Entravision Communications Corp (EVC) 2005 Q2 法說會逐字稿

Communications Second Quarter 2005 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, August 3, 2005. I would now like to turn the conference over to Walter Ulloa, Chairman and CEO of Entravision Communications. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to our second quarter 2005 teleconference. With me today is Phil 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 today'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 brief rebroadcast of this call in any form without the express written consent of Entravision Communications Corporation is strictly prohibited.

Overall, results for the second quarter exceeded our guidance with all three divisions showing impressive gains that were among the strongest in the industry. Proforma revenue increased 9% to $75.1 million, proforma broadcast cash flow increased 11% to $32 million, and proforma EBITDA increased 12% to $27.8 million. Free cash flow for the quarter was $13.8 million, or 11/10 per share. Our television group continues to outpace the industry with revenue growth of 8% in the quarter despite the absence of last year's political revenue.

The television industry was negative 5% for the quarter. Revenues in the quarter were driven by our top advertising categories, including automotive, fast food restaurants, services and telecom wireless services. Automotive, our top revenue category, continued to be among our fastest growing segments surging 21% over second quarter 2004. Another strong category, fast food and restaurants, was up 15.2%. Local advertising once again recorded strong gains, up 10% in the quarter while national advertising increased 5%. Local revenue gains came primarily within the automotive, services, fast food and finance categories, our focus on new business development enhanced sales to tools and training have continued to produced excellent results for the entire company. Our Univision affiliates extended their strong ratings delivery into the main Nielsen sweep, as our Univision station group delivered an outstanding overall performance by hosting solid year-over-year ratings gains and virtually every adult demo in nearly every important day [port]. From sign on to sign we increased our ratings 14% in adults 18 to 34, 17% in adults 18 to 49; and maintained our adults 25 to 54 delivery. In primetime, we also showed impressive ratings increases. 19% in adults 18 to 34, 14% growth in adults 18 to 49, and 8% in adults 25 to 54. One notable highlight is the tremendous 18 to 34 ratings delivery of KCEC, our Denver Univision affiliate, which changed the Denver television viewing landscape by leapfrogging several stations to rank number one in the market regardless of language. A first for the station. In total, eight of our television stations rank number one or number two in primetime among adults 18 to 34, regardless of language. Our Univision affiliates in [dopley] markets also experienced solid primetime ratings growth by increasing 25% in adults 18 to 34, 14% in adults 18 to 49 and 8% in adults 25 to 54, while our [metered] market Telefutura for this group continued to deliver a solid performance by maintaining its year-to-year household rating and share. Among adults 18 to 34, our Univision and Telefutura affiliates rank at the number one and number two Spanish language television stations respectively in eight of our dopley markets.

Our news group performed well as our early local newscast maintained their strong year ago adult 18 to 34 rating while increasing 8% in adults 18 to 49, and 9% in adults 25 to 54. In 11 news markets we rank as the number one or number two local newscast in the time period regardless of language. Five of these 11 newscasts ranked at the number one program in the time period beating all programming competition, including news and entertainment programs. This month was our Mexican partners Televisora Alto, we launched X Rio in McAllen, Brownsville, South Texas as the Fox affiliate in the market, which we believe will strengthen our relationship with advertisers and solidify our leadership position in the nine largest Hispanic markets in the country. This brings our McAllen footprint to three television stations, Univision, Telefutura and Fox, and four radio stations. With this acquisition, we now have 22 television stations in Texas and California where 50% of all U.S. Hispanics reside, including 10 along the U.S.-Mexican border which comprises one of the most densely populated and fastest growing Hispanic regions in the nation.

Turning to third quarter, despite almost $2 million in non-returning political revenue, and a weak national advertising environment, we are guiding television growth at 5%. The industry is forecasted to be negative 5 to negative 10%.

