Urban One Inc (UONE) 2005 Q4 法說會逐字稿

Ladies and gentlemen, good day and thank you for standing by. Welcome to the Radio One fourth quarter 2005 earnings release conference call. (OPERATOR INSTRUCTIONS). As a reminder today's conference is being recorded. I would now like to turn the conference over to your host, President and CEO, Mr. Alfred Liggins. Please go ahead, sir.

Thanks everyone for joining our Q4 conference call. With me today is Scott Royster, our EVP and Chief Financial Officer, Mary Catherine Sneed, our Chief Operating Officer. As you know we have released Q4 results roughly in line with our guidance. I'm going to turn it over to Scott who's going to read a little disclaimer, and then go into the meat of the details, and then we will open it up for Q&A.

Good morning everyone. This conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Because these statements apply to future events they are subject to risks and uncertainties that could cause actual results to differ materially, including the absence of a combined operating history with an acquired company or radio station, and the potential inability to integrate acquired businesses, need for additional financing, a high degree of leverage, seasonal nature of the business, granting of rights to acquire certain portions of the acquired companies or radio stations operations, market ratings, variable economic conditions, and consumer tastes, as well as restrictions imposed by existing debt and future payment obligations.

Important factors that could cause actual results to differ materially are described in Radio One's reports on Forms 10-K, 10-KA and 10-Q, and other filings with the Securities and Exchange Commission.

Radio One had a decent quarter all things considered, as core radio revenue grew faster than our markets, and we continued to make good strides in other areas of our business portfolio. Net revenue came in at $91.2 million, up 15% from last year. Exclusive of Reach Media, net revenue grew approximately 1% or about 300 basis points better than the 2.4% decline experienced in our markets.

National and local performance performed similarly. Pricing was down in the low single digits and volume was up in the low single digits. Categories that showed growth included travel and transportation, food and beverage, services, health care, entertainment, financial and auto, while retail, government and telecom were weak.

Obviously, in 2004's fourth quarter we had several million dollars of political revenue which we have discussed in the past. So on a normalized basis this quarter didn't turn out too bad.

Station operating income came in at $43.7 million, down 6% from 2004. There are a few things going on here that need explanation. First in the fourth quarter of 2004 we had onetime expense credits of approximately $4.5 million associated with the radio industry settlement with ASCAP and a reimbursement from a vendor. Adjusting for these events would lead to station operating income growth of approximately 5% for Q4. Additionally Reach Media took a $1.2 million impairment charge associated with costs for the new Tom Joyner Television Show, as revenue for that show came in lower than expected, which is not unusual for a new TV show.

Lastly, as part of the development of our new black news talk network, commonly referred to as Syndication One, we spent about $200,000 in Q4 in anticipation of the Q1 launch. Thus, if you adjust for these various items, station operating income was up about 8% in the quarter. Adjusted EBITDA came in at 36.7 million, down 12%, but up approximately 2% if you adjust for the aforementioned items.

Elsewhere on the P&L depreciation and amortization came in at $6.9 million, up from $3.6 million last year in 2004, but this increase was due entirely to the amortization of certain intangibles associated with the Reach acquisition following the preliminary purchase price allocation made during December 2005 following a third-party appraisal of Reach. Going forward you should build in approximately $5 million in your models for depreciation and amortization on a quarterly basis.

As for taxes the provision for this quarter was low at 25% due to our refinement of our state tax analysis and a further reduction of our Ohio tax liability due to a change in that state's tax laws. Going forward the provision on a normalized basis should be approximately 39%. But again recognize that this is almost entirely deferred tax due to the favorable tax structure of our business that we have discussed and described in the past.

Net income applicable to common stockholders came in at $0.10, which was in line with FirstCall estimates. For the quarter capital expenditures were $3 million versus $5.5 million in Q4 of 2004, and it was $15.7 million for the entire year. Going forward $15 million should be a good number to target on an annualized basis, especially as we continue to rollout HD radio across our platform. We should have half of our portfolio converted by the end of this year, and the balance by the end of 2008.

Additionally, we were buying back our stock aggressively in Q4. We repurchased 3.4 million shares for approximately $36.4 million during the quarter, all of which was funded out of free cash flow. And we ended the quarter was fewer than 100 million shares outstanding. We also ended the quarter with debt of approximately $953 million, and a leverage ratio of 5.87 times.

Turning now to Q1, 2006. Inclusive of Reach Media we expect to report net revenue growth in the mid single digit percentage range, and a station operating income decrease in the high single digit percentage range. Recall that we closed on the Reach transaction on March 1 of 2005, so there is a full quarter of Reach results in our 2006 guidance, as opposed to only one month in last year's first quarter.

