Urban One Inc (UONEK) 2003 Q1 法說會逐字稿

Good morning, and welcome to today's conference call. All lines are going to be in a listen-only mode during today's presentation. We will be having a question and answer session at the end, and instructions will be given to you at that time. Now I thank you for joining today's Radio One First Quarter Earnings Conference. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the conference over to your host for today, Mr. Scott Royster, EVP and CFO. Sir, you may begin.

Thank you, Jessie. Good morning, everyone. Obviously I'm joined by Alfred Liggins, the company's Chief Executive Officer, and Mary Catherine Sneed, the company's Chief Operating Officer. I'm going to read some disclosure language, and then turn it over to Alfred.

This conference includes forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. Because these statements apply to future events, they are subject to risks and uncertainties that could actual results to differ materially, including the absence of the combined operating history with an acquired company or radio station, the potential inability to integrate 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, ratings, variable economic conditions and consumer taste, as well as restrictions imposed by existing debt and future payment obligations.

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

Additionally, on this call, we will discuss station operating income and EBITDA, which are non-GAAP measures. In accordance with recently adopted SEC rules, you can find a reconciliation from operating income for these measures in our earnings press release, and in the Investor Relations section of our website, at www.Radio-One.com.

Alfred?

Thank you very much, Scott, and thank you, everybody, for joining us for another Q1 conference call on our results, and as you know, we released results this morning, and we're very happy to produce yet another quarter of sector-leading results. Our net revenue was up 9% and station operating income up 13% on a same-station basis.

As mentioned in our press release, this was one of the most challenging quarters to date, due to the February snowstorms and the war in Iraq. However, I'm very proud of our management team's ability to significantly grow our top line, as well as manage our expense growth, to produce more than respectable operating profit.

I believe this quarter's performance should highlight this company's ability to fulfill our mission of maximizing operating profit while at the same time investing for the long-term viability of our station group. We had strong ratings performance across many of our markets, which we can talk about a little later in the call.

With that, let's let Scott delve a little further into the results.

Thanks, Alfred. We are generally happy with our first quarter results. Net revenue increased 9%, to approximately $63.4m, while station operating income, formally known as “broadcast cash flow,'' increased 13%, to approximately $29.1m, and EBITDA increased 12%, to approximately $25.9m. GAAP net income was approximately $6.9m, or seven cents per share.

The dynamics of this quarter are evidenced by the dramatic decline in revenue growth from January to March. The year started out exceptionally strong, with net revenue for Radio One up 16% in January. February moderated somewhat to 10% growth, and March ended up just under 3%.

Our performance mirrored that of the industry and our markets in general, albeit with a modest level of out performance in all three months, with the total out performance being approximately 400 basis points.

Weather notwithstanding, the only thing that we can see that changed between the first six weeks of the quarter and the last six weeks of the quarter was the build up to the war and the war itself. Thus, it is very hard for us to blame anything other than the war on these industry dynamics.

Moving down the P&L, strong expense management, which Alfred alluded to, allowed us to show good operating leverage and growth in station operating profit of 13%. The station operating profit margin also increased nicely, from 44.3% last year to 45.9% this year. Corporate expenses grew in line with expectations and guidance, and even though the growth was in excess of 20%, you will note that corporate expenses were below the level of Q4, 2002. Nevertheless, we still expect corporate expenses to end in a range of $14m to $15m for all of 2003, primarily driven by the new costs associated with every CFO's new friend, the Sarbanes-Oxley Act.

Interest expense fell dramatically, as we had our first quarter operating under our new, significantly lower interest rate structure. The details of the costs of our various debt components are included in the press release. The current interest rate environment, coupled with the interest rate swaps we entered into late last year, allowed us to reduce interest expense year over year by 38%, to approximately $10.5m in Q1. Assuming interest rates stay stable, our interest expense should continue to decline modestly, as we pay off debt, particularly if we make those scheduled payments out of free cash flow, as we did at the end of Q1, when we made a $13.1m scheduled principal payment against our bank term loan. We will make another at the end of Q2.

We had net income of seven cents per share and net income attributable to common shareholders, after preferred dividends, of two cents a share, both numbers above our original Q1 guidance.

For those of you interested in calculating free cash flow, as opposed to providing that number in our press release, given the myriad ways I have seen it calculated by different companies, analysts, and investors, we have tried to provide you with the various components for your own analytical purposes. Thus, you will see the deferred taxes were approximately $4.2m for the quarter, basically the same number as the total tax provision, as we're not a cash tax payer on a federal basis. Amortization of debt financing costs and other non-cash interest components were approximately $.4m, which is otherwise included in the interest expense number on the income statement, and capital expenditures were approximately $3.2m.

Once our first quarter 10Q is released, you'll be able to find other components of our financial results on the cash flow statement, for those of you who are working-capital focused, with respect to free cash flow.

Turning now to the balance sheet, we continue to de-leverage through EBITDA growth and debt pay down. With cash in excess of $80m, and debt of approximately $637m, we are currently leveraged under four times on a net debt basis, as LTM EBITDA was approximately $141.7m. If you were to annualize this quarter's interest expense, you will see that interest coverage under our current debt cost structure, which is heavily fixed, would be well north of three times, thus we are very happy with the state of our balance sheet and hope to show continuing declines in leverage in the upcoming quarters.

As for the second quarter, we, like our counterparts at the other radio companies, are struggling with a pretty tough environment and our relatively uncertain guidance reflects that. At this time, we can only provide you guidance for revenue growth that should range between up low single digits to down low single digits. The markets in which we operate were down low singles in April, our pacing down high singles in May, and pacing down low singles in June. While it appears that there is more stability in the business over the past couple of weeks, there are not any tangible signs of extensive robustness. There are, however, pockets of growth spurts, which give us hope for an eventual pick-up, perhaps before the quarter is over.

We, like the other broadcasters, also must own up to the fact that during the soft months of March and April, we layered in our business for Q2, and in particular, May. We layered in business, excuse me, for Q2 and in particular, May, which was priced well below that, that we would have otherwise been able to sell inventory in a more normalized environment. Thus, when you look at sellout rates, which in some cases are pretty high, please note that that only addresses the Q side of the ledger. If the P side is weak, then our business is not necessarily as strong as it could otherwise be. The good thing is, if fundamental demand stays solid, we should be able to move pricing higher and bring the equation back into balance and return the business to its previous health.

