Urban One Inc (UONEK) 2002 Q3 法說會逐字稿

Welcome to the Radio One conference call. You'll be in a listen only mode until we open for questions. At that time you can press star 1 if you have any questions at that time. The call is being recorded. If you would like to listen to the recording, dial 402-220-24 none with a pass code of 13901558. Again, 402-220-2491. With the pass code of 13901558 for play back. I'll turn the all to Alfred Liggins. Thanks for using Sprint.

Thanks for joining us. Before we get started E.Scott will read a little something here.

This conference call play include forward-looking statements within the meaning of section 21 A and section 21 E of the S.E.C. acts. Because these statements apply to future events, they are subject to risks and uncertainties that could call actual results to difficult materially, including the absence of a combined operating history with a acquired company or radio station, and the potential inability to integrate the acquired businesses need for additional financing, 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 in consumer tastes as well as restrictions imposed by debt anf future payment obligations. Important factors that could cause actual results to differ materially are described in the company's reports on forms 10K and 10Q and other filings with the S.E.C..

Thank you. Once again, we are happy to report strong results for our most recent quarter. Same station revenue up 13 and same station broadcast cash flow up 20%. In our press release I'm proud that our management team has weathered these uncertain economic times, as well as competitve pressures in some of our markets. We continue to post some of the best numbers in the industry. With me are Scott Royster, out CFO, and Mary Catherine Sneed, our COO. Scott will get into the detail, after which I'll speak to some of the markets that we have drawn competitors and we'll give guidance and then Q&A.

Thanks. Good afternoon. This quarter was solid consistent and predictable. Which achieved everything we set out to. Our revenue growth was strong as was our BCF stroke. Our cash free flow generation was robust. We saw increased competition in certain of our markets and managed through it and we continue to do so. Our outlook is positive and our management team is solid, focused and energy sized. All good things as we finish up 2002 strong and enter 2003 poised to continue to win.

Let me walk you through the quarter. The company achieved net revenue of 80.5 million, an increase of 22% from last year, 13% on a same station basis, and 15% on a pro forma basis. This growth was broad-based with every major industry category showing growth ever over last year and national outperformed local by two to one. Broadcast cash flow was $43.1 million up 25% overall, 20% on a same station basis, and a healthy 1-1/2 times faster than our same station revenue growth. BCF grew 21% on a form form basis. The overall BCF margin was 53.6%, up from 52% last year, and the same station BCF margin was 55.4%, up from 52.3% last year. It's also important to note that the incremental BCF margin achieved on a same station basis from last year was an amazing 79%. For this quarter, same station results included blue-chips in the month of September only, but did not include the two relatively new Atlanta stations which both commenced operations late in Q3 of last year. All of those stations will be in our same station numbers for the 4th quarter of 2002.

Continuing down the P&L, EBITDA was 39.9 million, up 24% from last year. Net income per share was 12 cents and net income attributable to common shareholders was 7 cents. ATCF, $21.6 million or 21 cent per share, and free cash flow was 19.1 million or 18 cents per share, up 77 cents and 87 -- up 77% and 87% respectively. For the nine month period, net revenue was up 24% to $218.9 million, broadcast cash flow was up 24% to 112.4 million. EBITDA was 104.4 million, up 22%. ATC F, $45.8 million, up 62%, and free cash flow through September 30, 2002, was $38.2 million, up 63% from the first nine months of 2001.

On to the balance sheet. We finished the quarter with a very healthy $65.9 million of cash on hand and gross debt outstanding of $650 million. Our leverage is now under 4.9 times and I calculate leverage is being gross debt divided by LTM pro forma EBITDA, and obviously leverage is significantly below that 4.9 times number if you net our cash against the gross debts. I expect we'll see leverage around 4.7 times by year-end, again, before netting the cash, and I expect our cash balance will be in excess of $80 million at the end of the year. Several things next year make the balance sheet picture even brighter. In our press release, we provided detail on several interest rate swaps we have recently entered into. These swaps have allowed to lock in historically low rate on on over 200 million dollars bank term debt for a minimum of 20 months. The upside, we have reduced our cost of debt by several hundred basis points and have minimized our risk to rising rates, which most economists think will be the case starting in 2003. In fact, since we entered into these swaps, forward rates have risen about 25 basis points, thus we expect cash interest costs next year to be about $40 million down from approximately $56 million this year. This will contribute greatly to our profitability and free cash flow next year and should allow us to get our leverage down below four times through a combination of principal payments which would start in 2003 and organic growth in EBITDA.

As for guidance, we are expecting another quarter of strong double digit revenue and cash flow growth in Q4. Several of you have asked about pro forma results for last year's 4th quarter. The answer, they are the same as last year's actual results as all current stations were owned and/or operated by Radio One during Q4 of 2001. The Atlanta station we acquired this year was being operated which us in Q4 of last year so it's in those numbers. Several have also asked about the seasonal nature of the business. We have always stated that Q4 is our second slowest quarter after Q1, with quarters two and three being our strongest, relating to the fact that we have numerous younger stations with stronger months between April and September, and also due to the latter half of December is often very quiet on the new business front.