Starting in the second quarter of 2006 we do not expect to specifically break out Reach's performance as we will be past the anniversary date of the acquisition, and the two businesses are so closely intertwined that doing so is not particularly helpful or even all that clear. With that said, the primary driver of Q1 performance is some relative weakness in the core radio part of the platform. Please recall that last year our core radio business was up 7%. It was up 11% when you include the one month of Reach Media results. That 7% was approximately 500 basis points faster than the industry, so we probably have some of the toughest comps on the street.

With that said, core radio revenues are expected to decline in the mid single digit percentage range. And station operating income is expected to decline in the mid teen percentage range before taking into account the effect of FAS 123R, which I will discuss in a minute.

This decline in station operating income is primarily driven by the revenue decline in radio due to the high fixed cost nature at our expense structure. In fact, core expenses are growing approximately 4% in the quarter, after taking out expenses for Syndication One and a 401(k) match, which is a new item this year for Radio One. I believe Alfred will have more to say about our Q1 outlook in a minute.

As for FAS123R, we adopted FAS123R in January 1 of this year, and we expect that it will lead to an increase in expenses, albeit on a non-cash expense -- albeit a non-cash expense of approximately 11 to $13 million for 2006. But as we stated in the press release, this increase does not include the potential additional expense impact of any stock options or similar equity instruments that might be granted during 2006.

In summary, we are generally pleased with our Q4 performance, feel we should and could be doing better in Q1, and are cautiously optimistic for the rest of the year as it relates to the core radio business. As many of you know, we are set to embark on a number of initiatives this year that will further create shareholder value and diversify our business and our revenue and cash flow streams away from being solely dependent on radio advertising. We are off to a great start with our investment in TV One, our acquisition of Reach Media, and the development and launch of Syndication One. There are other similar initiatives in the pipeline and we look forward to discussing them with you in the future.

With that I will turn it back over to Alfred.

Q1 guidance obviously, as Scott mentioned, we're not pleased with it. Even though we have tough comps we've got some work to do on execution. Just sort of big picture markets that are in need of improvement are Dallas, Atlanta, Cleveland, Washington D.C. and Los Angeles. A number of those markets are healthy revenue markets for us in terms of percentage, and so we sort of got a perfect storm going on right now. We are focused on it. We have hit bumps in the road before where our performance has gotten off kilter.

Ironically it is not national that is the issue for us, it is more of a local issue. And myself and Mary Catherine and the rest of the operating executive team are focused on it. And so what I would like to do now is open it up for questions. And during the Q&A period if there are questions about some of our diversification strategies, any further questions on markets, we will elaborate on them then. Operator?

(OPERATOR INSTRUCTIONS). Eileen Furukawa from Citigroup.

You talked about your revenue guidance as a little bit lower than we are seeing from the peers which you have talked about. We were wondering is part of this because you are one of the biggest beneficiaries in share shift from Less is More, so you're seeing a lot of share shifts back to Clear Channel. Is that a big part of this, or is it something beyond that?

And also when you look past first quarter do you think you're going to be able to return to out performance in the back half of the year as your comps get easier? And then my last question is on expense growth. Beyond the first quarter when your expense growth seems moderate given the revenue guidance you've given, but looking beyond that do you think like some of your peers you are going to have to take up your expense growth above historical rates and incrementally invest in the business in '06?

Less is More. No, I'm not sure. Advertisers don't really tell us where our dollars are coming from. Basically the entire industry benefited from Clear Channel's shrinking the units available. And so I'm sure we benefited from it. Now that that has lapsed it has got to affect us in some way. It's difficult for us to quantify.

Expense growth -- we have been actually in fourth quarter last summer continuing a bit here in the first quarter of investing in our radio stations in marketing and promotion. When we moved Tom Joyner to our stations from some of our competitors, we needed to advertise and market that. Philadelphia, last year we totally reconfigured that market. So we had essentially three new station launches in Philadelphia all at the same time. And so I would say that part of the pressure on our results now is that we are spending to grow our business. I don't know if I -- I don't think I expect that to escalate because we're being pretty aggressive with that right now.

There was one other part to your question, it was less than more expense growth?

The question was do you think when your comps get easier in the back half of the year you will be able to turn to out performance? And also as a follow-up, you talked about there is work can be done to improve your results, are there any particular initiatives you're doing that you can give us color on bringing yourself back to out performance?

Yes, I do think that we can return to out performance. We have been public since '99. We have consistently done that. We have got a number of new station initiatives in Philadelphia, in Houston -- we have got Charlotte.

St. Louis.

I'm sorry, what did you say, Scott?

St. Louis as well.

