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Entercom Communications Corporation (NYSE:ETM)

Q3 2007 Earnings Call

November 9, 2007 9:30 am ET

Executives

Steve Fisher - EVP and CFO

David Field - President and CEO

Analysts

Kit Spring - Stifel Nicolaus

Victor Miller - Bear Stearns

James Dix - Deutsche Bank

Marci Ryvicker - Wachovia

Bishop Cheen - Wachovia

Lee Westerfield - BMO Capital

David Miller - SMH Capital Market

Jonathan Jacoby - Banc of America Securities

Mark Wienkes - Goldman Sachs

Eileen Furukawa - Citigroup

John Blackledge - JP Morgan

David Bank - RBC Capital Markets

Michael Kupinski - Noble Financial

Jim Goss - Barrington Research

Operator

Good morning, and welcome to Entercom's Third Quarter Earnings Release Conference Call. All participants will be able to listen-only until the question-and-answer session of the call. This conference is being recorded.

I'd like to introduce your first speaker for today's call, Mr. Steve Fisher, Executive Vice President and CFO. Sir, you may begin.

Steve Fisher

Thank you, operator, and good morning, everybody. Before David Field begins overviewing our call, I'd like to read you this disclaimer.

Today's call will contain forward-looking statements that are based upon certain expectations and involve risks and uncertainties. The company's actual results could differ materially from those projected. Additional information concerning factors that could cause actual results to differ is described in the company's SEC filings on Forms 10-Q, 10-K, and 8-K. The company assumes no obligation to update any forward-looking statements.

During this call, we may reference certain non-GAAP financial measures. We refer you to our website at entercom.com for a reconciliation of such measures and other pro forma financial information.

So, with that, I'd like to turn this morning's call over to David Field, President and Chief Executive Officer.

David Field

Thank you, Steve, and good morning all. Thanks for joining us today's call. As usual, I'll provide some additional color on the results we released earlier this morning and then share some thoughts on recent developments and business conditions.

As announced earlier, Entercom's same station revenues were up fractionally during the third quarter. Our results compare favorably to our markets, which were down 2% for the quarter. It is worth noting that until early September, we were tracking to deliver low single-digit revenue growth for the quarter. However, September business conditions deteriorated as financial and housing market earns inflated and certainly caused the advertisers jitters.

Same station expenses for the quarter grew 4%, resulting in a 5% decline in same station operating income. However, if you look at those numbers, it's very important to know that the bulk of the increase in our expenses was caused by our new Boston Red Sox rights agreement.

If you exclude the increased expense of this agreement, our same station operating income would have been down 1% and our same station expenses would have been up just 1%, which is a far better reflection of our core expense growth. And next year, the agreement will no longer have the same influence on our expenses due to the expected more normal year of expense growth which Steve will talk about during his portion of the call.

Third quarter performance was led by strong results in Seattle, Boston, Indianapolis and Milwaukee. National and local were essentially equivalent with political revenues down considerably. If you would exclude political, our same station revenues were up 1% for Q3. Digital revenues were up 150% for the quarter, and now equal roughly 1.5% of our total revenues on a run rate basis.

Strategically, we continue to focus on accelerating our revenue growth with a number of core initiatives that we have discussed on these calls in the past that include business development, digital and our brands and our content.

We are investing in our capabilities in each of these areas to provide our customers with enhanced integrated advertising and marketing opportunities across our three platforms, on-air, on-line and on-site. Our efforts are bearing fruit and we are becoming increasingly effective at developing innovative, multi-platform marketing programs for our local and national customers.

Our summer ratings were reasonably strong. One analyst report across my desk this past week said that Entercom is the general market broadcaster with strong set of summer numbers. We have particularly good ratings in Greensboro where we have three of the top four stations among adults 25 to 54.

What is particularly impressive about this is that two of these stations are brand new or relatively new; [Xiamen], our eclectic hits station; and the Wolf, our new country station. In Norfolk, another station that is only a few years old, WBKL, has now settled in as the market's leading station with adults 25-54 leading its rivals by a full two shares.

I also want to mention three other stations whose performance in this book was particularly noteworthy. The Mountain in Seattle search number one adults 25 to 54 and KNRK in Portland jumped number one adult 18 to 49, the first time that has ever happened.

What makes KNRK's achievement particularly noteworthy is that it is an alternative station, a format in which the Diary world has struggled in recent years. Our success there is the direct result of the evolutionary cutting-edge division of our team in Portland.

