in October.

In sum, we are enthused by the meaningful acceleration and our performance during Q4, and believe that we are beginning to see the payoff from our efforts to enhance our future growth. We remain highly focused on creating shareholder value and anticipate continuing success during 2007 from our new acquisitions and our strategic emphasis on new and enhanced station brands, business development, and digital initiatives. Steve?

Thanks. Let me give you a few notes on our fourth quarter guidance and then we'll get to your questions. The guidance that we're providing is based on same-station comparisons for core Entercom properties, and as such, excludes any results of operations in this quarter for stations with which we began operations under the time brokerage agreements David outlined.

Let me give you a note on the time brokerage agreements and then we'll give you more color on the guidance for Entercom for the quarter. We'll be paying CBS a TBA fee, time brokerage agreement of approximately $1.4 million monthly for the three markets of Austin, Cincinnati, and Memphis which we just recently took over. We will be making those payments until the close.

In this quarter, we'll have a lot of moving parts in these new stations as we swap stations, launch new formats, and realign management and operations. In addition, we will have to record the non-cash contingent liability expense of the rep buyout as a result of our move of national sales contracts to Interep. As you have seen with our peers in recent months, even though expenses between the rep firms, we must also record this reliability, and we will record that in the fourth quarter. Consequently, we expect the overall impact of the TBA operations to be dilutive to Entercom of about 1.2 to $1.5 million pretax in the quarter, or about $0.02 per share for your fourth-quarter models.

Now let's go to the core ongoing operations -- the key drivers of the quarter. In the fourth quarter of 2006, the Company expects to report revenues on a same station basis to be up mid single digits. It's important to note as David said that this strength is across almost all of our markets.

We [would] expect fourth quarter same-station operating expenses, exclusive of non-cash compensation expenses, to be up a little less than 3% reflecting an increase in sales-related expenses and comparisons with last year, when we had some unique cost savings, especially in New Orleans post Katrina. I would like to point out there's no fundamental change to our business model, but we have a comparison issue in the prior period with New Orleans expenses. With this [guidance, I'd note] we're expecting same-station operating expenses to be up approximately 0.5% for the total year 2006.

A few other notes for your models -- we would expect that non-cash compensation expense for the fourth quarter will be approximately $1.8 million. Our fourth-quarter same-station net revenues -- and again, this excludes the TBA operations -- is $103.7 million, and expenses fourth quarter 2005, $61.0 million. You can see full same-station information and all reconciliations on the Company's website.

A few other notes on the quarter -- we would expect to see corporate expenses increase sequentially in the fourth quarter due to increased legal expenses. While it's hard for us to predict that this time, I would approximate and am currently estimating $5.3 million for the quarter. Again, that expense excludes any non-cash compensation expense.

Interest expense with recent increases in LIBOR should be approximately 11.5 million in the quarter -- could be adjusted by the timing on any close on the acquisitions currently outstanding. We would expect depreciation and amortization to be about $4.1 million in the fourth quarter.

A few notes on third quarter operations -- political in the third quarter was very much in line with our expectations, or about $850,000 for the quarter, and that's versus $200,000 in the prior year. We expect another $2 million in political for the fourth quarter -- again, what we had expected and planned for the year.

Below the line in the third quarter as we told you on our last call, we had an asset write-off of approximately $1 million related to the closedown of our old Kansas City facility as part of our move to the newly constructed studios.

Now that we've giving our guidance for the last quarter of the year, we can start to put the year in some perspective while we have two months to go. And let me just make this note -- even with the pressure on topline performance, as a result of our share buyback, our tax shields from recent acquisitions such that we pay no federal income taxes this year, we would expect that for the full year 2006, we will achieve record free cash flow per share. That's right -- we expect record free cash flow per share results for the year.

And oh, by the way, on the acquisitions are currently in the pipeline, we'll generate another 7 to $8 million in annual tax shields upon the closing. How are we using net cash flow? Well, as you've seen, we use it through astute acquisitions; selective transactions which add value to shareholders; share buybacks -- we retired over 23 of the shares of the Company today; and dividends. We are currently paying $0.38 per quarter, about $1.52 annually, which represents a dividend yield of around 6%. So as you can see, it's a great business model, and we're excited about the quarter and the prospects ahead.

With that, operator, we'll turn over the phone for any questions you might have.