St. Louis as well. And we have to extract -- the ratings have gone up in those markets and we've got to extract the revenue out of there. We are also in the middle of this -- launch this new talk network, which is going to lose money for the first year. It has also impacted our results, not greatly, but in places like Miami, which was a brokered time station for us. But it made $1 million a year just doing brokered time, and we blew it up in hopes that the black talk network would actually get some ratings and we could make more than $1 million a year. And the same thing we did on a brokered time station in Cleveland.

We really sort of decided to bite the bullet all at once. And yes, we think that we can return back to out performance. We have consistently done it. And we have got these pockets of growth opportunity that we can feel good about.

Jason Helfstein from CIBC World Markets.

Two more longer questions and one simple one. First question, maybe both of you guys, can you review all of your initiatives and perhaps in some detail to diversify away from radio? And then what you would assign an as far as the annualized expense impact of each of those? So, order of magnitude so not to the decimal, but if you can say, hey, this is going to cost us a few hundred thousand. This will cost us 1 million, etc.

Alfred, my second question, by my calculation Radio One is now trading at about 30 to 40% discount to what Citadel paid for ABC. And we know Entercom was willing to buy those ABC assets at pretty close to the price. So I guess my question is just given where your stock is trading, would it make sense to sell some markets to other companies and then use that to buy back a large slug of stock?

My last question, related to that 11 to 13 million of non cash comp what is the average strike price on the options that relate to that?

Average strikes. Scott, you got the average strike price (multiple speakers)?

I may be able to get that. And if, Alfred, do you want to start talking about the initiatives. I don't know how much detail we want to go into.

Yes. That was a very specific question, and what the expense impact is I certainly can't tell you here. I think we're going to be figuring that out as we go along. The biggest initiative is obviously TV One, which is doing exceptionally well. We may be trading at a 30, 40% discount to where those assets went off, but we do get no credit for TV One. Revenues continue to be very strong. Ratings are very strong, much higher than anybody anticipated. We got better than a .2 total day ratings.

The numbers that are out on the Street for TV One, we feel very good about -- about being able to hit. A number of analysts have $175 million of value in their models for TV One, which equates to a couple bucks on our stock, and we don't get that. We understand that. But at some point in time TV One is going to turn cash flow positive, and money will be coming into the Company for that. This is going to take a few more years for that to happen.

We are in the process of working on two initiatives. One, our Internet effort. We have really had very little Internet investment over the last four or five years. We just recently in the last year launched websites for all of our stations across the platform. And we actually broke even last year on that. So we didn't lose any money on our first web initiative. We're putting together a strategy which we expect to roll out before the end of year to launch an Internet portal, because we believe between our radio stations, between the syndication company and Reach Media, between the cable network that nobody has the ability to market and promote and drive more traffic to a black oriented website than we do. So we want to take advantage of that.

Most media companies are now being very focused on it because it is a big growth area. There is $10 billion of new Internet revenue that essentially floods that industry. Right now we're not getting -- we're not getting any piece of that to speak of, and so we need to play in that field.

What also this strategy draws us to is a content strategy. Because the Internet and satellite radio and all these -- and the iPod basically is challenging the closed distribution network of traditional broadcasters, whether it is broadcast TV or broadcast radio, content becomes even more important. Scott has been working on a content initiative where we are -- right now our first effort we will launch in April. But essentially we're going out and we're finding people who have created content. And in this case it is a movie called "Preaching to the Choir", which somebody else made for millions of dollars. It is in our bailiwick, meaning it is an African-American adult targeted faith-based film.

And we're going to -- we have licensed that film and we're going to market across our platform theatrically via radio stations and the cable network. We're involved with a DVD company that we're close to. It will go theatrical. It will go to DVD and then it will have a window in TV One. And our exposure to this is very, very -- our financial exposure is very, very low, very reasonable because a large part of what we are contributing is in-kind advertising to this. We will get our money back off the top as sales from theatrical and DVD come in we get a distribution fee. And we're hopeful this is a start of a model that will allow us to get into the content business and actually try to build some sort of licensing revenue streams, excuse me, revenue stream off of licensing.

I have said before that we are in the black people business. And one of the things that -- we have sat around and said okay, the radio business, let's say the radio business is going to be on the pessimistic end a flat business, on the optimistic end a mid single digit revenue growth business. Anyway you slice that you've got cash flow growth that has not been as fast and as attractive as it has in the past, because your expenses are going to grow 4% in any event.

We've got to -- in order to move the stock we have got to figure out a way to monetized our biggest asset, which is our 14 million listeners in our audience. And we think that this content strategy and the Internet strategy and the cable strategy are ways to do that.