Finally, The End in Sacramento had a sensational summer book, growing to number one among the adults and women 18-49 and 18-34 and hitting number two with women 25 to 54. While, of course, in any rating books, there are always stations within the portfolio of good and bad books, overall we are pretty pleased with the macro ratings picture from this summer.

Turning to business conditions for the fourth quarter, which I would describe as being somewhat choppy and mixed, there is a fairly wide variance across markets with strength in many cities offset by weakness in others, particularly those markets where the greater dependence overlined from the housing industry.

Within that context, however, we continue to improve our execution as a company and are driving slow but steady progress from our various growth initiatives. We currently expect Entercom's fourth quarter revenues to be flat to down 2% with costs up 1%, both on a same station basis.

Two useful data points, during Q4 last year, we had approximately $2.7 million in political advertising. Also, during Q4 this year, we added approximately $1 million in incremental billing related to the Red Sox World Series run.

Before turning to Steve, I want to share a few additional observations. First, now that PPM results are out in three markets, we can begin to draw some conclusion. PPM is confirmed with the diaries showed us for years that 96% of Americans listen to the radio weekly. The recently released New York PPM shows some stations with audience that exceeds 5 million per week, which is pretty staggering.

While time spend listening is lower than in the diary, it remains higher than any other medium, except television. Unfortunately, there remains a disconnect between perception realty on the state of the radio business. The fact is that radio provides near universal reach, is second only to TV in usage, offers strong local brands and personalities and is the low cost provider among all major advertising vehicles.

We are also fairly positive on how PPM is likely to affect Entercom. There is now a pretty clear pattern of which formats will benefit and which will suffer under the new methodology. The Entercom station portfolio was concentrated in formats such as AC and Rock, that appeared to be relatively well in PPM, and so we would expect to become one of the primary net beneficiaries of the new technology.

Finally, a comment about our stock evaluation. Candidly, we are pretty perplexed by the fact that our stock has declined to a point where our dividend yield is now roughly 9% but, we cannot control our investors who value our stock, we can tell you that we intend to continue to use our ample free cash flow to reward our shareholders.

We remain committed to paying our dividends, which consumes 65% of our free cash flow.

And with that, I will turn it over to Steve.

Steve Fisher

Thanks David. I would like to make a note that the guidance we provide is based on same station comparison. As noted in our release, the guidance for the fourth quarter is pro forma for all transaction, that is acquisition and divestitures which we have announced to you and which is in our earnings release, with the exception of Rochester, New York, the CBS acquisition, which we have not yet assumed operations and therefore, do not include in our guidance.

At this point, we are not including Rochester in our revenue expanse or other line item of guidance. As David mentioned we expect same-station revenues in the fourth quarter of 2007 to be flat to down 2% as compared to the prior year. On expenses, we would expect same station cash expenses to be up slightly less than 1% for the quarter, which is similar to our experience in the first quarter and similar to a normalized experience in the second and third quarter as David mentioned.

Our prior year, fourth quarter same station information is revenues of $119.9 million and station operating expenses of $68.0 million. Now note this base excludes non-cash compensation expense, a reconciliation of this information is posted on our website.

A few other notes on 2007 line items to assist in your modeling. For the fourth quarter, we would expect our corporate G&A to be approximately $5.3 million to $5.4 million and our non-cash compensation expense to be approximately $1.7 million.

On our balance sheet, while we anticipate approval and closing on the range of our transactions prior to year end, given the uncertainty of any timing, I would suggest modeling the quarter as though closing does not happen until January 1. A reminder that upon closing, we will tradeoff TBA fees, for interest expense, so there is minimal cash flow impact.

We will start depreciating these assets and realizing the tax shields from intangible amortization upon closing and also upon closing whenever that occurs, we'll have some additional amortization of short-lived intangible assets over a few quarters, which will provide some spikes to the expected DNA.

So with that preamble and assuming that we not close on our transactions before year end and that there are no further share buybacks in the quarter, we would forecast the following for TBA fees DNA and interest.

During the fourth quarter expected TBA fees of $4.0 million, depreciation and amortization of approximately $4 million and net interest of approximately $12.5 million for the quarter and as nothing on the release we go into the quarter with a basic share count of 37.3 million shares.

