Urban One Inc (UONEK) 2003 Q2 法說會逐字稿

Good morning and welcome to the Radio One second quarter earnings conference call. All participants will be able to listen only until the question-and-answer session of the call. This conference is being recorded. If you have any objections, you may disconnect at this time.

I would like to introduce Mr. Alfred C. Liggins, president and CEO of Radio One. Mr. Liggins you may begin.

Thank you very much and thank you everybody for joining us for our quarterly conference call. As you know, we sent out a press release, on our earnings where net revenue up and EBITDA was flat.

On the call today we have Mary Sneed, who is our Chief Operating Officer, and Scott R. Royster who is our Chief Financial Officer as well. Scott is going to go through the numbers with you, he's going to read a little disclaimer as we always do first. We little later in the conference call also talk to you about our cable venture which has actually been officially signed and is a separate entity up and running and completely financed. So with that I'd like to turn it over to Scott.

Thanks Alfred. Good morning everyone. This conference call may include forward-looking statements within the meaning of the section 27A of the Securities Act of 1933 and section 21E of the Securities & Exchange Act of 1934.

Because these statements apply to future events, they are subject to risks and uncertainties that could include actual results to (missing audio) , including the absence of a combined operating history with an acquired radio station, and 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 operation, market ratings, variable economic conditions and consumer taste as well as restrictions imposed by existing debt and future payment obligations.

Important factors that could cause results to differ materially are described on forms 10-K and 10-Q and other filings with the Securities & Exchange Commission.

Overall our results for the quarter were in line with our expectations in what was undoubtedly one of the toughest quarters in the radio industry in recent memory. Net revenue increased 1% to approximately $8.9 million, while station operating income decreased 1% to approximately $43.1 million and EBITDA was relatively unchanged at approximately $40.2 million.

GAAP net income was approximately $15.7 million or 15 cents per share, net income after preferred dividends was approximately $10.6 million dollars or 10 cents per share, and free cash flow was a healthy $22.5 million.

Some thoughts on these results. Revenue came in a built above the midpoint of our original guidance. While our growth could have been stronger a couple of things held us back.

First special events and nontraditional revenue declined 13% in the quarter as we downsized or cancelled certain events due to their declining relative profitability. We have been ever more vigilant over these type of events. They are high beta events with revenue and expenses very hard to predict, and the profit outcome is highly variable. Other radio companies have expressed a similar concern about the quality of the quality of income being generated by these events. We are no different. Any event that does not meet certain profit thresholds will be downsized or terminated. That occurred in the second quarter, and will probably occur for a while.

Secondly, as we have described in the past we do have a few markets that have not done a very good job of keeping up with their market growth. In particular Houston, Columbus Philadelphia, and Richmond were underperformers in Q2. In Houston alone, that underperformance caused consolidated total revenue growth to be approximately 150 basis points lower than it would have been if our stations there had kept pace with the market. I'm sure that Mary Catherine will have more to say about these and other markets later in the call.

As for income and earnings, we are generally happy with the company's cost controls in place. We have salary and hiring freeze in place since the beginning of the year. Those actions began to bear fruit in Q2, as the station's operating expenses only grew 3% in the quarter. And we expect they will be flat over last year in Q3. However, given the high fixed cost nature of this business when revenues grow in the low single digits, it is hard to create much operational leverage. And in fact in Q2 we didn't.

But nevertheless, we are happy that our decline in station operating profit was only 1% and we are very satisfied that EBITDA was relatively flat year over year. As for the bottom half of the income statement, with interest rates down, and our federal tax burdens still at 0, we were able to grow earnings per share 15%, and free cash flow 25%--both healthy numbers for such a tough quarter. We ended the quarter with just under $85 million of cash and that is after a $13.1 million dollar principal pay down on our senior term loan on June 30th, further reducing our leverage to approximately 4.4 times, and under four times when you net the cash against the debt.

We expect further debt pay downs in the upcoming quarters to be financed through our free cash flow which will work to further reduce our leverage. As for CAPEX, we came in for 2.9 for the quarter and we are still in track for $10.5 to $11.5 million per year.

Looking forward, while we are generally feeling better about business, we still have some concerns that we are not out of the woods can yet. While July was a decent month, August is showing a large number of markets with negative pacings, which is pretty confusing to us. So while we have a healthy 85% of our August forecast booked, that forecast calls for growth in the low single digits. Looking beyond August market pacings improve into the mid to high single digit range September through November, but of course it is still too early to call those months.

As for our guidance we are calling for net revenue growth of 1% to 4% for the quarter. There are two things to be mindful of. First, the negative numbers we are seeing in August give us some pause, and the most recent pacings for September showed a 150 basis point slow down in pacings from last week. Thus, we have no choice but to continue to be cautious on how the quarter ends up.

Another point relative to Radio One in particular, while this 1% to 4% range may not make investors all that happy, please note that if you were to look at our core business which is cash advertising sales, that growth is a couple of hundred basis points faster than our overall growth. We expect to continue to see declines in special events revenue in Q3, as well as revenue generated from independent record reps, which was not insignificant in 2002.

Thus, we will ultimately calendarize the normalization of these revenue categories next year, which will hopefully not dilute our growth results the way they are this year. We expect expenses to be flat as our expense control programs really kick in and have an impact on our profit results.