(OPERATOR INSTRUCTIONS). Victor Miller.

Thank you for taking the questions. If I could ask David maybe to be a little bit more granular on the relative contribution of the improvement in some of the markets like Boston, Seattle, and Denver from maybe the first half of the year to the second half of the year, maybe the second component being the brands and the third component being New Orleans, is this -- maybe you can give us some thoughts there.

And then Steve, just on the rep stuff -- just remind us again -- is [it] generally what happens is one rep essentially bears the cost of that change, and so there's really no impact on you on a cash flow basis or a real P&L basis; it's just how you have to handle it through GAAP? Is that how that works?

Yes, let me address that first. You are exactly right, Victor, and I think you've seen this with a couple of our peers with rep changes. And this is a fairly recent accounting phenomenon. Yes -- the expense and the burden is between the two rep firms, but because we are a party to the contracts, we have to record that. So we will be estimating the buyout of those and be recording that and our books in the fourth quarter.

And to your first seven questions, Victor --

(multiple speakers) David, I'm [excited] you too.

(laughter) You know what, in all sincerity, it is pretty broad-based. We've seen -- as you recall in the earlier part of the year, we were struggling with the fact that some of our markets were particularly sluggish versus the overall national business climate. And we've seen some improvement in that recently. Obviously, we won't know the data until after the year is over.

But here's what we do know. The strength we have in Q4 is broad-based. And we're seeing strong results in Boston. We're seeing strong results in Seattle, in Portland, Sacramento -- across the country and in our larger markets, as well as our smaller markets. New Orleans is certainly making a contribution to that, but it is not a meaningfully disproportionate contribution. And so, again, as I mentioned before, if you look at October and exclude political and exclude New Orleans, we're still up solid mid single digits, which obviously is dramatically stronger than we have been able to achieve earlier in the year.

You also touched on brands. And again, yes, we're seeing some really strong horses pulling in Q4 from the investments we made last year. And if you look at our -- the report card on brands we have launched and how they're doing, we think we have got a lot more successes there than markets where -- we've done very well with our brands, and they are helping as well. But again, broad-based markets, market strength, execution strength, and brand strength.

Marci Ryvicker, Wachovia Securities.

I have two questions. David, you said that national outpaced local in Q3. Are you seeing the same trend in Q4? And then I know that you're doing well at most of your stations in terms of ratings. But we heard from a large market operator and a small market operator that there is erosion in a few formats, I guess in general --particularly the AC format. Are you seeing the same thing?

Well, first, Marci, yes. National remains stronger than local in Q4. National is very strong right now, but local has improved significantly as well.

As far as formats are concerned, there are always some formats that are growing and others that are struggling. And we have a diverse portfolio of formats, and I think we do a pretty good job of modifying our format composition to stay on top of trends that favor us going forward.

Thank you.

Eileen Furukawa, Citigroup.

Thanks for taking the question. I was just wondering, are you seeing certain categories picking up? Is that also contributing, or are other certain categories that are showing strength that are contributing to the strength you're seeing in 4Q?

Also, does your 4Q revenue guidance represent outperformance in your market? In other words, are you taking share from your peers?

And finally, do you continue to see double-digit -- are you continuing to see double-digit growth in your shorter-length ads? And is this effective rate increase from selling shorter [ad] a big contributor to the [spike] you're seeing in 4Q?

Let's see if I can remember that. The brands -- it is fairly broad-based, I would say, right now in terms of category composition. And while it's too early for us to know if we're gaining share in our markets, I would have to believe that we are. But I would also add that there's a -- the winds have shifted, and there's a nice tailwind behind us right now as well, which obviously would affect all broadcasters.

The shorter length commercials do continue to grow at substantial double-digit growth rates. Is that a cause of our success? I don't think so. I think it's just a phenomenon that is occurring simultaneously with our success.

And are you out there actively pushing the shorter-length ads, or are you just meeting demand?

I would say we're meeting demand. We have always been an advocate for shorter-length commercials, but we also believe that ultimately, it's about providing the customer with choice and letting them selected the ad length that makes the most sense for their message. And that continues to be our mantra.

James Dix, Deutsche Bank.

A couple of questions. I guess first, Radio One indicated at least during the third quarter it was seeing wide variance in terms of its market performance. So I guess have you seen things kind of converge on a more positive trend really only over the past 45 days? Just trying to get a little bit of -- sorry? Sorry. I'm just trying to understand how that broad-based trend has developed over the course of the third quarter and on into the fourth.

