Audacy Inc (AUD) 2006 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 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 Monday morning everyone, we appreciate you joining us for this call summarizing the fourth quarter and looking ahead for 2007. Before we begin I would remind you that today's call will contain certain forward-looking statements that are based upon current expectation and involve risks and uncertainties. The Company's actual results could differ materially from those projected. Additional information concerning factors that could cause actual results to differ is described in the Company's SEC filings on Forms 10-Q, 10-K, and 8-K. We assume no obligation to update any forward-looking statements.

During this call we may reference certain non-GAAP financial measures. We would refer you to our website at www.entercom.com for a reconciliation of such measures and other pro forma financial information. As indicated earlier this call is being recorded. With that I will turn it over to CEO and President, David Field.

Thanks, Steve, and good morning, all. Thanks for joining us for Entercom's fourth-quarter earnings call. It has been a very active period for Entercom on a number of fronts and so this morning we'll update you on recent event and provide some color on the current business climate. First let's focus on fourth quarter results.

I am very pleased to report that Entercom delivered excellent fourth quarter results with strong top and bottom line organic growth. Same station revenues increased 7% while same station expenses increased 4% enabling Entercom to post 12% growth in same station operating income. A few highlights from the quarter. Our growth was broad based with solid revenue increases across virtually all of our markets. We outperformed our markets during the quarter gaining significant share. The quality of our revenue growth was high as political revenue only accounted for 1.5% -- that's 1.5% of the increase. We were led by strong performances in Seattle, Portland, New Orleans, Greenville, and Kansas City. National revenues outpaced local during the quarter.

Strategically we remain focused on three core growth drivers investing in new brands and enhanced on air content expanding our business development capabilities and building our digital platform. All three areas offer significant growth potential and we continue to make solid progress in all of them. I will elaborate a bit on each in a few moments. We also remain committed to capitalizing on the enormous free cash flow that our business generates each year. We will continue to return large amounts of free cash flow to our shareholders while also looking selectively at value creating acquisitions that do not meaningfully impact our balance sheet. We are particularly pleased with the station deals we have announced over the past few months. Our CBS station acquisitions in Austin, Cincinnati, Memphis, and Rochester announced in August set the stage for a number of creative related moves all of which are positive for our company and for our shareholders.

In the first of these transactions we announced a Cincinnati station exchange with Cumulus Media Partners in November that enabled us to strengthen our competitive position in that market at no cost. We were then able to monetize the enhanced value of our Cincinnati cluster by exchanging these stations along with three of our Seattle properties for the Bonneville stations in San Francisco. The Bonneville cluster consists of three FM stations including the markets number one rated FM station and also offers substantial financial upside. Coincidentally, this morning we began our time brokerage agreement with Bonneville and examine operations at our new San Francisco facilities. In a separate transaction involving a recent acquired CBS station, last week we agreed to sell KXBT FM in Austin to Univision for $20 million. We had targeted the station for divestiture due to the fact that its signal is better suited to covering the Spanish speaking part of the market than the general population. Since KXBT is a cash flow negative property the transaction is highly accretive.

We have also entered an agreement to sell a nonstrategic money losing a.m. station in Portland to Salem for over $4 million. I think it is worth noting that we have now announced four transactions in the past 90 days. Each of them has been either a highly accretive divestiture of a nonstrategic asset or a creative station exchange that enabled us to add value without tapping our balance sheet.

In addition we have made a number of management and operational changes at our new acquisitions. As of today we have a new senior management team in place in San Francisco, Austin, and Memphis. We have made a number of operating and strategic changes to enhance efficiency and enable greater revenue growth. I mentioned earlier that we're highly focused on new brands and content enhancement as one of our three key strategic focus areas. Based on the recently released fall Arbitron ratings these efforts appear to be paying off. In fact, Entercom had the strongest fall rating books among any of our English speaking competitors.

I won't ask you to endure a long list of gainers today, but I will highlight two particularly noteworthy wins. We had terrific ratings across the board in Norfolk, a market where we have endured a bit of a dry spell and are now poised for a strong recovery in 2007. In addition we were able to capitalize on the enhanced signal coverage of WAAF in Boston which as you may recall can now be heard throughout the market by virtue of our acquisition of a station from a Radio One last August that now simulcasts the KAPP programming. I am pleased to report that the new WAAF debuted with a terrific ratings book and is positioned for significant revenue and cash flow growth in 2007 and beyond. Again, many other highlights but we won't torture you with them this morning.

