Entravision Communications Corp (EVC) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Entravision Communications first quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session, at that time if you have a question, please press the one followed by the four on your telephone. As a reminder, this conference is being recorded, Wednesday, May 5, 2004.

I would now like to turn the conference over to Mr. Walter Ulloa, Chairman and CEO. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone and welcome to our first-quarter 2004 teleconference. With me today is Philip Wilkinson, our President and Chief Operating Officer, and John DeLorenzo, our Executive Vice President and Chief Financial Officer.

Before starting the call, I have to inform you that this afternoon's conference call may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ. Please refer to our SEC filings for a list of those risks and uncertainties that could impact actual results. In addition, this call is the property of Entravision Communications Corporation. Any redistribution, retransmission or rebroadcast of this call in any form, without the expressed written consent of Entravision Communications Corporation is strictly prohibited.

Overall results for the first quarter exceeded expectations. Revenue increased 8%, broadcast cash flow increased 13% and EBITDA, as adjusted, decreased 1%. If you exclude the $1.2 million net reimbursement in the prior year from Univision as a result of the Univision HBC merger, EBITDA as adjusted increased 14%. Free cash flow was flat with the prior year. Our television group again posted a solid quarter with revenue growth of 8%. This outstanding growth is on top of a 6% increase in television revenue in the first quarter of 2003.

Results in our television division were driven by national sales, which increased 9% in the quarter. Our top advertising categories driving this increase were automotive, services, fast food, retail, travel and leisure, healthcare and financial. Local television sales also performed strongly with 7% growth in the quarter. Our Univision television stations continue to produce strong results, while our Telefutura television affiliates delivered solid returns as we execute on our duopoly strategy.

In the February Nielsen survey, our Univision television station group maintained its adult 18 to 49 share in the important sign on to sign off and early news day parts. Our metered market Telefutura television stations increased their prime time share by 67% versus last year's first quarter. In these duopoly markets we are seeing continued momentum as our combined television stations captured an 86% share of prime time Spanish-language television viewing in the February Nielsen survey.

Local news remains a key driver for our television division and has been instrumental in driving political advertising. We currently operate local news operations in 18 of our 23 television markets, with 8 of our Univision television affiliates broadcasting the number-one ranked news in the market regardless of language. We continue to take a opportunistic but prudent view on the roll out of local news. Only launching news cast in markets in which it is immediately accretive.

Our radio group outpaced the industry with net revenue increasing 13% in the first quarter. I would note that this 13% increase in revenue is on top of a 10% increase in the first quarter of 2003. Our sales force is executing on both the national and local front and Los Angeles continues to outperform our expectations. As of the time of this call in markets where the winter 2004 Arbitron book has been released, our key 18 to 34 euro demo share increased 15.2% over the fall of 2003 book and 20.2% over the winter 2003 book. Remember, that this analysis includes only the markets where the Arbitron winter book has been released. The radio division national advertising revenue increased by 8% in the quarter, while the industry grew by 1% according to the Radio Advertising Bureau. We also saw solid growth in local revenue. Local revenue increased by 14% in the quarter while the industry grew by 5% according to the RAB. This growth is driven by our increased focus on generating local sales.

In Los Angeles the success continues. In the winter book our consolidated share improved from 12 plus with 4.5, which is a 35.4% increase over winter 2003 and in our key demo adult 18 to 34, we generated an 8.3 share, which is an increase of 41.2% over the winter book of last year, an increase of 5% over the fall 2003 Arbitron's report. Our morning show, La Regadera on KSSE Super Estrella, continued its growth. La Regadera is the number one Spanish-language morning show in the market in our primary 18 to 34-year-old demo.

Our Los Angeles cluster is performing exceptionally well under the leadership of Karl Meyer, our general manager. Our key focus this year is the continuing conversion of our impressive ratings gains into additional revenue share. Our LA cluster saw an overall 64% increase in revenue for the quarter. Local sales increased 65% and national sales increased 51%.

In Dallas, our newly launched Cumbia format on KZMP El Gato had an incredible debut. In its first rating book El Gato became the number one Spanish-language radio station in the market in all the key demos. KZMP also ranked exceptionally well against all radio stations in the market, regardless of the language, ranking number five in persons 12 plus, and number 2 in adults 18 to 34. During the quarter we closed on the sale of our Fresno radio asset to Univision. We are scheduled to close on the sale of KRVA a.m. in Dallas and the sale of our Chicago radio cluster before the end of the quarter. Over $40 million in proceeds from the sale of these assets that is being used to reduce debt.