It is going to take a minute. This stuff doesn't happen over night, but at least we see clearly that we as a Company have the ability to do that. Because nobody has what we have in our space. Univision has done a great job of building a vertically integrated Hispanic media company. I think that we've got the same opportunity. But we're going to feel some pain for a while as we transition towards that. And the radio business, as we sit, is in in the play set it is, and we don't have much control over it. Even though I think we can outpace it, it is still a flat to up 5 business. So call it up 3. And that is how we're viewing it.

My question on selling stations to other companies who might want to pay you a double-digit multiple for those stations and then buying back stock? (indiscernible) stock?

Well, two things. One, the stations that -- we're continuing to buy back stock out of our free cash flow. We're going to continue to do that. We have looked and starting to look at our portfolio and seeing what is non-core to our mission. And here are some assets that are non-core, that given the right price, we would sell. Again, provided we got the right price. It is not a lot of assets but there are definitely a few in there.

And so the strategy that I just outlined to you actually requires, however, that we have a platform to market. And so we definitely have given thought to what is not strategic and what can go, and bring back cash to buy back stock. But also if in fact -- even if we sold some assets for some big numbers and bought back stock, it doesn't solve the problem that we're in a flat to up 5 business.

We believe that the platform, if we keep it intact, allows us to make more money and diversify in other businesses. I think that is the approach that we want to take. That is the approach that I think creates more shareholder value, because we have the ability to create businesses that may have tens of millions of dollars of revenue. If this content DVD strategy works, that can be a very big business for us. The company that we're working with, the guy who runs it build a $30 million business at his previous place of employment, and didn't even have anywhere near the resources that he has being -- working in concert with us.

Just one quick follow-up. Can you put a total number perhaps of investments spending, all these initiatives, but perhaps all of those so we can get a sense of --?

The big number is obviously the cable network. Again, I think, Scott, correct me if I'm wrong, but the content test that we're doing with "Preaching to the Choir" is a $1 million all in -- excuse me -- $1.5 million all in. Probably roughly half of that is in-kind, and we get our money back first off the top. We're not talking about large sums of money.

The Internet is still -- we're still working through that. There is one strategy that is a very, very, very low-cost strategy. There's another one a higher cost strategy, but involves -- But it is not just expense strategy, it involves an acquisition that would get us into the business quicker. And we don't know which way we're going yet. We can't tell you exactly what the Internet strategy is going to cost yet.

Suffice it to say that we plan to be prudent as we always have been. Scott, do you want to add anything to --?

No, actually I think that was a great overview. I actually did want to answer Jason's question about the options. There are currently about 7.3 million options outstanding, and these options date all the way back to our IPO, because our options have ten-year lives. Obviously, we're using Black-Shoales, and so the life of the option matters quite a bit to how do you ultimately get to the FAS123R expenses result. But the weighted average exercise price on these options is $14.74.

Kit Spring from Stifel Nicolaus.

Have you considered paying the large dividends, some more to Anacom or to Citadel, or is your leverage too high? And maybe if Mary Catherine could talk about why she thinks the radio industry seems to have turned down in February and March. Thank you.

Large dividends, yes, we have considered it. Yes, I think our leverage at 5 to 8 is a little stiff of that. But even before that from my perspective as a very large shareholder, I would rather see us before we look at a dividend policy continue to shrink the share base. And I think that ultimately that is where we get our biggest impact.

I talked about TV One and we get no credit. Well, I would look at that as a buying opportunity. I would rather -- because we know what that is going to do. So we would rather buy in more shares of Radio One. Ultimately -- and then we will own of these other initiatives as they start to bear fruit. And so that is kind of how we're looking at the dividend policy. But, yes, at some point in time a dividend should be forthcoming. I think that it will benefit all shareholders, and I will personally be supportive of that. Mary Catherine, do you want to talk about February and March?

Yes. As long as I have been in radio, and I didn't start in sales, I started in programming, but the one thing that I have learned over the years is that you have to create new business. I don't think the radio industry is doing a good job of that overall.

When you look at automotive, which of course is the number one advertising initiative in the industry, and they have a problem, a perception problem. And we're just -- I don't know what we do about their problem. We're trying really hard to help them, but for whatever reason it seems like domestic is just not happening.

Now what has happened is they have pulled back in the first part of this year, like January specifically. And I remember this did happen last year too, even though we had a really great quarter. But now we're starting to see some of the flood gates open with automotive because they can't not advertise. That is actually starting. And hopefully we're going to see the benefits of that in March, I hope. But just bottom line is we're not creating new advertisers, which we actually as an industry need to come together and do. That is my perspective on it.

Bishop Sheen from Wachovia Securities.