I also earlier mentioned our focus on business development capabilities. We continue to see significant untapped opportunities to generate additional revenues through our business development initiatives. Radio remains a highly under valued medium, and its relative value proposition has strengthened against most other traditional media over the past few years. We continue to add personnel and other resources to our business development capabilities in order to offer enhanced marketing services to our customers and are pleased by the results we're achieving through these efforts. In addition we continue to invest in our digital platform through enhancements to our content, our technical infrastructure, and our selling resources and personnel. While digital generates less than 1% of our current revenues, we are highly optimistic that digital and integrated marketing revenues will emerge as a robust and meaningful contributor to our business model. Finally, turning to business continues in Q1, we are currently pacing up low single digits in Q1 and expect to finish the quarter with low single digit growth in both revenues and expenses. With that I will turn it over to Steve.

Thank you, David. Look, I recognize we've got a lot of moving pieces to talk to you about both in the fourth quarter and next year with our acquisitions, divestitures, and time brokerage agreements. I will endeavor to help communicate to you the story as well as the data to help you understand our business model. A apologize in advance and my remarks will be a little longer than in the past. First let me address first quarter guidance and then let me give you some broad input for your modeling of the Company going forward. I remind you that the guidance we provide is based on same station comparisons which exclude stations that we did not operate or will not operate during the full quarter, first quarter 2007.

The first quarter of 2007 as noted in the press release, the Company expects to report revenues and expenses to increase on a same station basis in the low single digit range. A reminder that this is same station and does not include the sub period of acquisitions and divestitures for the partial period, our prior year first quarter same station information is 90.2 million in net revenues and 59.6 million in expenses. I would note that this base excludes non-cash compensation expense and reminds you that a reconciliation of this information is on our website. I will have comments on pro forma information later.

Let me give you some color on our expected first quarter expenses. First quarter costs will increase due to our marketing plans in the quarter versus prior year and sports rights with the New Orleans saints and post-season NFL playoffs in January and with an expected increase in Red Sox -- Boston Red Sox baseball sports rights impacting preseason baseball telecast broadcasts in March. We also will reflect an overall increase in our New Orleans expenses due to prior year comparisons where last year we were not yet operating at what I would call quote unquote normal expense levels. While we do not provide guidance for the year, we have discussed with you in the past our increase in sports rights related to our new Boston Red Sox contracts. This year will show the largest bump with future years growth dramatically less significant.

Let me paint a broad picture for the year on your expense modeling. On overall expense modeling looking at the full year, factoring in the seasonality of sports rights, our marketing plans, as we know them at this time and other items, we would expect to see a larger bump in our operating expense growth in the second and third quarter offset by a very minimal or no increase in the fourth quarter such that for the full year same station expenses will probably increase in the low single digit range. Looking at the -- that overall expense growth for 2007, I would noted that over half of that amount is from sports rights increases year-over-year so that core expenses will only show a very minimal increase again this year.

A few other notes on 2007 line items to assist you in your modeling. Our corporate G&A in the first quarter should be approximately 6.3 million which includes some extraordinary legal charges which we would expect to diminish in later quarters. Non-cash compensation expense for the first quarter should be about $2.5 million. Then in the second quarter about $2.2 million, and we expect non-cash comp to drop to about 1.9 million in the third and fourth quarter of 2007.

Now assuming we do not close on our outstanding transactions before the end of the quarter March 31, we would forecast the following for TBA fees, depreciation and amortization and interest. Now, I would noted that any of these three items and all of these three items would obviously change if we were to close on those transactions sooner. So with that assumption in mind our TBA fees for the first quarter should be approximately $4 million. Our depreciation and amortization approximate 4.1 million, and our net interest approximate 11.7 million for the quarter.

Now, on our taxes we have a few moving pieces here including some unique charges in the first quarter. First, starting this year we'll be changing our tax rate. We would guide you to a GAAP tax rate of approximately 41% for future periods although I caution there will be quarterly and annual variability to this number. With this new tax rate assumption going forward, we will book a retroactive tax adjustment to apply this incremental increase in the tax rates to our past accumulated deferred tax liabilities. We would expect to book approximately 2.5 to $3.5 million in this tax expense adjustment in the first quarter. Separately, and in addition to that, with the adoption of FIN 48 this year we expect to record a one-time non-cash expense of between 2 and 3 million. However, this expense will be reflected as a change in accounting principle as opposed to reflect this in our income tax line item on our financial statements.