We do not believe that the radio industry has any fundamental pricing problems. We do, however, know that the radio industry is facing near-term pricing issues, which I think every radio executive in America is focused on.

With that said, as we look at the very early pacings for July and August, our markets continue to show growth in the low single digits, reinforcing what others have said about bookings coming in very late and uncertainty continuing to persist. Thus, in the mean time, we are working hard to control our costs and have taken fairly significant measures within Radio One to moderate our cost growth, including the recent implementation of a hiring freeze and not giving merit increases that were scheduled for April 1st of this year. We continue to watch the business closely, monitor our inventory pricing, and judiciously allocate our capital only to those areas where we think the returns are greatest.

With that, I'll turn it back over to Alfred.

I mentioned before we had strong ratings performances across a number of our markets, most notably Dallas, where we just launched the Steve Harvey Show. It was actually on for four to six weeks, actually, out of the book. I had mentioned on the last call that I was hopeful that, you know, we could get to a four share with that radio station. We actually got a 3.9 share on KBFB in Dallas, so very excited about that. Our position continues to improve in that market. We're now sixth, 18-34, just a hair behind the fifth-ranked 18-34 station.

Washington, DC, turned in a great performance. WMMJ, our urban AC in that market, is actually number one, 12-plus in the market, with a very robust share.

Atlanta continues to be solid. We have about 14 total share points in that market.

We had strong ratings performances on two stations in Louisville. We turned in a great performance in Cleveland, Raleigh, Houston, Detroit, Indianapolis, Philadelphia, and Baltimore, so we're very excited about our continued ratings strength and think that's going to help us continue to perform into-- well into the year.

On the acquisitions front, mergers and acquisitions are going to be soft. I've said that at a number of conferences. There is, you know, one, maybe two, situations that we're actively pursuing, both in the smallish dollar categories, nothing large. We're sort of in the operational and clipping coupon mode right now, which is actually a pretty comfortable place to be, as we get an opportunity to really focus on the nuances of our business, of how we continue to improve operational execution. So, that's pretty much it on the M&A front.

Mary Catherine, do you want to throw in anything in terms of operations?

No, no thank you, Alfred.

OK, Jesse, we'd like to open it up for questions, please.

Thank you, sir. At this time, we'll begin the question and answer session, and if you would like to ask a question, please press star one on your touch tone phone. And once again, if you would like to ask a question, please press star one on your touch tone phone.

Our first question comes from Kit Spring from Stifel Nicolaus.

Good morning, guys. Great quarter. My question is, if-- my question is, did the Dallas syndication of Steve Harvey result in a decline in the ratings in Los Angeles? Do you think you can syndicate Steve Harvey into more markets? And what is Steve Harvey's contract structure and length? Is this profitable? How long can it be profitable for? And then the second question, for Mary Catherine Sneed, why do you think radio is recovering a little bit slower than some other media?

I'll handle the Dallas issue. No, actually, if you pull apart the month in Los Angeles, the station actually- you know, books go up and down, and LA, you know, has been between the 3 and 3.5 share range for a while now, so that station actually had a pretty decent book prior to the one that just came out, and it actually declined the very first month, into the new book in January. So it was pretty even, February to March, in the morning, so we don't attribute that to the Steve Harvey syndication. It has yet to be seen what that ultimately- how the syndication affects our Los Angeles radio station.

Steve Harvey can absolutely be syndicated into more markets, whether they're our markets or other companies' markets. We've gotten requests from other companies to have the show. We're most focused right now on essentially getting Dallas and Los Angeles working in concert, because there's a lot of upside in those markets for us, before we really turn our focus on to putting that show into other markets. It's coming along pretty rapidly, so I don't think it's going to take forever, but the early prognosis is good. I'm not going to talk about Steve's contract on a conference call. It's a multi-- it still has a number of years yet to go on it, we felt good about locking down him as a talent. It is, you know, it's not an inexpensive contract, but it is what it is for the next, you know, call it three years, and it will not adversely impact our cost structure, at this point. It's already dialed in, and you know, there won't be any surprises. Mary Catherine, you want to-

Yeah, I actually don't know why radio is recovering more slowly, and you know, if I did, I would fix it, or try to fix it. What I can say is that those dynamics do seem to be varying from market to market and from local to national, so that's about all I can say. There aren't any excuses. I mean, I know there are a lot of things out there in the press that seem to be excuses, but I don't think there's any one thing that I can pinpoint.

Thank you.

Thank you. Our next question comes from Bishop Sheen with Wachovia.

Hey, good morning.

Good morning, Bishop.

Great recap. Let me just ask a couple of questions on the balance sheet. I'm sure everyone else is going to interrogate you all about growth. The availability that you have now, or March 31st, Scotty?

The availability under the revolver, Bishop, is $350m.

OK. So you've got dry powder up the yin yang. You're touting around more than $80m in cash, and if I kept score right, the only thing still pending is like a $9m outlay in Dayton, still yet to be done, and-

No, that deal--

That's closed? OK--

No, I'm sorry, we are operating that station under an LMA.

Right. But I mean, there's $9m to settle it up, once the deal does close--

Uh-huh, yeah.

OK. And maybe, I don't know, $15m, $20m to go out the door toward the cable network venture, in calendar '03?

Probably a decent number.

OK. And that's it. That's all that--

That's all that we have announced.

OK, so, I mean, you're just perfectly willing to sit there and wait, with lots of cash and lots of dry powder, and just don't do something, but stand there?

Yeah, for the most part, Bishop, because at the end of the day, you know, we do expect at some point that the M&A environment will improve, and because our balance sheet is structured in such a way that we have bonds that are not callable and we have term debt that, if we were to pay it down early, you know, we would effectively have to go back to the bank market prematurely, if you will, because we can't get that capital back. That's not like a revolver, and because our bank deal is priced so well and because the bank market is so difficult right now, the way we sort of look at it is, let's not have to rely, frankly, on any market, debt or equity, for, you know, financial flexibility and capital availability in the future. So while, I think, you know, the genesis of your question relates to kind of the negative spread or the inefficiency associated with carrying so much cash in an extremely low interest rate environment, where the returns are, in some cases, under 1% on cash, you know, I guess the-- that's a near-term issue but again, it gives us long-term financial flexibility to just sit on the cash.