For industry growth, for those expecting a much stronger Q4 relative to Q3, I would say that that is probably premature at this stage. We are causally optimistic, but continue to be concerned about the state of the economy and potential for war and what that could mean for holiday sales and consumer confidence. The comp from this past September was extremely easy which skewed the results. Our October was strong, mid-teens strong, but we are guarded about November and December, even though the early signs are pretty positive.

As for Q4 expenses, a few things. Firstly, we have more than likely overguided for expenses in Q4. We tending to into a quarter with a certain expense expectation and we look to operate well below that by cutting where we don't need to spend. If you compare our guidance for expense for Q3 versus our guidance for expense in Q4, Q4 is 1.8 million higher. A good deal of the difference is my being too cautious and so I apologize if it is somewhat misleading. With that said, part of it is the fact that we will spend incrementally more money on advertising and promotion in Q4 versus Q3 as is often the case as we look to build ratings for the fall book. Alfred can speak more to this if necessary. Another part relates to the potential for year-end incentive compensation cash ups that might not have otherwise been accruedduring the year. We make decisions on these types of things as we get closer to the end of the year and then only if we've had a good year, which this one has been for us. You always want to be more cautious in the last quarter of the year for these types of cleanup items. With all that said, we will work hard to keep our expenses generally in line with previous quarters, but there may very well be a sequential increase in spending in Q4, but it is highly unlikely that this increase will carryover into Q1 of 2003. So the number for Q4 of are net revenue of $76.9 million,an increase of 14% over last year, BCF of 37.4 million, increase of 14%, EBITDA of 34 .2 million, up 13%, ACTF you have 16 shares, and net income per share before preferred dividends and one time items, if any, of 9 to 10 cents per share up from a loss of 16 cents per share last year. We once again expect the growth to be broad-based and for national to outperform local all that that Delta continues to close.

Alfred?

Thank you. The expense question was something we got a lot of, but the other question we get quite often is how are we doing in the markets where we have competition particularly new competition. Those markets are Los Angelos, Houston, Baltimore and Richmond.

L.A., we count as a success story as most of you know. We bought the station, it add 2.4 share: We quickly got it up into the mid-3s. In last book it's been 3.3. That is primarily because it got competitive with did clear channel stations switching from R&B to Urban, and we felt pressure from that. That continues to be a battle. In Los Angeles in the 4th quarter is where we're spending additional promotion dollars. We're not going crazy because I don't believe in a you can spend a competitor out of existence, but what you do is you put new and exciting promotions on the air and you have to tell them about it and that costs money in Los Angeles, so we'll continue to do that to protect that franchise because we're still doing quite well in terms of revenue in that market in the 3rd quarter, we were up 14% in that market while the market was only up 12%. In October, we're pacing up 20% when the market is also pacing up 20% in Los Angeles and the market's up about 16% in November, we're pacing at about 13% to date. In December, the market is up 15% and we're pacing at about 13%. These pacings are very fickle because it is dependent on everybody reporting where floor at in the market at that given time an orders in all of our stations may be sitting on salespeople's desk, it may not be in the system, so the pacing numbers tend to fluctuate. They tend to go down in terms of the percent pacing over last year. We feel good about our L.A. situation to date. In the last book reranked fifth, 18 to 34. That is the target demographic. We didn't have a great 25-24 showing, but because the market is so crowded, that took us from 10th to 17th, but we could just as easily be back up to 10th. [ Indiscernible ] The clear channel stations, we beat them a lot, 18 to 34. In this book they barely beat is 25-54. In the month of September, we were up over August to a 35 and they were down to a 26. We feel confident about Los Angeles, led by the Steve Hardy Morning Show, which is the fourth ranked morning show in the market that was flat for last book. Morning drive probably accounts for about 40% of your revenue on a rating station. We have a great star that will be there for many years to come. We feel good about it.

In Houston, we're seeing the most competitive pressure there, is on KBXX, which is our young urban station. We had a station from Texas with a young urban format. It didn't register at all. One share. Not a factor in the market. They just put the format from urban to adult to compete with us. We think they'll do worse than that given the fact that that for format tends to be heavy office listening and they're coming into Houston with a signal that is 50 miles outside of downtown, so we don't think that station's going to do even as well as the 18 to 34 format. The Hispanic broadcasting station is where we're feeling the most competitive pressure. It is a station that existed and they got a power increase and they're popping that market, 2.8 share I think. They are ranked with a 4.0 share and we are rated with a 7 share, so we continue to dominate our demographic in that market. Our adult urban station is flat at third, 25-54, so it maintains its ratings. In terms of revenue, in Q3, our Houston stations were up 17%, the market 22%. In October, Houston stations pacing up 16%, the market's up 20%. November the market is up 27%. I'm not sure if that holds or not. We're up 19. This sounds strange and I don't know if this will hold, it probably won't, the Houston market is pacing up 41% in December and we are pacing up 45%. When we look forward in Houston as I mentioned also in L.A., we feel comfortable about our competitive positions and the revenue is actually telling the same story. In Baltimore, Maryland, we had what we felt was a great rating book. We think the competitive environment in terms of audience shares has stabilized. Our young station is number one 18-34. We have a 14.2 share versus our come.ter shall which is infinity, and they have an 8.4 share to be ranked number 3. WERT was also ranked third 25-54. Our adult urban station, WWINFM is ranked second 25-54 and that is flat in the last book.

