Urban One Inc (UONEK) 2004 Q4 法說會逐字稿

Thank you. Hello and welcome to the fourth quarter 2004 earnings release conference call. This conference is being recorded for instant replay purposes. All lines will remain in the listen-only mode until the question and answer session. At that time, if you would like to ask a question, please press star, 1 on your telephone touch pad.

I would now like to turn the conference over to today's host, the CEO and President of Radio One, Mr. Alfred Liggins. Sir, you may begin.

Thank you, everybody, for joining us for the Q4 conference call. As you know, we've released results and guidance for Q4. Net revenue's up 3 percent and station operating income, up 11 percent.

Joining me today is Mary Catherine Sneed, our Chief Operating Officer and Scott Royster, our Chief Financial Officer. And I'm going to turn it over to Scott. He's going to read a little something and then go right into the numbers, and then we'll go to Q and A.

Good morning, everyone.

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

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

Radio One had a good quarter in Q4 2004, to end the year. The Company out-performed its markets by approximately 300 basis points, expanded its margins, launched several new stations in several large markets, announced the acquisition of Reach Media, the platform for Tom Joyner, who is by far the leading personality in urban radio, and saw its affiliate company, TV One, announce a huge distribution deal and partnership with DirecTV which takes TV One on a course to break even well before the original plan.

Since the end of 2004, the Company has taken meaningful steps to enhance its balance sheet and liquidity by selling $200 million of high yield bonds at 6 and 3/8 percent, apparently the lowest yield ever for a single B-rated broadcaster, and by announcing the redemption of $310 million of its preferred stock. 110 million of that redemption occurred yesterday and the balance will occur next week.

This refinancing reduced the Company's cost of capital and removed any potential dilution to shareholders through potential future conversion of its preferred stock into common stock. A win-win if ever there was one.

The Company is now in negotiations to put in place a new bank facility to refinance its existing facility, which may very well further reduce the Company's cost of capital and will provide the Company with significantly more flexibility and liquidity, through lower amortization requirements in the near and intermediate term.

So all in all, not bad for a company in an industry which many investors have written off as dead. Radio is not out of the woods yet, but there are many pieces in place that are encouraging signs. And as far as Radio One is concerned, well, we are still in the very early innings of building what will undoubtedly be the most effective, influential, and important urban media vehicle in the country.

As for the numbers, the Company reported 4th quarter revenue of approximately $79.5 million, up 3 percent from the prior year period. Overall, the markets in which we operate were flat year-over-year. Standout markets included Atlanta, Cleveland, Charlotte, Dallas, and Raleigh, while L.A., Detroit, and Philadelphia were challenges.

Local was particularly strong fur us, while national was soft. More on the local/national divergence later in the call.

Operating expenses, excluding depreciation, amortization, and non-cash compensation decreased 4 percent to approximately $37.5 million, due primarily to a reimbursement of approximately $3.4 million from a vendor, pursuant to certain requirements of a performance based agreement, and an approximate $1 million one-time net adjustment, due to the radio industry's new contract with ASCAP. Without these items, this operating expense category increased by approximately $2.9 million, or 7 percent, due to, among other things, investments in new stations started in the quarter; costs associated with the ramp up of our Internet initiative; and higher corporate expenses, due primarily to Sarbanes-Oxley 404.

Station operating income increase 11 percent to approximately 46.3 million, and adjusted EBITDA increased 10 percent to approximately $41.7 million, while the adjusted EBITDA margin increased to 52.4 percent from 49.1 percent.

Net income per share applicable to common shareholders was $0.13 versus $0.09 in Q4 of 2003 and free cash flow was approximately $22.2 million.

As for the balance sheet, we ended the quarter with an outstanding debt of approximately $620 million, up a bit from the same time in the prior year, due to borrowing to fund acquisitions, partially offset by continued scheduled quarterly paydowns on our term loans. An approximate $13.1 million paydown was made out of free cash flow at the end of the quarter. And debt to EBITDA for bank covenant purposes was comfortably under 4 times.

Cap Ex for the quarter was approximately $5.5 million and ended the year just under $13 million and in line with prior guidance.

Looking forward, there are reasons to be cautious and reasons to be optimistic. Our markets were up in the low single digits in January, as were we, but business appears to be improving modestly, month by month. I dare say that, in some markets, local is very healthy, and that is a very good sign. National continues to be, to borrow a term from Alan Greenspan, a conundrum, and I know M.C. and Alfred are very focused on solving that puzzle. And obviously, as our new stations start to kick in later this year, that should give Radio One some wind at our backs, in addition to a number of strategic programming moves we have made or will make across the Company during various points in time this year.

With all that said, we actually feel more optimistic than we have in a while. We actually outperformed our markets locally by more than 500 basis points in January. And for the first time in a while, our forecasts have been creeping up. But those who know us know that we are, by nature, cautious and conservative and we are not yet ready to pound the table for radio yet. But perhaps a little light tapping is in order. Time will tell.

So, for Q1 we think our revenue will be up in the low single digits, and due to continued investments in our new stations, our Internet initiative, and the continued costs of running a company that continues to have tremendous growth prospects, expenses should grow somewhat faster than revenue, and thus we are expecting station operating income to be down in the low single digits. This is also partly due to the fact that, in a high fixed cost business, even modest cost increases have more of a negative impact on a seasonally low quarter than not.