Alfred, you know what the Street is like in terms of pure plays and diversified. Do you worry that you might get whacked for being too diversified?

Well, whacked beyond where we're at now? Put it this way. I think that when we came out we played the game just like we were supposed to. We focused on radio even when other people were attempting to do other things. And then the only place that we got out of our wheel house was with TV One. And restructured that deal just the way the Street wanted it. If I had had my druthers I would have put up all $130 million for TV One, because it is going to be worth a gazillion dollars. But restructured it, brought in venture capital when we didn't need to so that we didn't have to have it flow directly through our operating results and it could go below the line.

And you know what, we didn't really get any credit -- that didn't really work for us. We're going to create a lot of value, and I am assuming that we will get that value when money starts coming in, or we monetize it. I don't know how it sort of pays out. And so we ended up with our stock price where it was based on us doing everything that we thought and we were told that we were supposed to.

Now a diversification strategy I am just more concerned about doing what actually creates value, and not really what the Street is going to think, because the Street is looking for three month or six month return and uptick in the stock. And I'm going to be here five years from now. I am most concerned about how much cash will this Company has in five years. And I can't sit here and tell you that if the radio industry grows 3% and our expenses grow 3 or 4%, that we're going to have much more cash flow. I've got to do something.

And I don't really want to turn around and sell the Company to somebody at 13 times cash flow. That in my opinion is also not the best use of resources or the best move to create shareholder value. Particularly when what I have articulated to all of you today and when I have articulated in the past makes sense. It is logical. And so where we are at now we just have to make more money. We've got to find ways to make more money. We're not going to get it off of the industry revenue growth. We're not going to get it off of any financial engineering. Even if we sell assets it is going to be a short-term fix. We've got to monetized our audience period, end of story.

On TV One you are preaching to the choir.

That's good.

Just one quick follow-up.

I mean specifically I probably shouldn't say this, but there are analysts on the Street that have TV One having $80 million of cash flow in five years. And I have said that we feel comfortable with those numbers, and today we down 36% of that. We also have the right to buy up our 36%. I don't know, that seems like a hell of a good business to me.

The Street has always never valued cable content properly, but that is a whole other topic for another time. Just one quick follow-up. Please don't take this as an accusation, but in terms of the Internet strategy, why is it taking so long?

It took me five years to get TV One off the ground. And the reason it took five years is because I was not going to do it unless all the stars were aligned and we had a distribution partner. And so we're cautious. I am not just going to launch an Internet strategy willy-nilly. We actually have a strategy that, like I said earlier, that is low-cost, and we could use our platform and get into it right away.

But there is an opportunity for a potentially bigger strategy that might allow us to be more successful, more quickly, give us more resources. And so when we do this, we've got to do it right. Because when you start to market this particular site and ask everybody to come see it, if the experience isn't up to snuff then they are not going to come back. And so that is why I have taken so long. Just because we want to do it right. We don't do a lot of things. We did radio, then we did cable. Now we're going to do Internet and content, and the goal is if we are not going to do a lot of things we want to make sure that we do those things that we're doing right. And so that is why it has taken so long. But I hear you. We could be moving faster, and we were about to launch but then this other idea came up and so we are studying it now. But we will get it done this year.

Thank you, Alfred.

Don't accuse me of anything anymore.

Victor Miller from Bear Stearns.

We've got -- we estimate that if you're up about mid teens in terms of expense growth, that means about $7 million increase from last year's base. Scott, could you maybe walk through some of the contributions from Reach for an extra month, the news talk, the Internet, the kind of core radio growth and [Plus 4]?

And on core radio growth I guess you obviously no longer have a relationship with Steve Harvey. And there is an expectation that was a very expensive kind of contract associated with that, so you would actually think that would have some downward pressure on costs, yet it is still Plus 4. Could you talk a little bit about those aspects.

And Mary Catherine, a question for you. The fall book was very strong. I am wondering why you're not seeing more of a conversion to revenue growth?

With regard to the expense items, there are a bunch of things going on. Obviously, if you look at core radio you do just have a business that you have to spend money on that has built-in escalators associated with it, whether it is compensation increases for your employee base, whether it is rent increases that occur every year contractually, whether it is -- we lease most of our towers so we have escalators built into tower leases. You obviously has ASCAP and BMI.

Basically all of your core expenses go up for the most part year-over-year some percentage. And so that sort of translates into 4%. Yes, Steve Harvey was expensive, but he's one guy on one radio station. We have 1,800 people on 70 radio stations. And so when you put it all the expenses in a bucket, yes, there is an impact -- a positive impact for not having Steve Harvey part of the Company anymore, but certainly there are lots of other expenses that are going up in lots of other places.