I note that the above two items are non-cash tax provisions. You will note in the release that we did not pay any significant cash taxes in 2006 and expect a similar result in 2007. In fact, we have significant deferred tax provisions from prior acquisitions, and the closing on our outstanding transactions will result in additional tax shield benefits of approximately 7.5 million per year out into the future.

On CapEx our expectations for the year is approximately 14 to 15 million as we complete a facility relocation in New Orleans caused by hurricane Katrina, and the substantial completion this year of our HD transmission rollout. Let me pause you and give you some perspective on CapEx over recent years. Our past three years 2004 through 2006 CapEx totals approximately 38 million. As with many operators we've been deploying HD transmitting capabilities, and we've invested about $8 million on that project over the past three years. With our tuck-in acquisitions and upgrade of existing office facilities from new acquisitions we've invested another 16 million over the past three years in studio and offices. That means over the past three years our ongoing maintenance CapEx has totaled only 14 million or less than 5 million [sic -- see press release] per quarter.

Let me give you a few notes on fourth quarter operating results before we go to your questions. We're pleased that the quarter we had record station operating income and pleased that our adjusted net income increased by 9% to $0.37 per share. As noted in the release, we entered into a consent judgment with the New York Attorney General's office regarding sponsorship identification practices with no admission of any liability or violation. In addition, with an FCC investigation sponsorship identification practices at several media companies, we also recorded a reserve for this matter in the fourth quarter as well. In summary, we recorded a total of 8.3 million in our corporate G&A expense in the fourth quarter related to these matters.

As you can see with some of our peers who are or as you have seen with some of our peers in the past changed rep firms, in the fourth quarter with our CBS time brokerage agreement there was a related change in national rep firms in the market which required us to record a contingent liability in the fourth quarter of approximately 500,000. This is a non-cash liability which is the responsibility of our rep firm but which we must also reflect in our books. That was in the fourth quarter. Our bank leverage at the end of 2006 was approximately 4.2 times. I would note this excludes extraordinary items as we've discussed earlier. Pro forma for all our transactions outstanding that we would expect to close announced in the 2007 period our pro forma year end 2006 leverage was approximately five times.

Let me make a note on pro forma information. I realize again with all the divestitures and acquisitions we have a lot of moving pieces. On our website we have posted pro forma operating information for all our transaction so that you can see the revised pro forma base for the full year 2006 and the four quarters of 2006. I would note this information does not yet include any impact from our contract to purchase stations in Rochester, New York, as we have yet to complete that transaction or identify the stations we will spend or complete those transactions. Therefore we have not yet entered into a time brokerage agreement with CBS for operations in this market. Then kind of a broad, big picture note on our pro forma base, the recent Bonneville swap which David commented on earlier was pretty much an even swap of broadcast cash flow. However, our new San Francisco cluster has much higher margins than the stations for which we swap. Consequently you will see a pro forma revenues reduced by about $12 million for our base for last year.

As we put 2006 in perspective we continue to generate -- demonstrate the tremendous free cash flow generation opportunity of this business model. I would note that Entercom management is the largest shareholder of this company, and our management and the Board of Directors has directed that the cash flow energy -- indigen of the enterprise be used three ways to build shareholder value, astute acquisitions, share buyback, and dividends. As we did on CapEx let's look back over the last three years 2004 to 2006 to get a broad overview of what we've done with our cash flow and balance sheet.

Besides the investments in HD radio and our facilities via CapEx, the investment in our existing businesses we have completed 175 million of value-creating acquisitions during the past three years, and we have outstanding over 200 million of net acquisitions outstanding which we expect to close on this year. Over the past three years we have returned 460 million in cash to shareholders via buybacks and dividends. We have repurchased over 23% of the outstanding shares of the Company with 400 million in cash and during 2006 we began to pay a dividend paying out over 60 million in cash to shareholders in 2006 alone, and we're pleased to announce that two weeks ago the Board of Directors authorized another dividend of $0.38 per share payable at the end of March. We've done all that and yet maintained a strong and flexible balance sheet. As I have said many times in the past, it is a great business model, and with that, operator, we'll open up the phone lines for your questions.

