Cox Radio Inc. Q4 2008 Earnings Call Transcript

Mar. 4.09 | About: Cox Radio (CXR)

Cox Radio Inc. (CXR) Q4 2008 Earnings Call March 4, 2009 11:00 AM ET

Executives

Robert Neil – President and Chief Executive Officer

Neil Johnston – Vice President and Chief Financial Officer

Charles Odom – Chief Financial Officer

Analysts

Marci Ryvicker – Wachovia Capital Markets

Mark Wienkes – Goldman Sachs

James Goss – Barrington Research

Michael Mitchell – JP Morgan

Adam Spielman – PPM America

Michael Schecter – Mentor Partners

Operator

Welcome to Cox Radio’s fourth quarter and full year 2008 earnings conference call. (Operator Instructions) Before beginning this morning, I must remind you that management’s remarks will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ.

Please refer to Cox Radio’s most recent 10-K filings for the list of risks and uncertainties that could impact actual results. Today’s conference call will also include reference to certain non-GAAP financial measures. In accordance with SEC Regulation G, Cox Radio has provided reconciliations of all non-GAAP financial measures in its earnings release issued earlier this morning. The reconciliations include station operating income to operating income and free cash flow to net income in each case, the most comparable GAAP measure.

Now, it is my pleasure to turn the floor over to your host, Mr. Robert Neil. Sir, you may begin your conference.

Robert Neil

Welcome to our fourth quarter 2008 earnings conference call and I’m joined today by Charles Odom our new Chief Financial Officer. As most of you know, Charles became our CFO on January 1st concurrent with Neil Johnston’s appointment to CFO of our majority shareholder Cox Media Group, a wholly owned subsidiary of Cox Enterprise. And we’d like to thank Neil for his service to Cox Radio over the years.

Many of you already know Charles, who served with us for over ten years in various financial roles, and has been involved with building and supporting our relations with analysts and investors. And I think you will notice quite a difference in Charles’s South Georgian accent compared to Neil’s.

As always, we’ll start today’s call by reviewing our fourth quarter performance and recent developments and then Charles will provide the financial overview for the quarter and full year, and then we’ll open up the phone lines and take questions and calls.

In 2008, we faced one of the most challenging operating environments in our history due the nationwide recession and advertising downturn. Our fourth quarter financial results reflect the impact of this unprecedented slowdown across the majority of our markets. However, on the positive side, despite a very difficult year, the station brands remain strong and we continue to execute on our operating plan while carefully managing our expenses and maintaining a solid balance sheet.

I could assure you we’re taking the necessary steps to ensure our business is running as efficiently as possible, and is well positioned to weather this economic storm and emerge from it stronger and better able to serve our audiences.

For the fourth quarter, our overall net revenues declined 13% compared to our markets, which were down 16. While never satisfied with revenue declines, I am proud of our station clusters that once again outperformed our markets where they do business reflecting the strength of our brand and our strong sales teams.

Turning to the specifics of our performance for the quarter, local revenues were down 14% and national business was down 10. Other revenues were down 9% with internet revenues up 1%. Revenues at our Atlanta stations were down 17% for the quarter but performed substantially better than the 25% decline of the Atlanta radio market overall.

Taking a look at our revenues by category, our key advertising categories, including auto, home improvement and financial, continue to be pressured by the economic downturn. Specifically, auto was down 32%, home improvement was down 13% and financial services down 28%. Our strongest categories during the quarter were education up 14% political advertising was up, obviously with the election, 831%. For the year, political revenues totaled $4.5 million with $2.6 million of it coming in the fourth quarter.

As we stated on our last call, we continue to believe that compelling content is critical for our success and over the last year to two years, we’ve made key programming investments that have supported our audience share growth and will support our performance going forward.

According to the most recent fall 2008 ratings book, 82% of our stations ranked in the top ten for their target demographic. Furthermore, in the majority of our markets, 16 out of the 18 markets where we had measured ratings we have at least one station in the top five with adults 25 to 54.

As we turn to specific stations, we continue to see successful results from our recent programming investments, specifically Rick and Bubba in Birmingham and Bubba the Love Sponge in Tampa. Specifically, in Birmingham WZZK is ranked the number two station in the market overall with adults 25 to 54 behind our own WBHK.