Now drilling down more specifically outside of core radio, you do have about $0.5 million in Syndication One expenses in the first quarter. You do have several hundred thousand dollars associated with the 401(k) match. Those are new expenses that are going to hit our P&L that haven't been there in the past.

And then with regard to Reach, and the biggest driver in Q1 is just the fact that there are two additional months of Reach Media in our results. And so you are looking at expenses for those two months at Reach Media that are somewhere between 5 and $6 million.

Of incremental expenses?

Yes, two months.

Okay, 5 did 6 million. Thanks. And then Mary Catherine on the ratings.

I think that as the year goes -- as we go forward we're going to see better results because we had in I think three markets situations where we had acquired Tom Joyner last year. We're just now starting to see the benefits of that. Because in the past what we have done is really focus all of our group-wide efforts on the hip-hop stations or the mainstream urban stations. And now we're just trying to really focus on the urban AC stations, so I think we're going to benefits from that like very soon, because the acceptance from the advertisers has been really dramatic. And I would say by second quarter we should probably see some pretty decent results on that.

Marci Ryvicker from Wachovia Securities.

I have two questions. Is some of the weakness you are saying in radio in the first quarter due to the fact that you are so focused on some other initiatives right now, or is it lack of demand in a weak markets solely?

And then secondly, Alfred, I know that you were a part of Jeff Washington Nationals team. Can you remind us what Radio One's financial commitment is right now, and just update us on what is going on?

I outlined some markets where we are under performing, and the question is could part of it be our focus on other stuff? I'm the one that is mostly focused -- Scott and I -- on other stuff. Mary Catherine is focused on radio, and her team is focused on radio. And so I don't know -- I do believe that that is the issue now. Maybe if we were putting more time into it then some of these markets wouldn't get out of whack. But I don't really think that's it. I think that -- I'm not sure exactly why some of these markets today are being challenged. We're going to find out.

I can speculate. In a Washington one of our competitors has actually got dramatically improved ratings in afternoon drive due to a syndicated radio show, the Michael [Bassin] Show. We have to figure out how to address that. That is a new show that has hit the market less than a year ago that is getting great ratings up against us in Detroit, in Washington and in Philadelphia. We've got to figure out how to combat that. You've got a guy basically doing a talk show up against music. That takes a minute to figure out.

There are a host of other reasons that could be affecting us. It is not just one but it is a number of them. And sometimes you have to figure out a longer-term strategy in order to solve those problems. And Michael Bassin is an example. How do you compete against a different programming element than urban adult radio has seen before? We have to develop our answer to that.

I'm sorry -- what was the other part of the question?

Washington Nationals, Alfred.

Oh, the Nationals. We have said it on the call before our commitment to that is like a couple of million bucks. I don't know whether or not Jeff is going to get it. I hope he does. I think he would be a good owner for the team. I'm not even sure if they are going to be called the Nationals now. I think that is up in the air since their name is being challenged in an infringement suit by a company called Bygone Sports I think. But it is something that has always been a very minor commitment and it remains that.

Jonathan Jacoby from Banc of America.

But first, I thought you said something that was pretty interesting that you noted that pricing was down in the fourth quarter. I am wondering if that trend is continuing in the first quarter?

The second question, L.A. has been a struggle. I am just curious sort of it in this guidance maybe you can give us some color on a relative basis versus sort of where the overall group is going, what you are saying in Los Angeles? And then if you can give us also your optimal leverage? Now you're at 5.8 times, is that going to slow down your buyback program?

L.A. -- our ratings are down in L.A., and we have got a lot of initiatives to turn them around. Quite frankly, I feel very good about the team that we have got there. They are working hard in a tough environment. I believe our ratings have bottomed out and should be on the upswing now. We're developing a new morning show with John Salley. We're committed to the market. We're committed to the team that is there. And L.A. is a place that we need to be. The market was up last year. I think it is looking a little flattish going through Q1. We're obviously performing worse than flat, but we will turn it around.

We certainly have redefined our expense base in that market which will also be helpful. We're coming to the tail end of the pain in Los Angeles and we are expecting sunny days going forward. We're excited about it. In fact, I'm actually in Los Angeles now, and so is Mary Catherine. We are here for a few days for an event and some other stuff. But we've got a good team out there, and we're supportive. And we think we'll get the job done.