Now, the other issue that we have, and maybe this is sort of reading between the lines to your question, is we have a convertible preferred issue that becomes callable, you know, starting in this July.

Exactly. It's expensive in July, and par drop, you know, almost a year from now.

Yeah, and also, you know, the stock has done well and the conversion price of $18.73 is sort of within striking distance, if you will, and of course, Entercom just did their convert, and I guess, you know, roughly half the investors took cash and half took stock, so you know, we think through all those things as well in terms of capital needs in the future, in the intermediate term, beyond just M&A.

Well, it's certainly is a nice uptown dilemma to have. OK, that's great. Thank you.

Thanks, Bishop.

Thank you. Our next question comes from Marc Nabi from Merrill Lynch.

Thanks very much. Just had a couple of questions maybe for Alfred regarding the channel that you're going to do, along with Comcast, and also one for, on the side of equity losses associated with that as well. You know, I thought that we would put some in the first quarter, but I guess what's going to be the timing of those losses that get put onto Radio One's income statement?

That's actually a stock question.

Yeah, with regard to timing, the deal that we announced in January was basically an announcement off of a very detailed term sheet. We've said in the past that, you know, there is a bit of process that we have to go through to get into definitive documentation, as well as, you know, there were some other investors that we were looking to line up for the channel. We've effectively done that latter part, in terms of additional capital commitments, and Alfred may want to speak to that, and I'm not sure, we may hold off. And then with regard to definitive documentation, we are probably 30-ish days away from that. And so that will then allow us to form an entity and actually start to put capital into that entity, at which time, when that entity is starting to operate, we will then obviously take our pro rata share of the results of that entity, so that's the status.

In the interim, obviously, you've seen that we've hired Johnathan Rodgers as the channel's Chief Executive Officer, and the way that we are accounting for this is on our balance sheet, what little capital we are utilizing to basically keep this thing moving along, is a balance sheet item, and it's an investment in basically a cable channel opportunity.

And, you know, we are moving along, even though the documentation is taking a little longer than we had hoped. We are right in the middle of actually trying to finalize that -- today and tomorrow are big days on that, just really kind of sitting in a conference room, trudging through a lot of stuff. However, the progress on the channel is pretty good, because Johnathan has been here, full-time. We're sourcing people, finding-- filling positions for our top executives at the channel. We just recently also announced we hired a head of affiliate sales, a guy named Bernard Bell, and we're making-- we're even starting to talk to some of the other operators. We've gotten good response thus far. Found some additional interim office space here, in Radio One headquarters, in beautiful downtown Lantham, Maryland, those of you who have been here. And feel generally really good about it. I feel better about that channel and its upside today than before, even when we announced the deal, because I've also had the opportunity to interact with Comcast people even more, and at a more complete level, and really see and feel their passion for this opportunity as well.

And Alfred, you've been involved in the hiring decisions of the programming talent, potential programming talent, and things of that nature?

We haven't hired any programming talent yet. We actually have engaged a search firm to hire, to find, a head of programming and head of ad sales candidates, and yes, I will be involved in those decisions.

Great. Thanks very much.

Thank you. Our next question comes from Andrew Marcus with Deutsche Bank.

Hi. Good morning, everybody. Two questions. First, for the second quarter, I'm assuming margins, or operating margins, or EBITDA margins, will compress, given the revenue guidance, and even though you're doing a good job on the cost control, I can't imagine you can get it down that much. And second question is, can you give us a sense of the sellouts from [interim].

Your first question was actually a comment, and I'm not going to comment on your comment, because we obviously have not given any guidance beyond the revenue guidance that we gave. And again, I mean, you're second, and Mary Catherine may want to address this as well, with regard to sellout, it depends on the radio station, it depends on the market. I would say, you know, in general, we're probably 80-ish plus percent, but again, as I said in my comments, that's the Q part, that's not the P part, and I think MC can confirm that, you know, pricing overall is down, so even though sellouts are high, in some cases, it may be some stations that are completely sold out. Unfortunately, the pricing was not as robust we would have otherwise liked it to be. MC, do you want to build on that at all?

Yeah, and let me just say that because you're sold out doesn't mean that you can't bring in more revenue, because you know, you can be very creative. That's the great thing about radio, so they're also a lot of other ways to bring in revenue, when, you know, all the spots are gone, and we know how to do that, and we are doing that, so let me just say that.

I do think that generally we are good inventory managers, and we probably didn't do as good a job as we normally do, but I think you would have needed a crystal ball to have done that for May. June is fine, though. May is very tight, though, in most of the markets.

OK, thank you.

Thanks, Drew.

Thanks, Drew.

Thank you. Our next question comes from Victor Miller from Bear, Stearns.

Good morning.

Hello, Victor.

Good morning. On programming technical, programming technical was up about, I think, about 9.7% for the quarter. Could you just talk about- maybe a lot of that's related with the rollout of additional Steve Harvey shows. Secondly, there has been a bit of a controversy on selling brands versus clusters. You guys have always said that having a cluster is important competitively, but you've always had a brand, the urban brand. So how do you look at that, in the opinion of-- your opinion on selling brands versus clusters? Thanks.

That's a good question, because there is a controversy, and-- brand versus clusters -- I would like to think that even in a cluster, even if you're selling them together, you just happen to be selling three, four, or five different brands, and the industry hasn't commoditized to that point. We have pretty much subscribed to the theory, separate sales staffs are better. We have combined sales staffs when we've had weak radio stations, and weak radio stations-- and that's pretty much the only time that we philosophically have said, all right, a combined sales staff or combined sales effort is better, and that's because the stand alone station that happens to be weak won't get on the buys, and we're essentially giving it away, and sometimes that works.

