Audacy Inc (AUD) 2008 Q1 法說會逐字稿

Good morning and welcome to Entercom's first 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. Stephen Fisher, CFO and Executive Vice President. Sir, you may begin.

Thank you, operator. And thank you everybody for joining us this morning for our first quarter earnings conference call. Before I turn it over to David Field I'd first like to note that today's call will contain certain forward-looking statements that are based on current expectation and involve risks and uncertainties. The Company's actually 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. Company assumes no obligation to update any forward-looking statements.

During this call we may reference certain non-GAAP financial measures. And we would refer to you our website at Entercom.com for a reconciliation of such measures and other pro forma financial information. So with that preamble I will turn it over David Field, President and Chief Executive Officer.

Thank you, Stephen. Good morning everyone and thanks for joining us on today's call. As you are aware we released our first quarter results this morning. And also announced we will be reducing our dividend from $0.38 to $0.10 per quarter. I will begin with my remarks with a review of first quarter results then provide thoughts on the second quarter before discussing the dividend change. I'm pleased to report that during the first quarter we achieved strong growth in our bottom line financial results despite the challenging state of the U.S. economy.

Free cash flow per share serves 76% from $0.17 to $0.30 while adjusted net income per share increased 44% from $0.09 to $0.13. And while same-station revenues declined 4%, excellent expense controls enabled us to reduce our same-station operating costs by 3% and achieve a 3% increase in EBITDA for the quarter. Here are a few other significant headlines from first quarter. We achieved excellent results in a number of markets led by Austin, Buffalo, Madison, Norfolk and Providence. Local revenues were significantly stronger than national for the quarter. Digital revenues more than doubled to just over $2 million and now represent just over 2% of our revenues.

I would also note that while we continue to find ways to improve our business model, and prudently reduce operating expenses we are still significantly increasing our investments and our core growth initiatives. We continue to add personnel and other capabilities to develop our digital and business development efforts and we continue to see great growth and opportunities in these areas. We're achieving a significant reduction in our financing costs as well and have taken a number of steps to capitalize on current financial market opportunities and insure that we lock in attractive borrowing rates for the next few years. Steve will provide some further color on this in a few moments.

Excuse me. Turning to the second quarter, business conditions are marginally better than first quarter. Current facings are down low single-digits. We expect second quarter same station revenues to be down low to mid-single-digits versus last year. Which brings us to the dividend. Why did we make this move? First and foremost, and I want to be very clear here, we did not make this move because we felt we had to. We are not concerned about our ability to pay the dividend, which represented just about 2/3 of our free cash flow in 2007. As I noted earlier on this call, our free cash flow is growing and our leverage is stable. Furthermore we remain committed to the principal of returning significant free cash flow to our share holders. So why did we make this move? The short answer is because we believe that putting greater emphasis on share repurchases in the near-term is a wiser deployment of our free cash flow. Let me elaborate.

When we first declared our dividend in the first quarter of 2006, our stock was considerable higher and the initial dividend yield was at a more normal level of approximately 5%. As our stock prices declined our yield of course has gone up. Today it has reached a stunning and stratospheric 18%. This has resulted in a bizarre yet unintended consequence. To many investors, the mere fact that the stock is yielding 18% serves as a red flag and likely dissuades them from owning the stock. Fearing an eventual reduction or elimination of the dividend or some other unknown or unforeseen negative event that might be looming in the future or hanging out there. The psychological overhang has become a distraction for investors and created negativity and uncertainty around our stock that is simple not constructive. In addition over the past nine quarters of dividends we have not attracted a significant number of yield based investors. In fact only one in 30 of our top holders as of the latest available information is a yield-based fund. The fact that only a very small portion of our shareholder base is primarily yield oriented was a very important consideration as we discussed the impact of the dividend change on our investors. Finally, we made this decision because we believe that our investors will be better served by a reduction of the dividend to a more normalized but still quite attractive level of roughly 4.5%, because this change will enable us to have additional uncommitted free cash flow to use to buy back our stock, which we believe is trading at a highly undervalued price. I want to repeat what I said earlier. The change in the Entercom dividend has nothing to do with the Company's ability to sustain the payments. Our free cash flow per share is growing. Our leverage is stable and business conditions are at worst, stable and may be improving marginally.