And morning drive with Rick and Bubba WZZK continues to hold on to the top spot with an 18.6 share of adults 25 to 54. And Tampa WHPT continues its position as the number one station in the market with a 6.7 share of adults 25 to 54, and morning drive with Bubba station takes number one with 13.4 share of adults 25 to 54 up from a 12.5 in the summer book and he rates number one in adults men and women 25 to 54.

Another ratings success story I’m particularly impressed by is the rise of our country combo in Louisville Q103.1 and country legends 103.9. The country combo rocketed to take the number one spot 25 to 54 in the fall 2008 book taking out a competitors entrenched heritage radio station, which was down 80% in the coveted 25 to 54 demo.

We recently completed a significant upgrade to the 103.1 signal and this is a prime example of the results we can generate when we set a strategic goal and execute on it. Now our challenge is to focus our sales efforts to take advantage of the ratings we now have in the market and I’m confident our sales team in Louisville is up to that task.

Another success story is in Jacksonville with our news talk simulcast WOKV-AM and FM. The station’s ratings increased dramatically from a 6.2 in the summer to a 9.8 in the fall rising from a rank of four to the number one ranked station in the market 25 to 54. Our closest competitor had a share of 7.8 making WOKV the top rated station this past election season by a considerable margin.

In Orlando, our urban AC station WCFB continues to hold on to the top spot in that market increasing its share to a 9.0 in the latest book, and we now have a number one number two combo with K92 our country station taking the number two spot behind CFB.

So far we’ve transitioned to the Portable People Meter in Houston, Long Island and Atlanta. Most recently Atlanta converted to PPM ratings beginning the first of the year, and we’ve seen positive ratings with our stations there. In the next year PPM will be introduced in Miami, Tampa and San Antonio.

We continue to be focused on making sure our programming maximizes our PPM ratings, but we’ll only know the results in those new markets, obviously, once PPM becomes available and becomes current. We’re currently able to update you on how that rollout progress is going as we move forward on these calls.

Now let me turn briefly to the status of the Performance Rights Act, which was introduced in the house and senate in early February. The bill, also known as HR848 would impose performance royalties on broadcast radio and is being pushed by the big, internationally known record labels.

As with our friends at NAB and over 14,000 local radio stations nationwide, we see this as a tax that will obviously harm local stations and damage our business at the worst possible time during this unprecedented economic downturn.

It will also stifle new artists who need to break into the business. Half of those fees will go directly to big record labels funneling billions of dollars to companies overseas. It’s no secret that for 80 years record labels and performers have thrived financially from free radio airplay, while local radios benefited from local ad dollars. With this model, radio reaches over 235 million listeners weekly, representing an unprecedented marketing machine for artists and labels.

Radio is directly responsible for billions of dollars in music sales annually with these big labels. Recognizing this, congress has repeatedly declined to impose a performance tax on local radio going back to the 1970s. We’ll continue to work with the NAB and our peers in the industry, continue to voice our opposition to this bill, which would only penalize radio and benefit the big overseas labels.

As we look ahead to our pacings, first quarter business continues to play extremely light. The surge in unemployment and downturn in overall business activity has naturally caused the ad market to remain very weak as businesses are not committing to future spending. At this stage, first quarter pacing is down in the neighborhood of minus 20, but again I stress the business is coming in very, very light.

While the near-term outlook on the economy remains very difficult, we continue to be optimistic about both the prospects of Cox Radio and the radio industry in general. At a time when many of our media peers are losing audience, radio is continuing to gain audience, and that will only bode well for us going forward.

Despite the recession and difficult ad market, we continue to build our brand, drive audiences and deliver results to our advertisers. The station’s rating remains very high serving attractive demographics in each of the markets that we serve. Our digital platform continues to grow as more and more listener’s access our stations over the web and new audiences discover our HD radio outlets.

In addition, we’re continuing to improve our ability to deliver cross platform capabilities for our advertising partners. The fact is we operate exceptional media platforms that consistently connect with millions of royal consumers and serve as effective and a future marketing platform for our advertising partners.