And then, if you could talk a little bit about in terms of your revenue trends -- are your rates up? Is your inventory up? What are you seeing in the fourth quarter in terms of that?

And then finally -- this may be a little premature, but now you have had a chance to look at the CBS stations even closer, do you have any sense as to what type of revenue and EBITDA we should be looking for, even generally, next year from them?

Let me grab the middle question. (multiple speakers)

There was a middle one? Okay.

(laughter) James, the rates are firming and strengthening and growing. We are seeing pricing definitely improving across the board during fourth quarter. And it's all -- it's good. I'm --

Yes, two questions you asked, there, James. First, on CBS, we're not giving specific revenue expense guidance at this time for the reasons I cited earlier. We have a lot of moving pieces and parts. And, as you know, we just took over two days ago. What I gave you was, I hope, what will be helpful for the fourth quarter and, again, 1.2 to $1.5 million pretax dilution for the whole package, or about $0.02 per share.

Your earlier part of the question was talking about momentum, and let me just give some color. We did talk about in our Q1 and Q2 earnings calls, a phenomenon that we have not seen, frankly, in years within Entercom of how our markets were widely divergent to the negative versus the industry average.

And let me make first a point on the industry average. We agree with Radio One. We see great divergence across markets, and it follows no patterns. You may recall -- in the first quarter we talked about the Boston market being down 1%. Second quarter, it was flat. So we're seeing those kind of swings among the markets.

But to step back, for Entercom particularly, the first two quarters, our markets were widely negative. We saw that gap close somewhat in the third quarter. We still believe we index below the industry. But that gap was much less than in Q1 and Q2. So we've got that tailwind, if you want to look at it that way, or that [reversion] to the mean. But more significantly was the operating performance David touched on, both with the key brands and the core properties across the markets.

And as to what that means for Q4, we don't predict market growth. And it's difficult therefore to know whether what we're seeing in Q4 is share gain. But I think I agree with -- I echo what David said earlier. I do believe we are gaining share, and significant share in the fourth quarter.

Mark Wienkes, Goldman Sachs.

Just a clarification first -- with October up mid singles ex political and New Orleans, it seems like your pacing might be closer to Clear Channel's level. In other words, there might be some conservatism built into your mid single digit target.

And then second, recognizing it's early days -- three days, I guess, to be exact -- what have been the biggest surprises so far on the on the new stations you're picking up, and what do you think are the biggest areas of focus to make sure that those deals work?

Well, we've had these stations under operations now for all of about 36 hours, so it's a little premature for us to answer that. We've made a couple of management changes in a couple of the markets, which we think will make an impact for us.

I think it's too early. It's a good question, Mark, but I think it's too early, and it's something that we would probably address a few days out. But we do like to dig in deeply and find ways we can improve operations in every facet of the business. And you can rest assured that our operating team is hard at work in the market doing that as we speak.

As far as our guidance is concerned, I think it is safe to say that our October pacing is a little higher than mid single digits for the reasons you cited. It remains to the seen where we go for the rest of the quarter. But again, we feel good about our guidance.

Kit Spring, Stifel Nicolaus.

Can you talk about where you are as far as your inventory levels in the trend? I assume that you have been coming down a little bit over the course of the last year and a half, but has that leveled off?

And then, secondly, on the October strength, do think that was a short-term spillover from TV? I've heard of some of the TV operators that political has accounted for as much as 26% of their inventory, and they have had to -- they've seen a displacement of advertisers and TV. Are you seeing the bookings slow in November and December post the elections? Thanks.

First, as you know, radio and TV are quite different from a political standpoint. Our political will probably be all of about 2% of our revenues from the quarter, so we do not believe it is material in that regard. And I would add that our November and December -- right now, as I mentioned in my remarks, we are strong across all three months and we do not see an aberration in October business levels at this time.

As far as inventory is concerned, yes, I think there's a misconception here because it's important to remember that our Company has not really reduced inventory, because we never added inventory. And we've maintained what we believe is a sustainable level of inventory over the last -- all the years. And what we're in the process of doing now isn't so much reducing inventory as it is transitioning from an industry which is based on a 60-second unit of currency to an industry which is rapidly becoming a 30-second unit of currency.

