Urban One Inc (UONE) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Radio One reports preliminary fourth quarter results. At this time, all participants are in a listen-only mode. And later, we will conduct a question and answer session with instructions being given at that time. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Alfred Liggins. Please go ahead, sir.

Thank you very much, operator. And thank you all for joining us for the fourth quarter results conference call. As we have announced in our recent SEC filings, our audit committee is conducting an internal review of our historical stock option practices and related accounting treatment with the assistance of outside legal counsel. As also was announced previously, the Company has received notice of an informal inquiry by the Division of Enforcement of the SEC regarding the stock option accounting review. The internal review is ongoing. As a result, we are unable to comment further at this time or take any questions regarding the review or any possible consequences of the review.

Joining us today is, as always, our Chief Financial Officer, Scott Royster, who will now read the Safe Harbor and then go right in to the numbers. and then we'll have some more color and then some Q&A.

Thank you, Alfred. This conference call includes other 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. Forward-looking statements represent management's current expectations and are based upon information available to Radio One at the time of this conference call. These forward statements involve known and unknown risks, uncertainties and other factors, some of which are beyond Radio One's control, that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

Important factors that could cause such differences include but are not limited to the timing, results and financial conclusions of the audit committee's review of Radio One stock option grant practices; the determination of other restatement items beyond non-cash compensation expense; tax issues or liabilities related to adjustments to the measurements associated with Radio One's stock options; inability to accurately predict revenue and budget for expenses for future periods or other factors detailed in Radio One's filings with the Securities and Exchange Commission. For the fourth quarter 2006, Radio One reported preliminary unaudited results that were disappointing on the one hand and encouraging on the other. While we underperformed the radio industry by 460 basis points, the industry was up 1.4% in our markets and we were down 3.2%. And while there were a number of markets, which underperformed, they were more than offset by outperforming markets.

Overall, the problems of Q4 can truly be isolated to Los Angeles. In fact, if our LA station had performed in line with the market, which was down 1.2%, we would be beaten the industry by 100 basis points. While things are hardly fixed in LA, we are hopeful that the turnaround of that station is finally underway. And as a quick snapshot of how we're starting off the year, while we are still underperforming the industry, if we back out LA's continuing underperformance, we are actually outperforming the industry by more than 300 basis points through the first two months of 2007. On a consolidated basis, net revenue came in at $89.2 million, down 2% from the fourth quarter of 2005.

As stated above, all of this revenue decline was due to the decline in LA. Other underperforming markets include Charlotte, Cincinnati and Philadelphia. Pockets of strength included Baltimore, St. Louis, Cleveland, Richmond and St. Louis. Atlanta, which underperformed the industry by 700 basis points for the full year 2006, actually outperformed by 60 basis points in the fourth quarter, and is outperforming by 340 basis points through the first two months of 2007. Total spots sold in the quarter overall increased by 12%, while the average unit rate fell by 14%, as pricing challenges remained prevalent in the industry.

Auto and healthcare were the two strongest categories, while financial and travel transportation were the weakest. The variability of growth in the radio industry was a bit narrower in Q4. For the industry, the worst performing market of all of the markets in which we operate was Dallas, down 2.4%. While Augusta was up more than 17%. Overall, most markets were up in the low single digits and it appears that smaller markets did better than larger ones. National was up 12% in our markets, while local was down just shy of 3%.

For the quarter, station operating income was $39.7 million, a decrease of 9% from 2005. Adjusted EBITDA was $33.5 million, also a decrease of 9% from 2005. The decline in station operating income and adjusted EBITDA were entirely due to expense growth at the station level, as corporate expenses declined in the quarter. Station operating expenses grew by 5.5%, driven primarily by a 57% increase in marketing and promotional spending across the Company, as well as growth in expenses related to our News Talk Network. These go categories alone drove 450 basis points of the 5.5% increase in station operating expenses, so 450 out of 550 basis points of increase.