However, if the station has any sort of presence at all, any store, any position, we generally believe that you're better off having a separate sales effort, and it's not because it's brand versus cluster, it's basically because you've got, you know, three, four, five, or ten people focused on and having their economic fortunes rise or fall based on the sales performance of that particular radio station. And that's generally worked for us, and we have been facing cluster sales efforts, you know, primarily from Clear Channel, in places, and I frankly do believe it hurts pricing, because I've sold radio long enough to know when you walk into a buyer's office, and you want her to buy something that she doesn't want to buy, or he doesn't want to buy, the tipping point is price. You know, “give it to me at a reduced rate, and I'll give you share.'' But that's how we view it; we do believe in clustering. I think the biggest benefit from clustering is the ability to control inventory rates and also the ability to control your expenses because you don't need two or three general managers and you don't need two receptionists and things like that. But yeah, sales people should not cost you money; they shouldn't be an expense. They should certainly pay for themselves.

Yeah, I'd like to say something about that, too, because the clustering news bulletin is actually something that really surprises me, because clustering is not new. I mean, before we had consolidation, we had AM and FM stations, and most of the situations I dealt with in the past have been AM/FM, and it is clear that if you sell the stations together, then one station is just-- does get discounted, and that hurts. And so the first thing that we do is generally we've got the mainstream station in the market and the urban AC station. The first thing we do is separate those stations formatically, and then from a sales standpoint, because sales people have to have the courage to be able to go in and ask for the rates that they deserve, and in most cases, they do deserve the rate that they're requesting. And if you've got a pile of stations and one sales person going in with those stations, somebody's going to get the short end of the stick. When you have dedicated sellers, that does not happen, and so all this controversy, to me, is actually-- it's kind of funny that it's become the new excuse. But we do, as Alfred said, we do see that in a lot of our markets with Clear Channel, where they do go in and bundle everything together, and it has hurt the radio industry, but it's sort of surprising that all of the sudden, people are just now figuring that out.

And on the programming technical cost growth?

Yeah, it's a good question, although I'm not sure there's all that much that you could read into it, because it really is spread around a fair amount, but let me hit a couple of what could be fairly significant components. I mean, it's only about $1.1m. But keep in mind that Satellite One, which is our XM Satellite five station relationship, or five channel relationship, is all, for the most part, all of those costs are programming costs, because that's what we do, is we provide them with programming, and you know, we've sort of ramped that up a bit last year, as it appeared as though XM was, you know, going to be getting more and more traction in the market, and so we've invested some dollars there. And so some of the growth is probably that-- is not probably, is that.

And then with regard to-- you know, we've got a couple of big personalities that have contracts with some fairly significant percentage and/or dollar increases, Steve Harvey being one of them. There's a gentleman in Detroit who is another significant personality for us, and then in Atlanta, of course, the big ramp there over the course of the past year has been on the programming side. As the ratings have gone up, obviously, they're just higher costs associated with any compensation, ASCAP BMI fees, that sort of thing. And then overall, I think we had good, fairly good, year-over-year ratings growth and so you know, that's also going to trigger bonuses and trigger higher costs that are variable and are tied to ratings performance.

Thanks very much.

You're welcome.

Thank you. Our next question comes from Paul Sweeney with Credit Suisse First Boston.

Thanks very much. Good morning, everyone.

Hey, Paul.

Maybe a couple of questions for Mary Catherine. You know, you mentioned in the press release the big swing in national from January and February into March. What are you-- and I just gauge by some of your second quarter guidance that we have not yet seen a snap back in national, so my question to you is, that-- should we really look at that as the trigger for your business? Do we assume that your local business was pretty solid and that it's-- we're really waiting for national to snap back? If that's true, you know, kind of what do we look for? And second, if you could maybe just comment about general radio market trends in some of your bigger markets -- LA, Atlanta, Dallas, Houston, just give us a sense there? Thanks.

OK. I would say that local and national are both a mixed bag now, and it does depend on the market, but the wild swings with national are not anything new. I mean, I watched this happen all last year, where you had markets that had just extraordinary growth in some months and they would actually almost tank the next month, so it's hard to get a feel for national right now. Local is a bit of the same; it's a mixed bag. But it is much more consistent than national. And the other thing is that we've got a couple of markets where national was just extraordinary last year, and it is not-- it's really bad this year so far. Hopefully that'll turn around.

From a trend standpoint, you're talking about ratings?

Just ratings, and then just general market, you know, advertising environments in your big markets.

You're talking about revenue pacing?

Yeah, revenue -- just kind of-- from some of your big markets. So you feel pretty good about LA and--

LA, I feel great about LA. That, again, is also a mixed bag. I've seen a lot of almost negative press about Washington-- no, I'm sorry, Washington, DC is a positive area, and that's going very well for us. Boston has gotten a lot of negative press, but that's not a huge station in our portfolio. So, it probably doesn't fit into what you're talking about. Let's see, Dallas -- we're really excited about Dallas, obviously, because of the ratings increase, and also one of the stations in Dallas, we're also set to get a better signal situation there. Houston could be better, and we're working on that. That's an area where I'm really, really focused on right now.

Those are most of the big markets. Some of the medium markets are doing OK, and some of them are a little bit soft, so again, it's somewhat of a mixed bag.

I guess Paul, this is Scott. Just to focus on the actual market activity a little bit. I mean, basically, across the board negative in May. In June, you know, our markets are only showing two that are pacing positive -- Indianapolis and Los Angeles, which is, you know, I guess you couldn't find two markets that are more different. In July, there's a somewhat larger list of positive markets, and all of the sudden, Baltimore comes into the picture as being a strong growth market, similarly in August as well. But, you know, to MC's point about mixed bag, I absolutely agree. You've got markets down mid teens and you've got markets up mid teens, you know, forward pacings. It's just all over the map.

And I want to jump in here and sort of reiterate what a lot of our-- a lot of the other companies in the sector have shared as well, that these pacings are really, really tough to rely on, because when they're going negative, they go negative week to week, and they can have wild swings. So I'm assuming, when the recovery comes, we could just get a pacing report and then all of the sudden, this thing could be up 5%, 6%, 7%, 8%, 10%, and it will happen week to week, and so these [milli cap] and pacings are a really dangerous to rely on, because they change without warning.