Our radio station clusters are ingrained in the communities which we serve, principally because we listen to our audiences and we deliver on their expectations. We’ve got a connection with our local audiences and that simply is unmatched by any other medium. So as a result I have no doubt that Cox radio is well positioned to benefit as the economy begins to recover.

With that, I’ll turn it over to Charles.

Charles Odom

You all should have a copy of this morning’s earnings release, so I’ll only highlight key fourth quarter and full year numbers, and then Bob and I will be happy to take any questions you may have. For the fourth quarter, total revenues decreased 13% to $99.3 million. Local revenues decreased 14% while national revenues were down 10%. Internet revenues were up 1% for the quarter and represented 3% of our overall revenues.

Operating costs for the quarter were favorably impacted by a decrease in compensation expense associated with performance unit awards issued under our long-term incentive plan. Compensation expense for these awards is recognized over a five-year period and is based on the amount that is ultimately expected to be paid upon vesting.

During the fourth quarter of 2008, we revalued our outstanding performance unit awards to reflect amounts ultimately expected to be paid out upon vesting. This resulted in a reversal of previously accrued compensation expense to reflect updated expectations.

We had an operating loss for the fourth quarter of $574 million due to a non-cash write-down of intangible assets of $602 million. Following our valuation analysis pursuant to FAS 142, we reduced the carrying value of intangible assets in 14 of our markets to their estimated fair values. Station operating income for the fourth quarter was $30 million compared to $46.4 million in the fourth quarter of 2007.

Our free cash flow for the quarter was $16.7 million. Interest expense during the quarter was $3.6 million compared to $5 million in the prior year fourth quarter. The average interest rate on our credit facilities was 3.5% as compared to 5.7% in the prior year quarter. Our effective tax rate for the quarter was approximately 38%, impacted slightly by the write-down of impaired intangible assets. Excluding this write-down, our effective rate would have been 39%.

Looking now at the full year 2008 results, revenues were $410 million, a decrease of 8%. Local revenues were down 7% while national revenues were down 12%. Other revenues for the year decreased 3% from 2007 with internet revenues up 3%.

For the full year, operating expenses were down 1% from the prior year, reflecting our increased focus on operating efficiencies, as well as lower long -term incentive plan costs. Our operating loss for the full year was $628 million compared to operating income of $26 million in 2007, primarily reflecting the impairment charges taken in the second and fourth quarters of this year, as well as lower revenues during the current period.

Station operating income for the full year was $146 million compared to $179 million in 2007. For 2008, our effective tax rate was 37% compared to 68% in 2007. Both years were impacted by non-cash write-downs of intangible assets. Excluding the impairment charges and related taxes in each year, our full year effective rates would have been 40% and 39% for 2008 and ’07 respectively.

For the full year, excluding the non-cash FAS 142 write-downs in both years, our earnings per share would have been $0.77 per share in 2008 versus $0.80 per share the year before. Capital expenditures for the fourth quarter were $2 million bringing us to $7.3 million for the full year.

At December 31, our total net debt, as defined in our credit agreement, was $399 million and our leverage ratio, also as defined in our credit agreement, was 3.14 times, well below our leverage covenant of five times and one of the healthiest balance sheets in the industry.

During the fourth quarter, we repurchased almost 800,000 shares of stock for an aggregate purchase price of $4.9 million. As of the end of the year, we had repurchased a total of 21.4 million shares at an aggregate purchase price of $261.4 million, $38.6 million remains authorized for further share repurchases.

Looking at the year ahead, given the significant deterioration of our revenues in the near-term, we are keenly focused on finding ways to reduce our expenses and right-size the business to reflect the revenue environment we are facing. At this point, it is difficult to give specific expense guidance versus prior year. However I can assure you that we are focused on expenses and will be diligent in pursuing efficiencies in our business as we move through the year.

Interest expense for the year is expected to be in the $12 to $13 million range and capital expenditures for the year will be in the $7 to $8 million range. We currently expect our overall effective tax rate for 2009 to be in the 40% range with a current effective rate of 14% and a deferred effective rate of 26%.

That concludes the financial review. Bob and I would now like to open up the call to any of your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Marci Ryvicker.