With regard to pricing, maybe Mary Catherine and I can address that. You are right. A good call on Q4. It was down. And I have been personally over the last couple of years expressing concern about pricing dynamics in this industry. And I would tell you that they are the actual results that come out, and then there's what you're hearing anecdotally. And for Q1 there's not too much to talk to with regard to specifics yet. But anecdotally we are hearing that there are companies out there who are pricing per-share, which is obviously not a good thing for our industry. If it in fact is occurring with regularity and frequency, that is a problem. The market leaders in this industry need to focus on that. If they down, then I think that this issue that has been with us for awhile is not going to go away anytime soon. That is my commentary on pricing. M.C., do you want to add anything to that?

No, Scott, I think that was extremely eloquent. I think that we have seen in the last several years the whole pricing per-share situation, which is just a bunch of cowards who -- even if they have the number one stations in the market, they refuse to be market leaders. That is a huge, huge problem for our industry. I yearn for like 10 years ago when you had people in this industry who really would go out and get advertising revenue that was appropriate for stations that were in the top tier. It just doesn't happen anymore. And it really hurts everybody. And even the stations that are in the middle, it just kills them. I have never understood why or how this happens because radio is such a great medium, and it works. So not pricing appropriately is just -- it is a real problem for the business.

With regard to your question on leverage, 5.87 times. Certainly it nis approaching sort of the high end of what we have historically said is our comfort range of 4 to 6 times. When we announced our buyback in the middle of last year we said that we were going to execute it over 18 months. It is a little more than six months since we announced it, and we're more than halfway through it. Our expectation is that we will complete the buyback by the end of the 18 month period. And we are cognizant of the fact that our leverage is sort of approaching the top end of our comfort zone. And we have said in the past that for the right strategic opportunities we would look to go above it. We certainly have a covenant that is above that.

And our cost of debt, even though rates have been rising in the marketplace, is still very attractive. And in fact we have some bonds on our balance sheet that are callable in the middle of this year that we undoubtedly can refinance at lower rates, maybe even as much as a couple hundred basis points all in. We are absolutely going to be prudent with regard to our balance sheet, but we're also not going to let it fundamentally get in the way of the right strategic things for our Company. Again, however doing everything with the understanding that we are in a rising interest rate environment, and that we are approaching the top end of what we have historically stated is our comfort zone.

Just a quick follow-up on the pricing issue, Mary Catherine, maybe. Do you think some of this is relating now to an increase of shorter length units, and advertisers sort of being unitary elastic?

Absolutely. Because if you are going to go out there and sell 30 second spots and only charge like 50 or 60% of what you were charging for a 60, then what you have done is you have turned an advertiser that would normally spend maybe $10 million across the country into an advertiser that spends significantly less. Yes, that is a problem.

Anthony DiClemente from Lehman Brothers.

I just had a quick question about your sales force. In an environment like is your headcount for your salespeople going up or down, and maybe you can comment and year-over-year and sequentially? And then what is the average compensation for a Radio One salesperson doing directionally? Is it going up? Is it going down? As I understand it that is like a third of your cost structure, maybe a little bit less. Can you elaborate on that?

Sales force I think -- I mean --.

It is about the same. It is --.

Yes, where we have under performed sometimes is because we're not at full strength on sellers and so we would add. But it is always our goal to keep call it 7 to 10 sellers on most of our stations -- most of our bigger stations. And in some places more, like Los Angeles. I think compensation for sellers, since it is a commission driven business, even though you may give them guarantees or draws, it is still 100% commission structure, should mirror what revenue does. If revenue has been flat or up 2 or down 3, than compensation probably on average follows that because they are 100% commission jobs.

Mark Wienkes from Goldman Sachs.

If you think about the opportunities for Syndication One, as you are calling it, could you walk us through the process of how you're sourcing the new content, how you think you might be able to leverage that talent online?

Interesting. We launched it -- one, we have got to look for new stuff. The Internet challenges -- the Internet and iPods and satellite challenge terrestrial radio, because a lot of us make a lot of money off of music driven formats, so we are music delivery systems. And we're good ones. And we've got dominant positions -- in radios are ubiquitous across the country, but it still it is what it is. So how do we differentiate ourselves?

The idea of a talk network came up because there was very attractive talent opportunities last year that hastened our idea to launch it. Plus we had a number of AM stations that we felt that if we put some decent talent on them and spread the cost of that talent over a larger network in order to afford that talent, that we could get better ratings and generate more revenue.

It really sort of all started when Al Sharpton was out deciding that he wanted to do radio -- do a radio program. And he was going to launch a show with another syndication company. That ended up falling apart, and we ended up doing a deal with him.

And then Mary Catherine brought to our attention the sports team out of Atlanta, where she lives, the Two Live Stews. And we introduce them to David Cantor at Reach Media. David loved them. I went down and heard them, loved them. Mary Catherine had already loved them. And we renegotiated a deal with their representative and the station they were on to make them part of this network.