Additionally as the radio industry has recently reached a settlement with BMI, we expect that we have conservatively over accrued music licensing royalty fees and will be able to reverse out, some of those in Q3, which would be upside to our bottom line.

Lastly, with the recent closing on the TV One joint venture with Comcast, we will pick up our pro rata share of our losses from that entity starting in Q3. Once we have better information on that entity’s expected results we will share that with investors. Alfred may have more to say about the status of TV One in the Q&A session. With that Alfred did you want to add anything or should we go straight to questions?

I'll go to TV One. It had closed $130 million raise. We ended up putting $74 million into it. Comcast Constellation Ventures, syndicated communications, opportunity Funding and Pacesetter Capital, put in the balance. We have a CEO. We have announced Jonathan Rogers, who is the president of Discovery networks, and we are actually bringing on other senior level people as we speak and we are pretty excited about the channel out there. It is still early to tell but we are in the process of seeking out carriage from other cable and satellite operators. So that entity is in motion. And we're focused on, you know, our radio business primarily, as it is a very, very challenging environment, and we're focused on making sure that TV One gets a good start on the execution. And we've got our nose to the grindstone doing that.

So I think that we can go right to Q&A. I'm sure people want to talk about our radio business and we're happy to do that.

Okay. Operator could we please turn it over to the investors please.

(OPERATOR INSTRUCTIONS) Our first question comes from Victor Miller of Bear Stearns. Sir, you may ask your question.

Good morning, thank you. Scott can you talk about the operating expenses? A bit of a contrast-- technical and programming up 8% SG&A barely up, corporate up 9%. Talked about expenses on those three levels.

And Mary Catherine, if I could ask you about Baltimore specifically. On page 4 of the press release, you talk about Baltimore being actually a be problematic market in terms of revenue declines there. Given the better competitive situation in that market, the absence of Infinity's direct competition there, we felt it would be better. Can you talk about how Baltimore is?

Sure I will go first. We were not really thrilled about the fact that they didn't bounce back as fast as they should have quite frankly. But that seems to be fixed now, because they look -- they look pretty good for third quarter. So that's as simple as it is. But it's gotten better. They've turned it around so --

Is the market healthy itself?

What was the question Victor?

Is the Baltimore market healthy?

The Baltimore market going forward is currently positive in Q3 where it was negative in Q2. And it's actually look particularly positive, the further out you go. But I wouldn't hang my hat on that. It's probably, you know, sort of mid single digit positive right now.

Okay.

With regard to your question about expense categories, I think what you'll find is that for the most part, the only category that is growing at any level above a very sort of modest low single digit level would be the programming category.

So for the most part, we've held the line obviously as revenue growth slows the variable cost related that related to SG&A will slow. The salary freeze and the hiring freeze obviously will enable us to hold the line on expenses in most of the categories.

But with regard to programming, keep in mind that you've got a couple of components there. First of all you have probably more contracts in that department, where you are obligated to pay an increase to a personality, particularly a big-name personality, year over year. So while you might want to hold the line on compensation for your entire company, you are not in a position to do that because you are contractually obligated to pay people more.

Secondly, there is a decoupling obviously with regard to programming expenses relative to revenue because a lot of the compensation or a good portion of the compensation is tide to bonuses that are themselves tied to ratings. And we've had pretty decent ratings. We've had a very good winter book, and a decent spring book--particularly if you look at the particular target demographics that most of our personalities are bonused on.

So I think you'll find that obviously we have a couple of big name personalities, where you're going to see increases to their compensation. And also there will be people who will make additionally more money because of their bonuses tied to ratings independent of the ratings performance of the company. That is really the dynamic there.

With regard to corporate, obviously given the performance of the company, corporate has a fairly significant percentage of its overall total being compensation, management executive compensation. And as we have in the past, we tie bonuses to individual performance and overall company performance. And as overall company performance has not lived up to previous expectations, obviously we'll be making some adjustments to the bonus accruals and the bonus assumptions going forward.

Because we do not believe that if the company doesn't perform up to expectations that management should necessarily be in a position to make, you know, the level of bonuses that were originally budgeted. So that's really the dynamic there.

Thanks very much.

Sure.

Jason Helfstein of CIBC world markets, you could give us your question.

Can you give us a little more color on Houston? Perhaps the share losses--where you see that coming from local versus national and then perhaps give us a discussion of what the rating situations look like in that market most recent ratings and any ratings trends.

And just want to follow up. On the BMI for the third quarter, just to make sure that's not in your guidance right now?

That is correct.

Okay, and can you quantify how much that could be in terms of upside?

I can't Jason because first of all, while I believe the deal is done, I'm not sure how public it is. And so I don't want to commit to any particular economic deal that may not be totally set in stone.

And secondly, the accounting treatment of the reversal of an over accrual has not yet been determined. We may be in a position to take a bigger piece of it in a given quarter, but we may have to spread it over time. And we're not necessarily sure if we have to spread it over what period of time we have to spread it.

So that's all stuff that we'll be working with our auditors on as we work through the third quarter. But it is upside because we've been very conservative about how we've been accruing for those expenses.

Okay. Houston?