At our outdoor division, revenue decreased 6%. This is the third consecutive quarter in which we have seen sequential improvements in the overall revenue trend. We expect to return to revenue growth in the third quarter and expect the full year to show improved top line results over the prior year. Overall business trends continue to improve with strength coming from local sales which was up 18% in the first quarter over last year.

In summary, all of our divisions are showing solid operating momentum and paces for the second quarter are strong. The growing importance of the outstanding voter base continues to play a bigger role in this year's Presidential election. Our Company has significant leading clusters in four of the targeted swing states, Florida, Arizona, Nevada and New Mexico. We remain committed to our expansion strategy and continue to explore opportunities to enhance our asset base by entering new markets or strengthening our existing clusters. We are strategically positioned in the Nation's fastest growing and most densely populated Hispanic markets. We provide it with a unique platform for our advertisers to reach the explosive growth of this market.

Now I'd like to turn the call over to Philip Wilkinson, our President and Chief Operating Officer.

Thank you, Walter. And good afternoon, everyone. I'm going to expand on some of the performance areas of our three divisions, starting with television. Our first-quarter revenue for television stations increased 8%, in fact, our BCF in the quarter increased 20%. Our overall performance continued to be driven by both national and local sales, which increased 9% and 7%, respectively, in Q1. The TV division experienced margin growth of 3 points over Q1 prior year. As a result of our continued focus on growing revenues while holding expenses to mid-single digits in terms of that range. And we expect to continue margin growth for many quarters to follow.

TV also experienced significant average rate increases of 12%. While inventory sellouts were flat to slightly down, approximately 65% sellouts versus 68% a year ago. Our TV division saw revenue growth momentum building each month of the quarter. After a slower than expected January, which came in minus 4% for TV, due to general softness in national business, February improved to a plus 9 and March was a plus 18% in revenue growth over Q1 prior year.

Our market leading Univision affiliates continue to post impressive ratings in virtually all key demos and day parts as they held their audience, adults 18 to 49, sign-on and sign-off share, year over year, which helped us grow our revenues. Our top increasing ad categories for the quarter were automotive, finance, healthcare, and travel and leisure. Automotive was up 12%, driven by increases spending from GM, Ford and also Dodge. The automotive category, which continues to be our number one focus, is in Q1 represented 29% of our total TV revenues. Top new TV advertisers for Q1 were Central Florida Ford dealers, Advance Auto Parts, Olive Garden restaurants, Juanita's Foods and the California Public Utilities Commission.

Turning to our radio division, we had revenue growth of 13% in the quarter, which significantly outperformed the industry. National sales increased by 8% and local sales, which as you may recall, represents the bulk of our revenue in radio, which was 77% of the total, we were up 14% in the quarter in local sales. Like television, our radio stations showed strong margin growth, up 3 points over prior year and these increases are expected to continue in the future based on our expense controls and our focus on revenues.

Our top three categories in the quarter were automotive, grocery stores and telecom for radio. Automotive represents 15% of our revenue for the quarter and grocery stores and telecom, 6 and 4% respectively. We saw substantial growth also in the entertainment and financial services area in terms of category spending. Top advertisers for the first quarter included Verizon Wireless, which is up 30%, Sears, which is up almost 100%, Albertson's with the help of the strike being over here in California, up 22%, and Ford Motor Company increased their spending by 113%. The radio division was successful in attracting many new advertisers in first quarter. They include Molina Healthcare, Lowe's Home Improvement, Southern California Ford dealers, Tampico Food Products, Farmer John, Toyotas and Kohl's department stores, just to name a few.

On the ratings side, we experienced an audience share increase of 15% for all our properties combined in our markets that Arbitron has released to date. The winter 2004 versus fall 2003. That's the book to book an average quarter hours, adult 18 to 34s. Here are some of the examples. Now, this is Monday through Sunday, 6:00 to mid, average quarter hour, adults 18 to 34. Our Denver cluster increased its share to a 7.9 in winter 2004 from a 6.5 in the fall of 2003. That's a 22% increase. In Phoenix our cluster recorded an increase of 18% over winter 2003. This cluster share for Phoenix is now a 7.1. And in Las Vegas our cluster generated a 4.9 share, that's a 14% increase, book to book over the fall 2003 Arbitron. In Dallas we had a great quarter in first quarter. We outperformed the market as we increased revenue by 59% in the first quarter versus a market that was up only 3% according to the Miller Capital [ph] reports.