So then we had Sharpton and the Stews, and so we had always decided we were going to have morning drive, at least on our stations, be the place where the local lightning rod does everything from politics to the school board to snow not being picked -- excuse me, trash not being picked up and snow not being plowed. So at least on our stations, and our mornings were going to local, that left the 10 to 1 day part open, so we needed one more day part. And our Vice President of Operations, Zemira Jones was looking around for somebody to do this, and came up with Michael Dyson who is an exceptionally well known in the African-American community -- author, scholar. He is a professor at the University of Pennsylvania. Has written I don't know how many books -- somewhere between five and ten. But well known in the black community. He is razor sharp. And that was the core of the network.

It is now approaching 20 stations, of which only six of them are ours, so it got great acceptance out the box. There are a lot of people out there that had these AMs and had nothing to put on them, particularly since a lot of the formats that have historically been on AM have moved to FM, like gospel. And so that is it genesis of it. We see -- we are very happy with it so far. It is early, so we don't know what kind of ratings we're going to get, but we are already looking at where we can support it more across our chain of radio stations.

Are you building a specific network ad sales force to monetize that?

No, right now that sales force -- that sales function is done for us by Premier, which is part of the Clear Channel Company. And they're doing a good job.

Laraine Mancini from Merrill Lynch.

I'm still a little confused about the expense growth. In 1Q, if I take out Reach, the 401(k) and the San Juan impact, I get about 3.5% growth for the quarter on a mid single digit call it revenue decline. Does that mean for the year 3.5 is your core growth, and we need to continue to layer on 401(k) expenses, so your expense growth maybe more like 4 to 5% for the year?

We're not providing any full year guidance. But with regard to the 401(k) it will be a new expense item for every quarter of 2006.

At a similar level as 1Q, or does that fluctuate?

That is a good question. That will be partly determined by participation in the 401(k) plan, but if you assume consistent participation levels throughout the year then yes, there should be some consistency throughout the year with regard to the expense.

In your 1Q guidance, and you comments on it suggested that part of the reasons that the revenue would be -- the revenue growth would be much weaker was because of difficult comps. Yet your comps get more difficult in Q2 and 3Q than they were in 1Q. Should we assume that that means core growth in 2Q and 3Q are going to be pretty heavily impacted by difficult comps as well?

Again, we're not prepared to give guidance for Qs 2 and 3 yet. So there's just -- this industry is continuing to book very late in the process, and so like everyone else we're focused on this quarter, and we will have more to say about subsequent quarters at the appropriate time.

I guess what I am trying to get at is that you had made comments earlier saying that you would like to return to out performing the industry. Yet 1Q you clearly think that part of the recent is more difficult -- part of the reason of the growth is more difficult comps than necessarily anything else. Does it mean that out performing the industry is more a long-term thing then a 2006 thing?

That is something that you're going to have to decide how you feel about our prospects. Us returning to out performing the industry is going to, and has always been, directly related to how fast we solve the operational challenges we have in the markets that I laid out for you. I can't tell you how long it takes to come up with an answer to Michael [Bassin] in the afternoon. That is the art part of it, not the science.

At the end of the day, one of the reasons -- you are correct in stating that what we stated was that one of the reasons we are under performing in Q1 is because of the more difficult comps. But That is absolutely not the only reason. Is it 30% of the reason, 10% of the reason, or 60% of the reason? I don't know the answer to that. So let's say it's one-third of the reason. That means that two-thirds of the reason are related to other things. And those other things are probably more in our control. They certainly are more in our control than the comps which are fixed. If we can in fact operationally address some of our issues, particularly in those markets that have more of an impact on our results, then yes, we do believe we can out perform for the balance of the year.

Justin Evans from Langley Capital.

Just wanted to get a share count as of today if possible. I don't know of you're willing to --.

98.7.

As of today, so you haven't bought any stock back since the end of the year?

We do not buy stock back when the window is closed.

We've got time for one more.

David Bank from RBC Capital Markets.

A quick one. I just wanted to know if you can give us some help allocating the FAS 123 expense between the corporate line and the operating lines?

That is a good question. I would assign about 40% to the operating line, and about 60 to the corporate line.

That kicks in first quarter on top of the guidance that we have been given -- the other expense guidance?

Yes, that is correct.

Operator, can you give call back information, replay information?

Ladies and gentlemen, this conference is available for replay beginning today at 1:30 PM Eastern time through February 24 at midnight. You may access the AT&T Executive Replay Service by dialing area code 320-365-3844, enter the access code of 816968. (OPERATOR INSTRUCTIONS)

This concludes your conference for today. Thank you for your participation and using AT&T Executive Teleconference. You may now disconnect.