Before I turn this over to Stephen I want to briefly look ahead. As I mentioned a moment ago I think the market is significantly undervaluing our stock. I believe there are three parts to our story that the market is missing. First is the fundamental health of the radio industry. Unlike certain other media that have seen substantial erosion to their usage by the public, and significant disruption to their ad models radio has proven itself to be remarkably resilient. Radio reaches 93% of Americans weekly, essentially the same percentage of Americans it has for decades. And in fact, radio reaches more Americans today than ever adding 3 million listeners in the last year alone. There are a number of facts I could add. I will just throw one other one at you, 36% more Americans tune into radio daily than go to the internet. The story is quite strong. Radio is also the low cost provider of advertising offering great value and effectiveness to its customers. While admittedly the industry's revenue performance has been uninspiring over the past few years, radio is a very strong relative value proposition compared to other media and ultimately ad revenues will grow to reflect the mediums underlying strength.

Second issue is the evolution of our business model at Entercom. While it is still early, we are making great progress in reference to evolve Entercom into a marketing solutions company, leveraging our integrated marketing platforms of on air, online and on site. We are making significant investments in our [BizDev] and digital capabilities and are experiencing significant growth and demand for integrated marketing campaigns across the country.

And third is radio's ability to generate outstanding free cash flow. Unfortunately investors appeared to have largely discounted or ignored this. The significant growth in our free cash flow per share in our first quarter despite the challenging macro economic conditions is indicative of the power of our business model.

Furthermore, we expect to be continue to able to grow our free cash flow per share during the remainder of the year. So in sum the strong fundamental strength of the radio medium, the evolution of the Entercom business model and outstanding free cash flow generation of the business are three important parts of our story that we do not believe are properly valued by the market. With that I will turn it over to Stephen.

Thanks, Dave for that overview. And now let me cover first our guidance for the second quarter, give you a little more detail on that and provide then a few highlights for the first quarter before we go to your questions. As David said we expect same-station revenues in the second quarter of 2008 to decline in the low to mid single-digit range as compared to the prior year. We expect station cash expenses to be down by approximately 2%. As we stated in many of our prior calls and we reiterate today, we see no bumps in our expense model for 2008. We're not deferring any expenses. For comparison purposes our prior year first quarter -- second quarter same station information is $126.6 million in net revenues and $75.3 million in expenses. I note this base excludes non cash compensation expense. A reconciliation of this information and other non-GAAP measures is available on our website.

A few other notes on 2008 line items to assist you in your modeling. We would expect our corporate expenses in the second quarter to be approximately $5.2 million. Non cash compensation expense for the second quarter and for the remaining quarters of 2008 should be about $2.2 million per quarter. We did have higher depreciation and amortization in the first quarter, as a result of short lived amortization from the recent closing on our CBS and Bonneville transactions. For the second quarter we would expect DNA to be approximately $5.6 million then drop to around $4.5 million in the third and fourth quarters of this year as those short lived assets are amortized. Net interest for the second quarter should approximate $11.8 million. As a reference point this interest forecast does not assume any additional debt for share by backs which we talked about. TBA income or expense will go to zero in the second quarter and for the balance of the year. Our tax rate for the year should be between 42 and 43% excluding one time adjustments. And on street estimates for the year we would begin pay no cash taxes this year. Utilizing the tremendous tax shields from our intangible amortization for tax purposes.

Now looking at the first quarter, as you saw on the quarter we achieved a significant increase in free cash flow. We had previously indicated to you that our free cash flow for the year would increase as a result of our lowered financing costs. And in fact in the first quarter the combination of interest and TBA fees, our financing costs decreased by $3.5 million over the prior year. This is a result of swapping out our TBA fees for lower interest payments. Lower interest rates experienced in the overall market, and our new senior bank facility put in place last summer, realizing a favorable rate structure.