Yeah, and I've said that all along, to everybody, and if anybody has that information, I would challenge to take what you have right now, and at the end of the quarter, compare it.

Gotcha. That looks scary. All right, thanks very much.

Thank you. Our next question comes from James Marsh with SG Cowen.

Yeah, hi, guys. Two quick questions here. First, Mary Catherine, you mentioned Dallas, sounds like you're getting a signal upgrade or moving a tower or something--

You know, on the Dallas upgrade, we're actually moving the tower. We're going up higher, more optimize the antenna.

Alfred, I think he was talking, so--

I'm sorry.

Yeah, that's OK. Did you hear what Alfred said?

I didn't.

Your question you want to know was what the Dallas upgrade was, right?

That's correct.

Yeah, OK, I'm sorry, I didn't know-- I thought you had finished. We-- the tower is a little bit closer to Dallas, but we're going up higher, which is important, and we're also optimizing the antenna, so we expect a pretty decent improvement to that signal. But it's not a dramatic improvement, but it will be-- we're excited about it, put it that way, because every-- in a major metropolitan area, every mile counts.

Yeah, it's been a long time coming, a couple of years, so we've been sitting patiently, waiting for this. This is the station, the urban AC station, we have Tom Joyner on.

The second question related to your current stance on independent promoters, Alfred?

Pretty soon we're going to say, “what is an independent promoter?'' You know, we're right where we were at. We do have a relationship with an independent promoter. We don't see any particular reason to change that relationship today, because it works fine for us. We-- I know Clear Channel has changed their position, but I think they're in a bit of a different position than we are, because they've got the whole SFX and Clear Channel Entertainment issue, which really makes them sort of a lightning rod for that industry.

What I can tell you is that the reason I made the comment that we'll have to say, “what is an independent promoter?'' is that the record companies, their business is in a freefall right now, so they are cutting expenses left and right, and they have cut payment to independent promoters, which has drastically reduced the revenue that we receive from that. And we don't fight it; it is what it is, and it may go away altogether. And what's interesting about our Q1 results is that, you know, we were able to go-- even in Q1, and even going forward, it's becoming a really, really diminimous-- it was always small, but it's becoming a really diminimous percentage of our revenue.

Great. Thanks a lot.

Thank you. Our next question comes from James Boyle with Wachovia Securities.

Good morning. Mary Catherine, how would characterize current CPPs, post-war, versus Q1 and versus 2002?

Well, things- I would say things are not as good right now as they were in 2002. It's a very-- it's a very weird situation right now, after the war, because I think everybody assumed that the war would be over, things would automatically get better. But I think there are other criteria that are factored into that, and that is, you know, we've got unemployment problems in this country, and also the economy, so you've got a lot of things swirling around, you know, that are mixed up in that pot.

And do you see any current upward pressure on those CPPs, or at this point, it's a jump ball?

Well, it feels like it's getting a little bit better. I will say that. I will say that.

And then how would you characterize the sales force feedback from ad agencies as we are currently entering the TV up front?

It's being placed, it has been placed in many markets, if that's what you're asking me, so the TV-- what we're starting to see now is because, of course, summer is coming, and we're seeing the TV money, the beer money, the soft drink money, and those are huge dollars for us, in many cases, because of the demographics. So, it's good to start feeling that.

Well, no, actually what I meant-- sorry if I was unclear -- with the ad agencies getting into network TV up front and having to face very high scatter pricing and possibly very high up front pricing, are you getting any feedback that this could cause either dollar spillover or help you on rates?

Oh, absolutely. Hopefully, it will, because TV is doing rather well now, so that always helps radio.

OK, thank you.

OK.

Thank you. Our next question comes from Michael Russell with Morgan Stanley.

Thank you. Alfred, in the last conference call, you gave us an assessment of kind of the competitive environment, kind of some of the top five competitive situations, and I guess on March 11th, it was announced that Viacom has stopped competing with you in the Baltimore market. Just wondering how you kind of judge the impact on ratings and revenues, when competition kind of comes to a conclusion after a period of time. How should we think about the opportunity in Baltimore?

That's a good question. We're still waiting for the band and the ticker tape parade.

Hopefully, in the revenue--

Yeah, yeah, actually the ratings are starting to tick back up. I think we did a 7.5, 12-plus, which was a slight tick up. We have not seen a flood of advertising activity there, but also, you know, we're in a soft environment in that market. But yeah, I suspect that that's going to change, and it's going to come back and it's going to be a strong market for us again. So, we're optimistic. But again, you know, how should you think about it? We could get a competitor there tomorrow, you know, and be back in the same situation.

The reason I didn't really go over the whole competitive scenario is because I used to go over, because that was the latest investor concern or issue, as it related to this company, so I felt a need to have to explain each of those situations. But you know, at the end of the day, we've got some competition in LA, and you know, we're doing really well there. We had competition in Houston, our ratings are fine. You know, we've got other issues in Houston, which Mary Catherine is focused on, that don't relate to ratings, they relate to pricing. So, you know, we feel good about that market. Richmond, we've got competition, you know, there. Our revenues have been growing in that market. We're not-- of all the ratings performances that we've had in this last survey, Richmond was the worst one, but it worst on one radio station out of four. So, overall, our position there is still pretty solid. So Houston, Richmond, Baltimore, and LA, you know, are really the four competitive markets that we have.

And Atlanta.

Well-- actually, and in Atlanta, everyone was all fired up about the Cox Radio station coming in. Well, you know, Mary Catherine tends to, you know, not celebrate real early, and I agree with her, but you know, the station was on the air for, you know, I think two out of the three months that book was on, and it went from a 2.5 to a 1.6, you know, and I saw that and I got excited. And then Mary Catherine burst my bubble and said, ``It may be too early to tell, and all this,'' so we didn't mention it. But that's the competitive landscape. We're kicking butt in a lot of places, in some places, we've got pressure. But all in all, the company is able to have more stuff go right and more positive momentum than negative momentum, which is why we've outperformed. We've always had something that wasn't going right, you know, but the question is, do you have more on the positive side than on the negative side, and that's sort of the magic to our strategy.