And I think one of the other points I'd make here which I think is important is that one of the reasons why industry growth rates have been hurt over the last couple of years has been that transition and the dislocation that it's caused. As we evolve to an industry where 30s are the staple, we will find an industry which, from a relative cost-effectiveness standpoint against other media, looks extraordinarily compelling. And we are likely to see a significant resurgence of radio demand as that transition occurs.

Lee Westerfield, BMO Capital Markets.

Steve, I wanted to focus -- if I can remember back to the fourth quarter of last year and focus a little bit more on the details on the fourth quarter. And first of all, let me say thank you a lot for all of the detail here.

I was looking back over notes from the fourth quarter last year and recalling that, if my memory serves here, that there was a $2.2 million -- year ago $2.2 million deficit versus 4Q '04 from Katrina, and almost a $1 million -- $900,000 from lost Red Sox games. So I guess my question here as I try to understand the mid single digit core guidance in the fourth quarter this year is about how much Katrina or New Orleans you have regained, and then also, how Boston may be faring on a, if you will, level playing field with the Red Sox?

Well, Boston -- as you know, Red Sox did not go to playoffs. And I think, David, what -- there were three games last -- two games last year -- (multiple speakers)

Yes, so I assume it's basically normalized.

Right. But there's no meaningful comp difference there.

As David said, New Orleans will be a contributor to our growth in the fourth quarter to a nice double-digit kind of phase. Having said that, we're seeing some double-digit growth in a lot of other markets as well. So we, again, want to emphasize the point that we're very pleased with how New Orleans came back. And maybe David, who was just down there, will want to give some more color on that.

What is satisfying to see that postelection -- let me again make this point -- postelection, next Tuesday, November 7, we're still seeing great strength -- or not still seeing, we are seeing -- good strength across [the other] core markets, both in what we're seeing for radio overall, and then specifically our continued brand growth.

I think Lee, another point was last year in December, we went commercial free for a month in Seattle to launch a Seattle country music station, The Wolf -- seeing great success for that. So you're right. Last year fourth quarter was a difficult quarter on which to make comparisons from 2005 to 2004. That said, we recognize that there are some comp issues as we look to '06, but don't let that take you away from the story of the core growth and the strength we're seeing across the Entercom portfolio.

I think that's fair. That's what I was really trying to get to.

And David, can I ask one other question -- more longer-term, because you mentioned the third focus on Internet, and I wonder if you could give us some of your thinking in terms of outlining how much you might want to invest -- expense and invest in 2007 in that area? And then ask specifically if you can bring us all up to speed with regard to streaming radio royalty rights negotiations in front of the royalty board at this point.

Yes, I can't really update you on that. Those negotiations are continuing as we speak. And we hope for an outcome which is positive for all radio broadcasters.

But as far as the global strategy is concerned, obviously there's only so much more I want to go into in the context of earnings call. But I think you should assume that we are adding bodies and we are adding infrastructure and we are making qualitative improvement in our technology and our capabilities as we go into '07.

Right now, Internet revenues are a trivial portion of our business model. But we think that as we go into 2007 and 2008, we think it will become a robust portion of our business model going forward, fundamentally rooted in the fact that there is a unique synergy between radio and the Internet, which we discussed before, but that there's nothing more powerful than being able to be on-air driving customers online in a way which no other medium really can match.

John Klim, Credit Suisse.

Two quick questions. Should we anticipate, or do you expect Entercom to be a net buyer or seller of assets over the next 12 to 18 months? And then if you could discuss the auto category generally, have you seen a pickup there?

Let me do those in reverse order. Automobiles picked up a little bit. There's no question we have a -- the domestic guys are hurting a little more than the imports. But we've seen auto improve in this quarter.

As far as assets are concerned, look, we're very conscious of our balance sheet and we're very conscious of where we stand vis-a-vis our other obligations to our other stakeholders. Having so that, I think that you will certainly see some divestitures related to the CBS acquisition. As you know, we're required to do so in Rochester. And beyond that, I don't see any material or dramatic increases in the scope of our operations, again, because we are limited by our capital structure and our sense of prudence.

Bishop Cheen, Wachovia.

How was that for a transition? Our balance sheet and sense of prudence, and then we get a Bishop Cheen question.