We saw revenue gains in each month of the quarter, and as Walter mentioned, recently, we saw the release of the winter Arbitron book among adults 18 to 34, Monday through Sunday, 6:00 to mid, our KZMP grew year over year, 267% to a 7.7 share. Super Estrella 101.7, our pop rock format recorded a 2.7 share and that's a 93% increase over the winter '03 survey. And KDL, our dance format, registered 2.2 share, up 10% over fall. So our cluster generated a 6.5 share in Dallas, an average quarter hour versus 12-plus. And over the past year, our two Spanish-language radio stations have grown our listener base more than any other Spanish-language radio cluster in Dallas. So we're very proud of our Dallas accomplishments.

In summary, we're seeing strong advertising trends stemming from an improved economy, albeit a slow improvement and recovery, and we are also seeing, based on the incremental political spending, strong growth. And with the dominant clusters in the majority of our markets and our true focus on sales, we're in a position to drive revenue and keep increasing those margins.

And with that, I will turn it over to John DeLorenzo for a financial review. John?

Thanks, Philip, and good afternoon, everyone. As Walter and Philip have discussed, we reported solid results in line with our guidance. For the quarter, net revenues were $52 million, up 8%. Broadcast cash flow increased 13% to 13.4 million, and EBITDA as adjusted was 9.4 million. In the prior year, we received a net reimbursement of $1.2 million for costs related to the Univision and Hispanic Broadcasting Corporation merger. Excluding the net reimbursement, EBITDA as adjusted increased 14%.

Free cash flow which we define as EBITDA, minus capital expenditures, cash interest, cash taxes, plus interest income, was negative 0.3 million or 0 cents per share, even with 0 cents per share in the first quarter of 2003. Overall our margins for the quarter was 26%, up from 25% last year. TV and radio margins for the quarter were 34 and 25% respectively, compared to 31 and 22% last year. Operating expenses for the quarter increased 6%, once again in line with our guidance. In the quarter 1% of the increase were variable expenses, such as sales commissions, national representation fees and music license fees. 1% of the increase was associated with new station costs, which were primarily associated with the Los Angeles radio station acquisitions. The remaining 4% of the increase includes increased expenses for local news casts, rent, rating services, leasing expense and severance payments at the outdoor division.

As we noted in the year-end conference call, we expected to see a more normalized year-over-year expense comparison going forward as we celebrated the fist anniversary of the Big City radio acquisition in the quarter. For the rest of the year we expect operating expenses to increase between 5 to 7% on a quarterly basis, with the spread resulting from sales expenses, which are variable based on revenue earned. Corporate expenses increased to $4 million for the quarter. Excluding a net reimbursement of 1.2 million in the first quarter of 2003 for costs related to the Univision and Hispanic Broadcasting Corporation merger, corporate expenses increased 9%, or 0.4 million. The increase was mostly attributable to higher legal expenses.

Turning to our balance sheet, as of March 31st, 2004, our total net-debt was $351.3 million and our EBITDA as adjusted was 9.4 million. Our trailing 12-month ratio of net-debt to EBITDA was 5.3 times. We have recently entered into a share repurchase agreement with TSG Capital, the holder of our Series A preferred stock. Under the share repurchase agreement, the Company has agreed subject to our ability to raise financing on terms acceptable to the Company and our sole discretion to purchase the Series A during the next approximately three months at a small premium to its liquidation value. The actual price will vary depending on when we close, but the average repurchase price during the window is $127 million.

We view this agreement with TSG as a very positive step for Entravision as the repurchase would remove the potential uncertainty resulting from the April 2006 put option associated with the preferred stock. Given this three-month window, we are actively pursuing alternatives for financing the repurchase, which we currently anticipate will consist of debt and/or preferred stock. We'll have further comment when we are ready to announce the specific terms of any financing.

Regarding our outlook, as we have previously advised the investor community, we provide pro forma information when one of our business segments is entering or exiting a market. With the sale of the Company's radio assets in Fresno, California in February of 2004 and the pending sale of the Company's radio ads in Chicago, Illinois, which sales anticipate to close during the quarter of 2004, the Company will no longer have any remaining broadcasting operations in those two markets. As a result, the Company has elected to present its guidance on a pro forma basis by eliminating its broadcasting results from those markets in both of the periods presented so that the comparisons between the periods will be meaningful.