Marci Ryvicker – Wachovia Capital Markets

My first question is it sounds like you may have plans to restructure. I just wanted to understand if that’s the case. And then my second question is can you just talk about the dynamic between the number of units being sold and what’s going on with ad rates in this type of environment?

Robert Neil

Marci, I’m not sure I understand the first part of your question.

Marci Ryvicker – Wachovia Capital Markets

Should we expect severance payments, layoffs, something that you’re going to do that’s not allowing you to provide us with any type of information on operating expenses?

Robert Neil

Marci, we do things a little bit different from our competitors. We’re really decentralized so we don’t make broad sweeping statements about we’re going to lay off some X percentage of our workforce or stuff like that. We let the individual GMs in the markets determine what kind of staffing they need to deal with the economic environment, to deal with product and revenue. So, no, I really don’t expect that.

I suspect, as we have done really over the last two or three years, when we’ve seen an opportunity to take some efficiencies and restructure things, we’ve done that. But if you’re asking me do we have some kind of grand plan that we’re going to layout in front of you, the answer to that is no. We’re going to just manage the business as we have been on a local basis and let the local management teams come up with what they need to do to run their businesses.

The second question, I think, dealt with units in AUR. Actually, you would expect demand in this environment to be depressed, and demand has actually been pretty decent but AURs are way, way off. And the simple fact is that the folks that are out there right now, the buyers of the time, have the leverage on their side and, of course, they’re being pressured by their businesses to try to reduce costs, so they’re coming to us trying to do the same thing.

So it would not surprise me to see at the end of 2009 that we have virtually the same utilization on units that we did in 2008, but the AUR number is going to be down fairly dramatically. As somebody said yesterday when I was getting off an airplane, in this economy, everything is on sale.

Operator

Your next question comes from Mark Wienkes.

Mark Wienkes – Goldman Sachs

Could you provide any more color on sort of the nature of your conversations with advertisers and auto in particular? I know auto is probably down to close to 10% of the total only but obviously some pretty horrid sales figures out of that group yesterday.

And really I just want to get to, the key question is where’s the bottom, not that you know it either at this point, but what are the markers that you’re looking for to help you think about managing your expense base against the revenue as you go through ’09?

Robert Neil

Well, in talking to individual advertisers, Mark, and particular automotive, they’re having a tough time, so they’re doing some fairly creative things. I think a number of them realize that if they don’t promote and they don’t look at some opportunities, then things would be even worse for them.

So there are some incentives that are out there from the manufacturers that have driven some strategic advertising, and then some of the auto dealers are doing things that I would call more creative in terms of how they package things together. How they use, for example, endorsements of air personalities instead of just straight ahead spots. So they’re trying obviously just as hard as everybody else to do as well as they can.

I think most of them realize, again, you’ve got to do some kind of marketing in this environment and you need to do it just for no other reason than for share maintenance based on the competitive situation in the automotive marketplace, so I think that’s the conversation.

It also seems to be very spotty in terms of a dealer will have a pretty decent month and they’ll kind of take a deep breath and think things are going better, and then they hit a real bump in the road, not unlike the rest of the economy. So it’s a tough environment out there.

Again, I think in this environment, I can only tell you what we do, which is we look for opportunities to grow our radio stations competitively in this environment, and I think a lot of smart businesses will try to do the same thing. They look at it as an opportunity. But it still is a demand issue for us on our inventory. While demand is okay, we obviously need better demand to bring the rates up.

And on the expense side, again I think maybe we’re unique. I mean we just don’t do this from a top down basis. We work with our local management teams, we look at what’s going on and then they come back to us and say well, here’s what we think we need to produce a quality product and here’s what we think we need to sell it.

And I just don’t like the notion, and never have, that announcement comes top down from somebody that says you must do this when in fact, each one of these businesses are very specific local businesses.

Mark Wienkes – Goldman Sachs

And just to follow up, it may not feel like it but the markets actually I think rewarded you guys for more prudent management of your balance sheet. So against the backdrop of like a number of newspaper companies and some TV broadcasters having filed for reorganization, it doesn’t seem unrealistic to expect some of the weaker competitors out there to also seek protection or even some of the non-public companies sort of fading away.

So how much does that matter, I guess? Is it a catalyst for getting the pricing discipline back in the market spot loads lower across the industry? I guess how do you see it shaking out?