Our radio division also exceeded our expectations and once again, outpaced the industry with a proforma revenue increase of 11% in the quarter. This is in addition to the 8% proforma increase we recorded in the second quarter of last year. Our 11% increase in proforma revenue is compared to an industry that saw no revenue growth for the quarter according to the radio advertising bureau. Proforma broadcast cash flow for our radio division increased 15% in the second quarter. Results continue to be driven by local advertising which increased 12% while national advertising increased 8%. Our stellar growth in radio continues to be driven by our concentration of local sales and getting our management team in each market in front of our advertisers. In the spring book, for markets that have been released to date, we once again, built upon our ratings performance. In adults 18 to 34, our share increased 2.3% over the spring 2004 book. Year-over-year, we saw increases in Los Angeles, Palm Springs, Sacramento and Modesto at our key demo, adults 18 to 34. This was also our first full book with El Cucuí de la Mañana, which launched in February on all of our Radio Tricolor radio stations. We have experienced double digit growth in our key demo, adults 18 to 34 in Las Vegas, Phoenix, Stockton, and Modesto over the last rating period. At the end of last year, we also converted radio stations in five markets to the [super in stereo] format. And these markets, which have been released to date, we have recorded a 12.3% increase in share adults 18 to 34. Our Los Angeles Spanish cluster continues to perform both in ratings and generating revenue growth. In our target demo, adults 18 to 34, our cluster received a 7.3 share in the spring book as we accelerated the conversion of strong ratings to revenue growth.

Our third quarter outlook for our radio division is solid with radio revenue expected to be up 11 to 12%. Just last week we announced the sale of our San Francisco radio station to Univision for $90 million. This is an attractive transaction for us because we believe it will enhance shareholder value as we exit a non core market and efficiently repurchase a large portion of Univision's equity interest in our company that enhances our capital structure. Upon closing of this transaction, which is subject to regulatory approval, Univision will own approximately 26 million Entravision Class U common shares, or approximately 20% interest in Entravision.

Turning to our outdoor division, we posted revenue growth of 12% in the quarter substantially ahead of our guidance. Guiding results again was a local revenue which was up 22% while national revenue increased 7% for the second quarter. Our focus, emphasis and strategy in growing local revenue due to the softness in national revenues has proven successful in every one of our divisions. Top ten categories included entertainment, healthcare and food products. Outdoor advertising directed at the Hispanic market grew to about 30% of total revenue for this division. Average unit rates were up over 12% during the quarter, compared to the same period last year.

Overall, we continue to see strong momentum in outdoor into the third quarter even as we come up against more difficult costs. Based on current facing trends, we anticipate double digit top line growth for our outdoor division in the third quarter.

In conclusion, all of our divisions are seeing strong revenue growth versus a respective industry averages and we are effectively transferring these gains to the bottom line. Despite a soft national environment and non-returning political revenue of over $2 million, we consistently, consistently identify strategies and ways with our diversified asset base to grow the top line with 8 to 9% revenue growth forecasted for the third quarter. We are seeing continued ratings gains and our sales force is doing an excellent job of penetrating existing accounts and attracting new business which is the lifeblood of growth. We continue to actively review our asset base to ensure we have the optimal footprint to build leading market positions and capitalize on the operating leverage of our business model. We are committed to serving the fastest growing and most densely populated Hispanic markets in the country.

Now I would like to turn the call over to Philip Wilkinson, our President and Chief Operating Officer, for his remarks.

Yes, thank you, Walter, and good afternoon, everyone. Our second quarter television revenue was up 8% compared to -5% for the industry, that's according to TVB, with 778 stations reporting their third quarter revenues. -5% for the industry, +8% for Entravision TV. Our local business was up 10% and the industry was down 2% in local. Our national stock revenue increased 5%, while the industry was down a full 9%. So overall, our TV revenue growth increased 12 points ahead of the industry, as reported by TVB.

VCF for the quarter increased 7%. Our VCF margin for the quarter was 48% versus 49% in Q2 of last year, however, it did exclude the one-time recovery of the $1 million JSA expense in Q2 04. Our actual VCF margins increased from 46% last year, to 48% this year Q2 05, a two point VCF margin gain. Our top ad categories in Q2 were automotive, fast food restaurants, services and telecom, all which were up double digits. Toyota, Dodge and GM topped the auto category growth accounts while Fred Loya Insurance led services growth. Subway led the fast food category increases and SBC, Verizon and Quest had some of the highest growth in our telecom category. New advertisers to our TV division in the second quarter included Mobita Communications, Fred Loya Insurance, GMAC Home Mortgage and Molina Healthcare. The TV division had a strong May Nielsen ratings report as primetime ratings for adults 18 to 34 increased an impressive 19% year-over-year. Early news delivered impressive ratings growth in key markets for us, like San Diego, ranking number one and equally in the combined ratings delivery of two competing English language newscasts. El Paso, where KINT ranked number one and outperformed all of its competition and topped the combined ratings delivery of all three competing local newscasts. KNVO in McAllen did the same as El Paso by ranking number one and outperforming the combined ratings of its three news competitors. KINC in Vegas remained number one and KCEC in Denver jumped to the number one newscast among adults 18 to 34 regardless of language. As programming and relevant newscasts attract more viewers to our stations, advertisers are increasing their commitment to our property.