Yeah, I can do that. As far as ratings, the Houston ratings were fine. The important thing I think I want to say this is that -- excuse me -- it's important to look at that time demographics not the 12-plus number. Because as they say, 12-plus is a family reunion, not a demo.

And Demographically, both the box performed and so did magic in the primary demo. Magic, of course, is 25-54, and the box is 18-34. They were basically where they always were. National has been a problem in that market since the beginning of the year, and we've been totally focused on that.

One thing that is of concern to us is that we do not have a dedicate rep firm, that is a national rep firm. There are two, there is Cats and there is Interep. We have our stations split between those two companies. And sometimes we feel that on the Interep side because they have one huge group, that they rep as well, that we may not get as much attention and sometimes we might not get information in a timely manner.

Same thing on the other side with Cats. Of course you know Clear Channel owns Cats. Clear Channel has a huge cluster in Houston as well. So, that has been a concern. We have been focused on it and still focused on it right now. But national was not good at all in Houston for second quarter.

MC, let me just reinforce what you said there. The problem in Houston it was pretty much a national problem. Actually locally we looked pretty good and we showed positive growth. But nationally we were down fairly significantly.

Yeah, and national is something you do not have 100% control over. Because it's off with the national reps. So we're totally focused on that.

So it's fair to say that -- did you gain share locally? You gained share locally in the market but lost a pretty dramatic share nationally in the market, is that fair?

We probably held our share locally, and we absolutely lost share nationally.

Then one quick follow-up. As far as discounting on the national side, just perhaps some color. The amount of discounting you're seeing on the national side now by your competitors versus maybe a few months ago, is it the same, is it any better?

I think people are diving for dollars. I think there are dramatic discounts.

Okay. Thank you.

Drew Marcus of Deutsche Banc. You may ask your question.

Good morning everyone it is actually James Dix stepping in for Drew. A couple of things. I was wondering if you could give some color as to what your market growth was in the second quarter in spot sales--both on a local and national basis? And just how you did locally and nationally in Q2? And then if there is any color you could provide on market pacings for your largest markets for Q3? How is Los Angeles pacing how is Houston as a market pacing how is Baltimore pacing.

And one last thing. M. C., you said in terms of the demo, Houston rankings looked okay. What is the rang of rank of the stations in their target demos, and do you expect the box to stay No. 2 in its 18 to 34 target, that's been a prior goal you stated.

Yeah, I think second or third for the box. Because they're -- you know, the difference between second and third and fourth is like tenths of a point. And with Magic, they're someplace around third, 25-54. I've wanted to see that move up a bit. We want to focus on that because we saw that happen, specifically in DC when we really concentrated on our urban AC there. So, we would love to see that. But right now they're third.

All right. With regard to your other questions, James, national was down 4% in Q2, spot national. And local was up 5%. And that's Q2.

That's for your markets?

That -- no, that was for us.

Okay. And what was it for your markets?

Don't have that information for you. With regard to Q3, you asked about Los Angeles. Los Angeles is pacing low singles for August, and low double digit for September. And I guess in July, it was up high singles. Overall, our markets, for the second quarter, were up in the low single digits.

Okay. And that's spot sales only not MTR included?

Spot was up in the low -- yeah, they were both up in the low singles.

Great, thank you.

Marc Nabi of Merrill Lynch. You may ask your question.

Thank you very much. One relates to reduced leverage, you're doing a very good job of paring down their debt. Some companies have announced a dividend, wanted to get your thoughts on that number one.

Number two, again just on the expenses you know flat expenses, that's very good and honestly declining corporate overhead is extremely good as well. When the business comes back what do you think would be a fair run rate or a growth rate, you know, going forward?

Obviously you've talked in the past, and you've said on this call, about programming expenses-- that's the main thing. And I just want to get a sense of a what a normalized growth rate should be.

Scott, I'll take the dividend and you'll take the growth rate.

Okay, go ahead.

All right. Actually Scott and I have debated this with our board. I wouldn't call it extensively but when we saw that the capital gains rate was and the dividend rate was going to come down, we, you know, knew that M&A activity was going to be slow would continue to be slow for a period of time, and our leverage was going to come down and we would have excess cash.

And so we thought at some level it might make sense. We floated it by our board. Yeah, got really lukewarm support for it. And honestly we talked to a number of investors about it because we thought investors would love to get money returned to the shareholders. And got a lukewarm response to that. So we sort of didn't pursue it any longer. I think that our view had been sort of a one-time dividend, may not be recurring, and when and we will, at the point in time where we rethink this, I think that we would need to consider something that would be a recurring dividend, and we're probably not in a position right now to make a commitment on an annual dividend. I think we want to see how M&A activity continues to play out, and in the next 12 to 18 months.

With regard to your question on expenses, again, because of the hiring freeze and the salary freeze, to some extent, you know, expense growth is being artificially depressed. I mean, that's just the reality of the situation.

There are a number of open positions in this company that we would love to hire folks into at some point, and we'd also like to pay our people more money as their own personal costs go up in this economy. And so as we've said all along, we think that fixed cost growth in this industry is in the low to mid single digits. Call it the three to five or the two to 4 percent range. And we will probably, in a normalized environment, continue to see that. And there maybe some adjustments, perhaps a little higher than that at the time that we start hiring people and at the time that we start giving raises to our people again.