And Michael, just on that, I'm more of a pacings bull than my colleagues, just because, you know, any piece of data is better than no data, particularly if you're just looking at things directionally, which is what I tend to focus on, and you know, if you actually were to look out a month or two, at the pacings in Baltimore [inaudible] the Baltimore market is looking pretty strong in the third quarter. We're actually looking exceptionally strong, and in fact, even closer in, if you look at June, the Baltimore market is pacing flat, and we're actually pacing in the high teens up, so that may or may not be indicative, but you know, given that Baltimore had actually been underperforming over the course of the past year, relative to its market, that certainly is a first sign that, you know, again, because we've lost competition recently, that maybe dollars, or disproportionate dollars, are flowing back to us.

I just remember, I was struck by the last time, when you described it, that the non-competitive markets were growing like 9% to 2002-- or the non-competitive markets were growing 17%, and the competitive ones were growing 9%, and that's a pretty wide gap, so when you beat someone, at least for a period of time, it's nice to see that you do get the lift and the victory lap that goes with it.

Yeah. When I said the ticker tape parade hasn't started, the competition leaves and the next day, in fact, we were in a tight month, and so we hear in corporate ``Oh, where's the money?'' and you know, it didn’t show up. But as Scott just pointed out, it's probably going to show up, you know, in the coming months, but it doesn't show up the next day. And so your-- we feel very positive about that situation. I don't want to be negative, but I also do want to caution that competition is a fact of life in the radio business and we spend probably six months out of our lives this year and last year dealing with that, and so hopefully investors are comfortable with the fact that we can weather whatever competitive comes our way.

Great. And then just one quick follow-up on the state of Texas. We, I guess, originally thought maybe Steve Harvey would be introduced to Houston maybe earlier than he has, since he hasn't been introduced yet. Could you comment on that, as well as any insight on this Texas bill to tax advertising? You know, like 50% of your revenues come from Texas, so what do you think about that?

Yeah, on Steve Harvey, we just-- we opted not to roll out in Houston and to really just focus on Dallas, because we need the help in Dallas. We don't need the help in Houston at this point time, and the Houston ratings are fine on KBXX. I've been reading the stuff on the ad tax. Evidently, it looks like, you know, it's got legs in one, you know, part of the legislature and no legs in the other part of the legislature. So the-- the press or the readings I'm getting is that it's probably not likely to happen. However, it doesn't mean that the issue will not resurface, and it scares the hell out of me. I mean, we've got a number of assets in Texas. It's a gigantic market for us. Houston is and Dallas is becoming bigger, so that would hurt us. It would hurt a lot of people. You know, it's really going to affect the Hispanic guys, who- you know, Texas is a huge piece of the pie for them, and it's not-- you know, and it's big for us, too. Not as big as if we were a Hispanic broadcaster, but certainly Houston is our number two revenue market.

Thanks for the commentary.

I'm sorry?

Thanks for the commentary.

Thank you.

Thank you. Our next question comes from a David Bank with RBC Capital Markets.

Thanks a lot, guys. Can you help me understand when the pacings start to be relevant? You know, not even so much for Radio One but for the industry? We've heard a pretty consistent voice say, “well, you know the pacings are negative for May, they're negative for June, but we really don't know what they mean.'' At what point in the month do we have to before the pacings make sense, would be the first question. And then just three other quick questions.

The second one would be, could you comment on where your NTR was this quarter versus the quarter a year ago, and anything kind of going on with NTR? And can you talk about-- I guess, Alfred, I heard you were down in Washington, talking about market definition with some of the FCC guys. Can you talk about where you think market definition is coming. I'll leave it at that.

Pacings -- Scott's right on pacings. Some data is better than no data, and it's actually a pretty good tool for direction. When I say that they change without warning, they could be-- we could be looking a month out and two months out and the pacings can be up 20%, and by the time the month closes, as we draw on- get closer and closer to the end of the month, that month ends up 5%, because stuff falls off. And so when I say they change without warning, meaning that the data is good directionally and it's good on the date that you get it for that direction only, it's going to change the next week, and it can change-- it's difficult-- You can't see the drop-offs coming and you won't see the increases coming, so that's, you know, I think it's a good directional tool, and that's about it.

What would it have told you about April, you know, by the end--

Actually, let me-- David, this Scott, and I'm not sure, again, this is indicative, but one of the reasons why I believe what I believe is if you were to look back at pacings for May, about say seven weeks ago, six weeks ago, it would have showed you that May was going to be up 3%, all right?

Yes.

And then, if you were to roll forward a month, if the pacings would have told you that May was going to be up -- hold on -- I'm sorry, going to be down 9%. So, you know, big swing because of the war, obviously, because in four weeks, you had a significant shift. So again, about three to four weeks ago, you had May pacing down about 9, and now you have May pacing down about 6 to 7. So, you know, in the past month, you really haven't changed-- your outlook for May really hasn't changed all that much. Now, that can change. Obviously, that's one snapshot of one month, but you know, in a fairly uncertain environment, other than that fairly significant shift from being up low singles to down high singles, the past month there's been a fair amount of stability. So I would say that, you know, within a timeframe of about four to six weeks, you know, you could probably assure yourself that the swing on either side of the data points is going to be no more than several hundred basis points. So, I don't believe, for the most part, that if you're four to six weeks out, a market can go from being down 5 to up 10, or up 10 to down 5. I think that it's a much narrower range of outcomes, that you're probably going to see with respect to a four to six-week timeframe.

Got it.

Now, you also asked about NTR?

Yes.

And depending on sort of how you classify NTR, for us, it's sort of captures special events, the network revenue, which relates to syndication and what not, and other revenue, which is tower rental income and all that other miscellaneous stuff. The number was up about 20% year over year, but it's not a big number. You're talking several million dollars.

But is there anything that would make you think it'll be meaningfully different a year from now? That's pretty much unpredictable, you never know what it's going to be, but is there anything that kind of stands out as making it unlikely to repeat next year?