Net loss applicable to common shareholders was $0.23 a share, driven by a $63.3 million valuation writedown of our radio stations in LA and Louisville. Slightly offset by an approximately $10 million after tax gain on the sale of our Boston FM. For the quarter, CapEx was approximately $5.2 million, versus $3 million last year, meaning 2005. CapEx for the year, 2006, finished at just under $16 million, up slightly from 2005's $15.7 million. As of December 31, 2006, we had debt net of cash balances of approximately $905 million. And our leverage ratio for bank covenant purposes was approximately 6.76 times, as we paid down debt at the end of the year with proceeds from the sale of our Boston FM radio station.

Thus far through February, the industry is up 90 basis points in our market. So business continues to be challenging, with local up 2% and national down 5%. And the outlook is pretty cloudy but we continue to be hopeful that the industry will steadily improve through the year, and we are optimistic that we can outperform the industry, especially if our performance improves in LA. With that, I would like to turn it over to Alfred who will give you a little more color and then we'll go on to Q&A.

As Scott mentioned, I call up 90 basis point basically a flat industry. However, pricing is down and it's unfortunate, I think, that it's due to a number of factors, continued pressure from the Internet industry siphoning dollars off of traditional media. But I also do believe that the move to shorter length spots has just quite frankly put more inventory out on the street and created downward pressure on pricing. And in hindsight, it has not created the desired effect of tightening prices because there's fewer minutes on the street but even though there's fewer minutes on the street, there are in fact more units. And I do believe that is causing more downward pressure in addition to all of the other factors associated with the downturn in traditional media spending.

If you look at our Company, x-LA, we're optimistic about our business. I have said that once we get LA fixed I think we can get back to outperforming the industry. We feel most of our markets, or many of our markets at least, have more upside than downside. We're investing in our brands in these markets that we think that we have upside in their markets. Specifically, LA obviously, Atlanta, D.C., Philadelphia, Detroit and Charlotte.

One such example is, we today have launched the Yolanda Adams Morning Show. Yolanda Adams is a huge gospel music star and we are the foremost owner of big market FM gospel radio stations. And she is based out of Houston, where we have a gospel FM that's actually doing quite there. She is the morning show there. We're syndicating it to all of our other gospel stations and that syndication has begun today. We'll syndicate this also past Radio One stations. And we have high hopes for this particular show and also the development of the gospel format. It's just one of the things, in addition to marketing our stations, that we're doing to improve our content and to ultimately gain more market share in the markets that we operate in.

An update on LA. We have hired the very, very best people to focus on this, from our Consultant Baird Mayo, to our new General Manager, Steve Candullo. I have given them all of the tools that they have asked for. We've relaunched the station December 29, renamed it; total new marketing position, total new look, new personalities. And the early returns, we have had one trend so far, and in the adult targeted demos that trend showed some significant growth against women 18 plus.

However, in our call-out research it is showing that the station is making tremendous progress, so we're hopeful that we're getting this thing turned around. I can't predict Arbitron but at least I know that when the station was doing poorly and was going down in the ratings, our call-out research told us it was actually doing poorly and going down. So hopefully, the call-out research is right again and it's going to be going up. Don't know how high it's going to go up but we feel pretty confident that we're heading in the right direction.

As far as divestitures go, that process has been long. However, there continues to be significant interest in the number of assets that we have. And we're sort of weeding through that process and believe that we'll be coming to some conclusions in the near term. So I don't want anybody to think that that is not still on the front burner. We just want to make sure that we make the right deals and we're not in any specific hurry or need to divest. It's something we just want to do to manage sort of our internal energy and manage our balance sheet. That's ongoing and we feel good about it.

And also lastly, before we go to Q&A. Our Internet strategy is coming to a head. We've really shaped what we think our Internet strategy should be in order to really optimize our success in that space. We're now out formulating the business plan and also interviewing and looking to hire people to populate this division. And you'll be hearing more from us on our Internet strategy over the next 45 to 60 days. But we are getting closer, and have been talking about it for two years not but it's just like our cable network, which is doing very well, we don't want to do it in haphazard way. And once we decide on a plan, we want to execute it and make sure that it has the best chance for success. So with that, operator, I'll go to question and answer.