But, we're very mindful of the fact that in this environment, neither of those things is prudent. And it's not clear to us necessarily when we're going to be able to take the shackles off and be able to start investing more money in our people. But we certainly would like to do that very soon if at all possible.

Great, thanks very much.

Jim Boyle of Wachovia. You may ask your question.

Good morning. Mary Catherine, you mentioned you saw some rate pressure and diving for dollars. Is this because of the dog days of summer? Or back to old habits until the economy gets better?

Well, I personally don't think that that ever stopped. I think that is something that happens. And I don't know that -- I believe that there is the rate integrity in this industry that there should be. So I'm not sure this is something that's going to end. I think there's just so much pressure, especially, in some major markets with some big clusters. I think that some deals have been done where some stations have been thrown in for probably nothing. And I think that's going to continue.

Okay. Scott, could you give us any examples of less profitable NTR events that are being shed preferably larger ones, and what's the threshold of profit now versus before?

MC, do you want to take the specific events?

Yeah, what we've seen, and I -- I haven't figured out yet if it's the economy totally, or if we just need to shelve the event or reinvent them. But specifically our format does summer jams or summer fests, as do many of the urban station around the country. And this year you're starting to see the ticket sales are -- have really fallen off. I mean, the big show that we do in Atlanta [didn't]. It sold out. It always does. We have got a summer jam coming up in LA. I believe the ticket sales have sold out for that, but we moved it into a smaller venue closer to the city.

The concert business-- I think Clear Channel was up. But that number is not real, because you've got some huge concerts out there that are driving those numbers like Billy Joel, Elton John, Cher, the Celine Dion shows. The huge mega shows are doing well, but everything else isn’t. And so we are seeing that starting to trickle down to the radio industry. Plus, the artists are demanding so much money now that in many cases it doesn't make sense to do those events anymore.

So we are taking a look at that. Also, we've got a couple of huge events in Baltimore and Washington still unsold picnic which are heritage events year in and year out, but they are not garnering as much revenue as they have in the past. We have got to take a serious look at them next year, because if it doesn't make sense to do them they are not allowed to even come into the budgets process.

In Louisville, a rock station there did an event and it did not do well. Which is -- that's what's going on with the rock format across the country right now. Those shows are really not doing well with the specific artists that they play. As far as concerts.

Scott, did the threshold change or has it always been the same and what is it?

The threshold we are more focused on the threshold and it is approximately 50%. So, you need to earn 50 cents on the dollar. And that is fully loaded in terms of all expenses. And that's isolated revenue. Oftentimes you're selling these things as part of a package, some of it is spot, some of it is sponsorships. We are trying to isolate the expenses and get to a 50% margin.

I would say historically we were probably either a little more flexible around that margin or in fact you know we weren't necessarily looking at the discrete revenue and the discrete expenses. So to some extent, expenses were masked or revenue was being categorized as spot when it really wasn't. So now we're really forcing our general managers and business managers to do a much more specific economic analysis looking at the events in a more discrete way.

50% just like your spot margins roughly?

Yes, basically we'd like these events to not dilute our overall business from a profitability perspective. That's the goal.

Thank you.

Thanks.

Paul Sweeny of Credit Suisse First Boston. You may ask your question.

Couple of things. First Scott, Radio One has always been a premium growth story, particularly on the revenue line. I think you've been you know very up front over the last year or two suggesting that that will in fact moderate. It has been. In the second quarter and in the third quarter guidance, you kind of suggest kind of growth rates in line with the industry.

I was wondering how you guys view your company, your business, your markets as it relates to the industry. Do you think you can continue to be a premium top line grower? If so, to what degree?

Second, just Mary Catherine on the ratings front, I was wondering if you could give us more demo color particularly in Washington and Detroit where we've seen your 12 plus ratings drop, wonder if there is a better story on the ratings front? And then third, on Steve Harvey, what are his plans in Houston and other markets.

Let me take the first one and Alfred and M. C. on the other two. In our ability to grow faster than the industry. Again, look at a couple of things. Look at the fact that our growth was diluted in Q2, and to some extent it's being diluted in Q3, because of the declines in NTR. And as we calendarize and normalize those revenue categories, I think you'll find that our spot growth should, in fact, continue to grow with the industry, if not outpace the industry by a couple to several hundred basis points.

We absolutely expect that to be the case. And to some extent it may even end up being the case in the third quarter. Again for the most part I realize people don't necessarily like us to disaggregate our spot revenue from our overall revenue. It is somewhat disingenuous. But it is our core business. So, to really analyze and understand our business it is necessary to do that so people can understand that in fact, that the core business is relatively healthier than the overall business just because of the dilution associated with the special events the NTR revenue the record revenue et cetera.

The other thing is that, as you all know, Houston is one of two very large markets for us in terms of revenue and cash flow, and that market did underperform. We also in the second quarter had, another very significant market Baltimore underperform. And so-- and there are other radio companies that have you know big presences and big markets, and when you have a couple of your larger markets not sort of working at their optimal level of efficiency, that will obviously impact your overall performance relative to the industry.

As we improve the performance in those larger markets we do expect that overall, our relative performance will continue to be better than the industry. And so that's really what's going on. And relatively short term phenomenon.