Unless MC has got some ideas -- I'm not sure, MC, what your sort of position is on NTR. I think special events for us are an important part of our business, although we are very focused on the bottom line profitability of those events. They zap a lot of time and energy from the organization and they don't always necessarily make the same kind of margins that the traditional revenue make for us, so you know, it's something that we look at very closely. But I think it's a nice add-on to our business, but Mary Catherine, do you want to address that?

Yeah, we have some rather large, actually, some of our bigger NTR events in the summer, because of concerts or events that we've-- that are historical to us. And as Scott said, to pass the muster for us, when we go into our budget meeting, you have to meet a certain margin or you can't even bring that event back to the table. We won't even consider it. But, at this point, we have some events that we've done for years that have been really, really successful, that we rely on for the summer months, and they just always do well. And we are always adding other events. Generally they're not as big as the ones that have heritage for us, thought. They're a lot smaller and there's much less risk with them.

So the bottom line is, you probably shouldn't expect to see much significant change, because while we might add some events, you know, there might be some that just sort of fall off, because they are no longer as profitable to us as they used to be, or as we would like.

Alfred?

Yeah.

Can you talk a little bit about market definition?

Yeah. You know, the FCC is considering changing market definitions. I, along with a number of other mid-pack radio groups, Cumulous, Entercom. Actually, [Glen Dixie] and I went to see all the commissioners. David Field was supposed to join us, but he had a previous engagement -- feel that the market definitions shouldn't be changed. There have been a number-- a few egregious situations, where because of the way the rules are written, you know, Clear Channel has eight of ten stations in Minot, North Dakota, and those situations get highlighted and people rail against that and say, ``see, this is the abuse that's going on because of consolidation.'' But our argument is, is that Minot shouldn't drive sort of the policy for the rest of the industry, because you don't have that problem in Washington and Baltimore and Atlanta and in Dallas, and if you change the rules, it's going to eliminate the clusters that the commission feels are egregious situations, because they're going to grandfather them. So all that's going to do is sort of lock Clear Channel into it's big positions and pull the ladder up behind them, and won't allow the mid-pack guys to grow and be competitive at the same level. And I think they heard that argument, because at the end of the day, it won't change anything. The horse is just too far out of the barn.

However, I think that they have a fundamental intellectual problem with the argument of market definition and the number of stations, or voices, in the market are determined by the overlap of the FCC contours for radio stations, and not really by the market that those stations are supposed to serve. And I understand where they're coming from. I don't know how they plan to resolve it. There have been some talk about Arbitron, using Arbitron definitions for markets. We-- I told them I thought that was a really bad idea, or we told them we thought it was a really bad idea, because Arbitron, first of all, you can change the market-- You can change the market that Arbitron surveys by either paying-- deciding to pay for the survey or not pay for the survey. They try to add counties all the time and change it, they’ll delete counties, if it doesn't make sense economically in the survey. So whatever methodology they choose, it needs to be independent and not based on Arbitron, because that's--

What did they say to the fact that Arbitron doesn't meter half the markets?

Well, it's actually- they don't-- they acknowledged that Arbitron doesn't serve-- I think Arbitron only surveys 60% of the markets out there.

Right. What did they say? I mean, did they say--

They acknowledge it and realize that it's problematic, and they're basically saying, ``Give us another solution. You know, we have an intellectual problem with the way it's done now. Give us another solution if it's not Arbitron.'' So who knows? I don't know if anything is going to change. I do feel that they're open in looking for another answer.

OK. Thanks a lot, guys.

Thanks.

Thank you. Our next question comes from Richard Rosenstein with Goldman Sachs.

[Atswi Ichan] on behalf of Rich. Just a quick question -- a lot of the questions have already been answered. You know, we have heard that other operators are showing willingness to sell less inventory to preserve rate, and then privately, some operators said that just-- you know, that's just hearsay, and just wondering where you take is on what' going in the field, and why you're feeling pressure to drop the price, when, say, others are saying that they're holding back inventory?

I think that kind of stuff happens on the margin. I mean, if Coca-Cola comes to you and says, “Hey, I'm paying you $300 a day, it's a soft environment, I want you to cut it in half,'' you're not going to take that deal, because you know that things will improve and Coke's a big advertiser and it will take you another five years to get up from $150 back up to $300. But if it's a fast piece, a transaction on national business that's going to be in and out, and the cost point happens to be low, and you've got the inventory, you're going to hit it. You're going to take that business. So, I don't think anybody, regardless of what they say, stands on ceremony and says, ``we're going to sell less inventory,'' because if you took that position, that hard rate position, you'd get left off a lot of buys, and you're going to be down considerably more than the market's down, because people-- you can buy around almost any radio station in any market, because the difference between number one and number ten, in most cases, is just not that big. It's just-- particularly in the larger markets, it's not 50% in audience size.

All right, thank you.

Thank you. Our next question comes from Alissa Goldwasser with William Blair & Company.

Hi, good morning. I was hoping that you could maybe comment on your developing situation in Atlanta. Are things going there as you had expected? And also, how important was Atlanta to your industry-leading revenue growth in the first quarter?

Atlanta is doing great. We still have about a 14 share in that market. The high has been 14.5; maybe the high has been 15. So, you know, 14, 15 share points. Early indications on the competition are modest, the competition from Cox. Revenue growth has been dramatic. I don't know if you want to--

I mean, yeah, revenue growth is, you know, sort of well north of 20%, without getting into any specifics.

So, you know, we're happy with the Atlanta situation. And how much did it contribute to our Q1 results? I don't know if you want to--

We usually don't get into the detail of how a particular market for us relates to the overall whole, but suffice it to say that Atlanta is a top five market for us, it's growing well in excess of 20%, and obviously, it's a significant contributor.

Thank you.

Thank you. Our next question comes from [Jason Helstein] with CIBC World Markets.

Thanks. I'll keep 'em quick. First, Scott, it looked like kind of on our numbers, that fixed costs were up about 4.5% in the first quarter. I know you don't want to comment specifically, but is it fair to say that in the second quarter, fixed costs shouldn't grow any faster than first quarter? And then just one follow-up for Mary Catherine afterwards.