Hey, with you guys -- you never flunk confession, so this is going to be easy for you. David, Steve, let me just tag onto the value question. You're on everyone's A-list when things come up that could be attractive or not. And so you have seen a lot over the good times in the bad. Do you see right now any changes in the values, the multiples, the key metrics? And talk a little bit about the quality of what you see potentially for sale.

Well, I think values have held pretty firm over the last several months, and obviously, lower than they were several years ago. But I think they're at a price point now which is reasonable. As to the quality of inventory, frankly, there's not a lot of good quality inventory, because a lot of what people want to sell are their remnants. And we don't see a terrific amount of great opportunities. But as I said before, we're going to be conservative in that regard, anyhow, given our focus on maintaining a balance sheet which enables us to do the things we want to continue to do for our shareholders.

That's a fair answer. Let me -- just one quick follow-up. The peak, what it was at five, six years ago in [this silly] season, do you see the core of cash flow stations still holding to a 10, 11, 12, 13 times better, weaker? Does it depend on market size?

I think it depends on market size. It depends upon -- beauty is always in the eye of the beholder in terms of what one thinks they can do with the radio stations. But I think what you gave is sort of a nice ballpark. But again, each situation is unique.

David Miller, Sanders Morris Harris.

Steve, on the Regent call about an hour ago, they mentioned that with their Buffalo buy, CBS had already closed the books on the necessary CapEx improvements on that cluster so as to ensure conversion over to HD. So Regent doesn't have to incur that expense. Is that pretty much the same profile that you're facing with the Cincinnati buy, or will you have to incur HD conversion expenses?

Well, we're kind of half pregnant on that, if I can use that. Some of that's been done, and we will pick up some of that. That's not material.

By the way, on CapEx, just as an aside, just as you saw this year on Kansas City, we finally were able to consolidate two facilities coming out of an acquisition a couple of years ago. Next year, we would hope to be able to consolidate the two Memphis platforms. We did pickup CBS Memphis to go with our operations in Memphis, and we'll need a CapEx studio change. Having said that, here's a headline -- if you exclude that, we would expect our CapEx requirements to be down next year as we're phasing down HD implementation.

So David, I don't know if that answered your question. We think we're in good footing on CBS from a CapEx perspective. HD is minimal. The only major CapEx item we know as coming out of the acquisition will be the Memphis studio consolidation project, which we would hope to undertake next year.

Anthony DiClemente, Lehman Brothers.

Just very simply, as you look into the first quarter of '07, isn't it true that you should see a pickup in the competitive market in your major markets because your competitor, Clear Channel, will be comping off of the anniversary of their inventory reduction program? And can you just comment on any color about that? I mean, do you really sense that because their ratings improvements have flattened out, that you might have an easier time in the major markets getting traction versus your biggest competitor?

I'm not sure I see it that way. I think that Clear Channel has done a really smart thing for their long-term interest and for the industry's long-term interest in making this transition. I think that there were some issues they had in 2005 in executing that. And therefore, there's a bounce back in '06 which, by the way, takes nothing away from their strong performance which has been terrific.

As we go to '07, I think it's a neutral factor. And I think that they will be a formidable competitor in '07, just like we will be a formidable competitor in '07 and the scales are even.

Right, but in '07, they won't have the ratings increases to sell their spots [also off] the way they did in '06. So they sort of lose their competitive benefit, no? You don't look at it that way?

No, I think -- look, I mean, the ratings are selective market by market. It did have some lift in certain places, but candidly, I don't think we ever saw that as a material competitive factor from the way we look at things.

Jonathan Jacoby, Banc of America Securities.

A few questions here as well. How should we look at expense growth for next year? If I remember correctly, you have some incremental sports contracts.

Second question, and you may have touched on it -- I apologize; I jumped on a little late. What percentage of your revenues and what growth rates are you seeing from Internet and the nontraditional revenue business? Clearly, that's been quite strong across the industry this year.

The third question is, is there anything into next year that you're seeing -- listening for -- the industry's continuing to fragment and shrink, I just want to know if you're seeing increased demand, anything that gives you confidence into '07 when you get past the December quarter?

And then lastly, I noticed that your ratings book were flat for the summer book. I don't have any individual stations in front of me, but is there any areas of concern?