Turning to our ration highlights that are all reported on a proforma basis, we extended our industry leading performance with second quarter revenue increasing 11%. We outperformed the industry, as Walter mentioned, according to RAB in each month of the quarter. VCF in the quarter increased 15%. Our VCF margins for the quarter were 42%, an increase of 2 percentage points over the prior year due to higher revenues and existing station expense controls. Local sales for the quarter increased 12% and represented 75% of our total revenue. And national spot revenue was up 8% for the quarter.

We attributed some of the local sales success to the implementation of our sales training program and a concentrated effort by our management team in each market to join the account executives on sales calls. In addition, we added sales tools in many of our markets, including Mapmaker, Media Monitor and [RL Polk] Registration Data, which helped in our automotive new business development efforts. Top advertisers for the quarter were Verizon, Safeway and McDonalds, all of which increased double digits, as did six of our top ten advertisers in the radio division. Our top categories in this quarter were automotive, which is up double digits, grocery stores and beverages, which includes soft drinks and beer. We were successful in attracting over 41 new advertisers that spent more than $10,000 each in the quarter, and new advertisers for the quarter included Eastwood Insurance, Bacardi, Heineken, [Dekate], Citibank and Saturn, among others for our radio division. On the ratings front as Walter mentioned earlier for our key demo, adults 18 to34, spring 04 compared to spring 05 average quarter our share, we increased 2.3% in 11 of the 15 markets where we subscribe to Arbitron and that have release data as of today. Just as important as the ratings are the results that our clients experienced. For example, in Denver, our division sales trader conducted a client seminar for current and prospective advertisers and because of this grassroots media seminar, one of the attendees increased their expenditures 47% over the current commitment. This new focus helped this client increased attendance to his movie theaters. In Sacramento, as another example, a records store that sold primarily Mexican regional music and advertised only on Mexican retail stations, saw their business grow over 30% in the first month once they began airing commercials on our Super [indiscernible] station. Our [indiscernible] and hip hop stations in Dallas attracted a real estate company that incorporated the name of our radio station (Casa) into their on-air commercials that talked about the benefit of buying a new home, and on the first day of airing on that station, four listeners entered into an agreement to purchase a new home.

Moving over to outdoor, Walter covered a lot of the success that we've had in the outdoor business, but our revenue grew overall 12%. And in summary, our results for the first half of the year clearly show growth is significantly ahead of the industry as we continue to execute on our business model. With strong operating momentum across the Company, we are in a terrific position to deliver additional financial returns as the year continues to unfold.

And now, I'd like to turn it over to John DeLorenzo for our financial review.

Thank you, Philip, and good afternoon everyone. As Walter and Philip have discussed, we recorded proforma results that exceed the high end of our guidance for the quarter. Proforma net revenue was $75.1 million, up 9%. Proforma broadcast cash flow increased 11% to $32 million, and proforma EBITDA as adjusted increased 12% to $27.8 million. overall, our proforma operating margin for the quarter was 43%, up from 42% last year. EBIT margin for the quarter was 48% compared to 49% in Q2 04. Excluding the one-time recovery of prior year expenses of $1 million, and in accordance with the terms of an amendment to our Telefutura marketing and sales agreement with Univision, TV margins would have increased 2%. Radio margins for the quarter was 42 compared to 40% in Q2 04. Our margin improvement is a result of increasing revenues while moderating operating cost increases.

Proforma operating expenses for the quarter increased 8%, which was within our expense guidance for the quarter. Excluding the prior year recovery of the $1 million of expenses in accordance with the terms of the amendment to our marketing and sales agreement with Univision, expenses would have increased 5.6% instead of 8%. Of that 5.6%, 3.7 is attributable to expenses expanding our business to 1031 in Los Angeles, the acquisition of KBMB in Sacramento Bucks Advertising in Sacramento at the outdoor division. The remaining 2% is core expenses primarily attributable to salaries, outdoor leasing and news.

Corporate expenses increased 2% to $4.2 million for the quarter. The increase was primarily attributable to expenses related to Sarbanes-Oxley compliance, partially offset by lower [charge] expenses. Free cash flow, which we define as EBITDA as adjusted minus capital expenditures, cash interest, cash taxes, plus interest income, was $13.8 million or 11 cents per share in the second quarter of 2005, one cent higher than our 10 cents per share guidance.