[OPERATOR INSTRUCTIONS] Our first question will come from the line of Victor Miller of Bear Stearns, please go ahead.

Good morning, thank you for taking the questions.

Victor, did you have to get on last month in order to get up first this time?

Well--

Probably you have been on since this morning, since you just greeted with a good morning salutation.

We're happy you got on.

These things happen. It's morning somewhere. Talk about LA a little be it more. can you give us a sense, Alfred, where was the station at its peak, where did it go to in terms of its trough? And why do you think the second half is -- in the press release you talk about the second half being the gold there. And if it doesn't work out at what point do you say this is part of our asset sales?

Peak. The peak, I believe, I was discussing this with Scott earlier, I think it had a 3.8, 12-plus at its peak as a book. I think we got to a 4 share in a monthly trend but I think in -- an actual rating book was a 3.8. Then it kind of settled in to a 3 share to low 3's. And so, it was probably on average a 3 share radio station most of the time that we've have owned it.

The trough is now. It has gone down to basically a 1 share, 1/1 share radio station. So, the station has lost 2/3 of its audience. Now, the difference between how its positioned today and how it was positioned before. Before it was a hip hop and R&B station, so it had a lot of young-end audience. And so, a large part of that 3 share were 12 to 34-year-olds. So if we get a 2 share in this current adult format, all of that is going to be 25 to 54, which is a more desirable demographic. So, even though -- it will be a potentially lower 12-plus number than we have had in the past, it should be a more salable demo.

And why do we think the back half is -- what I mentioned earlier, is that the things that we're seeing. We can't predict Arbitron but we have got a tremendous marketing campaign, we're getting a lot of positive feedback in the marketplace. And our research is saying that the station is happening. And those are really the only things that you can go from. And advertisers want to see some movement and we did have movement in our ratings in the adult demos in the first month.

So if it doesn't happen, then we'll have to figure out what to do at that point. But we're committed to LA. We believe that we can turn the radio station around and I don't really want to think about not being successful there.

Alfred, just in terms of also peak to trough, what did that look like in terms of revenue and EBITDA from peak to trough? Can you give us any sense of that, so we can see the materiality of that?

It's huge, call it $20 million. On average $20 million of EBITDA down to $5. So it's a big -- look, last year's issue for Radio One was LA. Did we have some -- first of all, every radio group has good markets and bad markets. But if you throw LA into the mix and you lose $15 million of cash flow in a year-- actually it was probably $15 million of cash flow over an 18 month period. So, that's just a huge, -- on a Company with $150 million in cash flow, that's a huge number. So if that didn't happen, last year we may not have been --.

We'd have been much closer to flat.

Yes, we would have been much closer to flat, exactly.

Just a follow-up for you in terms of expense growth. It's obviously been tough to call on a quarterly basis. Can you tell us what we might see in '07 in terms of will it be more stable and what kind of level might we see overall? Thanks.

You know what? I don't want to go there because what I can tell you is that I'm interested, I'm focused on growing the upside. In order for us to be successful, we need to grow our top line. So we're not -- this is a Company that's historically run 50% margins. We're not going to grow our stock price and create value by cutting more expenses. So, where we believe that we have upside we're going to put money against growing those brands and we've formulated our budgets. We have not committed all of those expense dollars but they are budgeted. And I'm not -- that's kind of tantamount to guidance and I'm not going to commit to that at this conference call.

Thank you very much.

But thank you Victor.

Thank you.

Thank you. And next, we'll go to the line of Bishop Cheen of Wachovia.