With our improved financing costs, expense management and lower share count of approximately 4% from last year, we were able to achieve a 44% increase in EPS adjusted for extraordinary items and an increase of 67% in our free cash flow for the quarter. You saw again, strong expense management of our operating expenses with the decrease of 3%. You have seen that now for many years, this quarter and our future quarters guidance reflect constant focus on expenses that matter. While as David said we continue to invest in our brands and new initiatives like digital and business development. Our corporate expenses of $5.2 million in the first quarter were down from prior year primarily as a result of extraordinary legal expenses last year. Our non cash compensation expense for the first quarter was higher than we originally guided due to acceleration of vesting on some restricted shares into the first quarter. Now with that acceleration into Q1 you should note that the guidance I gave you for the remainder of 2008 of $2.2 million per quarter is lower than that we previously provided to you. An update on our leverage, in spite of the challenging economic environment, we delevered ending the first quarter with leverage under our bank facility terms of 5.5 down slightly from the prior quarter.

Interesting to note that we took advantage of the discounted price in the public market of our senior subordinated notes and repurchased approximately $30 million of our bonds resulting in a gain of $1.8 million in the first quarter. Also in the quarter we took advantage of the lower interest rate environment and hedged a portion of our floating senior bank facility to fixed rates and put a collar on some of these floating rates as additional insurance of free cash flow generation in the quarters to come. We will continue to evaluate further balance sheet opportunities in the future.

As to the quarter let me address a question I might anticipate and that is, what impact are we seeing from political revenues? In summary, nothing significant in the first half. But we expect more in the second half. In the first quarter we realized about $600,000 in political revenues in line with our planning model for the year. In the second quarter we should see only a few hundred thousand. I'd note that if this year, 2008, mirrors past quadrennial election patterns we should see between 4 and 5 million in political for the year, but this would primarily fall in the third and fourth quarters. This pattern is consistent with the pattern of radio revenues and political revenue generation.

Let me close with a few notes myself on the dividend policy before we go to your questions. As David said, this change was not made lightly. The company has demonstrated long focus of rewarding share holders by returning cash via share buy backs and dividends. Let me give you some context. Since we initiated a dividend in early 2006, we have paid $3.52 per share in dividends over the past 9 quarters cumulatively. And since launching our share buy back in the middle of 2004, we have repurchased over 28% of the shares of the Company rewarding share holders. Today's reset of our dividend implements a yield exceeding most other stocks, 4.5%, yet utilizes less than 20% of our ample free cash flow. This allows the Company to be more aggressive in buying back shares, as another way of returning cash to share holders and building shareholder value. And with today's extension of our buy-back program by the Board of Directors, you will see us immediately execute against that plan. Important that you note that Entercom's Management team is by far the largest shareholder of this Company. And Management and our Board of Directors constantly evaluates all options. And in making this decision finds this to be the most compelling structure, capital structure we can envision at this time. With that as background, operator will now open up the lines for any questions.

At this time we will begin the question and answer session. (OPERATOR INSTRUCTIONS) Our first question comes from Victor Miller, Bear Stearns.

Good morning. It is Chris Ingsley. A lot of talk about discrepancies between large market radio and small market radio. Wonder if you could talk about Austin, San Francisco and Seattle and how you're doing in those markets and how those markets are faring?

It has been -- to pull out some data here, to look at it as we're discussing it. There is certainly some truth to the fact that some of the larger markets have been -- have been more challenged than some of the smaller markets. I think that is a fair -- that's a fair comment on -- on business condition force the first quarter. To I think some extent that is reflect of national being much weaker than local for first quarter. Whether that is a prevailing trend as we go through the year or not I think remains to be seen, Chris. We have only really seen evidence of that in first quarter. And I wouldn't be in too much of a rush to pound the table and think that is a long-term trend. I would look at it as a one quarter blip for now and let's see what happens.

In those markets are you outperforming in those three markets or how are you faring.