As I mentioned in a number of conferences, we expect Baltimore to be flat to up 1% in terms of revenue this year, and we think that is a heck of a showing considering we took a direct frontal assault from one of the biggest companies in the radio business that's also very good and knows what they're doing, so in the month of -- in Q3, Baltimore, the market was up 11%, we were up 1% in October, the market is up 7%, we're pacing down 5, but I expect that -- that gap's not going to narrow, but in November the market is up 23% and we're up 10, and then in December, the Baltimore market is up 20% and we're up 34%. So I said that things are improving in Baltimore and they will continue to improve and so we're pretty happy about that as well.

In Richmond, clear channel has been the least affected in terms of all our competive markets. Q3, we were up 20% and the market 11%. So we outpaced the market by 2-1 there. The station that got attacked is number two in the market instead of number 1. We have the clear channel has a 7 six and we also own the number two, number 4, and the sixth ranked 25 to 54 rated stations in that market. So Richmond is doing exceptionally well for us. Those who continue to worry about our competitive positions as well you should, we give you as much information a as we can without violating any rules. With that information, hopefully you'll see what we see that things look pretty stable and we feel about our position. There's only six markets that we done have a competitor in and that's Cincinnati, Columbus, Cleveland, Louisville, Minneapolis and Raleigh. Markets that continue to do outstanding for us, Raleigh, Atlanta, Detroit, Minneapolis, we feel good going into next year, and we'll continue to weather the competitive storm and the economy is improving.

Other places that we're going to be spending money in addition to Los Angeles for Q4 advertising and promotion, Dallas-Fort Worth, where we've got a -- Dallas, we haven't gotten the ratings we wanted, although one of our stations is doing quite well, the adult urban station. It's more than doubled its ratings. It's got 2 share on the last book. Young and urban station we need more ratings improvements, so we're spending there. Atlanta, Georgia, we have an R&B/Oldies station we put on in December which we [OOPS] haven't advertisesed yet. The morning show talent had a noncompete for six months. When that ended we put him on the air and we're now advertising him. We're also advertising in Washington, D.C., where we have the Tom joiner morning show on WMMJ. We're spending money that the economy is improving in hopes of putting more distance between us and number two.

So with that, ... I'd like to turn it over for questions. Operator?

Just a moment. First question, Jason Healthstien with CIBC world market.

Thanks. That was a pretty good overview. Two things. First I guess if you could talk about one of the things that we do is we track the 12 plus ratings because that's really all we can get. To some degree, it's misleading looking at the ratings, so Mary Catherine, if you could explain that. As it relates to last year and the financials, the station you closed on 2nd quarter, those fees are below so that's why you wouldn't affect the comparison year over year?

That's right. They are effectively a financing fee so they're included in our interest expense.

You're right about the demographic. I can't remember if I've ever been on a sales call ever in my entire life where the demographic was 12 plus. Of course, it split up into teens and up in the age groups. 25-54 used to be the primary demo of the at one point, 80% of the buys were done based on that demographic. As the years go by, that has changed so much. Depending on the market, the 18-34 and 18-49 demo are garnering a healthier percentage of the advertising dollar which is great for us because we have a lot of younger and urban stations, and the demographic is 18-34. I will say in most cases, we win that demo in almost every single one of those markets. In many we're not just number one, there's a pretty nice distance in many cases between us and our competitors. 25-54 is the primary demo and we do very well in that arena, as well.

One of the things that always catches our attention is as competition increases, what we'll find in the numbers is everybody's ratings go down, but what's important when you guys sell is what your rank is versus your ratings may have declined 9% year-over-year, but if you're still number one or two in the demo that is effectively what you're selling off of?

You're right. Share is compressed. As we'll get better, more groups buy radio stations. Los Angeles,25-54 the station was ranked 10th. Four points of a share down to 2 6 ranked you 17th. The other thing that happened, people are really looking trend to trend and book to book and month to month. Advertisers don't buy like that. They will buy off of a book if they're going to place a long piece of business, they will make you average the last four books sometimes or at least two books. If they average two books, they'll generally make you average the spring book and the fall book. One of the reasons we're spending more money in 4th quarter advertising is the fall book is a very important book. Historicallyly, advertisers have discounted the summer book. I don't know if many do as much now, but there is one time that the summer book doesn't really mean much to advertisers, they throw it out. They thought the listening patterns changed because kids were out of school. People are starting to look month to month and trend to trend and we're guilty of it, too, and that is how advertisers buy radio. If that was the case, then our revenues, when the ratings go up 20%, then our revenues would go up 20% the next quarter. We all know that that doesn't happen, if that doesn't happen there's a considerable lag time.

Just because your ratings go down or get a new competitor doesn't mean that you're always going to lose revenue.

I think Baltimore is a good example for that. We have lost revenue at the end of the year, and we'll be flat to up in that market. Our folks have done a good job there. It's -- it has been anything but a disaster for us.

Even though your rating declined, did your rank change in Baltimore?

12 plus, yes, 25-54, yes, but 18-34, no. They're going to buy three radio stations in that market, so we're going to get bought, so really the question is how do we price it efficiently so we're getting some rate pressure there.

Thank you.