And while -- while I always hate going out on a limb, if current trends persist, the opportunity to outperform this admittedly tepid guidance is actually pretty good. Time will tell.

Lastly, we do expect our Reach Media acquisition to close later this quarter and we are optimistic that TV One will continue to perform above expectations, both in terms of sub-growth and revenue growth.

If the first six weeks of 2005 are any indication, Radio One is in for a very busy year, a year in which the groundwork should continue to be laid for a very exciting future. Alfred?

Thank you very much. Operator, why don't we just go right to Q and A.

Thank you. At this time we'd like to open it up for questions. If you have a question or comment, please press star, 1 on your telephone touchpad at this time. We do have questions in queue and the first question comes from Bishop Cheen from Wachovia.

Morning, Bishop.

Good morning. Just a couple of questions. I think you explained it as far as the (inaudible) and what you're guidance were. Let me go to your efforts to get a broader reach of sales. Can you give us some color on any initiatives, company-wide, that you are doing to expand the advertising base for the audience you deliver?

It's funny you should mention that, because actually, Mary Catherine and I just got back from Minneapolis. It's where we were the last two days. Minneapolis is home to a number of big retailers, 2 in particular: Target and Best Buy . And we were in there with all of our divisions, our Radio group, our new Internet effort, the guys from TV One were in there, talking about the value of the African-American consumer and the platform that we now have and how we can think outside the box and do new and unique things to drive sales for those companies. So we're focus -- we're very focused on it, as a matter of fact, and yesterday was a good example of that.

So it's, again, you know, nascent, because one, Radio One has just been this size over the last, you know, call it, you know, three years or so. And our Internet effort's just rolling out. And TV One just sort reached a critical mass of distribution where it starts to make a lot of sense to advertisers. But that's just one example of us trying to pull it all together to increase share for the demographic.

We have a corporate sales department that Mary Catherine put together which had a slow start in the very first year, but last year recently really had a strong year, significantly B budget, and is off to a very fast start this year.

So, you know, we're not in a highly equisative mood. We're in an operating mode right now. And we think that we've got -- we think that we have a gateway to marketing to African-Americans that advertisers are going to want to take advantage of and we're selling it to them.

Okay. Also, during your comments, you don't have to do it now, but would you just comment, any color you can, on the structure that you're looking for for the new bank deal that I guess you'll be inking in the next 30 or 45 days?

Well, might as well comment on it now. You asked the question.

We're going to market fairly soon to look to do, I guess what I would describe as a fairly plain vanilla bank deal. I mean, it's still in the very early stages. Currently our bank deal is a combination of term loan and revolver. And I see no reason why we should necessarily do anything, you know, frankly, very different from that. The size and the split between those two may be different. I guess in theory it's possible. You know, we do revolver, term loan A and term loan B. But to some extent we've kind of addressed the longer term patient capital needs of the Company through the recent sub-debt offering.

Very mindful of the fact that, you know, we have a $300 million sub-debt issue that's callable next year in June, July of next year. That sub-debt is at 8 and 7/8 percent. Obviously, you know, relative to where we just raised sub-debt and relative to our cost of bank debt, there are significant savings opportunities associated with taking out that 300 million, either at the call date or I guess, in theory, potentially before then. So we certainly want a bank facility that is flexible enough and accommodative enough to be able to address that $300 million sub-debt issue at some point in time as well.

So, you know, like you said, 30 to 45 days, I think that -- you know, I would probably say 45 to 60 days and very focused. The bank market is white hot right now. We're a very well-known credit and had some very good meetings and very excited that we're going to be able to put in place a deal that, all in, is more attractive than the one that we have now, so -- and the one we have now is, frankly, pretty attractive.

Okay. Thank you, Scott.

Thanks, Bishop.

Our next question comes from Sean Feely.

Good morning.

Hi, Sean.

How are you? Two quick questions.

One, on the national side. Are there any particular categories that are weak, or is it just kind of across the board? And then secondarily, just on the fourth quarter, how much, if any, was political in the quarter?

You want to answer the political question?

Yes, political [inaudible] across was several million dollars as we had said previously. And, you know, I think that was, you know, a little better than in the prior primary election cycle, meaning, you know, in 2000. Obviously, we're a little bigger. But I think it was -- I wouldn't characterize it as that much of a positive surprise. It came together very late. And it was concentrated in a handful of markets. And, you know, obviously won't be there again this year to that level.

On category you might -- any particular category, just in the national?

Well, you know, I think automotive -- it's always hard to set because we look at -- we tend to look at categories, you know, sort of -- and not necessarily break it down, national versus local. So M.C., maybe you can comment more anecdotally, but, you know, I would say that automotive has been a little soft.

But, you know, for the most part, if you look at it from an overall perspective, you know, there's fairly decent strength across all the various categories. You know, again, it's all relative, of course, due to the fact that the industry is kind of in this flat to low single digit growth mode.

Yes. It has -- it's not isolated to any particular category. One thing we have encountered in the last maybe six months that I haven't seen a lot of is the "no urban" dictates. And what's happened in several cases is they're masked by just a client or an agency saying, well, you don't meet the qualitative, which, in most cases, we really do, or different demos. So, we've actually had battles with some clients here in the last 6 months to try to get that turned around. And actually have been successful in a couple of cases. But I've seen more of that in the last 6 months than I have in a while.