The amounts excluded from net revenue and operating expense for the second quarter of 2004 are estimated to be both $0.2 million – or 200,000 and the amounts excluded from net revenue and operating expenses for the second quarter of 2003 were 0.7 million and 0.5 million, respectively. For Q3 and Q4, revenue and operating expenses associated with the divested markets were 0.8 and $0.7 million, respectively, for revenue and 0.6 for both operating expenses for 2003 and 2004 for the two quarters -- for 2003 for the two quarters.

Based on our current pacings we are seeing, we expect to report net revenues of 67.9 to $68.6 million, an increase of 7 to 8%. Our television division is expected to be up 9 to 10%, radio up 8% to 9%, and outdoor down 2% to break even. Operating expenses are expected to be $41 to $41.3 million, an increase of 5 to 6%. For the second quarter, we expect corporate expense to be in the range of 4.1 to 4.2 million, depreciation and amortization expected to be 11.3 and 11.8 million, interest expenses expected to be between 6.7 and 6.9 million, and capital expenditures to be in the 4.0 to 4.5 range.

Second quarter income per share is expected to be between 0 and 1 cent per share, including the sale of the Dallas radio station and the Chicago radio cluster. The sale of the Dallas radio station and the Chicago radio cluster is expected to result in a net-book gain of approximately $3 million. In September 2003, the Company exchanged all of Univision's 36.9 million shares of common stock for .37 million shares of the Company's new Class U preferred, resulting in a reduction in common shares outstanding on a weighted average basis. Since we are guiding net income in the second quarter of 2004, we will include the 36.9 million shares in the weighted average shares outstanding as the shares are dilutive to earnings. This will result in a total estimated weighted average shares outstanding of 124.6 million shares in the second quarter.

This concludes our formal remarks. Walter, Philip and I will be happy to take your questions. Operator?

Thank you. Ladies and gentlemen, if you would like to register for a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your registration has been answered and you would like to withdraw your registration, please press the one, followed by the three. If you are using a speaker phone, please lift your handset before entering your request. One moment please for the first question. Our first question comes from the line of Michael Russell from Morgan Stanley. Please proceed with your question.

Thank you. Philip, you had mentioned that auto is 29% of television. I was wondering if that's including after market or is it just dealers? Because people define it different ways.

Do we include all automotive local dealers, associations, corporate (indiscernible) money, after market and all tires, batteries, all in together.

I don't know if you have it but it might be a little bit more comparable than some others if you had a little bit more dealers or new car sales separate from after market. I don't know if you have it now or if that would be useful in the future.

The overwhelming majority of those dollars, that 29%, well over 90% are car dealers, dealer associations and factory money.

Okay. And then what percentage of the radio revenues at this point in this quarter were from the LA cluster?

We don't split out the divisions within the segment by market.

Okay. And then John, could you give us an idea of CapEx for the year? I know you gave us for the quarter but is there a kind of a general range that we should look at for the year?

It's about $17 million all in for the calendar year.

All right. And then last question, I know it's not the way you exactly sell your radio ratings, but it's a way a lot of other people sell theirs. 25 to 54, that audience, I know it's not going to be as high as 15% because it's not your target audience but do you have how your ratings are looking in that grouping?

No, that's not a -- as you stated earlier, that's not a demo that we sell. You know, the demo we sell is 18 to 34.

Over 70% of all Hispanics in the United States are under the age of 35 so you really have to adjust down. The 25 to 54 is 18 to 49 in the Hispanic world.

Okay. Great. Thank you very much.

Our next question comes from the line of Victor Miller from Bear Stearns. Please proceed.

I noticed the radio performance in first quarter plus 13 second quarter plus 8. Most radio companies actually taking their guidance up for second quarter. How much of that though was impacted by the fact that you -- didn't you run almost half of your LA cluster in first quarter commercial free and what kind of impact do you think that had?

And secondly, when do you think the outdoor business is actually going to make that EBITDA turn? Thanks.

The -- Victor, it's Walter. With regards to your question about the LA cluster, that's correct, we didn't introduce OE till about midway through the first quarter and of course we -- that was commercial free for a while, as well as KDL.

So does that explain most of the deceleration in the revenue growth because of that?

Deceleration, you mean in what? In a lower revenue growth the second quarter?

Yes, sir.

Well, it's just a result of two things. One, national is soft for us in the second quarter at least pacing and we've got more typical cost in the second quarter.