Thanks for taking the call. Let's go back to LA again because that's where all the fun is. You have turned things around before. You know, first you get the ratings, you get the feel, you get the buzz, and then you have got to make the economics work. Once you are convinced its turning, when do you think you'll have -- how long before you think you'll have real hard evidence that the economics are coming your way?

Wow. Whenever we have gotten ratings, we have been able to translate that in to revenue. It's a question of how long does it take for that to translate. But I would tell you that '07 for LA is a get your ratings back. '08 is when you really see the significant revenue impact. We're not going to have our first full rating book to look at until sometime in April. And so that's kind of the year is almost half over. We have gone through our annual cycle already and so I think you really see the big revenue impact in '08. But you work-- let me put it this way, it took 18 months to two years to get where it is now. And it will take that long to get it back to where you are seeing, not only ratings, but you are also seeing a significant revenue and EBITDA increase.

Right. That makes sense. And then going to my favorite question the portal strategy, mutually exclusive, what you do with Black America.com or whatever you are going to use as the handle has nothing to do with LA?

Does our Internet strategy have anything specifically to do with LA? Our Internet strategy plays off of all of the assets that the Company is involved in and that would include LA. But if for some reason we weren't in the LA market, and obviously that's not contemplated at this time, but if your question is, is; Would our Internet strategy be effected if we weren't were in LA. The answer would be no. But again, we're committed to fixing the LA radio station and being successful in LA. So, I'm telling you that if we didn't own an radio station in LA we'd still go with the current Internet strategy that we're about to roll out.

I was looking kind of like timing, whether they're mutually exclusive priorities?

We're working on both of them at the same time.

Okay.

Yes.

That's the end of my inquisition. Thank you.

No problem.

Thank you our next question come will from the line of Marci Ryvicker of Wachovia Securities.

Thank you. Can you talk about how you are pacing in Q1 so far? I know that you said that you were underperforming your markets. And then secondly, you had mentioned that for your possible asset sales, it sounds like you are getting a greater amount of demand. Are you also getting better pricing for your assets?

We are getting -- put it this way, I don't think that anybody can say that they are getting strong demand for assets that they want to sell, particularly given the amount of inventory. But quite frankly, what we have to potential divest versus what is for sale from Clear Channel, our assets are the better assets in terms of market size and things of that nature. I'm not going to comment on pricing, but let's just say the conversations that we're having are at price levels that we would consider selling at and it's in markets that we don't deem as strategic, so we feel good about that.

X-LA we're pacing flattish for the quarter. And with LA, pacing down low single digits.

Thank you.

Thank you. And our next question come will come from the line of Eileen Furukawa of Citigroup.

Thanks for taking the call. A quick question. You talk about this quarter being similar to last quarter, where you are seeing units sold up but raised down. So I'm just wondering, can you give us an update on what your current utilization rate is for your inventory and where you think that ultimately goes? And do you think this trend is going to continue? And then secondly, turning to expenses, how much of that 57% increase in marketing and promotional spend would you say was due to the LA market? And also, it looks like in the fourth quarter your biggest increase in spend came in sales and marketing and is that a trend we should expect to continue? Thanks a lot.

I'll take that. Of the fourth quarter marketing number, none of it was LA because we didn't begin the marketing for LA until December 29. So, that was all Atlanta, DC, Philadelphia, Detroit.

You are looking for a capacity utilization number?

Yes.

It runs about 70%.

And do you expect that to continue to creep up as you see rate pressure?

Put it this way, I don't think that if you talk to -- and I'm not trying to be negative, I'm just being truthful here. I don't think if you talk to any radio group head that they are going to be at a point to a near term catalyst for the industry to create rate pressure. The fact of the matter -- and I think if you talk to any traditional media head, other than outdoor, which is doing well, but that's a real estate scarcity play, but the rest of us, whether we're newspapers, television or radio; are all being affected by the $20 billion that is going to the Internet.

And your question related to whether or not past utilization might increase? And the answer is, obviously, that depends on sort of demand from a macro perspective. But if you assume that rates are going to continue to decline as they have, yet the industry is going to remain flattish, then you should assume that capacity utilization will go up. That's the only way the math can work.