But, Sean, just to, you know, sort of give you some color on the -- again, the continued huge variability. I mean, looking at the fourth quarter and looking at the markets in which we operate, National was down as much as 26 percent in one market. This is for the market. And up as much 30 percent in another.

And you know -- so, and every number in between is represented it seems. It's truly unbelievable. I mean, sort of looking at this, scanning it, about half the markets were down nationally and half the markets were up nationally. And in each one of those, roughly half were down double digits and half were up double digits. So, it's -- t's really -- I think conundrum is the right term. Because that's just National as far as the industry is concerned, and the, you know, of course, we've sort of alluded to some of the challenges that we're having nationally, which I think are somewhat, you know, I mean, M.C. just referenced some nonurban dictates. There may be other issues that we have to work through as well, in terms of, you know, the relationships we -- that we have with various rep firms, et cetera.

Okay. Thanks.

Thank you.

Our next question comes from Drew Marcus.

Thanks. Two questions.

First, on -- a more mundane one. Presumably there were some one-time implementation costs with Sarb-Ox. And then -- some ongoing costs. Could you try to quantify the one-time costs which affected '04 but won't affect '05?

And then, secondarily, given that you, in essence, outsource a lot of your national sales to your rep firm, how do you affect change there going forward?

With regard to Sarbanes-Oxley, you know, again, the whole Sarbanes-Oxley process started late in '03. And I would say that there really wasn't any implementation cost because it was an 18-month project. I would say that the cost ramped up through the year as there was more activity, more work, and then, you know, you bring in your outside auditors in the final stages of the process to basically sign off on everything that you've been doing, all the analysis and work that you've been doing.

You know, a million-ish dollars, overall, was probably the cost in '04 for Sarbanes. That's just direct cost. New cost to the Company. I don't even want to think about what the indirect costs were, because of all the management time and attention focused on Sarbanes.

Unfortunately, I do think that we are living in a world where, while the costs may shift in terms of what, in fact, you're spending the money on and for what reason, my sense is that, you know, the costs in '05 won't be, frankly, that much less. I don't think they'll be more, but they won't be that much less. Because embedded now in everything that we do is a higher cost associated with what our outside auditors charge us on a quarterly and annual basis. And there are probably, you know, positions that we are going to need to hire into permanently to help us sort of maintain compliance with Sarbanes-Oxley, whereas last year, you know, we subcontracted that out to various parties, various individuals.

So, you know, I would say that my expectation is the cost will be flat year-over-year, maybe down a little bit. And then maybe, in time, it comes down modestly from there. But, you know, again, I'm -- it's hard to look that far out , relative to Sarbanes and really know sort of what the year, 2-year, 3-year, 4 cost requirements are going to be. So, as it relates to this year, let's just assume the cost will be flat year-over-year.

National, that's a good question. And we're -- it's probably the single biggest item that we're focused on right now. And I don't know the answer to that question, because the -- the -- basically it's been Interrep and cash forever, because the national rep industry consolidated years and years and years and years ago. Obviously, Clear Channel owns Katz, which is problematic, and Interrep, just as an organization, is the weaker of the two from the -- you know, from the financial standpoint.

So we've got -- and we're roughly split 50/50 between the two entities, which also poses problems for us. At one time, we thought that it made sense because we could have them compete against each other. But we also have some disadvantages from not having all of our stations under one roof.

So, I don't know what we're going to do. We're focused on it. That's the -- that is the hot e-mail item over the last three days. So, we'll let you know. But we're going to do something.

Yes. And we -- we just had our quarterly meetings with both rep firms and we did establish some new systems to invite more accountability from both of them.

The other thing that we also have done is we've added a couple of new people to corporate sales, because at the end of last year I could see that this was not looking like it was getting better. And we got two more people based out of Los Angeles, focused on entertainment, which is a huge category for us. Because we just can't sit around and wait for the rep to catch up with us. Our corporate sales department has been stellar at selling our entire group. As Alfred said, you know, they got off to a bit of a slow start, but last year they just killed their budget and, you know, they're all already way ahead of the curve right now for this year. And I know that will continue.

So, we're not just sitting around waiting for it to get better. We're doing something about it.

The problem with the traditional rep business is basically, they're just transaction oriented. They handle transactions between the agency and the radio stations. They've never been great at creating new business and affecting share shifts between mediums. And, you know, that's -- you know, that's the way it's always been.

But the problem, you know, is that things have changed. And, you know, where they've changed is, radio as an industry is under more pressure from a share standpoint because of dollars going to the Internet and dollars probably going to local spot cable. And also the ownership structures have changed in the rep business.

So, you know, it's a solvable problem. You know, we've got great brands, we've got a great platform. By and large, we've got strong ratings in big markets. And when, you know, somebody gets in front of the right person and tells a story, we get money. You know? And so we've got to -- we've just got to figure it out. And we're in the process -- as Mary Catherine said, those are just some of the early things that she's implemented to start correcting our problem, but there's much more to come.

Operator, next question, please.

Our next question comes from Victor Miller.

Good morning.

Hey, Victor.