I'd like to chime in-- we believe that our strategy, the space that we operate in, the fact that for underperforming stations we've got a good track record of turning those around, is a strategy that will allow us to out perform the industry.

One of the things that's happened is that, we've got ourselves a bit in a bag, where I think investors expect us to outperform the industry every single quarter forever. And it's, it's a long season. And it, we don't think the strategy results have changed. But, are we going to outperform the industry every single quarter? No. the end of time? You know, probably not. But we believe that we've got still a very sound strategy, many, many different M&A opportunities out there over time. Even the M&A stuff that we're working on now is interesting, not big dollars, but interesting stuff and good sized markets that we think are going to help our current competitive positions. So the answer is I agree with Scott as well.

I guess the two questions, Steve Harvey, he's on in Dallas not Houston. And we were thrilled with that showing. And the market's thrilled with it. He's done very well there quickly. So that's a good deal. In Detroit, the station I think you're talking about DTJ, they still were third 18-34 in the core demo. And they're generally top four. The other station WDMK is an urban AC station and it has a limited signal. So we don't sell that station based on ratings. But I think they were flat, from what I can see here. In that demo.

And Washington, Magic was second, 25-54 this time. But it was one tenth of a point behind the competitor, so that's really a tie in my mind. In the minds of the advertisers it's not a big deal. and WKWS was second. They're generally first or second in that demographic so those two markets were fine.

Thanks very much.

Sure.

Bishop Keenan of Wachovia, you may ask your question.

Two quick things on the balance sheet. Scott, I think you said you made the initial Comcast payment in July already?

Yes, that's correct, Bishop.

And would that be pretty much expected for this year?

Yeah, it was an 8-- our pro rata share it was a 25% capital call, so it was about $18.5 million for us. And that should absolutely take us through the end of this year.

Okay. And then I know it may be hard to tell each year. But again, refreshing the point on how much you will be cash-contributing going forward each year?

I'm sorry, ask the question again, Bishop.

How much do you think you'll be cash contributing going forward in '04 '05, '06?

On the guidance we had originally given which was based on sort of a standard expectation relative to the business model that was developed was roughly 25% a year. Obviously, with this investment being made in the middle of this year, we still have to look at the -- a revised long term plan to understand the timing.

But I would say that it's probably a good bet that, to make that roughly 25% or approximately $18.5 million would be invested each year. Now again, if in fact -- and maybe Alfred can speak to this -- if in fact we get more subs sooner and we need to pay more launch support or whatever the business may require more capital sooner. But that is actually a good thing, because that shows we will be ramping up more quickly. Based on a base case scenario model it's probably about 25% a year. Alfred did you want to add to that?

Yes, we, when we came back from the cable television convention, we got a lot of early interest from NSOs and satellite players. And you know, the issues is, all right, what's the deal?

What's it going to cost? Therein lies the battle, because distributors would like to get their cost for programming down to zero and programmers want the distribute to pay for it. So we're in the process now of putting together different offers that assume some richer deals for the distributors, but give us more subs faster, and what that does to the business plan. But if we're able to get that to happen, we'll have more subs faster and the business plan will break even faster. And it will be more valuable in five years.

I hear you. One other thing, just a small point. Dayton, did you close on that deal?

Yeah, we did.

Okay. So that's -- so where are we right now on our cash balance? We had almost 85 at June 30th. And then the -- the

I can't -- I mean, you can -- I don't know if can I comment on interim balance sheet. But we did make an $18.5 million investment in TV One. We do have a semiannual interest payment that's due in early July that obviously we made. And then you're right, Dayton, was another, I think it was about an $8 million residual funding.

So, we're lower than where we ended the quarter, certainly. But we're still generating free cash, and we expect to build back up our free cash balances as we operate through the quarter. I mean, there's obviously always different balances at different points in time during the quarter. But most of those big payments in Q2 are behind us. I'm sorry, Q3. Most of those big payments in Q3 or the big investments in Q3 are behind us.

That helps.

Okay?

Thank you.

You're welcome.

Tim Wallace of UBS you may ask your question.

Thank you. On your guidance for the third quarter, if you're able to do the high end of that guidance meaning 4% revenue growth are you comfortable with flat expenses?

And then second, on the comments you've made on August versus September, September looking pretty strong, and August being confusing or weak, could you provide any more color on why you think that might be happening? Is there anything going on in the industry that would explain that, rather than the simple explanation of advertisers just being nervous to advertise in August?

And then finally, Alfred maybe you could comment on the situation with the Mapleton investment? Is there anything new there? That's your station in Atlanta. And maybe you could comment about the Atlanta market overall, how Atlanta looks.

Could we revenue 4% and keep expenses flat, the answer is yes. You referred to September as strong, maybe that's what I said, September actually what I said in my opening comments was that it's actually slowed about 150 basis point from last week. It's up in the mid single digits. But again, we're somewhat cautious just because of what appears to be a modest slow down in the past week. August is, in our markets where we get forward pacings, negative. And M. C., can you address the dynamic of August?

I think it's just a continuation from the beginning of the year. And I think it's that simple.