Turning to our balance sheet, as of June 30, 2005, our total debt was $482 million, our turnaround 12 months, EBITDA as adjusted was $87 million. Our total debt to EBITDA as adjusted was 5.6 times. Our net debt to EBITDA as adjusted was 5.2 times. Cash on the books was $33 million at June 30, 2005. The EPS for the quarter ended June 30, 2005 was 3 cents per share, in line with the higher end of our guidance.

Turning to our outlook for third quarter 2005, based on the current pacings we are seeing, we expect to report third quarter net revenues of $75.5 to $76.1 million, an increase of 8 to 9%. Our television division is expected to be up 5%, radio up 11 to12, and outdoor up 12 to 13. Operating expenses are expected to be $44.9 to $45.1 million, an increase of approximately 7%. Of that 7%, 5% is attributable to expenses expanding our businesses, such as the 1031s in Los Angeles, the acquisition of KBMB in Sacramento, the acquisition of the television station in Matamoros, and bus advertising in Sacramento at the outdoor division. The remaining 2% is core expenses, primarily attributable to salaries, outdoor leasing and rating services.

For the third quarter, we expect corporate expense to be between $4.25 and 4.3 million, a decrease of approximately 3 to 4% due to lower legal expenses. In the prior year we had incurred legal expenses relating to financing the repurchase of our Series A Preferred Stock.

Depreciation and amortization is expected to be between $11.8 and $12.2 million. Interest expense is expected to be between $8.8 and $9 million; and net interest expense or free cash flow purposes is expected to be between $8.2 and $8.4 million. We expect capital expenditures to be between $5.5 and $6 million.

As we recorded on our last call, because it is unlikely that the SEC will extend the deadline to covert television stations to full power digital, we will need to finish our digital upgrade by mid-next year. We expect total capital expenditures for the year to be approximately $19.5 million, with maintenance to be around $11 million, which was reduced from $14 million, and digital to be $8.5 million for the year.

Third quarter earnings per share is expected to be 2 cents per share, and free cash flow is expected to be 9 or 10 cents per share based on an estimate of 124.4 million shares outstanding.

As Walter mentioned earlier, the company entered into a definitive agreement to sell the assets of radio stations KBRG-FM and KLOK-AM, serving the San Francisco/San Jose market to Univision for $90 million. Univision will pay at least $60 million of the purchase price in the form of shares of the company's Class U Common Stock held by Univision, and the balance will be paid either in cash or additional shares of the company's Class U Common Stock held by Univision. This disposition is currently expected to close during the first quarter of 2006 and is currently expected to reduce Univision's percentage ownership in the company to approximately 20%, which is based on our current capitalization and is subject to the price of a Class A Common Stock at the closing of the transaction.

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

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Victor Miller from Bear Sterns. Please go ahead.

Good afternoon, and thank you for taking the question. First, I was struck in your press release, you talk about your gains from the television, radio segments and even the outdoor segment basically, based totally on rate. Could you talk a little bit about that dynamic? Is it merely because of the ratings increases or are you seeing a meaningful increase in the number of advertisers and the number of dollars that want to come in so that you just have leverage on the rate side? The second question I have is the TV went from eight in second quarter to +5, which is deceleration, and radio's guidance is actually accelerating, but you see TVs ratings growth at 19% and on the radio side at 2.3%. Is that merely because of last year's comps where you had that TV plus 13 radio plus 3.5, or is there a specific dynamic in the health of the Hispanic TV and radio markets that you might want to mention? Thanks.

Hi, Victor, it's Walt. I'll answer the first part of that question. I'm sure Philip has some comments too on the first part as well as the second part. As far as rate, it's something that we talk about every day with our managers, and that is increasing our rate and getting more value for our stocks. So it's a combination of rate, ratings, certainly, and better selling strategy that results in the increase in revenue in all of our divisions.