We're doing quite well in our larger markets.

Just an update on the Red Sox deal, and you also have the Celtics in the playoffs. So I guess one year into the Red Sox deal you now have ratings that you probably didn't have a year ago? How is that shaping up?

You know it is fine. You know we continue to do fine with our Red Sox broadcasts. Obviously we pay a full price but it is also a good revenue source for us. Celtics are a -- you know it is great to see them in the playoffs but I also wouldn't overstate its significance. It is a, you know basketball on radio is generally not a huge factor. Baseball tends to be a bigger you know -- a bigger importance.

Right. Thank you.

Marci Ryvicker, Wachovia.

I have a couple of questions, David I just want to be very clear so I will ask you a couple of questions on the dividends. Was any part of this cut a function of your debt level? Any pressure from the banks whatsoever?

This is Stephen. I will answer that, simple answer, no.

Coming to the $0.10 per share was the board targeting a specific dividend yield when they decided this.

I -- you know, I think we triangulated to a point that felt right. There was no perfect science to it. It was really about, again, redeploying our free cash flow in a manner we felt would be best for our share holders. Our goal is to create shareholder value. We felt that the mix we are presenting today does the best job of achieving that.

Okay. And then one last question. On your leverage, I think your covenant is six times. What is your target leverage ratio and when do you expect to get there.

Good question, Marci. We get that question quite often. And we always answer with, we do not manager the business to a target ratio. We are comfortable with where we are today. Based on the business environment and the business model that we see going forward, we can always adjust that. So, there is no target leverage. We do not trace a credit rating. And we have not given a specific target leverage ratio to the Street.

Thank you very much.

Thanks Marci.

Bishop Cheen Wachovia.

Back to back, thanks. What is the target ratio? No, Marci covered the target ratio. I mean, look, you have a half turn of cushion. And it is a recessionary environment. So obviously it -- it is on -- certainly the bond holders' minds and stock holders' minds of how close to scraping metal do you get? But --

And Bishop, just to address what you said, you -- you saw Q4 and now Q1, and on the guidance we gave for Q2, even under the old dividend policy we delevered.

Right, you stayed with a cushion it is true. It just shouldering the risk, people think what if, uh-oh. I mean obviously it is not the first time we have heard that. Let me just ask question about your -- your core fundamentals. Digital is growing nicely. You expect political in the back half and there is nothing out there for, I think for anybody to doubt that. But what about the core? National just seems to be in a funk. Local seems to be stutter step. When do you see your core revenue, your local and your national stabilizing?

Well, I -- when we say stabilizing, we were flat in all of 2007. I don't want to pound the table and get excited about that but, first quarter revenues being down was really the first down quarter we have had in a very, very long time. I think to your broader question, Bishop, we are, I mean I look at what is happening with newspapers and magazines and a variety of other media, and I am not sure it is a fair expectation for radio to rise above place happening to essentially all media, right now, in the midst of a very tough economic climate. Now once we get through this economic climate, and we can all look at our crystal balls. But once we're in a growth mode again the question is how will radio fare as a medium. And we remain very optimistic about radio's future. We are the low-cost provider, we reach 93% of Americans every single week. I could walk you through a number of other facts which demonstrate radio's incredible resilience in a world of increasing choice and increasing consumer distraction. And I think our value proposition relative to our competition is very, very strong. And I think that ultimately, there will be an equilibrium in the ad world where radio will once again be a significant participate in the growth of advertising and marketing dollars.

Bishop, also let me address another point you made. You mentioned national. And you have been doing this long enough as a -- where you seen this bate of national up and down. But -- you're right national was weaker than local in Q1 as a fact but also as a fact we would expect to see that bounce back more to equilibrium in Q2 within the range of our guidance.

Yes, you're not the only media having frustrations with national. Obviously you're aware of that. It seems to be weak across the board. Pick a medium. Any medium.

Yes I think for radio and Q1 you tie some of that to the writers strike so the spillover to television as people do national spot overlays, people can speculate and I think we're probably too close to the data to come up with something but I just as a fact say that, as you correctly pointed out, national was weaker in Q1 as I will point out it looks stronger in Q2.