For our tax-rate, excluding one time adjustment we would guide you to a GAAP tax-rate of approximately 45%, this is an updated number for your models. A reminder that there will be quarterly fluctuations to that number as well as unique adjustments as required.

Our updated capital expenditures expectations for the full year 2007 is between $13 million and $14 million. As a side note, we would expect to see a significant decrease in CapEx in 2008.

And now a few notes on third quarter before we get to your question. We are proud that during the third quarter that Entercom bought back 300,000 shares of Entercom stock and with today’s announcement of our next dividend payment payable on December 17, we’ll pay directly to shareholders of $1.52 during 2007 and as David mentioned at an annual rate yield that now approaches 9%.

And since we've began our dividend program in 2006, we paid out $3.04 per share to our shareholders, over the past two years and that’s in addition to our share buyback program and strategic acquisitions.

And as noted, our payout ratio on the dividends is only 65% of our free cash flow.

Let me give you an update on our leverage, with the guidance we have provided for the fourth quarter, we would expect to end the year 2007 with leverage pro forma for all announced transactions of approximately 5.6 times.

So with that overview operator, we’ll now open the phone line for your questions.

Question-and-Answer Session

Operator

Thank you. We’ll now begin the question and answer session. (Operator Instructions). Our first question comes from Mr. Kit Spring of Stifel Nicolaus. Your line is open.

Kit Spring - Stifel Nicolaus

Okay. Any interest in acquisitions, anything in the Lincoln financial that fits you? And if so, how would you finance that? Could you go above your current leverage ratio or is there another creative way?

And then on the Red Sox, how much did that benefit you in 3Q and 4Q, and have you seen the quarter get better since the tough comparisons in October time adjusted for the Red Sox? Thank you.

David Field

Yeah, let me take those in order. First, from an M&A standpoint, we've said in the past that we do look at opportunities that come along the pipe to make acquisitions, and we occasionally trades with people as well. But we do that soberly and very much in line with our balance sheet and our commitment to pay dividend. So you should not expect us to look at anything that would materially alter our balance sheet.

As far as the Red Sox are concerned, as I mentioned during my remarks, there was no impact at all in the third quarter of course, because playoffs did not begin till October. And for the fourth quarter, as I mentioned, there will be about a $1 million impact on revenues incremental due to the additional gains in the first season.

And finally on quarter, I think things actually are better than they were during September. I think the tone has been stronger in October and for the first part of November. But again, as I mentioned, I would describe market conditions as somewhat choppy and mixed with a pretty wide variance between what we're seeing in certain markets which are performing very well and other markets which are hurting based upon I think the macro-economic issues that are specific to those local economies.

Kit Spring - Stifel Nicolaus

Thank you.

Operator

Victor Miller of Bear Stearns, you may ask your question.

Victor Miller - Bear Stearns

Well, just to kind of reiterate that last question from another angle, obviously the dividend yield is about 9%, the after-tax of cost of that is probably 4.5%. So you are purchasing shares at a much solid levels. Obviously, you are going to add to free cash flow per share and free cash flow in general, the gross dollars of that. How do you -- and you look at the 9.5 times level, I mean 9.5 times valuation on next year's EBITDA by our estimates?

How do you throw these all into the mix as you even contemplate whether you'll add another acquisition or add anymore assets to the company? And then can you give some more color on just kind of the variation? What markets are doing the best and worst for you right now? Thanks.

David Field

Let me give you a little color on that question, Vic, and then I don’t know, Steve may want to add some thoughts of his own on that. But you are asking the same questions, of course, that we ask ourselves, and there are never perfect answers for that. Again, we have no intention of putting our dividend in the jeopardy, and we are very conscious of the fact that our stock is trading with a very high yield and that the incremental cost of capital for us is low, albeit finite, given our balance sheet.

So all that needs to be factored in, and you should expect us to make prudent decisions bearing all that in mind and given that this is a company where management holds a substantial chunk of the equity, and so is acting and in I think in accordance with the best interest of the shareholders in general. I am sorry, forgot your second question.

Victor Miller - Bear Stearns

Just some more color on how good are your good markets, how bad are your bad markets?

David Field

We are seeing some markets that has markets are probably down 10%-ish for a given month and we have other markets that are pacing up. And again, I don't mean just performance, and obviously, that's a separate issue, but markets that are pacing up, approaching double digits for the given quarter.