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

Good morning. Thank you for taking the question. Steve, very quickly, how much political did you get in the fourth quarter.

We had about, Vic, about 2.5 million in political in the fourth quarter, and I think it was about 7 or 800,000 in the fourth quarter prior year.

Okay. So that probably accounted for about 1% of the growth, so you're still north of 6% core versus low single digit in first. Maybe you can talk a little bit about any of the changes you're seeing either in markets or categories in the first quarter versus the fourth quarter. And secondly, Steve, you did a $200,000 share repurchase in the quarter. Was that basically because you're restricted because of all the M&A activity or is that a strategic choice because of the leverage? And lastly, David, any comments on the XM/Cirrus merger? Thanks.

There goes the next half-hour. I will comment first. You're right, Vic, I think political accounted for less than 1.5% of growth in the fourth quarter as to markets, I think you've heard us say and other operators say we had markets up, markets down but as we indicated we were really pleased with the core operations across a wide range. No particular categories. Obviously political up. If you look beyond that, and you know my point of view which is categories can sometimes be noise, but if you are interested in the fourth quarter, financial was down, telecommunications was up, and obviously political was up. If you look at the year 2006, beverage and financial was down, health/medical, home furnishings, and insurance are up. Again, I don't know how meaningful that is but I gave you the data for what it is worth.

As to the share repurchase agreement, yes, we did repurchase 200,000 shares. We view this as a marathon, not a sprint, and yes, we are trying to be mindful of our balance sheet and maintain flexibility as we indicated last year, when we announced our dividend and we announced the transactions in August, with CBS, we will slow down the rate of share buybacks, but we will continue to be share buybacks. David, why don't you address the other questions?

The other question was on XM/Cirrus, and obviously it is not going to be my call or our call as to how that plays out and others will determine that, but I guess the only thing I would say is it is hard to imagine that the government would sanction such an anti-competitive monopoly. Obviously in the initial licenses they received, this was envisioned and specifically prohibited, and given the uniqueness of their platform, and if one thinks about antitrust level and what's in the public interest, again, hard to imagine that this will get approved but we'll see how it plays out.

Thank you.

Our next question is from Marci Ryvicker of Wachovia.

Thank you. Steve or David would you say that you're more optimistic about the radio industry in general going into 2007 than even in the past or are you more optimistic about Entercom specifically due to all the changes that you've been making? And then, secondly, any thoughts on electronic measurement? I think you signed onto fund the four-month test in Houston. Do you expect this to impact your expense line and when?

Let me do those in reverse order. If I understood your second question, we're not in Houston, so did I understand your question correctly?

I thought I had read that you were still going to fund--?

Oh, the funding of the study, yes.

Yes, the funding of the study, yes.

Right. I'm sorry, we'll -- the details of that have not been worked out yet. We will be funding a relatively small amount, and it will be -- I don't think it is a material amount of money, but it is obviously something that we're committed to and excited about. Insofar as your first question which I think is a relatively deep question, I think I am more optimistic now about both.

I would emphasize that at Entercom we feel like we're entering the year in a very, very good place for the reasons I already cited. I think strategically we're focused on the right drivers for performance. I think our portfolio was in very good shape in terms of our brands, in terms of our new brands, our business development and digital efforts will give us great fuel for the future and are already beginning to kick in now. I feel very, very good about where we're going, and as far as the industry is concerned, again, one of the great opportunities remains the fact that we are incredibly undervalued medium, and our value proposition continues to get stronger and stronger.

As we look at the erosion in the usage of other traditional media, and look at how well radio continues to weather the storm, I think that there is great opportunity to see a significant growth in radio's share and radio's revenues going forward. I think the new RAB under Jeff Hayley is going to make a great impact, and I think a lot of advertisers today looking for alternative solutions to address their problems will discover radio and make it a bigger and bigger part of their advertising and marketing investment.

Thank you.

Our next question is from Eileen Furukawa of Citigroup.

It is actually [Ari Danz] for Eileen. Two quick questions. First, can you give us idea of what type of growth you saw from New Orleans in the fourth quarter and what you expect it to be for the first quarter? And then secondly, are you still seeing and increasing demand for shorter length adds or has that leveled off now?

For what shorter length ads?