Yeah, thanks, Walter. Victor, hi. It's, as Walter said, the rates, and as you recognized in the press release, the rates have been up in second quarter. They were up in first quarter. We expect them to continue in third quarter. We had AURs and TV up 7%, the [telarts] were a little bit of that overall 8% gain, 2 points. Radio, the rates were up 7 to 8% and [saws] were about even. And we have the biggest gain in our ratings actually in AURs and outdoors, up 12%. So, with a little bit of inventory increase and the [sellout's] up 2%, up to 66% in the outdoor. And that's really driven by a lot of this new business we've been putting on. We're able to get a little better rate and so a little bit of value to the new client, as opposed to just trying to grind it out with the existing clients on the books, though they're coming back month after month. That's really kind of the dynamic there with the rate. The TV, we are up against difficult comps. We had a good quarter last year, +13, and we had the political that we have to overcome on the national side. The pace for TV with guidance was +5; recognize that that's really a +10 without that political 1.6 in third quarter of last year. So, well above the industry at a +5, as I think Walter mentioned earlier, the industry is expected to be -5 to -10 on TV this quarter. Our actual QC was +8, but +10 without the political-adjusted for the political. We're optimistic about the quarter meeting or even, perhaps, improving on that 5 to 10 guidance for TV, which again is +10 absent political. July was flat and August was up +6. September is +7. We're at an overall pace right now 4 to 5 [that helped us out] and believe that they may improve. But local is really carrying the water for the TV in a big way, the pay from the locals from plus the [indiscernible], a lot of that has to do with the new business we've been putting on. And again, the national is flat [indiscernible] pointed to on the page for third quarter. And that's - and when I say again, that's really driven by the comps from political from prior year. Hopefully that'll help answer it.

One other point on the deceleration thought - if you were to do the same thing that Philip did with third quarter taking political and saying it's 10%, we would have that same 10% in the second quarter, maybe a little less. So, if you were to extract political from both quarters, you're actually accelerating slightly into the third quarter.

Thank you very much.

Our next question comes from the line of Jonathon Jacoby from Banc of America Securities. Please go ahead.

Good afternoon. You answered part of it, for the $2 million in political last year, so $1.6 was - I just want to make sure that $1.6 is TV and $400,000 that was radio. Can you update us on the Los Angeles stations, your strategy there that you got back from Clear Channel? What's progressing on the outdoor with the City Lights Program that you guys have been rolling out?

Well, the number that we gave for political revenue is $2 million of gross revenue and about $1.6 of net revenue.

What would the breakdown between radio and TV be?

$1.6 in television and $200,000 in radio. $1.6 in TV, $200,000 in radio.

That's Q3.

Q3. And then your following question was about the 1031s?

Yes.

Well, we certainly are pleased with the progress we've made with the 1031s. We know we've had - we've got strong [patience] as we took back the sales force in April of 05. We're certainly up from a revenue standpoint. We did have some increase in expenses due to the increased operating costs, but we believe we've got an excellent format; we've got a dedicated sales team in place to growth that format and grow revenues. In fact, we've just - in the recent Arbitron books, we had our best ratings ever on that station. We managed a one share in adults - in people 12+, which is certainly important in a $1.2 billion revenue market. As for our City Lights, the question was how is that progressing?

Yes. What's going on there?

It's - we think that we've got an important working inventory there in our City Lights. In fact, we just recently entered into an agreement with the City of Los Angeles which is going to allow us to increase from about 250 city lights to about 400 city lights and that's the [indiscernible] boards that are horizontal and that are lit - backlit. And we're able to sell these boards for a more attractive rate and we think the demand is there currently to certainly drive revenue in that category.

Thank you.

Our next question comes from the line of James Dix with Deutsch Bank. Please go ahead.

Good afternoon, gentlemen. I had a couple of questions for you. Philip, I always appreciate the color you give on the new advertisers you're adding to these various platforms. If you could generalize, are there any particular pockets of advertisers or categories which you think have particularly great potential still going forward? I guess secondly, I guess, John, do you have a sense, what amount of revenue do you have booked versus the mid-range of your guidance by division for the third quarter? And I guess, Phil, if you could remind us what the comps, the TV group is facing in terms of political and any other non-recurring revenue for the fourth quarter versus last year?

Okay, let me take that in reverse order. We have approximately $2.6 million in fourth quarter net TV political revenue. And if my notes are correct, we have about $350,000 in net radio political revenue, for a total of full of $3 million. And those are non-returning dollars from fourth quarter prior year. If you - if I go to your question regarding what kind of categories, we still have some potential - you know, we have, really, super focus on the automotive industry. We're up 21% as we mentioned to you in second quarter. We have the early numbers, we're facing high double digits there as well in third quarter on the TV side. It represents almost 30% of our business, but we still haven't scratched the surface on this. In markets we go into, there'll be 80-90 new car dealers in a given market, on of our major markets and we'll have less than half those dealers on the air. We still have a great deal of potential growth in the automotive industry. We continue to target the financial industry on the radio side. We've taken a hard look at trying to grow and develop the insurance and services industry. We think we have a great deal of growth still there in financial and insurances. So, I think we've got some great opportunities still left in some of the bigger categories that sit at the top of our top five categories right now.