Last year -- I'm sorry. Excluding corporate expenditures, your operating expense was up about 5.6 percent in fourth quarter. Last year, your operating expenses were down about 6 percent because of less NTR hiring freeze and your cutback in marketing and promotion. How much of that 5.6 this year is really catchup from last year's 6 percent decline and how much of it is related specific to the on-air Internet and the acquired stations?

And then Scott, could you break down that $4.4 million between the programming, technical , and SG&A line? The ad-backs, so that we can get a sense of what the real year-to-year changes were in those 2 categories. And then I have a revenue question follow-up.

Well, the 3.4 million was -- came out of sales, SG&A. And the 1 million was in programming.

And with regard to your other question, I mean, I -- we don't have that level of detail, probably not prepared to provide it to the marketplace. But, you know, at the end of the day, I mean, if you just sort of look at it from a bigger picture perspective, you know, the Company lifted its hiring freeze, its wage freeze, you know, effectively around the middle of the year. And, you know, and so obviously you've got some catchup there associated with, you know, operating in a more sort of steady state nature.

And then the newer items, you know, probably represent 100 to 200 basis points of the increase in expenses, meaning the Internet and the new stations.

Scott, on the revenue side, if you look at the Internet initiative and you look at the acquired stations, I imagine they're probably baring more cost than revenue at this point.

That's exactly right.

Could you give us a sense of what you expect the revenue growth contribution could be from these 2 initiatives? And then, do you have any sense of what the business would be like, first quarter, if you had pro forma, the Reach Media in there? Or will we have no sense of that until you close it?

I don't think we're prepared at this time to provide specific guidance for the three new stations and the Internet initiative. I mean, suffice it to say that, you know, the vast majority of the '05 revenue for both the new stations and the Internet will happen in the back half of the year. And, you know, I would say that the numbers are extremely small for Q1 for both of those categories.

And with regard to Reach, given that Reach is a private company, we are really not at liberty to discuss what their financial results are until we acquire them. And so I -- unfortunately I can't answer your question about pro forma-ing in Reach, given that that would, obviously, provide financial information on the company prior to our acquisition of it.

What we have provided historically is the fact that we expect Reach to do roughly $50 million of revenue in '05. We've also said, then, about $12.5 million of EBITDA. But again, that would be EBITDA under our ownership. All right? Because what we've said in the past is the company is, as a private company, not run necessarily to maximize profitability. There are compensation plans that change following our acquisition of the enterprise.

And we've also said that the business in '05 ramps up to some extent so that, you know, the back half has somewhat more revenue than the first half. And so, you know, hopefully, from that, I mean, it's a fairly simple, straightforward business, that the core business is fairly straight-lined over 12 months. So hopefully from all that information you can sort of deduce, you know, kind of what Q1 reach might look like, independent of Radio One.

And did you ever, Scott, provide what '04 looked like on the revenue and on --

No. Not -- not for Reach.

ROIAK view? You know, of what cash flow would look like if you had run it last year?

No.

Okay, thanks.

Thanks.

Our next question comes from Jonathan Jacoby.

Good morning.

Good morning.

Just 2 questions here. If you could give us some color, if there's any differences in February and March trends. Sounds like, you know, from sort of a low single digit January, perhaps things are getting a little bit better.

And then the second question, any impact from "Less is More" in your markets? I know, obviously, there's a difference in format, but still, are you seeing any benefits?

Well, why don't I take the first -- well, I will speak to the first quarter sort of evolution, if you will, and M.C., if you want to obviously add some color to that, and then, I guess, "Less is More" is something that M.C. and Alfred can discuss.

But as of right now, we are seeing modest upticks in business as each month goes by. There are certain metrics, certain ratios that we look at that, you know, get us comfortable or not with our forward-looking perspective, you know, out maybe three months at most. And those metrics are pretty solid.

The growth numbers seem to be picking up, as I had mentioned in my comments. Each week for the last several weeks we've seen sort of a modest uptick in our forecast. And so certainly there's a little mini trend there, in terms of improvement. And so you can sort of look at the glass as being half full or half empty. I think for a variety of reasons, I'm going to sort of take the "glass is half full" perspective, just because when you kind of put all of the data together, it actually looks pretty good. But again, we've kind of seen this story before, and in some cases we've been right and in some cases we've been wrong and in some cases the glass has been half empty. So we're still very cautious.

But I am thinking that, particularly given the fact that fundamentally the industry appears to be really focused on its issues, that to me provides a higher level of confidence that, you know, not only can Radio One continue to see its growth rate accelerate, but hopefully the industry will provide additional momentum. And so that's kind of my current take.

M.C., do you want to add to that at all?

Well, I think you were exactly right.

And then, I guess, on "Less is More" --

I don't know. I mean, you know, Mary Catherine, are you guys -- have you seen any sort of uptick in, you know, price strengthen because of reduction by Clear Channel inventory?

Not at all. There's -- we haven't seen any real impact. And I surveyed our markets and I have a list of advertisers that's pretty small for all of our markets that actually have bought the 30s. I think it's, you know, it's still early, though. So, who knows how it's going to shake out. But one of the issues is that perhaps they're selling the 30s for less than they initially thought they would. A smaller percentage of the 60s.