Yes.

Let me do those in reverse order. Yes, we're seeing a continued surge in demand for shorter length commercials, 10, 15, and 30's. As we discussed over the years we think that trend is going to continue and believe ultimately shorter length spots will become the standard currency for radio. As far as New Orleans is concerned, yes, we had a strong quarter in New Orleans, but I want to emphasize that our growth was very, very broad-based. New Orleans certainly contributed a little more than its fair share even ignoring New Orleans and ignoring political we were up a solid mid-single digit number on same-station revenue growth, and again we had the vast majority of our markets contributing significant revenue gains during the quarter.

Our next question comes from James Dix of Deutsche Bank.

Hello, James.

Did we lose James?

Sir, please check your mute button. We're unable to hear you.

Good morning, gentlemen.

Good morning.

Got just a couple questions. If you could provide a little color on the market growth variation that you're seeing. You have a number of new markets this year versus last. And then how has the geographic diversity of your revenue base kind of improved or expanded now that you have kind of the CBS and pending Bonneville transactions in there, if you could speak a little bit to that?

I will go first. Let me make some comments on market variability. We've talked in the past about the wide range of variability. Let me note that throughout last year the Denver market was particularly soft as a market. I think you've seen that in the trades. Let's put New Orleans to the side. Everything else in line -- and let's put New Orleans off to the side. I think you have the Denver, Norfolk, Indianapolis markets as markets stacking out. How that pertains going forward, have no idea James. As to geographical mix, an interesting point, as we've talked about before with the Bonneville sway, I think strategically one of the benefits of that besides entering the nation's fourth largest market in San Francisco with an exciting position, we further strengthened our presence on the West Coast to our existing operations and we maintain strong operations in Seattle, Portland and Sacramento. We now add a geographical presence in San Francisco for purposes of business development. We have never been one talking about great synergies, but there are opportunities in business development, and you heard David talk about that, digital platform, our business development initiatives and I think being in San Francisco will enhance that. Do you want to add color to that, David.

You covered it very well.

Okay. Thanks very much.

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

Hi, Steve. A couple of questions. On the balance sheet data in your press release, the 7 and 5/8 senior subordinated notes and the senior debt, is that all pro forma net debt? I would just be curious to know that, and then also the guidance you gave on expenses with regard to corporate G&A, the 6.3 million, is that generally a run rate that we can assume quarter over quarter into '07? Thanks.

Two things. No. The debt on the balance sheet, that is not pro forma. That is actual debt only debt outstanding at the end of the quarters as I indicate that would work out based on the way our bank agreement works to reported leverage of 4.2 times. Pro forma debt for all the transactions talked about in the release would be approximately five times, and your second question--? Run rate on corporate G&A. Look, we recognize throughout the year, for instance, in the first quarter last year we had the write-off of the ABC transactions costs which didn't occur. As I indicated the 6.3 million in the first quarter we would expect to be high and we would expect that to drop in succeeding quarters. I would expect that our core base excluding extraordinary items on corporate G&A would be in the 5 million per quarter range, but that will change as we add resources on digital and other things, but that gives you kind of a ballpark.

Thanks very much.

One moment for the next question.

Any luck, operator?

It will be just one moment.

To those listening, the it technical problem is not at our end. Appreciate you hanging in.

Our next question is from Anthony DiClemente of Lehman Brothers.

Thanks for taking. Two questions. First off, just given your guidance, if you exclude the non-cash, and you just look at same-station operating income for the first quarter, are you guiding towards growth or flat or maybe you can help clarify just on that line? And then secondly, back to the XM/Cirrus question, David, what do you see as the main vehicle for protesting the deal for the broadcasters? Is the NAB who seem to have come out fairly vehemently against the deal or is it direct congressional protest or maybe neither? Thanks.

Again, I have expressed a personal point of view on the deal, but smarter people than I are going to have to address this within Washington and they have got to do their work and we're going to stay focused on doing what we do which is running Entercom and being the best company we can be. Steve, did you--?

Anthony, we did not guide on same-station operating income or the formally known BCF. What we said was low single digits for both revenue and expenses and depending on where it comes in it will be close as to whether there will be growth or not on that in the first quarter.

Great. Thanks, guys.

Our next question is from Bishop Cheen of Wachovia Securities.