Next question, Kit Spring of Cyclon Nicholas. Go ahead.

Hi, guys, good quarter. Particularly I was impressed that there was such a large spread between your revenue growth and BCF growth. Was there anything one time in nature or was that just good cost control and secondly, Alfred, could you update us on your appetite for acquisitions? Sound like you're a little more cautious on the economy. Does that -- both in radios and other businesses?

This is Scott. With regard to your first question, we have been on record as stating that our internal grow is to grow our cash flow 1-1/2 to 2 times our revenue. We didn't achieve that last quarter, Q2 and we did achieve it this quarter, so the fact we achieved it is a reflection of our strategy, and it's something that you can't necessarily expect every quarter, but given that this is a high fixed cost business in theory and in most cases, you should absolutely be able to benefit from the operational leverage and grow your cash flow 1-1/2 times your revenue.

We closed on blue-chip a year ago August, and of course the environment has not been great to do anything particularly, going out and hunt for acquisitions, but I said in a number of conferences, we're really focused on key markets, mostly trying to get bigger, where we already operate, we have some competitors out there that we want to buy, there's some places where we've got one or two stations where we think we can add to that, there's a couple of big groups that we would like to buy that would put us in some markets that were not -- there's not going to be a forward acquisition pace for this company. We have certain assets and market we want to buy. Our first priority is to add to clusters, because we can get the most operational leverage and the best investmernt return for the dollar on that. We'll be disciplined and stick to that. Other businesses, the only other business that I've been interested in is the cable programming business, and I've been saying that now probably for three years, and as most of you know, I've been working hard to try to find a major one to be a partner with us that would give us distribution so we could launch a channel that would be only the second African-American target, and it's been challenge because the cable industry is in a very challenge these days. We'll be the right partner for one of these guys that will step up and do it. The reason we like that business, it hats two heavy streams, not a whole lot of competition in the niche that we're looking to target, and it makes sense in terms of the asset base that we have now in radio in terms of what we can leverage to be more successful than we might otherwise be in cable programming. The investment there will not be a significantly large investment for this company. But the return can be gigantic.

Thank you.

Next question, Drew Marcus of Deutsch Bank.

Thanks. A couple questions here. First, can you give us a sense, Scott, of what cost growth should look like or expense growth should look like in 2003? And then second, one of the roomered acquisitions out there is the Disney radio group. That would give you a great national platform to fulfill those multimedia desires. If that transpires, is that something that may be important to you an do you think that will change the radio landscape?

On Disney, we've got zero interest in the Disney assets. One, they don't have -- I don't think we own one urban radio station, so it would be a bunch of stations in a bunch of different format that we don't really do and a bunch of big news talk A Ms which reliy doesn't fit our profile. Two, it would be a stock deal. They had those stations since 1878, so whoever buys it is going to be very tax disadvantageous and we're very lucky that we're in the nonfederal tax paying position that we're in today. When we look at acquisitions we absolutely think about that and put that into our calculations. The only way I could see us being interested and involved in the Disney potential sale is if somebody like a clear channel bought it and swapped out some of the bigger stations we compete with like Philadelphia or Detroit or L.A. and replace them with the Disney assets. Short of that, it's not even our radar strength.

With regard to expenses for 2003, as you know, we have not provided any guidance for 2003 at all other than I best I referenced interest expense for next year. That is obviously something that is fairly easy to peg. We're going that our budgets now. I've said in the past that I'm a little concerned about certain costs of doing business, including insurance costs and personnel costs, healthcare costs, et cetera, so I guess I'm going to give you a broad range and say mid to high singles, but until we've refined our outlook for next year, until we're really prepared to put some more defective numbers on the table for 2003, I think I'll just sort of keep it at that. Obviously we still have a fair amount of work to too the next couple of months.

Thanks.

Next question, Tim Wallace of Bank of America.

Thank you. Alfred, could you talk about the opportunity in Atlanta? I know your ratings far outweigh what your revenue share is. If you could go into that a little bit. And then in terms of your spending in the 4th quarter in items of bid building your brands, how much of that is -- have you spent that money yet, or is that still to be spent, and if you did see business conditions changed, is that something you might change your approach on. The final question is in terms of what you're seeing in the 4th quarter, are you seeing anything yet that would reflect what I think a lot of people are thinking the economy is doing, in other words has thingsed changed on cancellations, any weakness you're seeing in those kind of things?

To and the last question first, no. People have been asking that for three months, are we seeing anything that's leading us to believe that the economy is going to get worse or sort of mirror what the news channels are saying that is the economic sentiment, and we're not seeing it and I don't think the other Radio guys are seeing it, but I'm not sure because I don't have them reported yet. Do you see anything on that?

No, I don't. The automobile sector is perhaps going to pull back a little bit on advertising, but so far we haven't felt that.

I also thought I read, didn't Ford say they were going to double their add spending?

I think that was misrepresented.

It was? I thought I said a report that said it was going to increase that order to build market share.

No, I think it was misrepresented.

Alfred, what I have heard from our auto analysts is that domestic auto companies are planning on -- they want to grow share, they don't want to do what they did in the last session was pull back, you might be reading something related to that.