Robert Neil

Well, I think it probably depends more than anything else on who buys it. Who buys those assets that are out there? There’s a lot of talk about people that were former radio broadcasters that have been kind of sitting on the sideline waiting for the opportunity to get back in, I think if they’re the buyers, that’s a good thing.

At the end of the day, if the buyers are purely financial players, then I think that cannot be such a good thing because obviously in this environment, I think you need to make investments in your product. I think you need to swallow hard and realize that this economic environment is not going to last forever and that when you come out of it, you’ve got to have good, strong radio stations.

And you can just cut yourself all the way down to the death spiral and I don’t think that’s a good thing for the business at the end of the day. So I think it depends on who gets a hold of those properties and take it from there.

Mark Wienkes – Goldman Sachs

It doesn’t sound like we’re making any progress across the industry in getting spot loads down closer to your levels.

Robert Neil

Well, actually, this environment doesn’t really promote spot load discipline. The fact of the matter is when everybody is chasing you for rates, it’s awful hard to avoid the temptation of not just raising the unit loads to meet that so you can take all of the business, theoretically, that you thought you could run. But the reality, of course, is that just contributes to lower pricing and that’s unfortunately nothing new in our business, but probably exacerbated a bit right now in the current environment.

Operator

The next question comes from Jim Goss.

James Goss – Barrington Research

A couple of things, one, with regard to the decline in your internet and other despite a small interest in the internet side, what are the other areas that were dragging that number down, and is that likely to persist into ’09 or go on?

Robert Neil

Jim, the other category involves special events primarily, and what we do is we look at events on a profitability basis and we feel like if the revenue isn’t there to support an acceptable margin, then we just don’t do the event. So one of the things that I think some big advertisers have obviously cut back on is sponsorships and naming rights and things like that.

So that’s negatively impacted some of those events where either, we decided not to do the event anymore and we didn’t see the revenue or the expense, or perhaps a big sponsor wasn’t available for an event so we had to kind of scramble to replace some of that revenue and it just didn’t replace all of it.

James Goss – Barrington Research

So I imagine that would be the sort of pattern you’d be likely to see in ’09 given the current environment?

Robert Neil

Yes. And again, if we had an event that just was going to fall from something that was pretty darn profitable to either marginally profitable or not profitable, then it becomes a focus question for the sales team, do all that work to sell the event and then make very little money. I think I’d rather have them focused on some of the sales re-org stuff that we’ve been working on.

James Goss – Barrington Research

Okay. The subject came up, that Mark just brought up about the financial disciplines and lack of a lot of station transactions, do you think this could, at some point, provide you with the opportunity, since you’ve not made a lot of acquisitions over the years, is this getting closer to the time when you might be able to either get into some markets that you might have liked to get into or embellish your position in certain markets? Not that today is the day, but is this going to present itself with that opportunity?

Robert Neil

Well, we always keep an eye out on what’s going on. I think primarily right now the smart thing to do is to be focused on debt reductions, be focused on running the day-to-day business. And as those opportunities come up we’ll do like we always have, we’ll look at things and decide whether or not we think it fits our investment criteria for the moment.

James Goss – Barrington Research

And if you look at the competitive climate, first for listeners then also for ad dollars, could you give me your views, Bob, and particularly for listeners in thinking of things like Pandora or WiMax when that ever takes place. Are those just too off in the future to worry about for the moment? And then on the ad dollars side, it seems like local is getting to be a greater thrust for television and other groups aside from internet, just how are you viewing both of those issues?

Robert Neil

Actually, I’m pretty optimistic on the listener’s side. For all of the bologna that we heard about satellite radio five, six, seven years ago, it certainly is dubious, at best, as to whether that really is a business. It certainly has cost a lot of people an awful lot of money for no return. So that was the big boogeyman that was kind of hanging over our head six or seven years ago. And it’s very interesting, even in New York where Howard Stern should be a mini God alright?

Even his show does not show up in the metered range. There is no satellite channel that shows up in New York As far as I know, I don’t think I’ve seen any satellite channels show up anywhere. So they haven’t even made the book. So if they can’t make the book then they’re not going to be able to sell a whole lot of advertising.