Okay. And then is the trend going to continue where your biggest increases in spend are going to be in sales and marketing?

Yes. That's where you -- I think you'll see our sales and marketing -- for '07, I freely budgeted for sales and marketing. I don't see salespeople as an expense and I don't -- yes, if we save $400,000 in the quarter versus not doing some significant marketing where we could actually gain some audience share, it's not going to change our stock price. What would change our stock price and create value is if we can increase our audience share and then monetize that. So, that's the decision I have made for '07. So I think as the quarters roll through, you'll see our marketing number be higher than last year.

Okay. Thanks very much. I appreciate it.

Thank you. And next, we'll go to the line of Jonathan Jacoby of Bank of America.

Thanks for taking the question. A few questions here. Can we start with going back to the fourth quarter LA. Can you give us a better sense of how LA performed? I think the guidance was -- the assumption, I think was that it would be down about 50%. Back of the envelope it looks like to me it might have been worse than that. And what I also want to get a sense on, when you talk about the 460 basis points underperformance versus the market, is that including or excluding the new stations that you picked up towards the end of the year? My second question is on the magazine that you guys purchased. How should we assume in terms of just an expense basis or cash flow basis how to sort of add that to our models?

On the magazine, don't know yet. It is definitely losing money. And we're just into it 2.5 months now. And the other thing about the magazine is that -- we're not going to sort of guide to how we think how that's going to impact our expenses at this point in time. But the other thing about the magazine is that it will be -- essentially, we didn't pay much from the magazine. And the way I viewed the magazine, was not just that we were going to the magazine business, but I was building the editorial staff for our online strategy. Because when you actually start to really program Internet sites, unlike in radio and television, you need people who are proficient in the written word. And so, it wasn't like we bought an asset for a lot of money and that's how I kind of look at it. And the magazine will ultimately rationalize itself for us online, as well as hopefully, as a print vehicle. But primarily, I see it rationalizing itself as an online opportunity.

Jonathan, LA was down more than 50% in revenue for the quarter, but it wasn't down 60%. So between 50% and 60% year-over-year. And yet the numbers did include Cincinnati but very small numbers relative to the whole.

Right. Okay. Thank you.

Thank you the next question will come from the line of James Dix of Deutsche Bank.

A couple of questions. If you could give any color of where you are seeing your stronger markets versus your weaker ones in the first quarter, kind of looking outside of LA? And then Alfred, you mentioned difference in power ratios between the younger, versus the 25 to 54 demo in LA. How would you quantify that? What is the difference in power ratio you see on a more mature basis just between those two demos? And how might that effect the monetization for LA?

Yes, that's -- half of the power ratio question is one -- it's too complicated for me to answer off the cuff because I don't -- I'd need to really dig into that more. But the point I was trying to make is that if you have a 2 share 12-plus and you are an adult targeted station, you are probably likely to have a 3 share of 25 to 54, which is a more sought after demo. And if you have a 3 share 12-plus on an 18 to 34 focused station, you are probably likely to have a 3 share, or a lower number, 25 to 54 on average because most of that 3 shares is made up of younger and less desirable demos, if you will. So, I was trying to say that we could potentially get back to the same amount of cash flow in Los Angeles if -- that we had with a 3 share if we got to a 2.5 share. So that's sort of what I was trying to say.

Okay.

James, for the first quarter, I think your first question was where are our pockets of strength? Five markets that stand out, and again this is compared to Miller Kaplan through February, would be Cincinnati, Columbus, Dallas, Indianapolis and St. Louis.

And then one last question. Just, in a market like Los Angeles if you try to normalize a little bit your marketing spending, what is the expense base for stand alone FM in a market that size, given the media costs, given the cost for talent and things like that? Just a range?

You picked a funky market. I would tell you that the average cost across the Company to run an FM radio station, I haven't done it in awhile, but it's like $3 million.