I imagine the first quarter was helped a lot by the fact it was running commercial free and your -- so it was easy comps in the first quarter.

Well, easier. Comps are never easy but easier.

Okay. Fair point. And then on the outdoor, you've talked –

Outdoor, we expect that -- That's revenue, not EBITDA. No, we are looking for revenue to turn, not EBITDA.

Yes but cash flow to turn to too. We would expect that to turn in the third quarter.

Thank you very much.

Okay.

Our next question comes from the line of James Dix from Deutsche Bank securities. Please proceed with your question.

Good afternoon, gentlemen. A couple of questions. First on the political, you mentioned political. How much did you get in the first quarter on TV and radio and do you have any better idea as to what to expect for the full year there? Also, Philip, it looks like you added news in two markets over the quarter, just where was that and what are your future plans for the year there? And finally, have you seen any impact in Los Angeles on the Super Estrella morning show from what's going on there with Renan?

James, this is Philip. Let me take the first couple and then I'll hand it over to Walter. We did 8 -- roughly $850,000 in net political revenue in the first quarter this year. Very little, about 50,000 prior year same quarter. So net-net, we're up incremental in political (indiscernible) 800.

The second part of that question was –-

About news, new news casts and future plans for '04.

Well, we don't have any future plans for '04 with regard to adding news casts. You know, we've got some tentative plans for fourth quarter but nothing firm.

No, we're trying to budget in a morning news in a market or two but obviously there's no expansion in the prime 6 or 11 PM eastern, 5 and 10 Central.

So you didn't add any during the quarter?

We did not.

Okay. And then – (multiple speakers).

I'm sorry, back up. We -- we added weekend news in first quarter '04 over first quarter '03 in San Diego.

Okay.

We did have some expense there.

And then I think you asked a question about --.

Yes, any impact that you have seen in the recent ratings or trends from RENAN on your morning show.

The answer is no, we -- that's because -- well, A, off the winter book we've got the number one rated morning show in the market against all Spanish language competitors and number two, RENAN and Peolene (ph) are both hosts of Mexican regional formats and so we're the -- you know, we've got the perfect format to compete against them.

Okay.

Or counter, I should say counter their Mexican regional format.

Great, thanks.

Your next question comes from the line of Jim Boyle with Wachovia please proceed.

Good afternoon. You spoke of improving advertising environment in your press release. Is the inventory placement or sell out improved and by how much in Q2 versus prior quarter or prior year?

Well, I think in answer to your question, the -- we were slightly off in first in TV in our inventory sell out and in radio our sell outs were flat over prior year. Where we're getting the increases is coming from the rate, the revenue increases are based on the rate increases. We're striving to get our fair share in terms of the cost per point to what we deliver in the marketplace. To these [inaudible]. And so look for of that to continue. We don't really see big jumps in sell outs. We are concentrating on increasing rates.

Even in that sort of flat inventory sell out are they placing it any earlier or is it still fairly last minute?

No, we're not getting it any earlier. The visibility has not improved. Of course, TV is sooner than radio and billboard sooner than TV because of the production requirements. But we're still seeing national, you know, a month out and we're seeing local less than a month out.

Okay. And in your top 10 ad categories, which two surprised you the most?

Well, we had a move on -- we would have liked to have seen more on the -- I'll speak about the TV for a minute. We would like to see a greater gain in auto. We're headed for greater gain than 12%, which is still phenomenal growth for our auto division but we had an agency move on Nissan, which held us up a little bit with their spending. They are actually down over prior quarter. That was a surprise. We did not anticipate an agency buying change.

And fast food, BK, Burger King, was down. We didn't expect that. But that is after second. It was nice to see healthcare up 30%. That was a surprise for us and it was nice to see our finance, banks and financial services up 44% on the top category through TV. That was a nice shot in the arm. Those are probably the biggest surprises.

Over on the radio side, we had a very, very healthy gain from health clubs and the entertainment category, so those -- probably those three.

Okay. And finally, compared to a year ago, have you made much gain in closing the gap between your audience share verse your advertise and media share?

This is John, Jim. We're pretty similar year over year in the first quarter as far as audience and amount of revenue share we receive relative to audience share.

Okay. Thank you.

It's 25 to 30. It's been like that last year as well.

Okay.

Thank you.

Our next question comes from the line of Paul Sweeney from Credit Suisse First Boston. Please proceed with your question.

Thanks very much. Good afternoon.

Hey, Paul.