James Goss – Barrington Research

It’s not an advertising product. I’m thinking more in terms of the collection of all of these various things that are nipping away at you collectively, you obviously have a lot greater presence and those aren’t really at base models so much. I’m just thinking in terms of listeners, are they even collectively all too small to really have an impact on what’s going to drive your revenue base.

Robert Neil

You know something, I think you’re stupid to not pay attention to what’s going on around you but at the end of the day again, if you look at streaming, the top streamers tend to be branded radio stations. And Pandora and some of those types of things just, again, haven’t proven that they can be financially viable, and so if they can’t prove they’re financially viable, then I would question just how long they’re going to be able to hang out, especially in this economy.

So, yes, there are a lot of things nibbling around but there are a lot of things nibbling at every business these days. We continue to believe that if you put good compelling radio stations together, if you have good content, if you’re willing to invest in that content, then that positions you pretty strongly and would continue to position radio as growing its audience. And a growing audience is a good thing and I think at the end of the day we’ll be just fine.

James Goss – Barrington Research

And the last thing is there anyway that you can, even in a range, quantify the impact of the Performance Rights Act in a way that might strengthen your arguments in Washington?

Robert Neil

Well, I think that the best way to do something at this level is to really have our folks engaged with their congressmen, with their senators explaining what the potential downfalls of this bill would be. It certainly would result in a lot of folks losing their jobs because we would then be forced to have to figure out a way to make up that money that we were paying. And again, I can’t think of a worse time for something like this to even be considered.

And in this economy, each one of our businesses is a local business. They work within the local community, they’re involved in their communities, they touch a lot of people, both listeners and advertisers, and I think that’s important to local representatives to know that.

These big international record companies, who do they touch locally? Nobody, so I think at the end of the day, we have a strong argument, and I think we have to make a continued strong and reasoned argument with our congressmen and our senators.

Operator

Our next question comes from Michael Mitchell – JP Morgan.

Michael Mitchell – JP Morgan

We have three questions here, the pacings that you cited for the first quarter, can you talk just a little bit about what you’re seeing on local versus national, and then I have two follow-ups.

Robert Neil

Yes. Obviously national was better in the fourth quarter and that was due to a lot of political business being placed. But in the first quarter, the pattern that we’ve seen for most of the last year and a half or two years stays in place where local is outpacing national it is by a pretty good margin at this point.

Michael Mitchell – JP Morgan

Okay. Then in terms of the cost, can you speak a little bit more about it? If we add back the reversal in the quarter, I think that the operating expense line it was almost $4 million that run rate would be pretty high into ’09. I understand when you were talking about when you were saying you’re decentralized, you don’t want to put out a press release, but what have you done thus far on the cost side say year-to-date?

And then related to that, where were FTEs at year end, excluding assets, where were FTE versus a year ago?

Robert Neil

On the cost side, I don’t have the number right in front of me, Charles, I know you do. Again, you guys sometimes focus on one quarter, and based on where expenses fall, that can be a trap. But our overall 2009 expense growth was very low. What was the total Charles?

Charles Odom

The expenses, if you pullout the long-term incentive plan, the expenses were down 1% in 2008.

Robert Neil

Again, I’m not sure what you guys are looking at, but I think we’re going to continue to get in and look at opportunities as we see them. And I think we’ve proven that we are pretty good stewards of expenses. I don’t know if you’re looking for something specific, but I think that I can only go back to what I said earlier, which is believe me, every one of the local managers is very focused on expenses right now.

Michael Mitchell – JP Morgan

Okay. The FTE number?

Charles Odom

At the end of 2008, we had 1,375 full-time employees and about 650 part-time. I don’t have the prior year number right here in front of me but it’s in our prior year 10-K or I can get it to you after the call.

Michael Mitchell – JP Morgan

What is Athens? What would be a comparable number, excluding the acquisitions?

Charles Odom

Athens probably has 50ish people in it full-time.

Michael Mitchell – JP Morgan

Okay. Last question, you mentioned the repurchase remaining, the authorization remaining, what’s your current thinking on repurchases going forward?