It's probably more than that right now.

That would be average. What market did you mention?

St. Louis.

LA.

I'm sorry I thought you said St. Louis.

It's more than $10 million.

Yes.

Okay. I was thinking it was kind of in the $10 to $15 range.

You're a pretty smart guy.

There you go. Of course I told it to you afterwards. Thanks very much.

Thank you our next question will come from the line of Benjamin of Morgan Stanley.

Let me throw two at you guys. First on Google's activities in the industry and with you guys, the two founders of dMarc walked away from some pretty serious earnouts, so that looks like it's not happening as quickly as Google would have liked. What are your thoughts on giving them inventory, their sales model, the idea of sort of cutting out the sales relationship and letting them automate some of your sales process?

I didn't see that. I didn't know the dMarc guys left Google.

Yes.

What are my thoughts? My thoughts are that I think it's crazy for anybody in the industry to give their inventory to Google to monetize at a lower rate than -- essentially what they want to do is commoditize the industry and take a commission on it. And I think the industry is doing a pretty good job on its own commoditizing itself. They don't need to hasten the commoditization by letting Google make it easier through technology. So we haven't even -- I haven't even considered it. Some people in our organization were high on at least listening to the proposition and have meetings but I have been negative from day one.

You don't buy -- just to play devil's advocate, I understand what you're saying. But you don't buy their argument that through their wizardry and algorithms they can better target ads and aggregate channels and sell them to more ads and more efficiently?

They can on the Internet but what has that got to do with helping radio?

Good point.

Put it this way, behavioral targeting is an online phenomenon. Selling radio spots, audio spots is-- there's not -- other than creating a marketplace, that people can do that online to make it easier, so you take out basically the salesperson interface, which I think is a bad thing. Okay? And I think what they really wanted to do was be able to create some soup to nuts, A to Z advertising solution that would allow advertisers to do online radio and something else and do it all with technology online through them. So they could get a turnkey solution.

Now, I read something somewhere, and I don't remember what it was, I sent it around to folks. Somebody did a study that talked about online campaigns that were supported by radio had better click-through rates and more effectiveness. I believe that radio, if we get our act together, has a real big opportunity digitally and online just because we have -- we reach 98% of the U.S. population on a weekly basis. We have the audience. And so, if we ever get our act together and figure out how to push that audience to some sort of online experience, I think that you'll see advertisers get better results and we'll be able to turn that in to a revenue stream. And that's what we're focused on.

Great. And if I could ask one question on your comments about shorter spot lengths. You seemed a little incrementally more negative on the impact on pricing this time around. I might be wrong there but that seemed to be the case. Do you think that the sort of the cat's out of the bag here? Last year we went from Clear Channel suggesting this and pushing this to the market, towards it being demanded by ad buyers. Have we gone so far down this road that this is the world that you live at this point in going forward? How do you manage this process going forward?

I don't know how you manage the process but Clear Channel definitely has created, on purpose, a demand for this from advertisers and you are starting to more of it. But I think in hindsight -- you had a honeymoon period where all of us, were, "that's great, if Clear Channel and do this and create more demand and it works for the advertisers." So we were all -- none of us were negative on it. But as we sit here now going into '07 and I look back, pricing continues to have pressure on it. And the fact of the matter is is that when you have shorter-length spots there's just more inventory on the street. And that can't be good for pricing and it's showing. Put it this way, they had a bounce-back year in '06. Right? They were down 10, I think, in '05 in their radio business. I'm quoting these numbers from memory, so I could be wrong but call it give-or-take. They were up somewhere between 5 and 7 last year and then they just gave guidance for down 0.5%. So, they are not getting any pricing power from less is more.

Yes.

In fact, net they are down -- they are not back to pre less is more.

Yes.