I'm not going to answer that yes or no. As you know, I am a believer that fixed cost growth in general is more of a mid single digit number than a low single digit number. With that said, you know, the hiring freeze and not passing along merit increases will certainly help. But, you know, to some extent, that's offset by insurance renewals, and other costs that are coming into the company that are fairly significant with regard to Sarbanes-Oxley and other things, that are going to be spread around the company. They're not just core corporate expense increases. And you know, you'll see probably more of that in Qs 2, 3, and 4 than you necessarily saw in Q1, so I guess that's probably all I'd want to say on that topic.

OK. And then just quickly, another follow-up on Atlanta, should we assume that the gospel station helped drive a significant amount of growth in first quarter?

Yeah. You should. The gospel station is a big driver for the Atlanta cluster, but the entire Atlanta cluster is doing well.

OK, thanks.

Thank you. Our next question comes from William Meyers with Lehman Bros.

Thanks. Two quick questions. Firstly, Alfred, if you can update us on your radio network business. I guess given the strength in your national advertising, is your network business becoming a meaningful contributor to revenues, and I apologize for losing the voice here.

And Scott, on the tax side, if you can review your tax situation? I know in the past, you said you didn't expect to pay cash taxes until late '04 or early '05, but what's your NOL balance, and can taxes be deferred beyond the '04 period-- the'05 period?

The radio network business is a modest contributor to our revenues to date. I don't see it becoming a much bigger contributor to revenues, because we allocated a fixed amount of inventory to that deal. We sell those units at a considerably lower rate than you do on the local and national spot market, so we don't-- you know, we look at it more as being able to sell unused inventory in soft times and to help us tighten pricing during robust times, so right now, we've got to make a decision whether or not we're actually even going to renew that deal. And we've got to do that probably within the next 60 to 90 days. And that's going to be a tough decision. At the beginning of January, you'd probably say, “You know what, things are coming back, you might not want to renew it.'' If things are really modest in terms of growth, you definitely want to renew it, and you may just renew it anyway because it does put pricing pressure on your inventory. But it's not going to become a significant contributor. I mean, it's millions of dollars, but it's not going to get much larger than it is.

And with regard to taxes, you're right -- as I said, we're not a federal cash taxpayer today. I don't think our perspective on that has necessarily changed in terms of when we expect to become a federal taxpayer. It'll be, you know, at some point in 2005, and that even can turn out to be conservative, and obviously is driven by a lot of things, in terms of acquisition activity and you know, the performance of our company overall, in terms of the income that we generate. The good thing is that we do have a significant NOL of about $130m, which, you know, is probably going to build for a little while longer and then we will use that NOL to shelter taxes.

But I think the other thing that I want to point out, which I believe I've mentioned in the past, is that even after we become a marginal taxpayer, when people are modeling our results and you're looking at, you know, pre-tax income on a book basis, keep in mind that there's an incremental, roughly $110m, of deductible amortization that is going to further reduce our pre-tax income, from a taxable perspective.

So if we report that we're paying cash taxes, there's still going to be a significant deferred tax portion which will actually stay with us for probably another 10 to 12 years, because the $1.3b, and really, actually, if you look at Blue Chip, so about $1.4b that got booked to intangible assets, or FCC licenses, which get amortized over 15 years. Well, of course, you know, we did the Clear Channel deal in 2000 and the Blue Chip deal in 2001, so the amortization is associated with the intangible assets or the FCC goes on for 15 years from those dates, and that's going to continue to be with us, even after we turn cash flow tax positive.

Thanks very much.

Thank you. Our next question comes from [Andy Van Houten] with Deutsche Bank.

Thank you. My questions have been answered.

Thank you.

Thanks.

Thank you. Our next question comes from Michael Weisberg with ING.

Yeah, good morning. Would you-- Scott, a couple of quick things. What did you say revenues were up in the month of January? I missed that, when you were going over it?

16, I believe, Michael. Hold on, hold on.

It was 16.

16.

Great. And did you mention, Scott, what did -- you mentioned your markets. What did you run in April?

We were flattish.

You were flat in April. And I think you said your-- your markets were down low single?

Yes.

Great. And then finally, it's interesting, you are not alone, but relatively alone in talking about pricing as opposed to lack of demand, in explaining why the industry is maybe not recovering as fast as other people think. Have you found pricing to be a bigger issue in most of your markets, as opposed to, you know, selling slots? Is it more pricing in almost all the markets?

MC, would you like to take that, or Alfred?

Let me see if I understand -- you're talking about rates, right?

Yes.

I think that it's both; I think it's a combination. Something-- I can't remember who said it earlier, but they were talking about people holding back on inventory, and I just haven't heard anybody say that. I meant to say that back then, but I don't know of anyone that's actually done that, so I think it's a combination of both of those things.

Great.

I mean, lack of demand is what generally reduces pricing power.

Great. Thanks a lot.

Thank you.

Thank you. Our next question comes from Andrew Marcus with Deutsche Bank.

Hey, guys, it's actually James Dix, stepping in for Drew. I just had one follow-up -- Scott, it looked like your expense growth actually in the first quarter was a little bit less than might have been expected, even factoring in the lower revenue guidance. It looked like, I think on the call last quarter, you indicated incremental expense might be around $3m, and it looks like it was more like a little under $2m, and that maybe revenue, then your guidance accounted for a couple hundred thousand dollars of that. But I was wondering if there was anything else that you were able to cut in the first quarter that you could comment on?

Other than the fact that we implemented a hiring freeze and I mean, again, most of the increases were scheduled for April, so that wouldn't affect Q1, but we've been operating with, you know, a “hold the line'' on costs or “cut costs'' mentality, you know, I would say, for probably half of the first quarter. So when things got a little dicey around mid-February, we really just sort of clamped down and didn't invest money in certain things or hire people or do certain things that we probably would have otherwise done in the last six weeks of the quarter. And then, you know, for the first six weeks of the quarter, I probably gave you a fairly accurate perspective, when we released our guidance in early February, but you know, even that obviously was somewhat conservative, based on the reality of the situation.

OK, thank you.

Sure.

Thank you. At this time, sir, I show no further questions.

Thank you very much, everybody, for joining us, and we'll talk to you next quarter.

Thank you, everyone, for joining today's conference call, and have a nice day.