In terms of the money that we've allocated some is already running, we have television campaign running in Atlanta. D.C. hasn't started yet. When the radio ad revenue was negative, we were spending to build market share in Atlanta and Detroit, so we don't plan to pull that back. I don't see anything changing all that dramatically that would cautious to do so. We need that in order to prepare ourselves for next year because we want to again outperform the industry in 2003 and those are the kinds of things you have to do. So we didn't cut to the bone last year when it was bad and we won't do it this year either. There was a third question.

That was on Atlanta.

Yeah. We still got 15 plus audience shares in that market. We had great ratings come back on our stations. One of the stations that we're spending on is in Atlanta, to get that from the 2 share that it is now up to 2-1/2 or 3 share if we can. We have dramatic revenue growth there. We finished doing their budget, and they've got some big increases next year and they feel very confident that they can do it, but the general manager started off the budget conversations saying I know with 15.2 audience share points that I should be able to do close to $66 million, but this is what I'll propose to do next year and look what a giant increase over 2002. We'll probably have two more years of hyper growth in that market, 2003 and 4.

That's great. On taxes, when do you anticipate being a cash taxpayer?

Probably starting in 2004.

Thanks.

Next question, Bishop Sheen of Wachovia Securities.

Hello. Very good presentation as usual. Let me go back to the balance sheet. Scott, you've done a great job of redecorating it in a lovely shade of green. Looks like it's going to keep going there. What do you do for an encore? I can certainly appreciate the fact that you want to be careful on acquisitions, we don't want to get sucked into a bad case of nolstagia, yeah, but there are so many ways you can generate growth, what about some of the other ways rather than just the preverbial acquistion?

Two of the acquisitions that we would make that would be dynamite for this company, one would put us in two new market and one very large market, Chicago, and would give us another station in Detroit and put us into a smaller market, but still a top 30 African-American market. The people who own these stations, they're not clear channel, infinity, cops, we think there is upside of bringing our knowledge and our resources to deploy on those stations in those formats, and their asset deals, you know, if we were able to ever buy our competitor in Dallas, he's a heck of an operator and he's kicking butt and he'll operate there as long as he wants to do it. Owning 360, 70 million dollar market that's 14% black, that is an acquisition that you keep dry powder for, so we have a few companies, select assets that -- I'd love to be able to do those kind of deals and not issue equity. You're building cash, cash flow is going, leverage is going down, you make smart acquisitions of your competitors, you have synergy and add back and then you don't pay taxes a couple years.

You would feel different about it obviously if you're stuck with 25% higher. You wouldn't feel different about using your stock as currency?

I wouldn't feel different about it. In the end analysis that, you know, you're still going to have the same either operating upside or not operating upside, you're still going to have the same tax situation based on, you know, the basis and it's all about ultimately how much free cash flow you're going to generate.

This is Scott. To some extent I have to disagree with my boss here. There's something to be said for being mindful of our credit rating. There's something to be said for being mindful of our multiple in the market, and I'm talking about your equity trading multiple relative to our credit rating, and so I think going forward, we as a company probably need for to be more sensitive to how the ratings agencies look to us. Before acquisitions we'd spend more time internally looking at those types of issues, understanding how credit ratings impacts multiples, because there is a relationship. We're understanding that more and more the more work we do.

That's not a disagreement. I do agree with Scott when I say I'd like to do acquisitions, not issue equity. Meaning I don't want to go out and buy a bunch of stuff to get bigger. I'd rather stock pile cash, get the leverage down, so that when we did those acquisitions we'd be at 4.5 times as opposed to running back up to 6 and still get a tax benefit. I agree with everything Scott just said in terms of us looking at our credit rating.

And I'm very focused on trying to get that improved because I think we deserve a better credit rating and if you look at our balance sheet, cost of capital, free cash flow and you just run some numbers out a couple years, there's no reason a company like this should have a revenue rating like we do.

What do you think the ratings agencies want on key ratios and when do you think they'll give you credit for it?

Well, we get some credit recently with an upgrade and then we were moved to positive credit watch at S&P I assume it's just more of the growth and consistency. They understand the model, they understand that it's got sustainability, and that there's no one-time element associated with that with our business, that this is a sustainable business model, you know, steady revenue growth, high margins, tremendous flee cash flow and that we as operators are very focused on deleveraging the balance sheet and managing prudently our free cash

So you think it's possible without pushing it and being overaggressive to say a 2003 event for --

I have no idea. Yeah, I guess that's a good personal goal for me.

And one last question. Cap ex for Q4

We're going to come in the year at the 10-1/2 to 11 million number. So I guess that means about three to 3.3 million.

Very good. Good luck on the cable channel. At some point, the world will go from channel cable rich to channel rich and program poor and it will need it.

Hopefully there still won't be one black channel. There will be 1 thousand channels out there.

In if a 500 channel univserse, they'll have two and three of everything.

Thanks.

Next question, Paul Sweeney of Credit Suisse First Boston

Always tough to follow the Bishop. [ laughter ] You talk about in L.A., we saw a weird ratings thing. The his pick lost a lot of share. Do you think some of the audience went to urban?

You know what, Arbitron is -- is a diary methodology, it's not perfect, it's just what we have. I haven't looked at all of your Spanish numbers, but if somebody lost half their audience, that didn't happen. Just like in one of the months, I'm looking at Steve's numbers, in August he had a 4 share, August, a 5 share. It's statistical variation. Is the Hispanic audience going to come back? Probably. Didn't the rock stations have a incredible book?