Good morning, David, good morning, Steve, thanks for taking the call. Steve, just to go back on the balance sheet, because by your own admission there are a lot of moving parts. The station divested -- the two divested one from the -- part of the CBS transaction, was that in the original, back in August when you announced the deal? The original intent to divest that station?

No, it was not.

Okay.

I think as Dave had indicated as we started looking through that transaction, we came to the conclusion it was better to divest that with that weak signal station in Austin.

Got it. So we lost somewhere right around on a net debt basis for the CBS transaction that still has to close somewhere right around $200 million incrementally?

About 215, we think, depending on where we come out with Rochester which is still a moving target.

Okay. So that's the variable, but that 215 already has the announced divestitures in the number, correct?

That's correct.

Okay. And secondly, on your new more flexible bank deal, the 800 capacity going to 900, can you tell us what the pricing is on that and what the new leverage covenants or significant covenants are on that.

The grid remain the same, the pricing grid did not change, and that's filed. The leverage covenant went from 5 times to 5.75 times overall debt.

Okay. Depending on Rochester you're roughly 5 and a decimal on pro forma kind of leverage right now.

As indicated, as I indicated earlier, Bishop, we would be right around 5.0 times as we define it with our bank agreement.

Right. And then is there a significance to you, do you have a bias as to trying to keep it right in that track or opportunistically are you comfortable taking it up three quarters of a turn?

Well, obviously we were comfortable in having that head room. I would say that we have never given a specific leverage target, Bishop. We're not trying to chase a certain rating. What we are trying to do is provide the greatest value for shareholders and again management is the largest shareholder. Doing that in a combination share buyback dividends and accretive acquisitions where we can build value is we think best, but I think as you've noted in the past you had a long history of following us, we've always maintained a conservative balance sheet, and I think management enjoys sleeping comfortably at night.

Yes, you have. Fair answer. Thank you.

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

Good morning. Thanks for taking the questions. Just two questions here. First, and I could be looking at this wrong, but if I look back of the envelope it looks like some of the new stations that came on have come on with a pretty low sort of contribution margin, and then secondly I am just curious as to your thoughts in terms of an acquisition or acquisition pipeline with all -- with some of the larger operators looking to sort of pin down their portfolios? Thanks.

I'll go first. It is hard to judge, Jonathan, the acquisition margins early on. Don't forget we took a significant non-cash charge in the fourth quarter, and in some of the CBS stations we brought on, plus we closed with, in some of the weakest with December as always one of the weaker months, and obviously first quarter. We also had a lot of changes to make in formats and Cincinnati, Memphis, management restructuring in Austin, so we are fine. We look at that, don't get hung up on a quarter.

The second part of your question regarding acquisitions, again I think there is a lot of glean from our actions over the last few months. As I mentioned in my earlier remarks, the last four deals we have done have been basically nonstrategic divestitures and creative swaps where we've been able to create real value for our shareholders, so we're I think being creative in moving forward in a balance sheet friendly manner. Sure we'll absolutely look at any acquisitions that come down the pike, but we're going to be very selective and we're not going to torch our balance sheet to grow.

Thank you.

Our next question is from Lee Westerfield of BMO Capital Markets.

Gentlemen, thank you very much, and please be assured I want you to continue sleeping well so keep it all up. Steve, this is a simple question on CapEx, and then, David, I wonder if you can give us some updates on the HD alliance on matters such as the ad campaign and other developments, but, Steve, on CapEx first, thank you very much for providing the detailed breakdowns, and I think you mentioned that maintenance was running in the past approximately 14 million a year.

Excuse me, 14 over three years, 5 million, less than 5 million per year.

Thank you. Sorry.

I think you may have said 5 million per quarter when you spoke earlier, Steve.

Let the transcript be corrected.

Good. That was one aspect to that. I also wanted to know whether you see any deferred projects on maintenance that may be creeping up in the future if there are after you've completed a lot of your HD investment, and that's the simple question on CapEx. And, David, I would love to hear progress in development with the HD alliance and the ad campaign and other matters there.

The short answer and the easy answer on your deferred maintenance CapEx request was no. N, we haven't deferred anything, don't see anything significant on the horizon.