That other part of the question you asked what we had on the books to date. We're in the low 80% range in both radio and television at this point in the quarter.

Okay, great. Thank you.

Our next question comes from the line of Gordon Hodge - I'm sorry, Lee Westerfield, please go ahead.

Oh, thank you, gentlemen. Good afternoon.

Hi, Lee.

I had a couple of things that may - the first relates to - well first, let me comment the results for all three divisions seemed to outperform on revenue what you had outlined for guidance in the first - at the end of the first quarter for - at the end of the second quarter. And I wanted to understand, I guess the first part, which is the television number, the ratings performance going into this quarter have been very strong in any case, so do we see some way that the conversion for ratings performance is going to be accelerating in terms of revenue conversion or this - are we really moving along with the ratings? I know there's some really high levying in the automotive category and telecom categories that were strong in the quarter. And then I want a follow up that relates to cost in the television business.

Well, typically on the ratings, Lee, the book will come out and you'll have three, two, three, four months [indiscernible] terms of your national selling capabilities to turn those ratings into revenue. On the local side there's less impact in terms of the books and the numbers because we're still in a lot of ways, many of our markets selling concepts and educating the advertiser about the Hispanic market. So, we've seen some pretty good growth book-to-book, year-over-year for the last several years. And I think that in terms of acceleration or deceleration as a result of those ratings, it doesn't have as much of an impact as it does in general market that lives and dies by CPP and the ratings and the books. We're up sign on to sign off 14% of the ratings, that's for adults 18 to 34. Daytime's up 25%. On local news, our share was up in local and the national and our prime was up 19% as we mentioned. Hopefully we'll be able to take those numbers to the street and convert those, but it's typically more about holding up our higher rate than getting a higher CPP and it's going to happen over the next two or three months on a national basis. Again, on a local basis it's not as big of an impact.

Okay, and then roughly you mentioned nationals but for the fourth quarter, is there a quarter right now that's facing zero to 1% up but that faces against the absence of political advertising, so would that be 5 to 6% up plus with the political taken out?

Well, it's an overall +10 with the political out, and you're right, most of all that, $1.5 of that in third was national. So, if we did an adjustment, I think it's a five-point move, but while John's answering this question, I'll calculate that for you.

Okay, and then the final question on the cost side, you had mentioned, I believe, and I'm going to make sure I have my notes here correct, that the revised amended agreement for Telefutura affiliates that you struck with Univision impacted your television expenses by an additional 3% in the second quarter? First, did I get that right and secondly, can you elaborate on the terms or discuss a little more in detail what the terms were to that amended Telefutura agreement?

Well, [indiscernible] accounting adjustment. What we did was, as you know, we had Telefutura affiliation agreements that were two year agreements with two year renewals. What we did last year with Univision was redo those agreements to coincide with the length of the overall affiliation agreements for Univision, which is another 17 more years. And in doing that, we look at the calculation regarding how we determine the profit split. It was a combination of cash accounting and accrual accounting. All we did was convert the whole calculation to accrual accounting so we could monitor more easily going forward and therefore, it resulted in a million dollar credit last year to expenses, which meant last year's expenses were a million dollars less the adjustment and therefore, made the expenses appear larger into the second quarter. So it was really about the accounting adjustment. Not the one time only adjustment, Lee.

That's how I had remembered it. I wanted to make sure that was clear. Fine.

We could say it's enough single digits currently absent the political for third quarter on national.

Okay. All right, gentlemen, thank you very much.

Thanks, Lee.

Our next question comes from the line of Gordon Hodge with Thomas Weisel Partners. Please go ahead.

Hi. Good afternoon. A couple of questions, one if you could just talk about the revenue and cash flow you might forgo as you turn this San Francisco station over to Univision, how would you think about that, and then also, as you go into McAllen with a Fox station, I'm just wondering, you've got a Fox station in San Diego, it's just selling time there. Can you - do you find if you integrate a general market station into your Hispanic mix that you're able to sell, or perhaps, buck what has been a pretty dismal general market television trend by selling as a cluster or would it actually lift the Fox station in San Diego, for instance, and would you expect to see that in McAllen and then would that then lead to a strategy where you might fold in for more general market stations as you build out your markets? Thanks.