First, on the radio, just again, trying to get a handle on the deceleration in your growth rates from Q1 into Q2 given your guidance and it's kind of surprising, particularly since it seems like the general markets generally at least (indiscernible) in Q2, versus Q1, number one. Number two, the phenomenal ratings you just spent some time talking about and then number three, just looking at your first quarter, had you both national and local kind of strong across, you know, equally, so I mean, local stronger than national but generally some good growth in national as well. So I guess just trying to get a sense – if you could give us a sense of maybe how the months are looking, you know, in that March then into April, May, June, are you seeing something weakening? Is there something in the business that's changing that would cause you to be more conservative in your radio outlook?

Second, just on the Telefutura stations, could you give us – Philip, just remind us maybe what percentage of, you know, your TV business your Telefutura stations represent right now and what percentage of your business you need to be in, you know, one to two years. Thanks.

Paul, this is Walter. I'll answer the questions on the radio first and then turn it over to Philip. May is -- appears to be a weak month in the quarter for us in radio. As I said earlier, we have also had -- that's both local and national for May are soft. We're also seeing -- continue to see softness in national in radio throughout the quarter. Additionally, as far as the ratings go, we did speak about our ratings success in Los Angeles and we continue to accelerate that conversion of ratings to revenue share and we're just doing a fantastic job in LA. Dallas, we had huge gains in Dallas as a result of success of KCMP but there's generally a lag time between the ratings growth and the -- that conversion to revenue. And I did mention that, you know, the comps for us are really a little more difficult in the second quarter than they were in -- second quarter '03 than they were in the first quarter.

Is there anything particular that changed nationally from, you know, positive Q1 for you to I guess what appears to be a negative Q2 for you? I mean, any categories or any particular advertisers or --?

No, no, nothing that – just lots of activity.

Okay. And then just on the Telefutura question, Philip.

You know, TF we operate JSA stations, which are the Univision licenses, the UCI licenses where we operate but we don't include that in our revenue mix as a percentage or as a total so we're roughly 90% Univision affiliates, 10, 11% other of that other Telefutura is a little over 1% of our total revenue mix. The Telefutura owned stations.

Yes. Okay. Thank you.

Our next question comes from the line of Lee Westerfield from Harris Nesbitt. Please proceed with your question.

Thanks, gentlemen. Good afternoon. I have two questions, first on TV into the second quarter. If you could give us some insight as to how you're developing in terms of national versus local growth and here I'm trying to lead into what extent the Univision rep fee is weighing on your cost guidance in the second quarter.

You know, how we're faring in the second quarter TV national, we are actually showing some pretty strong Faith and April was up double digits. May seems to be flat, although difficult comps last year, and then June is up double digits. But as far as the mix, we're about dead even on our pay overall 10% for each local and national, so if you try and get to a fix on the rep expense, maybe John has a better fix on that but it's not going to go up more than 10% from the base rep rate from second quarter last year. We paid 15% net of agencies.

Lee, typically we're looking at 1.5 to 2% is the typical variable expenses related to revenue or total variable expenses, which is the rep commission, sales commissions, music license fees and some minor production commissions as well. So in the second quarter, that's pretty close to 2% of the guidance. And like I said, you know, with the 15% television rep fee, certainly as revenue rises the variable portion will continue to rise. As I mentioned in my prepared statements, we're looking at 5 to 7% going out, you know, in the near term, next couple of years variable strictly by revenue. We pretty much lapped ourselves in the big city year over year. We do have some additional expenses related to the radio move as we move the network out to Los Angeles, there's a higher rent expense that wasn't there a year before but typically we pretty much normalized our operating expenses.

As I understood it and thank you for the explanation, too.

Yes, our next question comes from the line of Mr. David Miller from Sanders Morris Harris. Please proceed with your question.

Yes, hi, good afternoon. Walter, in your prepared remarks you said that you expected a year over year revenue gain in the outdoor business, which just looking at my models here obviously implies some sort of second half acceleration. Is that because of the easy comparison that you guys get in Q3 and Q4 or do you see some type of resumption of the New York City government related contract business that you lost last year and then I have a follow up thanks.

Well, I think it's a couple of things, David. A, it's -- I think it's a result of how we reorganized our sales effort. I think we've got a much stronger sales team, both in New York and Los Angeles. In the second half of the year versus last year's second half.

What does that mean exactly, that you have a stronger sales team? What does that mean? Can you be more specific?