It's just a -- it's a highly volatile, variable environment right now. And you know, you'll go a month or two with some decent results in terms of what the markets are showing. And then you'll, for whatever reason, there will be a slow down and the numbers will, you know, in some cases go negative. I just -- I haven't been able -- it's interesting when I talk to the managers I get a sense that they feel as though things are improving. But then you look at sellout rates they're actually pretty healthy, but you look at the market pacings and you see a lot of red. That's why it's so confusing and it's highly variable across the country.

Scott, looking at July, did July come in at the end of the month and is that possibly what's going on in August or was July smooth all the way through?

My sense is, and M. C. might have a different sense, was that July was probably a relatively smooth month. There certainly wasn't any acceleration into the end of July. And it made have slowed a little bit. But July was probably a more normal month, albeit you know a low single digit growth not anything to write home about.

Right, that's exactly right.

To address your question about Mapleton, I am in the process of buying out the shareholders of that company. Essentially what I've had all along since we went public in 1995, were options to buy the six or so shareholders out over time, pretty much did sort of valuations that were in some cases, in most cases set way back then.

But my obligation was to give them the money to build the radio station, and also to pay off all the expenses that they had in litigating for the construction permit over a 11-year period of time.

So I'm in the process of doing that. Once that's complete, then I can turn to Radio One's board and its management excluding myself to make – attempt to make a deal with Radio One that's fair for both sides that brings it in house. I don't know if that means that the station will come in this year, or next year. That won't be my decision. That will be the board's decision, advised by Scott and Mary Catherine and our general counsel, Linda Vilardo. But that process has started.

The Atlanta market, we're doing -- we're doing very well there, from a company standpoint. But the market is very soft. I think that Atlanta has had sort of 12 to 15 boom years, and as a market, they're specifically getting hurt badly with the telecom and tech failures. Mary Catherine lives there so she may have some better color as to why Atlanta is doing so poorly as a market itself.

Yeah, I think it's finally time for it to slow down and become somewhat normal. The problems with Atlanta are the problems that any big city has. And the unemployment rate is not good. The other thing that has started to slow down is housing, which we've never seen that before in Atlanta. But now I'm starting to hear that as well. There's a lot of office space available too. So you know, we've got all the same problems as any big city.

But again, for us, we've got significant ratings momentum and we're converting those ratings in the medium and things are working. The competitive market is much more crowded than it has been in the past, the new Cox station seems to continue to be getting off to a very slow start. And we like our competitive position in that market very much.

Thanks a lot.

Kip Spring of Stifel, Nicolaus & Company, you may ask your question.

Is any of the interesting M&A stuff is any of that outside of radio?

No, it's not our interesting M&A stuff is our radio stations that we would add on to markets that we already operate in.

Okay. And Scott I think you mentioned there is 150 basis point slow down in pacings over the last week. Was that in national or local or both?

It was -- let's see, that's a very good question. I think it was -- well, no. That was just for the month of September. And that was just in, you know, a dozen markets where we get forward pacings. And it was spread between national and local fairly evenly.

Thanks.

Michael Russell of Morgan Stanley. You may ask your question.

Thank you. I was wondering if you could tell us maybe a little bit more about the TV One accounting. I know you said you paid the $18.5 million. But when do we see the impact on the income statement and equity affiliates?

I mentioned in my opening remarks that you'll start to see that in this quarter, when we-- Obviously what we'll be doing is, that is a separate entity which will have its own accounting team and its own outside auditor, and they will determine, on a quarterly basis, their bottom line net income or net loss. And then the shareholders in the entity, Radio One, Comcast and others will then take their pro rata share.

I can't speak for other groups, but our expectation is that that pro rata share will show up on our P&L as a single line item. It may be called income and/or, it continue be and, it would be income or loss in an unconsolidated subsidiary or some other heading and that's something we will be working through with our auditors this quarter.

Is there a range that you can put out for now?

I can't actually. Because the deal was just signed. In fact it was just funded on August 1st. And in fact, they spent this week working on their near-term and intermediate-term business plan and I think that they've still got some work to do on that.

Okay. And then on the Houston national problem, it seems like that's a hard one to fix because you're dealing with two rep firms with those specific issues. When does that calendar? It sounded like it started in the beginning of the year so we could see this impacting you for the rest of the year.

Or how do you even go about fixing that given the length of the contract you have given the contracts you have with both Cats and Interep?

You do what we have been doing and that is that that we are in contact with our national rep firm day daily. And we put pressure back on them. And we're asking for more accountability from them. It is getting better.

Generally, with the national rep firms you get out of them what you put into them. In this case, this kind of blind-sided us because we've done so well. National for us last year in Houston was just gang busters. I think they were a couple of million dollars over their budget. So it's just focusing on it. And we may have let it go a little bit, may have -- we did let it go a little bit too long before we really started spending time with them on it daily. And that's what we're doing now.

I would say that based on the numbers that I've seen, Kit, I think it was a phenomenon that started maybe late in the first quarter. Certainly, occurred throughout the second quarter. But if you look at our third quarter, there is -- there is much greater balance between national and local in Q3.

And the Houston market is down nationally, too. Which is -- it's one of the larger markets that's down pretty dramatically.

Okay. So it sounds like it's maybe little bit more of a one quarter than the beginning of the next four quarters issue?

No, that will not happen.