Charles Odom

As we look at it, we have to weigh whether or not to repurchase the stock versus pay down debt. As we’re looking at revenues that are weak, we’re taking the steps that we can to reduce our costs as well but we feel like pulling back from the share repurchase and focusing most of our cash on repaying debt is probably the most prudent thing to do right now.

We don’t comment whether or not we’re specifically in the market at the current point, but that’s why you’re seeing lower levels of repurchases as we toward the end of the year.

Operator

(Operator Instructions) Your next question comes from Adam Spielman – PPM America.

Adam Spielman – PPM America

I just had a question if you could comment perhaps I know you guys were very clear on how you maybe managing your expenses differently than others in the industry. But there’s definitely some significant players out there that are cutting expenses say 5%, 6%, 7% on a year-over-year basis.

I was wondering if I could just get your insights. What does that really mean, that means just cutting severely into the sales force and then also cutting content? How would one maintain the quality of the product if you’re going to try to take that much expense out?

Robert Neil

Well, it’s very difficult to do it at that point. It seems a bit counterintuitive to me to be reducing sales staff when you need to get more sales. We have some initiatives that we’re working on that we think refocuses some sales efforts, but I don’t think we believe that wholesale reduction in staff among sales would be a very good thing in this environment.

And on the product side, again, unless you’re going to turn your radio stations into basically automated computers, then you’re really limited just how far you can go. There are efficiencies out there. Technology allows us to use our talent across more stations and more platforms, and where that makes sense we do it. But there are a couple of things that we look at when we make these decisions.

The first is how it’s going to affect the listeners and therefore affect our ability to get ratings. That’s the first thing we look at. And then the second thing we look at is how is that change going to then impact the station’s ability to be local. And those are the two things that we look at and we make our best judgments based on where we see those opportunities.

Adam Spielman – PPM America

Just a follow-up, the elephant in the room is obviously clear channel in the industry and they publicly said they’re cutting maybe 10% of their workforce. In any markets where you compete against them, are you seeing that at all in terms of sales force or how the programming is changing at all?

Robert Neil

Yes. We see it in some markets. There are certainly a lot less local now in a number of markets. They are running Ryan Seacrest midday’s on a lot of their CHR radio stations. They are repurposing some of the other programming that they use, and so that’s basically eliminated local disc jockeys in those day parts.

Now whether that’s a good thing or a bad thing, it’s probably a little too soon to tell. Certainly there are some national shows that do just fine and then there are others that don’t. So that’s definitely going on, yes.

Operator

Your next question comes from Michael Schecter – Mentor Partners.

Michael Schecter – Mentor Partners

Assuming if you buy back more stock once Cox Enterprises gets to an 80% ownership, I assume they’ll start [inaudible] in either direction from this?

Robert Neil

I think you probably have to ask Cox Enterprises that question. I’m not sure that that’s one that we’re well equipped to answer.

Michael Schecter – Mentor Partners

From our perspective, what happens with our tax payments and our tax issues?

Robert Neil

I’m sorry I don’t know that I followed your question. Could you say it again?

Michael Schecter – Mentor Partners

Well, at 80% I assume Cox Enterprises starts to consolidate for tax purposes you’re really not that far away from it.

Robert Neil

Okay.

Michael Schecter – Mentor Partners

And I’m just trying to follow the cash flows and whether there’s a benefit. Is Cox Enterprises throwing off losses so would we benefit with some payments down visa versa?

Robert Neil

No. I don’t think there would be any change from Cox Radio’s perspective if they consolidated. They would then allocate the appropriate amount of income taxes to Cox Radio based on our operations. I don’t think there’s an impact in either direction to Cox Radio.

Michael Schecter – Mentor Partners

In terms of your debt payments, it looks like you’re still running at 3 times leverage at this point?

Robert Neil

Yes. It’s 3.1 times.

Michael Schecter – Mentor Partners

And the covenants are what, five?

Robert Neil

It’s 5 times.

Michael Schecter – Mentor Partners

So you have quite a bit of room at this point.

Robert Neil

Yes.

Operator

At this time, you have no further audio questions. I will turn the call over back to the managers.

Robert Neil

As always, thanks for the questions and look forward to talking to you on our next conference call.

Operator

We thank you for joining today’s conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!