The first part of the question, Gordon, the [trimming] 12-month revenue and cash flow for the San Francisco properties is $7.4 million of revenue and $2.8 of cash flow. As for the second question, South Texas is a unique market for us. It's about 90% Hispanic so, the Hispanic market is the market. So any language you're communicating in that market is directed to the Hispanic market. So we felt that given the demographics in that market, that this would be a strong addition to our already powerful cluster in that market. You know, the Univision affiliates, the Telefutura affiliate, the four radio stations, this will allow us to access or package up, I should say, a [buys] that perhaps will add revenue to everyone of our media properties there in the market. So we think after giving this strategy a lot of thought and planning and, certainly, we ran many models and had meetings with our managers in South Texas, but it's going to be a powerful addition to an already very successful media cluster in ninth largest Hispanic market in the country.

But are you finding in San Diego, for instance, that you're doing a better job just because you're, as a cluster, as opposed to the Fox or standalone, and I don't know -

Well, San Diego is not a good comparison for a couple of reasons. One is it's a lower density of Hispanic market, it's still a very strong market, more than 25% Hispanic, but South Texas is 90% Hispanic. And number two, we don't sell the Fox affiliate or the UPN affiliate with our Spanish media properties. That we operate those separately, with a separate management team as part of our joint selling agreement with Televisa. So, you don't get that synergy that we will in South Texas, for example, with all of our properties under one roof.

Okay, but it - so it sounds like the South Texas situation is probably more likely a meek situation rather than something for us to be looking for you to roll out in another month.

Absolutely. We don't have any plans to go into general market television as a strategy, but we are in the business of serving the Hispanic consumer. So when you see a market that's 90% Hispanic, then we're going to look at every possible media to reach that consumer.

Sounds great. Thanks.

Our next question comes from the line of Eileen [Urukawa] with Citigroup. Please go ahead.

Thanks. I think you mentioned that your deal with Univision was structured so that 30 of the 90 million to be paid in cash or shares. And we were just wondering why your deal was structured like this as opposed to being a deal entirely for shares and what factors would determine whether the $30 million will be paid in cash or stocks? And then also, for your TV and radio units, looking ahead into the second half of the year, do you continue to expect your revenue growth will be primarily driven by increased rates like you found this quarter or do you expect an increase in sales to play a bigger role looking ahead? Thanks a lot.

For the first question, Eileen, we had some covenant issues, most notably restrictive payments regarding the amount of stock that we can repurchase at time of closing which will be January 06, and that's why we had the two [charges] and we're in the process of working through those covenant issues to eventually and hopefully be able to buy the whole or do the whole repurchase of $90 million.

And the rest - Eileen, this is Philip. The revenue increases will be driven primarily by rate increases in both the television and radio and the billboard division the back half of the year.

Okay. Thanks.

Thank you.

Our next question comes from the line of David Miller with Sanders Morris and Harris. Please go ahead.

Yeah, hi. Can you guys hear me okay?

Okay, I'm having a variety of phone problem here. A couple of questions. Philip, if you could just repeat where auto revenues came out on the TV side, that would be helpful, my connection faded out there while you were talking about that. And then also, John, obviously the deal with Univision is a smart first step in Univision's compliance with the DOJ ruling. It looks like Univision though still has some work to do in trimming its Entravision stake on a proforma basis, if you will, looks like the overhang is still about 6 million shares, assuming Entravision's price in Q1 stays the same as it is now. We know through various discussions with the guys at Univision that they do value their stake in EDC and probably given the chance to do so, Univision would seize any opportunity to maintain its position at 20%. So, in your guys' opinion, is the DOJ flexible on this at all? Or are they just definitely married to that 15% and at some point in the future you guys are going to have to come up with some similar deal like the one announced last week to take care of the 6 million share overhang thing?

Well, to the second part of your question, David, Univision is moving forward with the notion that they're going sell down to the 15% that the consent agree requires. We're in talks with them and certainly are actively - having active discussions related to the divestiture of the remaining 6-7 million shares. As for - you had a television question -

Yeah, David, the auto industry for us on the television side was +21%. It represents 29% of our total revenue. It's healthy. We turned into the corner here on third quarter in July was, I believe, +15% on auto, and we feel that based on the job we've done on developing new business, new auto dealers in all of our markets, will carry on through in the third and fourth. In fact, many of the new car dealers that we put on the air in second are already returning in third with same or better expenditures in each of our markets.