We've added sales people, a total of four people over last year. We have -- we've added a local salesman manager in LA. We've got more focus on local sales and that certainly is resulting in increased revenue.

Right.

We did have softer -- we do have softer comps in the second half, but certainly as a result of all the changes we've made, we also have a national sales manager in Dallas, which we didn't have last year, so these are all positive changes that we've made that will improve our outdoor business in the second half and that's based upon what we see right now on the books.

And the overall outlook for the outdoor business looks very well going into the second half as well.

That's also another good point, that the overall outdoor business generally appears to be pretty strong in the second half.

Okay. Then here in town, Walter, I believe you had said that you guys achieved an 8.3 share in Los Angeles. For radio. Is that correct?

The adults 18 to 34, that is correct.

Oh, in 18 to 34 and local sales were up 65% here in town?

That's correct.

And national sales were up -- what was the figure you gave?

I believe it was 51%.

Great. Okay. Thanks very much, guys.

Thank you, David.

Ladies and gentlemen, as a reminder for cue up for a question, press the one followed by the four on your tell tone. Our next question comes from the line of Gordon Hodge from Thomas -- Weisel. From Thomas Weisel Partners. Please proceed about with your question.

He for get the rest of your company.

He pronounced it right for a change. It's nice. Just a couple of questions that you handled most of them. Just curious if the political business you're seeing in TV is continuing into the second quarter at a similar pace and then if you could just refresh our memory on if you had you much in the way of cancellations related to the war, if that's maybe helping the March numbers and might explain why you have a tougher comp in May. I don't know if there's an issue there but it sounds like June's picking back up, which is good. And then lastly, as it relates to the TSG refinancing of the prereferred, are there any limits or impediments to doing so with debt in your current bank and debt agreements? Thanks.

Gordon, this is Philip. On the political side, as we mentioned, we did about net/net incremental political in first quarter of prior year of about $800,000. We're -- we don't have quite that projected for -- actually, I have about half of that projected for second quarter. The reason for that is we had the primaries in the first quarter. We had a lot of activity in primaries. We had a lot of Texas races, heated races for local candidates, local seats and those -- the primaries came and went. In second quarter, the only real solid political activity we're seeing is that as Walter had mentioned, there are four states that we have stations that -- in those states where they're targeted as key swing states or battle grounds. That's Florida, Nevada, outland New Mexico and -- Florida, Nevada, New Mexico and Arizona. And so we're receiving dollars pretty consistently from the new democratic network from the 537s (ph) and Bush for president, but it will be about half of what we ended up with in the first half -- first quarter rather. But we are projecting to, you know, be on track for the 2.5 to $3 million for the year.

If you look at the comps vis-a-vis the impact of the war from Q1 prior year, you know, fully cancelled, not made good in '03, money went away, was about $350,000 on the TV side and I think the radio was another $140,000, of money that did not -- were not made good in first or second that we lost. So total, about 480. Not a big impact on radio. Not even a big impact on TV Q1 but some of the monies that were made good in second, you're right, it did not happen primarily in April. Most of it lagged into May and that has impacted the comps, made more difficult comps for May, particularly for national. Most of that cancelled and or then made good was national business. And it came back around in May. Hopefully that answers your question.

That was great.

This is John on your second question, the TSG question. We haven't finalized how we're planning on refinancing the TSG fees.

Yes.

Certainly there may be some technical issues that we have to deal with with our bank group, but we have been in contact with them and we don't see any issues regarding any covenant issues.

Okay. Terrific, thanks.

Our next question comes from the line of David Joyce from Guzman and Company. Please proceed with your question.

Thank you. A couple of questions. Is there a price level that triggers the Univision, the shares going dilutive that you could talk about? Secondly, if I missed it, what was the local and national split for television?

The first question is no, there is none. It's an SEC rule that basically says if you're in a net loss position, you don't include any preferred any stock in the fully diluted number of shares. If you're in a gain position, you do report the -- you do dilute the full -- the total shares by the preferred stock. And in this case because we guided -- we've been in the net loss the last couple of quarters so the preferred wasn't included. For our guidance for the second quarter we're projecting to be flat or up a penny, therefore we have to include it in the fully diluted.

The local national split was 53/47, 53 local and 47% national in the first quarter.

All right. Thank you. Could you talk about any markets where you have strong power ratios versus markets that are weak?

No. We don't go into individual markets because there's a lot of many different factors that affect the power ratio of the Spanish language, density, the number of stations in a respective market, the ratings in the market, the strength of the stations, AM/FM, the size of the market. So there's really no relevance to power ratios on a market to market basis from our portfolio.