Well, that will keep us going till tomorrow. Let me first address -- we've obviously given no guidance to next year. But you've heard me say there's no change to our business model. So I don't see anything as substantive. Yes, it is true that we'll have an uptick on the sports contract. But that's just one part of our expense management. We're also, as other operators, looking for ways to make operate more efficiently. So you might expect some offsets there.

So we'll have more color on expense growth next year on our next call. But just the headlines -- there's nothing that I see that causes me to lose sleep. And I think if you look back over the past three or four years, you have seen year by year great expense management. Now, David, can you remember the rest of the questions?

I think I wrote them down. (multiple speakers) NTR digital?

I can help.

Yes, NTR digital. David talked -- we're excited, both at our level and our stations, quite frankly, and our account execs by what we see going on about the integration of online with our sales efforts and we have a lot of push there. It's great to see some of the success we're having so far.

Let me give you some color. I think NTR excluding Internet would probably be down a little bit this year, whether that's trimming of concerts or events or printing projects or what have you -- down slightly. Offset, we have seen obviously a material pickup from a percentage point of view of Internet web site sales and streaming sales. As you recall, we streamed the majority of our stations effectively last year. And we'll be over [a percent] in revenue this year on the Internet category.

I would caution as we give you percentages and other operators give you percentages of Internet sales, it's difficult because so much of that is an integrated package with normal spot sales. But within our internal accounting, we do track that. We're seeing appreciable growth. David --

And your other questions, Jonathan, it really -- when you look at '07, you raised a question about demand for '07. Radio is the most undervalued medium in the United States, period. And it's remarkable to me that we can look at -- we can be here at a time when newspaper circulation comes out earlier this week, and it's a disaster. And we continue to read articles that are sort of negative on radio in a time when 95% of Americans continue to tune into their local radio stations every single week. And we lose sight of the extraordinarily powerful and robust platform that we have.

And I won't give you the whole rest of that speech. But I think if one steps back and looks at the value proposition of radio today versus other media, it is extremely compelling. And I think that advertisers will continue to rediscover radio as we go into the future as perhaps we're beginning to see here in Q4.

We feel very, very good about where we're going as a Company. I talked earlier in the call about the three areas of strategic focus that we are committed to, that we think drive our growth rates going forward -- that plus our recent acquisitions, which we think give us significant upside. We feel very, very good about where we're going for 07.

And just on the ratings, anything that we should know (multiple speakers)

No, I mean, look -- again, we have a portfolio of 120 stations. You're always going to have some of up, and always some down. Candidly, we tend to focus in on the ones which are more in flux -- the more recent launches which are still finding their way in terms of how they're going to be priced and valued in the marketplace. And on that short list, we think we're doing very, very well. We did great in the spring. The summer book, as you said, was flat, but where it mattered, we felt we did well.

David Bank, RBC Capital Markets.

This is Ryan in for David. I was hoping you could quantify how much of your Internet revenue is from search affiliate fees versus banner advertising or possibly versus commerce driven by the Website. And also, can you give us some further color on how you will be working with the HD alliances to promote the product during the holiday shopping season?

Ryan, we really don't generate any meaningful from search or from e-commerce. It's negligible on the e-commerce site, so it really is from sale of banner sites on our websites, which are fabulous, and from streaming. And David, I forgot the -- (multiple speakers)

Yes, the HD alliance -- the alliance continues to work, I think, very successfully with a host of retailers and manufacturers across the country, and continues to achieve great breakthroughs in terms of the product offerings that we're seeing with new HD radios hitting the market at lower price points and with more features almost on a weekly basis. There continues to be great conversations with the automakers. And I think that the efforts of the alliance to market HD to the general public and work with our partners in this endeavor have been very successful, and will continue to be successful.

Jim Goss, Barrington Research.

David, earlier, you were talking about the new brands and content initiative. And I know you do this throughout your history, but I was wondering if the format changes and rebranding effort is more intense than normal during this period? And also, if you might comment on the how long the tail is on these brand and content revisions in terms of the ratings improvement you achieve and how it impacts pricing and revenues going forward. And then I have a follow-up.

Yes, I think in '05, it was disproportionately high -- or let's not say disproportionately. It was -- it was above normal levels. I think '06 to date has actually been below. And we'll do a couple of -- as I mentioned, we just did a format change in Memphis. We launched in new country station in Greensboro a few weeks ago. But I think overall, the amount of change in our portfolio in '06 will probably be below average.