Okay, so Walter, you don't [defense] that Univision is out aggressively trying to lobby the DOJ to change the law or to change the ruling?

No, we don't get that [fence].

We believe that they're going to move forward with the disposition of those shares and we certainly are in talks with them about the disposition.

Okay. Thank you very much.

Our next question comes from the line of Kit Spring of Stifel, Nicholas and Co. Please go ahead.

Hi. Can you just tell us where your - roughly where your commercial load is in your radio group and whether you think you can increase or whether you need to decrease that similar to the radio peers in the English language side? And just to verify, did you say you did just under $3 million of cash flow on the station that you're divesting, and if so, that represents a pretty healthy multiple - doesn't make sense to do a lot more of that? Thanks.

Well, we think we created, you know, some significant shareholder value as a result of the transaction with Univision. It was a market that certainly had developed a significant amount of competition over the last couple of years, and it was a market that we felt we couldn't grow in, so we're pleased with the outcome of that transaction. It hasn't close yet. Of course, it will close sometime later this year or early first quarter 06. As for the [spot load] in our radio division, depending on the format it's 13 to 14 minutes an hour. We've adopted a pretty good conservative approach to spot loads throughout the time that we've owned and operated our radio divisions. We think it's proved successful for us over the last few years, and certainly as we go into the future.

And going forward, do you have intentions to replace those assets that you've divested with something else?

- of ways and opportunities to grow our asset base. I mean, there's always something coming through the offices here that give us the opportunities to see if it's a market or if it's a set of assets that would complement our strategy so, nothing specific, nothing targeted but always looking at ways to grow are Univision, Telefutura, radio and outdoor divisions.

Okay, looks like it makes a lot more sense to sell those multiples. Thanks.

Thank you.

Our next question comes from the line of Philip Remek of Guzman and Company. Please go ahead.

Good afternoon. I wanted to ask about the - I guess the station portfolio in radio, given that San Francisco is the seventh largest Hispanic radio market in the U.S. and that in almost all the major radio markets, there are more Spanish stations coming, whether it flips from [clear] channel or from other companies, and do we see this going into the future? Is it more a portfolio management strategy with the stations in trying to pick which markets are becoming more competitive or less competitive where to invest and where to sell stations and conserve cash to reinvest in other markets, it's becoming more dynamic in that sense.

We've implemented the strategy of strengthening our media clusters wherever we can and if we feel that we can't accomplish a stronger, or build a stronger cluster, then we look at the [vesting] like we did in Chicago last year, we've done it in Fresno and now San Francisco.

And of course [indiscernible] Sacramento -

Exactly, we've got an asset in Sacramento, in Los Angeles, we've just added an asset in South Texas, which is an important market for us, Lubbock, as John mentioned. So we're always seeking opportunities to strengthen our clusters, that's part of the strategy we've been talking about and implementing for the last few years.

Okay, thank you.

We have a follow up question from Victor Miller from Bear Sterns. Please go ahead.

Thanks. John, can I ask you a question on the free cash flow that was down about 9% for the quarter, could you just go through that [indiscernible] for the TV group, and could you talk about - a little bit about how far along you will be by the end of the year in converting the stations you need to convert and how much DTV/high power CAPEX will be left to go into next year? Thanks.

Yeah, well on the free cash flow there are two items. One you talked about which is the additional CAPEX, and the other, last year, if you recall, we had preferred stock which was [agreed] dividends that was affecting free cash flow and we replaced that with [indiscernible] and current pay. Obviously, we [indiscernible] five percentage points difference between what we were paying in the preferred as to what we're paying in the libor plus today. As far as the CAPEX, we estimated we had about another $12 million to go and we will [step] on $9 million this year - 8 to 9. In the first half of 2006 and we'll be about halfway done at year-end with the total build out of the digital full power stations.

I'm sorry, so how much would be left in 06?

$4 million on digital and then on top of that we'll have maintenance.

And the maintenance number for this year is like 11, is that about right for net year?

It was 11 down from 14. We haven't really determined that but it is our goal to not exceed the prior year's CAPEX.

Okay. Thank you very much, Philip. Thank you John.

There are no further questions at this time, I'll turn the presentation back to you, sir.

Thank you, operator. This concludes our second quarter investor conference call. We look forward to speaking to all of you in November when we report our third quarter results. Thank you.

Ladies and gentlemen, that does conclude the conference call for today, we thank you for your participation and ask you to please disconnect your line.