Okay. Thank you, Stephen and thank you, David.

Thanks Bishop.

John Blackledge, JPMorgan.

A couple of questions. Kind of touching on Marci's -- one of Marci's questions. Free cash flow allocation. Do you guys maintain you're pay being 60% of your free cash flow via dividend. Do you now that goes down to around 20% or under 20. Do you maintain that you know 50, 60% of via you know the dividend and share buy back and then, secondly, just thoughts on overflow benefits from political in the back half of the year. If you think about the macro environment is tough. The industry has been soft but political dollars will accelerate in the second half, and while you guys benefit directly, you also benefit from the overflow theoretically given heightened demand. I guess just your general thoughts on that if you think that's true and that will help in the back half of the year. Thanks.

Your second question, Steve will address the former. We ask ourselves the same question. We certainly expect there to be a -- a nice lift from political in second half of the year. You're correct to point out that you know we will benefit from that in a -- in a small to modest way directly but also indirectly as the -- as the entire ad supported media world gets are -- gets positively impacted. The broader question I think is more to do with the general economy than anything else. I think that the kinds of things we're doing internally to generate acceleration in our business model will continue to help. And I think that radio as a medium is undervalued and will also hopefully see rebound later in the year, from that. But ultimately the -- the greatest indicator of -- or the greatest factor in our performance in the second half of the year will be the state of the overall U.S. economy.

Uh-huh.

And then John, this is the Steve. If I can remember the first part of the question I think it basically, I will paraphrase the question is okay with the change in dividend you have got extra free cash flow how do you plan to deploy that? Well, as we indicated, you will expect us to see -- move aggressively on share buy back. Frankly starting as soon as our window opens. How we modulate that. How much we use for debt pay down, how much for share buy back obviously we will continue to model that as the economic and business model -- as we look ahead at that. Let me just do the math for you. The dividend change alone in one quarter just one quarter, of that freed up cash flow, for the board to consider, would at today's price buy back about 3% of the company. One quarter of the dividend change.

Oh. Okay. So -- , that's -- that's helpful. Thanks. I guess one follow-up, Steve. Do you maintain or -- I know you don't have a target for your leverage ratio, but how should we think about that? Should we think about it at about 5.5 times or at -- come down a little

Yes clearly you want to see cushion. If you're looking at it for share buy back, you know, we never -- we don't give a target but you know I would say as we have said consistently, we're comfortable at 5.5 times. You have seen our industry run well north of the 6 times that we have in our current bank agreement. We have chosen not to go there. We have always been in the lower lever. What we run the company for is to be prudent on all metrics. That is using our balance sheet to reward our share holders whether it is dividends, buy back, whatever. So that's why we don't particularly charge, you know, if the credit environment changes or the interest environment changes we may revisit where we're running our leverage at.

Uh-huh.

But I think our best indicator is our historical practice of maintaining a conservative balance sheet, rewarding our share holders through using our balance sheet as appropriate.

Thank you.

Lee Westerfield. BMO Capital

I want to the ask about the operating expense growth, the curves and declines in operating expenses and drill into that a little more deeply. You mentioned you're not deferring expenses by -- into the second half that -- that gets you to the negative cost trends in 1Q and 2Q. Can you elaborate on where you're finding cost savings apart from obviously probably lower commissions on the lower revenue trends? What -- what should we think about in terms of the OpEx trend you're able to achieve.

In terms of the OpEx trend a significant portion of it as correctly pointed out will be directly related to revenues. So with our revenues in Q1 and our guidance for Q2, obviously some of the decrease will be on the variable side. But a lot of it is just little things. Let me give you just one small example. This isn't going to be material but it gives you thinking. We -- we run a large fleet of vehicles. As most other radio operators do, using them for promotional events. As we looked at our fleet of collectively several hundred cars, our vehicle, vans that are painted with our call letters and all that kind of stuff, a lot of them were older sitting in the fleet. Just by winnowing out those we didn't need, reduced insurance premium by about $100,000. That's just -- focusing on a bunch of those small things. So it is no one large thing. We have -- we have been investing. You seen the headlines in -- in brand launches in sports contracts, in digital as David said and business development. So then on the flip side our challenge on the management side at the station level and corporate level is to focus on a bunch of those small things. So I wish I could point to big items. I can't.