So as a tool to increase prices to advertisers, it seems to be a failure. And I'm just going -- I'm not inside their company, and I have a lot of respect for those guys and everything. I had a big meeting with our national rep firm, Katz, which is owned by Clear Channel, and they told us today that pricing is down. And so I'm just going by what the numbers are saying.

Sure. Thank you very much.

Or next question come will come from the line of John Blackledge of J.P. Morgan.

Thanks for taking the question. A couple of items. Firstly, on TV One, if you can just review Alfred the current number of target subs over the next couple of years and what major MSO's TV One still has to cut affiliate deals with? And if there's a monetization path for you guys or picking up more equity in the cable network over time? And then secondly, I'm just wondering, you have a lot of initiatives going on at the Company, and I know the core radio is going to drive the business and the stock but just wondering what your top two or three priorities are? What you are spending your time on over the next 12 to 18 months?

TV One is in about 36 million homes in terms of distribution. We're looking to kick that up over 40, '07. We still have distribution deals to close out with Echostar and Cablevision primarily. A small operator called Cable One owned by the Washington Post. We have deals with some charter systems but there's a few charter systems that are key and that are big that we don't have deals with. So, those are the primary distributors that we have some wood to chop and work to do. I am going to spend 80% of my time on our digital online strategy going forward because we haven't done much there. And I believe that we have a big opportunity. And just like I've spent a lot of my time getting TV One up and going, I'll spend my next chunk of time doing that. You had one more question. What was the question?

I was wondering if there is a monetization path for TV One over the next couple of years or if you would look to pick up more equity?

Yes. We do have call rights on the financial investors. And we have call rights on a number of the investors that are currently in TV One. Not all of them but a number -- I'd call it most of them. And we do have the ability to increase our ownership and it's an asset that I think the only way we -- two ways we monetize it. We obviously, the company, TV One, distributes out cash to the partners. It gets monetized that way. Or we decide to sell our interest. And there's no reason why I would see, anywhere in the near term or the foreseeable future, why we would want to sell our interest in an asset that's growing. Particularly, when we happen to be in an industry right now that's not growing. So I think we hold on to that.

Right. Okay. Thanks.

If not try to grow it even further.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS] And next we'll go to the line of David Bank of RBC Capital Markets.

Thanks, just a couple of questions. Most of them have been asked. The first one is -- I understand that revenue visibility is obviously limited especially with the LA situation. But Alfred, I know you shied away from it a little bit before. Could I get you to give us a little bit more color in terms of expense growth for the rest of the year, give that we're dealing with the magazine, we're dealing with the Talk Network? A bunch of things that in themselves are not probably that material but could sort of add up to something a little more material.

Yes. You know what? No. We're not going to give you any expense guidance. I tell you, because where I'm at right now -- the reason we launched the Talk Network is because we're trying to do something innovative to grow our audience. To do something new with -- we did it for mostly our AM stations to try to get a bigger share than we currently have. I don't know how long we're going to give that until we give up on it. We're certainly not there. We're enthusiastic about it. We continue to do it. So, if I give you expense guidance based on what I think our initiatives are now, then I've locked myself in to try and reach that guidance. And I don't want to do that. Right now, Alfred is locked in, I have got our management team locked in and how do we grow our audience and how do we grow our revenue? I have to grow our top line, I can't --.

Let me take another bite of the apple then, which is can you -- I know it's diminimus number again, but this is a business where like hundreds of basis points count and $3 or $4 million can actually be meaningful. Can you give us a sense of what you think the net of Cincinnati and St. Louis could potentially add to the top line for the year? And the second one, I know you've got to be able to answer for me, Alfred. I think Michael Basdin disappeared for a couple of weeks during the fourth quarter. And did that impact anything? Did it impact revenues and is there anything additional color that you have there because he's such an important part of the property?

Basdin didn't impact our revenues once we he was off the air. I can answer that question. And the other question is, we're not giving any guidance for the rest of the year. So, not an Cincinnati, not on St. Louis.

Thank you. And next, we'll go to the line of Laraine Mancini of Merrill Lynch.