As far as the HD alliance is concerned, we remain very, very excited about the progress that's being made by the group. Having the number of deals that we've been able to achieve over the course of the last year with consumer electronics manufacturers and auto makers, and major retailers has given, I think a tremendous amount of momentum to the pipeline of new products and to the distribution of HD technology. It is internally we're being briefed on a weekly or biweekly basis and seeing a lot of very, very promising developments, some of which are public and some of which are not, but I think that HD is obviously in a very early stage but we're optimistic.

Gentlemen, thank you.

Our next question is from John Klim of Credit Suisse.

Good morning, gentlemen. Two quick questions. Average unit rates, how were they trending or how did they trend in Q4 and how are they trending in Q1 versus inventory levels? And then when you think about your dividend payments, are you targeting a yield or a payout as a percentage of free cash flow? Thanks.

Why don't you deal with the second question.

On the dividend quite simply no, we're not targeting a yield. We're targeting a number which we're comfortable with in terms of percent payout although that's not even a target. Obviously when we announced a yield it was about 5%, it's gone to 6%. Now it is back to about 5%. It is a significant yield to shareholders. It is a payout of roughly $60 million on our current share base, but we are not yet giving guidance as to percent payouts or a percentage yield.

I think on the AUR question it is a little bit of three things. Our growth is part average unit rate, part better utilization or higher selling through a higher percentage of our available inventory which we are not increasing, and then, third, it is the shift to shorter length commercials which is creating a more efficient model for us to drive revenue growth in a shrinking inventory time environment if that makes sense.

That makes sense. Great. Thank you.

Our next question is from Mark Wienkes of Goldman Sachs.

Thank you. Good morning. What do you think for either or both of you what do you think are the biggest implications you expect as a result of what you could call a deconsolidation of radio from the larger operator selling stations and being sprinkled across the medium-sized or mid-size and smaller operators on the industry and then for Entercom specifically on things like format diversity, and then profitability and pricing, et cetera?

Mark, I don't know. It is a tough question. I am not sure there is -- given what we see happening, I am not sure there is any profound change on industry dynamics based upon the speculated number of acquisitions or rather divestitures that may occur in the market going forward. I am not sure I am completely capturing your question, though, and if you want to clarify further maybe I can be more helpful.

If Clear Channel really sells 450 stations to -- and the bulk of those stations are sold in five or ten or fifteen unit increments, do you think pricing across the industry gets more rational? Do you think format diversity actually increases?

Truthfully, to the extent that they are going to be selling smaller market radio stations, I don't really think it has any effect on industry dynamics. I have not seen anything to indicate they have any intention of shrinking their positions beyond what they must from a regulatory standpoint in the larger markets which I think is really where we compete.

Right. Okay. Thank you.

Operator, I think we have time for one more call.

Thank you our final question is from John Blackledge of JPMorgan.

Thanks for taking the question. I have two questions, one for David. You mentioned radio as an under-valued medium, and in good position for growth. Do you think that growth would be achieved purely through rates and what is the growth potential? Is it low single digit, mid-single digit? And then secondly, and this is for David or Steve. It is early, but would Entercom subscribe to the ComScore Arbitron Internet radio rating system at some point as you move along the digital initiative forward? Thank you.

I will answer the second one. Certainly we're looking at what are the right digital tools as we move to more meaningful presence. It is kind of exciting to see the number of page views, the number of hours streamed, some of those are all metrics. But as we said in the past, we're hopeful radio is sold less on those metrics that are traditional with other digital advertisers than on the emotional connection people have with our station and the opportunity to integrate those digital sales into our spot sales platform being online, on air, and onsite.

As far as the growth potential, it really starts with basic disequilibrium that admittedly has existed for some time in that radio captures close to 30% of the American public's time spent with media. Yet we capture only about 7 or 8% of the advertising dollars, and that of course spells great opportunity, and it is my belief that we have not had a catalyst to date that has really enabled us to capitalize -- or to mitigate that disequilibrium. It is entirely possible today, given the enormous changes that are occurring to all traditional media that advertisers are going to look I think far more openly at what their alternatives are and radio presents itself as an extraordinarily cost effective vehicle that has virtually ubiquitous reach and which remains very, very strong despite the changes in technology that have occurred around us. So with that in mind, I think there is potential for substantial growth, but I wouldn't -- it is hard to speculate beyond that.

Thank you very much.

Thank you all very much, appreciate your time this morning. Glad to present this report to you, and we'll look forward to giving you more information at the end of first quarter. Thanks.