And I think there are a couple of markets, too, where they've actually sold out of 30s, which, you know, I understand, even through March, there are a couple of our markets where they're sold out of 30s. So, that could end up being an issue for them. But no real impact from us.

The market, of course, where it's had the most impact is Los Angeles, because it's the biggest market that we're in and they're in. So there are probably a handful of clients there that have signed up for 30-second spots. But as far as any of the markets, when I surveyed them yesterday, there's really no real impact. Not yet.

Thank you very much.

Our next question comes from Jim Boyle.

Good morning.

Good morning.

Mary Catherine, how are your cost-per-points in Q1 versus last year's Q1 ad rates? Are they higher or lower?

I think it's mixed. It depends on the market. I couldn't say that they're higher overall or lower overall. It would just depend.

Okay. And you had mentioned that if things are so much better for Radio One on a local basis by over 500 basis points in your markets in January, what's that mean for either National or for the markets themselves?

Well, National is underperforming. I think we alluded to that and spent some time on it already. I mean, it's disappointing. We're not happy with it, so we're -- are taking steps to make sure that we can improve it, either through more accountability through the rep firms or through our own corporate sales department, which I think really kind of functions as a rep firm in some instances.

The one thing that the corporate sales department has that the rep firms don't is the ability to sell the entire group, which, you know, and we can -- we tell our story better than anybody, I think.

In addition, we're really starting to work more closely to TV One . As Alfred said, we just spent the last couple of days working with them on some pretty significant advertisers. And I think that, you know, as we go through this year, we're going to start to see, really, the strength in this total platform.

We've also started to work with the Tom Joyner Morning Show on a national basis as well, bringing that into the fold with TV One and with the radio group.

So, what -- if National was weak, continuing into January, but Local is very strong, how were your markets in January? Were they up or down?

Our mar -- as we said in our -- as I said in my comments, our markets were up in the low single digits overall, as were we.

Okay. And finally --

But Jim, you're absolutely right --

-- one million vendor reimbursement: what is it?

We -- clearly, the language that we've used to describe that was written by a lawyer. And we can't say other than what that language states.

You can't say whether it was a performance kicker or a misguarantee?

It was the latter.

Okay. Thank you.

Thanks.

Our next question comes from Spencer Wang.

Thanks. Two quick questions.

Scott, your guidance for the first quarter seems to imply expense growth of something in the mid to high single digit area. Should -- is that what you would expect for the full year or are there some timing related issues that make the growth higher in the first quarter?

And then secondly, can you just talk about your Cap Ex expectations for '05? Thanks.

Yes. I mean, we haven't provided any, as you know, full year guidance relative to revenue or operating income or EBITDA, or for that matter, you know, given that expenses. And so I'm not going to answer the question directly, because obviously, how we run our business, to some extent, is reactive to the state of the industry, the state of our business. And so there are always opportunities for -- for adjustment.

We have also said, however, from a sort of bigger picture perspective that we do believe that, in this environment, you know, independent of salary freezes and wage freezes, you're probably going to -- you're probably going to see low to mid single digit expense growth just at its core. I'm not sure how you necessarily avoid that, frankly.

And then as you have initiatives kick in, you know, clearly those, the expenses associated with supporting those initiatives will drive your expense growth potentially even higher. So I think time will tell as to exactly what expense growth is for the year. But, you know, I think what you're finding in Q1 is expense growth that's, you know, roughly similar to the expense growth that we saw in a Q4 and for a lot of the same reasons.

Okay. And on the Cap Ex side, Scott?

With regard to Cap Ex, what we've said, again, we haven't provided the '05 guidance, but what we've said historically is that, you know, we think a good range Cap Ex annually, given our size, is roughly 12 to 15 million -- 12 to 14, 12 to $15 million a year. Last couple of years has been consistent with that. And today, you know, where we sit, we don't necessarily think '05 will be any different.

The only thing that's somewhat new to the equation is, you know, iBiquity and HD radio and those conversions, which, you know, we've agreed to do over a 4 year time frame, so we could absolutely maintain that sort of Cap Ex range with a 4 year rollout. If, for whatever reason, we chose to accelerate that rollout -- and I'm not saying that we're going to -- but other broadcasters have said that they were going to, you know, maybe Cap Ex has a little bit of a blip up associated with that. But assuming a 4 year roll out, all other things being equal, I think the 12 to 15 range is a good range.

Thank you.

Sure. Thanks.

Our next question comes from David Bank.

Thanks very much. Morning.

Morning.

Couple of questions. First one, can you comment on the sellouts that you're seeing, you know, this year versus a year ago, particularly at this point for March and April? And then just one other follow-up.

Mary Catherine?

Yes. A couple of markets are sold out for February. One of them is Houston, which is good news. That's a market that we're very proud of. It seems like it's just really turned around. We have new management there we're very happy with.

But -- I think there were only two markets that are sold out for February, and sellout looks decent for March right now. But it's a little bit too early to tell exactly where we're going to end up there. But I think there seems to be more pressure on the inventory right now, this time of this year than it was last year, for sure. So that feels very good to me.

Yes, and in terms of we -- we also tend to talk a little bit about percentage of goal, which there tend to be some correlation with sellout, although you have to be careful there. And as of last Friday, we were at about 60 percent of March. Which is actually very healthy. And so in course of the first quarter, you're always going to have lower sellouts than the rest of the year, particularly as it relates to January and the first part of February.