Well, is an interesting example. But -- and please do keep it up. Thank you.

Tony Whittle, Citigroup.

I was hoping we could carry on the last question. Where would the small cost cuts be coming from? More on production or on the marketing side.

It is really on how we operate the business. I will say, because I'm looking across the table, David Field and our management team is very focused on our brands. So, you don't do anything to harm our -- harm the brands. Having said that, how can you operate smarter? How many people does it take to process an invoice or collect receivables. How many engineers, how many promotional staff? How you operate the station. How many vehicles? How many cell phones do you need? It is just a bunch of those little things Tony.

And can you help quantify the spread between the national and local pacing. I think you indicated that you felt in the very near-term national was stabilizing a little bit more so --

I would say that our -- our local revenues in the first quarter were down but -- but to a lesser extent than our -- than our overall decline national was down, you know, double digits but you know in the teens.

Got it. I think I get what you're saying with the dividend it would be more accretive to be buying back the stock here. How do you balance that versus paying down the debt? And when do you hit a crossover point where the debt is more accretive than the buy backs.

Well, I would say -- as I think we have said it is an art not a science. But you're right. We're using our bank facility at-- now that we have hedged 4, 4.5%, pick a number, to buy shares of stock at basically three times free cash flow.

And what -- what level of the floating debt is hedged? I know you indicated a portion of it. Is it half? Is that a good ballpark?

We have hedged approximately half, through collars and swaps.

Okay. And last question is -- the cost of cash, if we were just to model in a buy back with free cash? What would be -- what would be the cost of cash, in other words the opportunity cost to take out of the interest income?

Well, we -- we didn't have any real interest income of note.

Well, I guess what I am saying the opportunity. If you're cutting the dividend you would have considerably more cash.

Oh, I see what you're saying. Well, if you use ballpark numbers, on the old dividend policy we would have been paying out roughly $58 million. Under the new dividend policy it will be closer to $10 million.

Okay. Great, thank you, guys.

Mark Wienkes Goldman Sachs.

Some of the local focus businesslike Starbucks talking about poor traffic trend and gas prices where they are, what do you hear from advertisers if you could give a few anecdotes from across the spectrum from smaller advertisers to mid-size about their planning for ad spend not just for 2Q but for the balance of the year. And has it changed?

Well, you know Mark it is interesting because it is all over the lot. And I hosted a -- an advertiser lunch in one of our markets. One of our largest markets just a couple weeks ago and, I have done a bunch of these events, and you -- you hear different things. Some guys talk about how their business is resilient and strong and they are doing well. And others cry the blues. And it -- there doesn't appear to be a rhyme or reason to it as far as I can discern. Far their advertising plans, though, I mean one of the great lessons that -- that a lot of companies have learned over the years is that regardless of whether we're in great times or soft times, there remains a critical importance of marketing your brands and marketing your stores and in order to make sure that you are top in mind and that you are generating traffic and sales. And so I think most customers recognize that and continue to -- to make what they think are the wisest choices to market their products and their stores.

And I might add, Mark, for more color, I think our managers would probably echo that but they would also say the one trend we're seeing which kind of has been a hallmark of this is the buys are coming in late. Advertisers want to spend but they just are hesitant to commit early, given the changing economic environment.

Right. And you're saying that the pace is a little later than even last quarter or last year? Or just continues to be late.

Well, we're talking minor changes, but I would say yes, probably our managers would say things are coming in just a little later.

Right. And -- in your conversations with the advertisers I guess, is there any way to bucket -- I am trying not to ask the category question but it leads me to, by retailers versus auto versus Telco. Are there any groups we're hearing more negative noise or more positive noise?