Yeah, it was crazy. In the top five K rock had generally good numbers and another one. They both replaced the Hispanic station. This is definitely an aberration.

In the month of July, KOS had a 3 share, May, 1 9 share. I don't think they were doing anything different. All of a sudden-- the station has been perfect renly -- all of a sudden it's up there.

Second you'd mentioned that either markets you're in where you don't have any competition at all, is there anything on the competitive front that makes you think that situation will change?

Even in Los Angeles, clear channel flipped that station, they're not winning, they're just making it tough for us. They're slow on our growth. That station doesn't have any higher ratings today when it was an oldies station. If somebody came in there, they would be another station doing okay and making life tough, they wouldn't wind. Cleveland is 18% black, probably a similar situation. Columbus, a similar situation, 14% black. Louieville is even worse. Raleigh, we have the top three stations in the market, Minneapolis is favor% black. So these are -- the only reason somebody does it is to make life tough for it. They don't do it because of the makes economic sense. Generally when we have been attacked, we've lost share, but have not been beaten.

Thanks.

Next question, Jim Boil of Wachovia.

Good afternoon. Mary have you noticed that there's any more or less rate cutting by your peers?

To me it seems like it's stabilizing. At the beginning of the year, people were scared and we were seeing it a lot more than we are right now.

How has rates in inventory sellout behaved in the last three month?

For us, it depends on the market. It's been a little bit tough to find consistency across our group. It depends on the market. What we've done like we always do is we really pay attention to inventory and make sure we're managing it correctly, so we haven't sold out without making a budget so far which is one of the first things we can do, so we continue to focus on that. I can't speak for other companies.

Could you give us an approximate feel for how much inventory you're going into the month sold versus a quarter ago?

It depends on the market. We have, for example, one market that I know if they go in even at 65 to 70%, they're going to pull it out? In other cases, you have stations that are going into the month. We've had stations going into the -- that have already made it, so it just depends. It depends on the market.

Have you noticed any cancellations in retail that's different from a few months ago?

No, thankfully. We haven't had anything significant in the cancellation arena. Hopefully that will be the case to at the end of year.

The West Coast stock strike hasn't caused retailers to sound nervous quite yet?

No

Victor Miller is next from Bear Sterns.

Good afternoon. Over 50% of your revenue comes from top 10 markets. The tone has changed, it seems. Is that true? Do you have any metrics on the pro forma, do you have any pro forma to use on the blue-chip plus the Atlanta stations? It looks like they performed remarkably well in this quarter relative to last year.

With regard to the performance of the stations that we didn't own for the 3rd quarter of last year, which was Blue Chip and the two stations in Atlanta. I would tell you that Atlanta is doing exceptionally well, and part of that is the two new stations with good rating and contributions to overall revenues. With regard to Blue Chip, I would tell you that Minneapolis and Cincinnati are probably the two best performest, and then you've got Columbus, Louisville, and Dayton, which are doing okay for mid-sized markets, Columbus and Louisville, both of which kind of were probably the two most mature markets in the Blue Chip portfolio. Dayton, we've made some changes in the format and what not. So, I would sort of characterize, I mean I would certainly characterize Atlanta as doing exceptionally well, 2 out of 5 Blue Chip markets doing well, adn the other 3 doing fine. I think addresses that part of your question, with regard to your top ten market comment, I mean we ran through some painting numbers with regard to LA and Houston. Yeah, right now, the pacings are pretty huge.

Atlanta is not doing great at all. It's not a top 10 market, but like 11th, but it's number six in revenue. For whatever reason, it's got slow 4th quarter pacing. But Boston's up big, Houston's up big, L.A., Philadelphia, Washington, Dallas. So the larger markets are rebounding at a pretty robust pace right now.

Thank you.

Next question, Greg Cools of Morgan Stanley.

Good afternoon. Most of my questions have been answered. I have two. I wonder if you can address the -- a lot of hype about inband on channel, which is expected to improve the signal of quality stations, and what you are cougar on that front, and what -- what you are doing on that front. And cap ex, what will that be. And secondly, a question for Mary Catherine, as you tend to maintain your leadership and your market dominance in your markets, but at the same time losing share as competition increases. And the CPM front, as the Ms go down the cost per thousand just tends to go up or is that sort of a gain you see sustainable in the long term?

That is the way I'd like it to play out. That is certainly the way it's played out in newspapers and television. I hope they don't treat us differently. The other thing also I believe that will happen is that we've got some competitive pressure now, but given the ownership rules in radio, and I don't believe that radio will get any further deregulation, we can't just keep taking competitors because the only stations that changed to urban to come after us are the ones that aren't doing so hot. Hopefully when clear channel and infinity run out of crappy radio stations and the only ones left are good ones, then the blood letting will be over so to speak.

Mary Catherine, did you want to address that?

I totally agree with Alfred. I thunk you're right on.