So, you know, with March being sort of the first big revenue month in the industry, to be at 60 percent means that -- you know what? There's -- there's pretty decent monument out there and we feel very good about hitting our plan for March. And early signs from a couple of markets for Q2 are actually pretty healthy as well. So again, when we talk about our -- the signs of encouragement, we're not sort of sitting here and saying, all right, well January was okay. February, in the midst of it, looks pretty good. I mean, we are looking out to March and April and May, and just the dynamic seems more positive than it has in a while.

Okay. So if you were to quantity that -- that -- about 60 percent of March you're seeing now, you think that was a year ago, like, you know, 500 basis points lower or -- you know, how much better is it?

This is Alfred. I mean, we don't really do that level of analysis, you know, on a real time basis. We can go back --

Actually, yeah, with regard to that number, last year it was 56 percent.

Okay. So 400 basis points better. Okay.

What did you just say, David?

So, 400 basis points better.

Yes, that is correct.

Okay. And -- just, my quick follow-up is, Scott, you said I think, in January you guys grew about what your markets grew. In the fourth quarter, could you just review what was your growth versus your market's growth?

It was -- yes. We were up 300 and the markets were flat.

Okay. So, you know, any guess as to why -- I mean, I know it's only January, but I got to ask. Like, why you think you performed in line in January versus outperforming 300 for the fourth quarter?

It's a national problem.

Okay. Okay. Thank you.

Yes.

Our next question comes from Lorraine Mancini.

Thank you. Couple of quick questions. Not to beat a dead horse on expenses, but you mentioned earlier that your wage freeze rolled off in mid year and that there was catch-up from that. So, can we assume that the expense growth might taper at the back half of the year or will programming investments maybe just keep it steady across the year?

Second, L.A. is a really large market for you. You said it was soft. Is there anything specific going on there that you can point to and does it look better in 1Q?

And finally, will your new bank agreement likely have a covenant that allows you to participate in M&A activity if Viacom offers stations for sale that you would be interested in and would you do equity for asset swap, like Spanish Broadcasting did?

That was a lot of questions! The horse is dead. It's actually glue now.

I mean, the -- the -- we're not going to talk about full-year guidance and we're not going to sort of, back door, have a conversation about full-year guidance with regard to anything. And so I guess if you want to sort of just talk generally and logically, yes, I would say that it is rational to assume that if there were, you know, new expenses associated with removing the wage freeze and the hiring freeze kicking in, that, you know, in theory that makes the comp on expenses a little bit easier. But again, there are other -- this is a much more dynamic business than just that. So, as -- as -- if you want to sort of isolate that conceptually and logically, I would agree with that.

Why don't I take the last question, with regard to the new bank facility: of course, absolutely. The bankers don't -- I mean, there are covenants in place that ultimately dictate from a big picture perspective what we can and cannot do with regard to financing the growth of our business. But we've always been able to do M&A. That's the kind of -- that's one of the things that we do as a company. Our new bank facility, you know, again, we haven't even gotten to negotiating the points yet, but I don't think that it will be, certainly, any more onerous than the one that's in place now, and hopefully we'll have a bit more flexibility in it.

And -- I'll let actually, Alfred answer the Infinity question as well as maybe Alfred and M.C., relative to L.A..

Yes. Let's take L.A. first. I mean, our ratings are off. It's plain and simple. They're off for the Steve Harvey Morning Show, they're off on the rest of the station. And we've got to do something about it. And so we're focused on that as well. That's, you know, something that we don't have a solution yet for.

We have -- we -- some time ago, many -- no, not many months, probably about, you know, four months ago, let the program director go. So we're searching for a new program director. And we've got to figure out just, you know, exactly what it's going to take in order to improve our position there.

As far as Viacom is concerned, we've heard some noise in the market that people are concerned that we're going to buy a bunch of Viacom stuff or overpay for Viacom stuff. Well, first of all, I'm not so sure if Viacom has actually decided to sell. They've been talking a lot, you know, and I know that they've talked to a lot of people. But, you know, they haven't engaged anybody to sell their radio stations, and quite frankly, I'm not even sure if, in fact, they've determined which stations that they're definitely going to sell or are not going to sell.

But if they did sell, I think the market doesn't need to be too nervous, because one, we're an urban radio broadcaster, as you all know. They only have a handful of radio stations that potentially make sense for us. We've looked at their portfolio and, you know, maximum -- maximum, there's probably a couple hundred million dollars worth of assets that we would find interesting if they decided to sell. Some of them are in markets that we already operate in.

And the answer to the question about would we use our equity in a potential exchange is, for the right deal, yes. We are not in -- two things. One, we're not in -- we have no interest of taking our leverage up to any kind of dangerous level.

One of the reasons that we are also redeeming the High Tides, is that we're very dilution sensitive right now. We believe that TV One is going to be worth an awful lot of money. And we want to own as much of it as possible. And so, you know, we're price sensitive, we're dilution sensitive, but we also are balance sheet sensitive. So I think that we'll look at, you know, what the prudent way to finance any potential acquisition, if there is to be one, which if there was one, would be on the smallish side compared to what they're talking about selling.

We're not going to jump up and buy any, you know, non-urban stations if they decide to sell. And -- and -- and -- so, we'll just, you know, we'll wait and see what happens.