Victor Miller - Bear Stearns

I mean you talked about contrasting? What happened in September, and specifically you think for the industry that every one feels a little better about the tone in October and going forward? Was it a category that cancelled it auto-walk? What happened in September?

Steve Fisher

I will define it as just as general skiddishness. We had some cancellations. I think there was a small degree of advertiser paralysis for a short period of time as they attempted to sort through, the changes and the implications of the headlines that were coming out related to sub-prime losses. And I think if things settle down and business sort of kept moving, things got better and people are coping with the economic news in a more productive manner over the last few weeks.

Victor Miller - Bear Stearns

Thanks

Operator

James Dix of Deutsche Bank, your line is open.

James Dix - Deutsche Bank

Good morning, gentlemen. Just a couple of questions. First, how at this point would you have investors assess the progress of the CBS station acquisition at this point? If for '07, they've been dilutive to growth, for example, how might you quantify that in terms of revenue and EBITDA growth rates?

And then secondly, just looking to '08 for expenses, are there particular or unusual expense comparisons we should be thinking about now that you'll be basically cycling against a more normalized Red Sox increase on that contract?

And then, I guess finally, how do you assess whether a particular market is being affected by local housing, because I know in the past we’ve talked a little bit about how hard it is predict when a market is going to be up or down or how to explain it, do you look at just how much for housing prices have gone up or how much they are coming down or and just you mentioned it in your openings remarks just any color that you could give there would be helpful?

David Field

Yeah, James. Let me grab the first part of the question then and Steve, will with do with the second and third. I think in support of CBS, let me give you a little color across the board there. We are feeling very good about where we are in Austin, we’ve made a lot of changes in personal and a lot of changes in sort of business strategy and culture and so forth and have really turn things around there over the last couple of months and I thing we're planned for a good fourth quarter and a great '08 there.

We also were successful I think as you recall and its being one of the properties there which was essentially a breakeven proposition and that also that transaction I think was worked out very well for us. We are still waiting on sidelines for Rochester and still waiting for federal approval of that, which we continue to hope and maybe imminent, but having predicted that in the past and not seen it happen we are not going to prognosticate that any further.

We -- our San Francisco assets, which obviously are not specifically CBS, but are related about transaction and it came directly from the trade of Cincinnati, which we did acquired from CBS and some additional stations in Seattle. As you may recall we launched a new radio station there and another one of our workstation and we expect that things are going very well for us in San Francisco and we would expect to have a solid 2008 there as well.

So we are feeling very good about the assets we’ve acquired and feel like we’ve done pretty much, I'd say all of the heavy lifting at this point in time in the larger markets and we'd set for '08 and with Rochester on the -- roughly under our operation here James.

Steve Fisher

Thinking of '08 James your question was any expense categories for '08? And the simple answer is no.

James Dix - Deutsche Bank

Okay.

Steve Fisher

If you back a side from the step function this year in Red Sox, which was talked about, I guess a lot on this call. We gave you ample headlines for you going into this year as we look to 2008. The simple answer is no and I think we'll continue, as you've seen in the past to find ways, to operate more efficiently and that's our charters management.

Your question on housing prices and predictability. Good luck. And the simple answer is no. Clearly, everybody is aware of the headline housing issues and say market like Miami or Las Vegas or something like that, but it's pervasive and across. Housing as a category is not explicitly a large category for radio. I'd note I don't know if there is a cause and effect and maybe someone on this call will ask me perennial question on categories. But appliances were down in the quarter, if that’s how they write it, I don't know. Just as kind of fun on the macro economic restaurants were down and grocery stores were up, does that mean people are staying home and eating as opposed to going out, I don't know, we don't know. We've had no luck trying to forecast market, individual market reaction neither of you, so long answer to your short question.

James Dix - Deutsche Bank

Okay. Thanks very much.

Operator

Marci Ryvicker of Wachovia. You may ask your question.

Marci Ryvicker - Wachovia

Thanks. David, you said that digital is about 1.5% of your total revenue. Can you talk about the margin of this business today and where it can go over the next couple of years? And then secondly, when you look out into the future, where do think the most upside is at Entercom? Is it related more to the marketplace and the overall industry or just something that you can do specifically Entercom to kind of pull you out of the crowd?