And then are you seeing the problem in any other markets? Is it the uniqueness of Houston being down or Interrupt and Cats --

There are some markets that we are somewhat disappointed with national but we, you know, have made up dramatically because of local doing so well. But you know, we're focused on both of them, you know, as I said on a daily basis right now. So I don't have any other huge complaints right now. That's the one that 2003-2004 most concerned about is Houston.

And then lastly I just have to ask this question given Mr. Schwarzenegger’s announce some there any way for California election dollars to flow to your station?

We are trying to get him on the Steve Harvey show so he will let us know.

Thanks very much.

James Marsh of SG Cowan, .you may ask your question.

You talked a lot about the Houston. I was wondering –it would be helpful to quantify what the Houston market did, both local and national and maybe what you did in your cluster local national?

And secondly you mentioned early in the call that markets like Philadelphia, Richmond I think Columbus, were also, I think the word you used was underperforming. I wanted to get a sense of what was driving that. Thank you.

All right. Let's see, Houston was for us, you know, down more than 20% nationally, flattish on a local basis. Overall, the Houston market, the market itself was flat with national down I think low doubles and local up low singles. So obviously again, the underperformance there was more nationally than locally. But the market itself didn't set the world on fire because overall it was flat and we were down low doubles. M. C., did you want to address--?

Sure I can --

We've taken some action in some of those markets--Columbus and Richmond, with regard to management.

Right. Well, Columbus has -- that's just a sales problem. And that's getting fixed. And that's just what it is. Richmond is a management, was a management, problem. And we've solved that.

Philadelphia, we have a situation where we've got two different formats. We've got an urban station, mainstream urban and we've got a modern rock station. And for a while, we were not as happy as we could have been with the urban station and the modern rock station would just, sort of move along, even when the ratings would go down that station would perform.

Well, now that's flip-flopped. The alternative station or modern rock station just had not a great rating book. And that is the case with that format around the country. If any of you are familiar with it, the format is not doing that well. And so they've sort of switched places. Now we've got the urban station really cooking and the modern rock station is, from a sales standpoint, is not doing as well as they should. And --

The market's soft as well there.

Yes, it is, exactly. But we still should be doing better. And we addressed Houston.

Thanks a lots.

Alissa Goldwasser from William Blair.

You changed your name again?

Every year or so. Just wondering whether the pillow tax (ph) layoffs in Charlotte are affecting your stations in Richmond and elsewhere --

The what?

Pillow tax.

No, not at this point.

Great, that's it thanks.

David Banks of RBC Capital Markets. State your question.

Four. Scott can you give us a sense of generally per quarter next couple of quarters until anniversaries, the contribution of NTR and independent promotion dollars, in your revenue mix just for modeling and thinking about the business going forward, we kind of know what to expect?

The second question is, what kind of revenue growth do you view as sort of normalized such that you know, we'll see expenses ramp up again? Like if you start growing four or 5% does that mean you'll ramp them up or do you need to be growing 5% or is it a function for outgrowing that industry? Sorry for that long question.

Third question is, can you clarify exactly what's going on in August? You were kind enough to give us a fair amount of visibility and no good deed goes unpunished. I wanted to make sure I heard it right. Are you kind of pacing negative for August or is that what your markets are doing or some of your markets are doing?

And the last question is, how much of the mix in third quarter revenue is comprised of September? And are there any kind of interesting back to schoolish category activities going on in September?

Okay.

Got that all in.

I got it all. I got it all.

That could be a whole conference call.

No, no. I hope it won't be. All right, with regard to NTR, there really are two categories. Well, there's three categories, probably three secrete categories. There is the special events, other income like tower rent and things like that and then the independent record rep money.

I would tell you that the special events revenue runs, you know, approximately $2 million a quarter. And if that's down, you know, 20-ish percent, you can sort of quantify that. The record rep money was several million dollars spread over the year. And this year I'm not sure if it's zero, but it might be headed there.

Okay.

Okay? Is that fair M. C.?

Yeah.

Okay.

Spread a couple million over all four quarters?

Yeah. Yeah. I'm going to skip No. 2, the normalized revenue. No I won't, maybe Alfred and M. C. would have something to add to it. I would say you're probably looking at sustained growth in the mid single digit range before we would probably look to start hiring folks enmass and start pushing through salary increases. Alfred? M.C.?

I got mixed emotions. If we've got a trend line coming up comfortably 3% or 4%, I don't think we can hold employees at bay forever on that. Maybe the salary increases are something smaller than they've been in the past. But I think a mid single digit number is what I was thinking too.

But again, at some point in time if you are making more money on your top line, you know, year after year or quarter after quarter, you got to give something back to your employees.

But I think what we've shown or hope what we've shown, because at one time people were concerned about our expense growth, expense growth rate, is that we meaning all aspects of our business, and control that given the environment. So we'll be prudent and fair in managing our expenses versus our revenue growth to not only please shareholders but also be fair to employees.

With regard to August, looking at -- we get forward pacings in a little more -- in about a dozen markets. And for the most part there are larger markets. So those markets are pacing in aggregate and negative for August, we are pacing positive.