But we're not crazy about where our stock is right now. But we have, as in Reach Media and as and in Blue Chip Broadcasting, we've used our equity to manage our balance sheet when we were in acquisition mode, so --

And then one quick follow-up. In L.A., is it the -- is it Steve Harvey or other day parts that's weak?

It's Harvey that's weak and that also translates to other day parts.

Thank you.

Our next question comes from John Kornreich from Sandler Capital.

Hi. You just referred to some audience problems in L.A.. But I believe you're having several markets now where you're having audience problems, maybe for the first time that I'm -- I've been aware that you're having simultaneous problems of some significance. It's not just L.A., it's Philadelphia and I think Dallas now has a ratings problem. So, can you talk about what is going on or what the solution?

-- Dallas, [inaudible] problem, that radio station had a 1.7 when we bought it, and it had a softer book after coming off of probably its strongest book ever.

I'm sorry. Which one was that?

Dallas.

Okay.

And that market is on fire for us, with -- first of all, ratings go up and ratings go down. Happens ever single book, you know, and so I wouldn't classify Dallas as a ratings problem.

Philadelphia, we had one radio station, WPHI, which had a significant ratings problem because -- Beasley launched a competitive format in there. But by the same token, what people aren't focused on, is we took took Tom Joyner off of the number one 25-to-54 radio station, the Market, and he was number 2, 25-to-54 in the mornings, behind Howard Stern, who is going away at the end of the year, and he's now on our brand new station, WRNB, which hasn't got its first rating book yet. All right?

So, Philly is a challenge right now, but we have got a great plan for Philly across all of our stations there. And in fact, we're very excited about what we're going to be doing in Philly this year and I think we'll be fine there.

And L.A. is, you know, is our largest revenue market in terms of market revenue. And it's a problem. We got to fix it. But, John, we've been doing this for 20 years. We will get our --

What do ratings look in the Washington and Baltimore area?

Baltimore is fine. Washington, one station is gang busters, the other one just had a soft book. WKYS.

But at the end of the day, again, it's what we do is, you know -- the competitive landscape is only changed in one market, and that was Philly. So, in those other markets the competitive landscape has been unchanged, so -- I'm sorry --

Houston actually got better.

Houston got better, because we lost a competitor in Cumulus there. And so, you know, I think our destiny is in our hands. Just like, you know, we've found other ways and other talent to improve our ratings, we'll come up with -- we'll come up with answers to our issues in Philly, D.C. and L.A.

How fast could L.A. turn around?

I don't know. I don't know.

Thank you.

Thanks.

Our next question comes from Alex Rothstein.

Thanks, good morning. First question: can you talk about the modification and the methodology of calculating the equity interest in TV One? And the second question is, can you just provide more color on the Internet initiative? What have you done to date and what are you looking to do in 2005? Thanks.

Yes. TV One is really complicated because -- and I don't know how technical you want me to be, and we can certainly go off-line with this, although I want to make sure that everybody gets their questions answered -- but the bottom line is that we had to make an adjustment in the fourth quarter, which was a positive adjustment, which effectively reduced the losses that we took in the year. It effectively was sort of a reversal of excess losses that we took in the year. And it was primarily a modification, which was a result of the guidance provided by EITF #02-14 and EITF #03-16.

Accounting for joint ventures is very, very complicated and, at least to me, is getting more complicated as these various EITF bulletins are put forth in the marketplace.

And so that's the reason. I mean, there is very specific accounting guidance, and the -- there were some changes in Q4 in the guidance and in how we had to account for this. And so now not only are we all on the same page in terms of the appropriate way to account for this, given the current guidance, but going forward, I think, you know, obviously things will be such that each and every quarter we'll be accounting for it consistent with the guidance in the market place so that there there shouldn't be any future variations, other than if the guidance and the rules change again.

Can I be more specific? Or is that sufficient --

Well, I mean, I guess going forward, are you starting with a clean slate now that you've adjusted for, kind of a reversal, like you were talking about?

Yes. I mean, when you say a clean slate, yes, I mean, the base is what the base is. And the problem is that while we've said we own approximately 36 percent of the enterprise, I will tell you that figuring out what the quarterly loss or income allocation to Radio One is, is not just as simple as taking 36 percent of their bottom line. Because there are different securities, common stock and preferred stock, that the investors own in TV One which drive how the allocation is determined.

And so, frankly, the way this needs to be done on a quarterly basis, is that you have to effectively -- the Company, TV One, needs to effectively assume that it gets liquidated, and then the ownership breakdown that results from that liquidation determines the appropriate pro rata allocations of their income or their loss, and that is basically done on a quarterly basis.

So unfortunately, it's tough to guide to, it's tough to get your arms around, and that's just kind of the nature of the accounting literature for joint ventures.

Okay. All right. Can you --

But, yes, the base is solid, it's clean, it's, you know -- and -- but again, it will -- it will -- it will be perhaps more clear as we go down the road with TV One and maybe there will be a higher level of consistency. But again, it's not -- this is not Radio One sort of making this stuff up. There's accounting literature and there's also complexity in joint venture accounting and there's also obviously complexity associated with TV One.