The difference between broadcast TV and radio -- I'll answer your other question in a minute, too -- there's 300 television channels. There used to be 300 three networks, now there's 300 cable channels. The threat from digital radio hopefully does not become -- satellite radio does not become as -- as real or -- as cable television was. In terms digital radio, we are launching next year a few markets, Los Angeles and Detroit, Dallas, what other markets, we took Miami over the list, L.A., Detroit, and Dallas are the main ones. It is going to make the signal quality considerably better. I don't have any idea what people plan to do in terms of trying to make money with the additional data capacity. I don't think anybody else knows either. I think having the increased signal quality is something that is important particularly given the fact that satellite radio is out there. Who knows what the satellite radio penetration is going to be. Again, cable television was radically different when it first entered the market, we programmed five channels on XM, and there's not much on that that we don't already program on terrestrial. We don't edit the curse words. On terrestrial, we bleep them out.

That's terrible.

It's not like you're getting sports or R rated movies which is what you could get on cable as opposed to broadcast.

You have no fears about the fragmentation element, if AM now suddenly becomes FM-like?

A, I don't believe it will become FM-like, it'll get close with you I don't think it will be exact. It will be a dramatic improvement over the current AM. But you also have to know it's a relative issue or perception issue. So if A.M. becomes better and becomes F.M. like, but F.M. becomes CD quality and the new standard is CD quality, so you don't know how the consumer will react to that.

Thanks.

Next question, James Morris with SG Cohen. If you're on mute, please unmute. Okay, next question, David Bank with RBC Capital Markets.

Thanks. I guess after another pretty credible same station growth quarter, the question I have, and I was talking about this in the past, but how much longer can you guys continue to produce double digit revenue growth kind of quarter after quarter. I realize you don't want to give guidance into 2003, but in general, can you do this for, like, several years, can you do this for another year, can you do this forever? How long can you do it for?

There are maybe three different answers that you're going to get here, but obviously the industry matters, and so I guess I could throw that back to you and say is the industry going to grow 5 or 8% for the foreseeable future. If it's going to grow 8, could we grow double digit for the next five years, yeah, we probably could. If it's going to grow five on average, then we probably got two to maybe three more years of, I would say three to 500 to 600 basis point outperformance. So ultimately you need to have a foundation that allows you to get closer to that double digit number, particularly the more mature your portfolio comes, but we think we can outgrow the industry by a couple to 700 basis points for the next several years, three to five years. What is your expectation for industry growth and that gets you to what our numbers will be.

Also, what opportunity we find. If we make acquisitions we'd like to and we add stations in markets that we exist in already and get higher ratings and higher rates and cutting expenses, we'll continue to give ourselves opportunities to do that.

In terms of manage can expectations, cops reported a strong quarter as well, so to some extent, the market saw from us a thousand basis point performance and they saw from us that that was not sustainable and this quarter we're very happy with, but to some extent, we've got other companies out there that are very good operators that are doing what we're doing. Our guidance is more aggressive, but I can't explain that. But at the end of the day, you're going to see a reduction in the death between our growth and the industries growth, but we believe that there will continue to be a premium in our growth for the foreseeable future.

Is Baltimore the only market during the 3rd quarter that you didn't outperform the market in terms of revenue growth?

Alfred was just going through a couple of different markets. We have 22 markets, some we outperformed and some we didn't.

Next question, Richard Rosenstein for Goldman Sachs.

Thanks. Two questions. One is given how strong your business is, is there any way you would have operated during the year, invested differently, competed differently, what sort of lessons have you learned over the past year in this environment, and second, what percentage of your revenue does auto represent right now, and how -- what has that varied with over time. Thanks.

I think I had mentioned earlier that even last year, we spent on advertising and promotions to launch new formats in Atlanta, new morning shows -- one in Detroit, so we never really cut that out because we needed it to grow our shares. Certainly coming into this year, which we thought would be better than last year, we you budgeted to run our business as usual. We said business is better than we thought so we'll throw extra dollars in here to set ourselves up for next year.

You're looking at our results relative to guidance. If you were privy to our internal budget, I think what you would find is we're pretty youy good budgeters and our business is right on top of our budget, so we thought the industry would grow 5%, we thought it would be closer to that, and there was the radio one premium on top of that. It's not as though this year is materially different from what our expectations were going into it. Looking at it nine months with the budget and it's very, very close. With regard to your question -- your other question, Q3, 11% for the auto dealers. That includes motorcycle dealers for whatever that's worth, and again, that's an extremely broad case, probably hundreds of clients around the country. It's probably ranged anywhere from call it 8 to 14 -- I think 14 is the highest I've ever seen in the last year or so.

Thank you.

Next question from Bill Mayors of Lehman Brothers.

Thanks. Given your increased advertising in promotional spending in the 4th quarter, would you consider capitalizing those?

Don't you go to jail for that? [ laughter ] It would be expense in the quarter incurred.

Thanks. I'll stop there.

All right.

Next question, Stewart Cagny of Morgan Stanley.

Good afternoon. Can you speak to any categories that you think are going to show incremental strengths going into 2003 and then I have a follow-up on the tax question.