Since we're so close to the second quarter and you're probably already booking business there, does it feel like there's any change in the trends in 2Q versus 1Q? And I realize that LA may be changing but on the core business, without any changes in LA specifically? And also, we have new Web royalty rates that were just released, is your -- I'm assuming that perhaps your streaming business may isn't relying so much on something that would be impacted by those rates if you're still planning on accounting a strategy within the next few months; is that accurate?

We have done the final calculations on the --.

We're stilling working on getting our arms around that and that's not final. Right Laraine? Those new rates.

It's proposed it's not ratified?

Yes. Based on -- all right, so I guess there's a couple of questions embedded there, effectively. Based on the traffic we get today, I don't think it's going to make that big of difference to our business even if the proposed rates end up being the final rates.

And there's a still a whole hunk of our stations that aren't streaming.

And there's a lot of stations aren't streaming. I think though, the other part of your question was with regard to the new strategy, how we might think about these higher rates? I don't think the next strategy is necessarily the streaming.

The new strategy does not rely -- it's not a streaming strategy. Streaming is not -- it doesn't rely on whether or not we stream. However, what it does -- what it is integrated with and contacted to, my thought process; is there a direct correlation between number of unique visitors that our website has and whether or not we stream? Because if our Web services division can prove to me that our unique business go up 30% everywhere we stream and we can monetize that, then I will stream every station. But that has -- we are just now starting to -- with this last budget process going into this year, I'm just really starting to take off the gloves on letting stations stream. I hadn't done that before but now I'm doing it. So we're waiting to see how that plays through in terms of increased traffic.

With regard to Q2, there's a couple of ways of looking at it. The numbers are looking, from a forecast perspective, better for the second quarter relative to the first quarter. If business continues to book late, as it has been doing for the last -- well, really for a long time, but let's just say the last couple of quarters, then Q2 actually might shape up to be a pretty decent quarter. If however, business doesn't materialize later, and a lot of people think it is just coming in later, then the second quarter may end up looking a lot like the first quarter.

So it is -- obviously, we're close to the start of the second quarter but as you know, to some extent, we don't really have a good feel anymore for this business until we're into the quarter. So I would say, in general, relative to what we're seeing, we think that the second quarter could be better than the first quarter. And I'm really talking macro here, I'm not drilling down to LA or anything like that. But again, we are sort of hoping and believing that business will book later. And if that materializes, then Q2 could actually be a decent quarter for the industry.

Great. Thank you.

Thank you. Our next question will come from the line of Bruno [Yan] of Citadel.

I just wanted to color on leverage and how you guys were feeling about leverage levels and what you guys were targeting?

Sure. So, we're at 6.76 times on a trailing basis as of 12/31. Our covenant is 7, that does step down at the end of the year. We obviously, -- we went through an amendment process a year ago to actually get the covenant taken up to 7 times and we bought ourselves some time at that level. A lot of things have come in to play here. Obviously, what does the core business do from a growth perspective?

And then more importantly, we are selling assets. We're going to sell assets for cash, we're going to use that cash to do a variety of things but we will be using some of that cash to pay down debt. Timing of when those deals close, obviously plays in to this but we are focused on getting our leverage down. I have always said that comfort zone is 4 to 6 times. I think over the years we have gotten more comfortable with modestly higher leverage, so you probably won't see us at 4 times. And if were at 5 times, I know Alfred would be kicking me for -- telling me, we've got to be buying back stock, particularly at these levels.

So, I would say that for the most part, living in this world right now at a 5 to 6 times range is probably a good place to live. And the further away you are from 6 in terms of below 6, the more opportunities you have obviously to be in the market buying back stock. But I'm very focused on trying to drive our leverage down below 6 times by the end of the year.

Okay. Great. Thanks.

Thank you. And there are no further questions at this time, please continue.

Thank you everyone for joining this conference call. We look forward to reporting further results to you in the future. And operator, if you can close us out, please.

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