I mean, as things change, as their ownership structure changes, obviously DirecTV came in in the fourth quarter, that can all create variability. But I think for the most part, I mean, you know, I'm not sure that all of this necessarily matters to sort of the core value of TV One and what it means to its various shareholders. But I would leave that to you all to sort of make that ultimate determination.

You had a second question?

Yes. On your Internet initiative, what have you guys done so far and what are you going to do?

Mary Catherine?

Yes. We have rolled out 45 websites since the beginning of January, and are on target to complete all of them by the end of March, which will mean there will be 65. Our corporate sales department actually has done a decent job already, selling the Internet, and locally we're behind budget, but I think that that will ramp up pretty quickly.

One of the things that we are not doing is giving it away free. It is not added value. So every single thing that you will ever see on any of the websites is paid for, and we made that promise to ourselves when we decided to roll this venture out, because what we've seen in the radio industry is that it's the Internet has become free for clients. We feel like it's got value, especially coupled with Radio One and in some cases, maybe TV One .

So I think we're pretty pleased with the rollout so far. And we did get it off to a very quick start, and we're on target to have all 65 up by the end of March, like we thought we would.

So, costs going forward after the first quarter, they would just be related to selling advertising on the Internet but not actually for building out any websites?

No. That's not true. I mean, obviously the Internet business is not just about building. I mean, costs are incurred and -- it's a new part of our business. So we have new costs associated with running our Internet initiative that will probably continue to increase as we build the business. It's like any other business.

Okay. Thank you.

Thanks.

Our next question come from Jason Helfstein.

Hi, it's Opher, stepping in for Jason. So, one question from us is, in terms of Hispanic formats, Hispanic stations, and the target adults, 18 to 34, which is exactly your demo, do you see that , now or in the future, because of what Clear Channel and Viacom are doing, impacting your stations, your ratings, your markets? Thanks.

This is Alfred. What Viacom did was actually just launched a Hispanic language radio station in Washington. It's going to have no impact on us. And Clear Channel's got this new "Spanglish" or what they call "Herban" format, which is, you know -- actually, I'm not sure exactly how to describe it. M.C., you can describe it, you know, after I finish.

But that, you know, they did it in Houston, where we operate, and they did it in Miami and we don't operate in there. So, it's going to have no impact on us in Miami. And in Houston, you know, based on the -- you know, what I understand the description of the format to be, I think it's probably more likely to affect the Hispanic Broadcasting Station, because basically we had two competitors in Houston. One was Cumulus, that had an urban AC station that just went out of format. They went rock. And then Hispanic Broadcasting had a Spanish leaning hip-hop station that competes with our KBXX. My understanding of the Clear Channel format target is that, we believe, it's more likely to affect Hispanic Broadcasting Station than us. Now, M.C., can you describe what the format is?

Yes. The format in Houston is called Regaton and it's like -- it's hip-hop or rap. A lot of that, the music comes out of the northeast, out of New York. It's actually pretty big up there. And even up into the Boston area.

But the focus is so Hispanic and as long as I've been doing urban radio, the thing we know is that it's been hard to get African-Americans and Hispanics to like the same kind of music, until hip-hop got so big. But it became very mainstream, because I've been doing this format forever and it was very difficult to get those two entities to like the same music. And so I think we're at least back to the beginning with this format. I just don't see our audience embracing the format at all, because of the language situation.

And I'm not sure how it will do in Houston, because it seems like a music form that really is more identified with the northeast. But it's definitely a new format.

So looking into the future, you don't see that as any kind of a threat to urban format?

No, not at all.

Thank you.

Our next question comes from Andrew Finklestein.

Hey, guys. It's actually Brad Rogoff filling in for Andrew.

Just a question on one of your comments earlier about the new bank deal. I know you said you wanted to make sure you had plenty of capacities that when the -- the existing 8 and 7/8 notes become callable, you have room to do something there. So I guess my question is, are you looking maybe to refinance that with the senior secured debt as opposed to a straight refinancing with senior sub that you could obviously do under any bank facility?

Yes, and it's a good question, and you know, we will look at the state of the high yield market at the time and make a determination. I would tell you that it's probably unlikely that I would -- that we would refinance 100 percent, of the high yield with a new high yield issue. I mean, to some extent, we kind of prefunded that by putting 200 million of new high yield on the balance sheet.

It's probably also, however, highly unlikely that we would refinance all 300 million with bank debt. And so, what -- I want to have the ability -- let's just say the high yield market is closed or it's just irrationally priced, I want to have the flexibility to go to my bank facility and use that. But if I had to, you know, sort of guide today, conceptually, you know, $300 million of 8 7/8 notes, maybe we take half out with bank debt and half out with, you know, maybe a tack-on to the deal that we just did. It would really just depend on the state of the various capital markets.

But having the ultimate flexibility, given that there's obviously that much more -- that many more opportunities to do what's in the Company's best interest in the future.

Thanks, that's real helpful.

Thanks. We're going to, Operator, take one more question and then we'll call it a day. So, Operator --

Sir, we don't have any additional questions queued up.

Perfect.

Great. All right. Well, thank you everybody. And as usual, Scott and myself and Mary Catherine will be available offline if you guys want to call and chat about anything. Thank you for you support.

Thanks very much.

This concludes today's teleconference. Thank you for your attendance. You may disconnect your line at this time, and have a good day.