Nothing really jumps out right now. We talked about this in our last call. Everything seems to be status quo. There's not one category that jumps out. As I said earlier, we kept hearing about this automotive situation, but so far none of our stations are feeling that. The one thing that we did institute and I think I talked about this once before and this was late last year, when we were a little scared about the automobile industry, at that point we were hearing some of the same things we're hearing this year, we actually put in place some pretty -- some programs that have been very successful actually for used car dealers, so I think that is going to be something for our company that grows. I'm not sure that it will for everybody. But I don't think there are -- I think everything looks like --. [ overlapping speakers ] [ overlapping speakers ] Pharmaceuticals is something we're committed to and working on, but it hasn't increased dramatically, but we really look for that next year. That would be 2003.

In terms of which categories are definitely going to increase, the advertising agencies and the client, they try to tell us as little as possible. They don't really share what their plans are with us, because if we know how much money that they have, then we can complain about how much we didn't get or if we know what they're going to spend on outdoor rather than radio or television, then we can explain about our share, so they try to keep us in the dark. Most of the add agencies hate it when we go and talk directly to the client. Our best -- our best information is usually historical, rearview mirror looking. They're not forthcoming.

I will say one thing, in the entertainment division, there are a lot of movies coming out. They're actually starting early this year for the Christmas season, and we'll probably be able to garner a pretty hefty bit of that revenue because a lot of them are young end movies like 12 to say 34, so that is one area that I think will do better than last year.

Okay, rather than delve in the tax issues now I'll do that off line. It's getting late.

Thank you.

Next question, Alisa Goldwasser of William Blair.

Thank you. I was wondering what if anything you're doing to combat competition in Houston. It wasn't one of the markets you indicated you were going to send some promotional dollars. I was wondering if you had any plans. Number two, can you talk more about your ideas on cable. Sounds like you'd be contributing the programming,if you can find a distribution partner, what kind of programming and why you think that would be pretty marginal.

I don't want to go into that right now on a conference call. I'd be happy to talk to you off line about some of what we view the marketplace is, but some of it is sort of proprietary from a competitive standpoint.

But your question about the expenses being marginal, this would be a separate company that would be off balance sheet, there would not be, you know, a part of Radio One, it would be something that would be funded by investors, including us. Our investment -- it would not be a large investment in comparison to our capital expense.

In Houston, what we're doing is promoting on air pretty much everybody in the market who's African-American knows about either magic or the box, probably Grew up listening to magic, and the younger demo definitely knows about the box, so we have on both stations specific promotions that are targeted to those demos.

Sounds like those are ongoing programs, nothing --

Both of them are new. They're new promotions that we just started about two or three weeks ago.

Thank you.

Next question, Mark of Merrill Lynch. Go ahead.

Thanks very much. Just a question regarding on the dynamics of the business. Have they changed at all, in other words, are clients -- clients continue to place their advertisement later and later in month and that is a different scenario that they've seen a year ago. Are you saying the same phenomenal and what are you seeing with respect to cancellations and how you're charging your customers for that as well?

I think it's gotten better. I think last year at this time we were starting to see people really place late. It's gotten better, but not like it used to be. You have to be able to turn on a dime these days and totally focus on customer service and get an order on the air. If the client calls you up and get it on the next hour, you have to be able to do that and we do

Is your visibility any better?

No.

I was talking to Scott about that, yeah, because the economy is better. [ laughter ] [ overlapping speakers ]

It's sort of a combination of when people are placing their orders as well as are confident in the numbers that our management is giving us in the field. Certainly when you look at certain ratios and look at the level of cancellations, which have been very, very low, that just gives you better visibility because you have higher confidence, but the business is still getting booked pretty late relative to the way it used to be.

If you're pacing, decreasing week to week, your visibility is low, if you're increasing, you don't raise your guides, but you feel really confident about your numbers.

One question for Scott. It relates to -- I think why some of the stocks had gone down today was the concept of seeing expenses between 3rd quarter going into the 4th quarter and the incremental margin from the revenue wasn't as high as people anticipated even though the comps were quite low, a year ago, I don't think people were spending as much money doing promotions. If we go forward a year from now, do you feel -- what would be in your view the incremental margin for dollar of revenue achieved?

I would tell you conceptually that it should be in the 70 to 80% range.

Scott and I were talking, because our expenses are projected to be higher in Q4 than they are in Q3, we don't ever ties and promote in Q3. That's not how you run a radio station. Throughout many, many years throughout my career, there were times when advertisers, buyers, they would throw the summer book away, don't even bring it in. So the thought of being on television, unless you change the for Matt, unless you're trying to push the consumer -- excuse me, you're not all that focused on ratings and advertisers, you're focusest on that you want to tell consumers that you've got a new morning show or new format, then you might do it in the 3rd quarter. But it's natural to have highers expenses in the 4th quarter than you do in the 3rd quarter. In 1st quarter you definitely have spending money.

The important point, a year from now, you're saying you still anticipate to achieve 70 to 80% increment on dollars coming through?

That is the nature of the business. At the end of the day, you increase revenue by a dollar, your direct variable costs that you can count on are with 20 to 25%, maybe 27 to 28% of that

Great. Thank you very much.

All right.

Okay, looks like there are no more questions at this time.

Great. Operator, maybe you can close -- Alred-- I just want to say thanks for your support and sticking around such a long call. Operator, if we can close it out with repeating the recording information.

Okay, if you'd like to listen to the playback of this conference call, dial 402-220-2491. With the pass code of 13901558.

Thank you.