The negative noise if you will, and I will put negative, it tends to be deferment. Auto as an example which was down in this quarter as our revenues were down and the old line as goes GM so goes the nation, so a lot of that, on the flip side we know we will get spinned as new car introductions are moved around our as plan -- plants moved around. Obviously we're not seeing the mortgage refinancing that we saw a couple of years ago. Real estate has never been a very large category for radio. If you want a bizarre one, health and medical is up. Maybe that says that category is recession proof.

Right. Okay. Then last question I guess. Even with the stock at three times free cash, I guess if the market is going to be relatively indiscriminate in punishing multiples and valuations across traditional media, newspaper radio et cetera, then I guess what is wrong with just holding on to some cash? I guess what's the argument against just maybe waiting it out a little bit, is -- I guess if you look at the stock, the returns on stock repurchases across the group over the past couple of years, it hasn't been great, to put it one way?

Well, Mark there would be nothing wrong with that per se. It is our job and our board's job to take a look at all the various levers that are available to us to deploy our free cash flow. And it is our judgment that this is the best strategy for us to deploy at this time. And you know, I don't think it is worth looking at sort of generic studies on the success or failure of buy backs. I think it is really a question of us looking at our business and our future and determining what we think makes the most sense for our share holders and creating value.

Yes and Mark I think just to add to that you know we are short cycle business. We give guidance one quarter at a time. For right now what we see, things, we're comfortable with our free cash flow and where our leverage is. I am sure as we get to June, July, we will look again on the back half. And look at the overall situation and the radio industry in particular.

Right. Makes sense, okay thank you very much.

And more buy back flexibility. I think you have known us well enough that we will try and get that right balance.

Right.

But I -- as David said and as management and the board believes, at today's stock price and given our free cash flow generation and our guidance for the second quarter even keeping in mind where our leverage is we're comfortable in saying to the Street that we are committed to use some portion of that dividend savings to aggressively buy back shares as soon as we can.

Right understood, thank you.

Jim Goss, Barrington Research.

Thank you for taking the question. A couple of things, one, I -- I know Steve you detest getting into categories. But I -- in terms of automotive, just not on a quarter by quarter basis but in a broader sense and not just for radio but for traditional media, do you feel either you or Dave, David, feel the industry problems in that sector and its greater options in terms of advertising its wares, is a longer term issue, in -- radio and other media will have to face? Or do you -- do you think that settles out at some stage? Just in a broader sense?

Well, first I don't want to paint a picture that auto is weak. We're seeing -- it is market by market. I mean there are some markets we have where auto is through the roof. There are other markets we have where it is very, very slow. So it is all over the lot. And not a problem per se. And actually, Jim, I -- I take a very different look at auto. I think that radio actually is in a very, very good spot for auto going forward. And I say that for a couple of reasons. I mean we see a big shift of dollars from the newspaper to the internet. Radio offers the best value to auto dealers. We are the low-cost provider. And we have a -- if you look at our reach and you look at now our integrated marketing capabilities that can drive listeners from the radio and to the auto dealers website and to that matter the auto manufacturers website and some of the other programs we have developed, I think we have an excellent opportunity to significantly increase our share of auto dollars as we go forward and very feel very good about our platform in that regard.

Oh, I want to echo what David said. These are the reason use I don't like the category questions because over the years there has been no meaningful correlations. Automotive was off but it wasn't off much more than our total revenues.

Okay. And one other thing. I am wondering now we're a number of years into HD. And I wanted -- I was wondering in terms of evaluating HD radio, do you -- what do you see in terms of how it is eventually going to add to your business mix and how years before it is a meaningful factor? Or is it just a -- as a -- as Bob has always talked about just the change in delivery mode and it is perhaps somewhat less.

Well, first let's me start with a reset of your comment. It has not been many years. It has been many years that you're aware of it. And as the technology has developed and as we as broadcasters have lit up, about a 1,000 radio stations, about 800 multicasting. But to the consumer, that really started late last year. With the introduction of radios, the design in of car models.