And then in September, you asked I think I understand the question, you wanted to know what percentage September represents for the quarter. It's actually, our business is actually amazingly smooth after you get out of the first quarter. September is right now looking like it will be about 32% of the quarter. And August is actually right now looking like it will be the last quarter at 34%, with obviously July at 33% and obviously there's some rounding here.

But because of back to school, which was I think another component of your question, I mean, we actually given our number of younger stations I think we get a fair amount of that business, is that accurate M. C.?

Yeah, it is accurate. But I have seen clients pull back this year a bit on that.

Why do you think that is, M. C.?

I just think they're being cautious. I mean what we saw kind of probably in mid July was all the big department stores that you generally get some significant dollars from-- They were either kind of cutting their budgets, and I know in one case when I was -- can't remember what market it was, but it was Dillard's they cancelled the whole market. Which is not good. I think they're just being cautious.

Thanks a lot.

Thank you.

Michael Weissberg of ING, you may ask your question.

It was interesting what you just said Mary Catherine. But my sense has been rather than specific categories that are weak, it is more of a weak pricing environment that's hurt you more than specific categories. Is that wrong?

It could be a combination. You're probably right.

I mean, Michael, hi. I think there continues to be some pricing issues in the industry, I really do. And M. C. was pretty clear in terms of her opinion on that and I think we are aligned, she and I. And so I don't think we're out of the -- completely out of the woods yet on the pricing dynamic in the industry although it is certainly better than it was early in the second quarter.

But with regard to categories and again most of the data is looking backwards. But you've got certain categories like travel transportation government public food and beverage various services businesses even health care, and certain entertainment categories that year over year are down. And you know, again, there's a price aspect and a quantity aspect.

But my sense is that, all those categories you know given the dynamic of the economy with respect to travel and local budgets which is where the government public money comes from the health care industry, I bet you that there's a fair amount of lack luster quantity demand on the part of those industries. Automotive continues to be strong, certain retail categories are strong, certain are, not as strong. Telecom continues to be very strong.

So I really do think that it's a blend. But I do think that it's more than just category weakness, that there's still some pricing issues out there.

Right. And Mary Catherine you made an interesting comment that the clusters are, you know, giving away advertising on some of the stations to attract advertisers. Is that something that's -- you've seen getting worse in the last year, when business started falling off after February?

Yes, absolutely. There's just so much pressure that I think in certain markets, certain groups are scared not to do it. And what that does is, it hurts -- it hurts the whole market. I mean, you know, I remember the years where there were real, you know, rate leaders in the market. And it's hard to identify who those people would be anymore.

Michael Weissberg And what percentage of revenue comes from national, is it about 20%?

What percentage of what?

What percentage of revenues comes from national?

Approximately 30%.

Michael Weissberg 30% great. Thanks a lot.

You're welcome.

Zimmerman from JMG capital, you may ask your question.

I was just wondering if you have given any thought to calling in the convertible preferred?

A lot of thought. Every time we think bit we come to the same conclusion which is you know calling it, again, calling it what does that mean? If the stock price is at 20 and we call it for the most part we would expect that people would convert into common which is our ultimate goal.

If the stock price is not above the conversion price of $18.73 then you've got to be prepared to finance it with cash. And you know it's $310 million plus transaction fees and a bit of a premium today. And we just think that our capital and our access to capital is better utilized continuing to grow the enterprise.

We don't want to overtax the balance sheet. The banks do not count the convertible preferred as debt even though investors for the most part do. And so if we were to call it we'd have to borrow against our revolver, we'd have to come out of pocket with some of our free cash. We might have to do another, you know, bond deal or a larger bank deal and that just means more leverage on the company's books and we frankly don't have any interest in that. And so, the bottom line is and I think we've been pretty consistent on this is, you know, we are, you know, we are bullish on our business. We are bullish on our company. We believe that over the course of the next six to 12 to 18 months we're going to be able to drive the stock price higher and ultimately we'll be able to get the converts to convert into common which is a nicely accretive transaction. And it will further clean up our balance sheet. And that's our goal.

Great, thank you.

Andy Van Houton of Deutsche Bank, you may ask your question.

Aaron Watts sitting for Andy. Most of my questions have been taken care of but I have general one. Urban music sort of continuing to play a dominant role in the mainstream music sales and radio play, have you felt any increased pressure of late in your markets from some of the more, you know, top of the chart mainstream station or have you found your audiences sticking with you in that regard?

You mean do we feel our listeners are going over to the mainstream stations?

Sure.

Oh, no. No. I mean, occasionally you know, listeners may try out a new station. But if it's a mainstream CHR station we don't share with those stations. Maybe your rhythmic--we would, but you're right. The music, hip-hop music is the biggest music out there. And that's one of the reasons actually that we're suffering somewhat in Philadelphia with our modern rock station. Because the demo regardless of race, that's -- or if you're male or female, that is the biggest music out there for everybody.

So that's actually hurt rock music, alternative music. But we don't see -- we don't see any significant sharing with the mainstream CHRs.

Okay, thanks very much.

Uh-huh.

At this time, sir, I have no further questions.

Okay, Alfred.

I'd like to thank everybody once again for your support and we'll talk to you next quarter and if any of you need to catch up with any of us, offline, feel free to call. We'll be happy to answer any more questions. Thank you very much.

Thank you operator.

Thank you for participating in today's conference.