I guess related to that is that you've got both Spanish and English language in some markets and I was wondering, is there a possibility in some markets where you could convert the English to Spanish?

Wherever it makes sense. We are always looking at our portfolio from that perspective.

Thank you.

As a reminder, to register for a question, press the one followed by the four on your telephone. Our next question comes from the line of Alissa Goldwasser from William Blair.

Good afternoon. I was wondering about about visibility on the second quarter, what your sell outs look like in TV and radio and then second, outdoor expense ticked up a bit in the first quarter. Was there something unusual or should we assume that's the run rate?

Hi, Alissa, this is Philip. On the -- from the sell outs for second quarter, in terms of what we can see, we're going to be pretty -- pretty much flat over prior year. The real driver as I mentioned earlier is the increase in rate and that's what we've been concentrating on, in better advertisers who pay the higher rate and when you do that, you know, less of the smaller retailers that seem to buy more ROS multiple spots in a given week is more of a – a more sophisticated agency buy. You can get the bigger advertisers and the bottom tier spots at a higher rate. So the sell out as a result will be – will flatten out and your rate will go up. That's what's happening to us both locally and nationally.

And the second part of that question?

Was outdoor.

It was an outdoor question.

What was the second part of the question?

The outdoor expense from the first quarter, whether that's a good number to look for going forward – (multiple speakers).

Oh, in – (multiple speakers) -- that was a severance -- that's a severance, about 7%, 8% of that 13% is the severance expense.

Okay. And I'm sorry, I didn't really ask the first question very well. I guess what I was looking for more, was of your budget how much is on the books at this point for the second quarter?

-- (indiscernible) % today into mid range of what we gave you as guidance. For the whole company. BOD to mid range of guidance, 85% on the books.

Great. Thanks a lot.

Our next question comes from the line of Keith Fawcett from Merrill Lynch. Please proceed with your question.

Hello, good evening. I'd like to follow up I guess on Paul Sweeney's question about the Telefutura impact. I was a little confused by your answer. Was that 1% of your TV segment sales come from wholly owned Telefutura stations and 10% from the JSAs?

No, that's not it. I'm sorry. The JSAs are not -- we don't own the JSAs. We get a percentage of the profit. So we don't record revenue on our books relative to the JSAs. And there are six full-power JSA stations. Of the -- the O&Os, the ones we own the license, we record the revenue and that's where Philip said it's 1% of the total television revenues.

Okay. And so in terms of the JSA contribution, there is a variable component to it since it's a percentage of the performance of those stations? I guess I'm wondering -- you mentioned earlier that you had a 67% gain in prime. I guess on ratings on those stations. Is that -- under the JSA agreements are you able to monetize that as you sell it at a higher rate eventually?

I mean from a percentage of profit, we are still coming out of a -- I mean, they were our biggest investment before the JSAs, only because they were full big full powers and as you know, it's more exciting there on a big full-power, so they're past the profitability. Within the first year, our O and Os which a lot of them are low-powers, they were already profitable in the first year. It takes a little longer for the big full powers with Univision. So we have yet to put any profit on the books relative to running the JSAs.

Okay. Sort of switching segments. Outdoor you guys have been pretty straightforward in the past about your ups an downs in that segment. I mean, you did mention more staffing on the sales force but is there a sort of structural issue in competing in those markets? In the past you've gone back and forth on a potential divesture in that area, do you feel you're in a position where you can really compete in those markets at this point?

Yes, we do. We do feel we can, Keith. We feel we can compete, particularly due to the fact that our outdoor assets are in the number one and two Hispanic markets in the country and that most of our assets are in high density Hispanic communities. So we feel that's where the, you know, the niche is for us for our business. And that's where the focus is.

Okay. Thank you.

The next question is a follow-up question from David Miller from Sanders Morris Harris. Please proceed.

Hi, thanks. Usually when you guys issue guidance, the general proxy for auto related advertising is about 18% of the total revenue budget. Is that pretty much -- is that a good proxy going forward? Thanks.

Eighteen to twenty%.

Okay. Thanks a lot. That's all I needed.

There are no further questions at this time. I'll now turn the call back to you.

Thank you, operator. Thanks everyone, again, for participating on the call. We look forward to keeping you abreast of our progress on our second-quarter conference call in early August. Thank you.

Thank you.

Bye-bye.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.