So HD radio is still in its infancy and really just launched. There were about 300,000 receivers sold last year. This from a business model point of view just started, although, yes, we have talked about HD for several years. So as we go from 300,000 receivers to next year ramped to some millions this year and more, as it is designed into more and more cars, and now it is kind of the chicken and the egg. Now that there are receivers we can come up with innovative programming deployments and ideas -- then we will figure a business model out. But as you saw recent announcement Entercom and some other players got together to use just a small sliver of our HD channels for data. Still allows us to do other audio programs. But with that data and our joint venture with Navteq we can supply traffic information on a real time basis in individual markets. Just an application that goes beyond what we're doing today. So long answer to the question, Jim, it is just started. And I don't know what the business model is going to be. And it is going to be several years yet.

Are you tending to think this data type of applications will be more important than incremental programming?

I think the market place will have to decide that.

Okay. Thank you very much.

Michael Kupinski, Noble Financial.

Thank you for taking the question. I was wondering if you can flush out your digital initiatives a little bit more and if you can talk about the non traditional revenues in the first quarter. What were they as a percent of total revenues and did they grow year-over-year. And I suppose you include your internet revenues in non traditional. I was wondering if you broke out your internet revenues where non traditional revenues up year over year or down. Then I have a couple of follow-up questions.

Mike, I will do a preamble then let David address digital. Digital is in our NTR category. Apart from digital, there was not a meaningful change. I will let David then address the digital aspect.

Digital as I mentioned is over 2% of our business now, and growing rapidly but it really doesn't capture the broader issue of what we're accomplishing and where we're going, which again goes to integrated marketing. And the unique abilities for radio and the internet, to work together, creates a -- an abundance of creative opportunities for us to put together custom programs for our advertisers. We have had great success with recent programs for people like [Zion], Wells Fargo and others, that have really transformed how we interface with our customers, and the types of marketing relationships we are able to offer. And I -- and I see that as a very strong growth area for us over the next few years. The digital numbers really only reflect, again, the pure digital part of that. They do not reflect the broader integrated marketing dollars and that's really where we're going to see the big growth I think going forward.

Then your Internet revenues, did -- how much did they grow in the quarter, if you just factored out the Internet revenues.

Again the pure digital more than doubled for first quarter, over 2% of our revenues.

Okay. Do you have any thoughts on what percentage of revenues this might account for in the next year or two. Do you have any particular targets?

We -- we expect it to continue to grow rapidly. And you know beyond that, I -- that's about as much as we're willing to say. Frankly other than that it could be kind of guesswork. Do I think it gets above 3, 4, 5 or 6 overtime? Sure. Do I think integrated is an even bigger number over time, yes.

Are your digital initiatives are they contributing to profits at this point or are you still investing at this point?

This is Steve. They are contributing to profits. Just some insight. We don't have a pure P&L on it because still a lot of some of the staff is integrated doing both on air and then digital support. But as it is growing we will look at perhaps some P&L. Our estimate is it is growing to profits although perhaps throughout diluted to margins. Great growing business in our second year to be achieving this kind of run rate. Our advertisers love it. Our listeners love it. And, so it is exciting growth.

Okay great thank you.

Our last question is from Marci Ryvicker Wachovia.

I have a quick follow-up, with your Q2 guidance you said you were pacing down low single-digits but guiding down low single to mid-single-digit decline. So, is the mid-single-digit decline just assuming that the economy turns down or is it something else to get there.

Oh, look I think it is -- we're still in choppy waters. We're in a choppy economy. Advertisers are making last minute decisions as to how their business is and how they want to -- how they want to invest their advertising dollars. And as a result, there is variance in our number and we feel low-to-mid-single-digits is a fair and accurate depiction of where we expect the quarter to end up as we sit here on April 24. Thank you.

Thanks Marci.

So with that, we thank everybody for joining us on today's call. And we look forward to talking to you in three months as we deliver Q2 results.

This concludes the conference call.