The second part of your question, actually, is quite interesting. And I think what I'll share with you is that -- you talk about how long the tail runs on these opportunities. Steve mentioned earlier our country station in Seattle, The Wolf, which launched in December. It is only in fourth quarter that we'll begin to break into the black in terms of relative comparisons with the prior year. So you really are looking at a multiyear ramp, assuming that you have successful launch. And again, we're blessed to have had many successful launches that we think will have legs, really, principally in '07, more so than they did, at least in the first half of '06.

Okay thanks. And the follow-up question relates to HD. Clear Channel the other day made comment of a couple of HD2 formats they developed in San Antonio and Dallas that were unique to those local markets. The Dallas one, I think, they said they blended classic rock and country. Is Texas unique in that respect, or are there areas -- places around country where you think there are formats that are unique to a local area that can be grabbers and help sell the product?

I thing there are clearly regional and local tastes. And as we have selected HD2 format, I think the big picture here that's important is that as an industry, we have each picked formats which we think are attractive to those local marketplaces, and which will drive adaptation of the technology as listeners find that they can purchase these new radios and get all of this new content with no subscription fees.

John Blackledge, JPMorgan.

I actually have two. It seems like the industry is mixed on 60s versus 30s. Some operators are obviously pushing it hard. Obviously, Clear Channel -- it seems like you guys are obviously very involved. But some operators are seemingly doing it, but reluctant, doing what the advertiser wants but not really pushing it. Why do you think there's a difference among the operators? And have you changed your sales comp structure a la Clear Channel to have your salespeople actually push 30s?

And then the second question would be how do you think Entercom is doing monetizing your traffic and content on the Internet, and what are the key metrics that advertisers look at, and how do you guys get paid -- is it unique visitors, [pay to use]?

I'm going to let Steve talk about digital in a second, but I think the -- it's hard for me to articulate what others would have to say. But to me, and those of you who have been on our call have heard me talk about this many times. But to me, it is absolutely -- it is a total no-brainer for us as an industry to be making this transition, because you do not need 60 seconds to communicate 95% of the messages that advertisers need to articulate today.

And as a result, we can shorten the length of our commercials and find a way to create a better listening environment for our listeners and our advertisers, and improve our business model substantially in the future. We're going through some growth pains on that now, but I have every confidence as we look to the future, it is a significant enhancement of radio's long-term opportunities. Steve, do you want to talk about Internet?

Yes, on Internet, John, I think your question brings up a relevant point. When you're looking at national footprints, the Googles, the Yahoo!s, the MSNs, clearly, there you are driving unique viewers, page views, all the typical metrics. When you break it down to a local market and a local market's radio website, obviously, we're going to have much lower numbers, although growing. And our belief is while we have all those metrics and we will provide those to advertisers, what we're really selling and providing is the passion of our audience. And how do you put that in a metric?

And as I said, a lot of those buys are also going to be integrated, we hope, with online spot buys, allowing the advertiser to extend that relationship to the Web to provide more detail, more richness, more color, and then obviously perhaps even a call to action or an e-commerce opportunity.

So I think -- my hope is that that's what we sale as opposed to breaking down and selling the typical metrics at some of the national footprints. That's a philosophy that I think will hold over -- again, keeping with the size and unique focus of a core audience that we have.

We have time for maybe one more question.

One more question, operator?

Victor Miller, Bear Stearns.

Just a follow-up, Steve, on -- talk about maybe your bank agreement in terms of the share repurchase and whether you would use then proceeds that you might take in from the sales of the stations you need to sell for FCC reasons -- whether you might apply that to the share repurchase? Thanks.

Sure. As I think we hinted on earlier calls, we did suspend our share repurchase in light of the CBS acquisition and our bank agreement. We are currently talking with our banks on increasing the covenant modestly above the current five times leverage. After we do that and close on CBS and sort out all the proceeds, I think we'll have to leave that up to the Board of Directors and senior management as to how we deploy that great free cash flow in the direction it goes in vis-a-vis dividend buyback acquisitions. So I think goes all become fair game as we move more to the latter part of this year and early next year.

Well, thank you all for joining our call today. Again, we're pleased to have provided this report today. We're excited about the fourth quarter, and look forward to reporting back to you at the beginning of '07 as we go forward. Thanks.

This concludes today's conference call. You may disconnect at this time.