David Field

Its a great question, Marci. The latter one probably deserving a whole day of discussion. Let me take your first one first because that’s a lot easier. In our margins I think our incremental margins on that business are high but because we are investing in significant personal and infrastructure and content and so for forth, I would say that as a division if you would isolate it, our margins would be quite lower at this point in time. And the revenue continues to grow and as expenses (inaudible) I think we'll see the incremental profitability of that business increase.

As you're other question, there are lots of things, we talk about the three internal initiatives, all of which we believe are going to make a difference for us. And we do believe that the impact of creating greater capacity in our organization, to offer customers, integrated marketing solutions is a really powerful vehicle, as we compete in a $250 billion advertising economy and look beyond the more myopic or narrow vision of competing just within the $20 billion radio space. And that's really a core vision that our management team shares and the way we are going about approaching business.

So as the low cost provider, with near universal reach and a tremendous tool kit of opportunities for our customers, we should be able to complete very effectively in that $250 billion world. And that's what our primary focuses and what I think the best potential driver for future business will be. Beyond that, obviously there is a macro question of the optics of radio in the world of how today its evolving and again we think the basic fundamentals of radio are heck of lot stronger than the perception of radio due to the noise from some many new gadgets and new developments. And again, we need to do a better job of an industry of articulating our value proposition and that's not a Entercom issue, that's an industry issue and we haven't done very well on it.

Marci Ryvicker - Wachovia

Great. Thank you.

Operator

Bishop Cheen of Wachovia, your line is open.

Bishop Cheen - Wachovia

Hi. Thanks for taking the question. Hi, David. Hi, Steve. Just sort of two parts; one, a follow-up to Marci, the key takeaways from '07, which is what we say it's been a challenging year. What's the key take ways for you that you think you can apply to '08 and make Entercom that much better? And secondly, on political revenue, as you look at '08, if you quantify that the same, bigger, less than '06 and why?

Steve Fisher

I don't know if I have a magic answer to your first question, Bishop. And again, I think it's still around the right track. We still are doing the right things, changing our organization, mapping in that direction. And so we feel very good about that and we are going to continue to march in that direction.

It's not a panacea, but is should enable us to continue to incrementally improve our performance vis-à-vis the general radio economy so to speak. On the political side, you are asking me not to look into my crystal ball, which is probably no better worse than anybody else's.

But from everything I read and everything I hear, there are going to be more dollars than ever before. It's been on political races next year and while radio is never the first medium to exploit that, we do participate in those dollars. And I would expect there would probably be a proportionate increase in our '08 political revenues versus our '06 or '04 revenues.

Bishop Cheen - Wachovia

Okay. And then just back to the kind of vision thing, have you changed the way that you could articulate in the way that you go about marketing your advertising inventory based on your lessons from '07?

David Field

No. Again, I think what you are hearing me articulate on this call is what we've been articulating for a while. But it is an evolutionary process, and we continue to achieve greater and greater momentum within the organization. But it is a change in mindset in terms of the skill sets that we have within our organization and how we approach the business. And it takes time, but we are making progress.

Bishop Cheen - Wachovia

Okay. Thank you, David.

Operator

Lee Westerfield of BMO Capital, your line is open.

Lee Westerfield - BMO Capital

Thanks, gentlemen. Good morning. A couple of questions for me. The first is, your experience in Boston, it sounds as if you grew revenue against the grain of what I think most other media competitors there, newspaper and television and so on in the quarter which was a tough time there. So I wonder if you can contrast how you performed in Boston, if there is a driving force behind that more than simply sports radio, which may be the cause?

And second question I have, David, actually I don't know if you touched on the HD alliance. And I guess my specific question there is, in fact if you can update us and update us in any way that can as to the options available with regard to selling advertising or subscription in the context of that alliance? Thanks.

David Field

In the reverse order, the HD alliance, we continue to make great, great progress in building important partnerships, be it in the retail area with the Wal-Mart and best price of the world or be it in the auto world where Ford has come on board and obviously to join BMW and others.

And in the manufacturer and consumer electronics world as well, we are continuing to see a growing number of manufacturers and a growing number of products coming into the marketplace. And we are very excited about that. And I also think on the content side, there continue to be some interesting developments in that area.

I think you'll begin to see the very first crumbs on the revenue side beginning in 2008, but I really would not look at this as a material driver for some time, because as you all know, achieving penetration rates that are material again takes some time for any product in today's marketplace.

I think I missed -- my amnesia. I forgot your -- yeah, Boston. Yeah, Boston is again a direct perfect example of where our strategic focus pays off. We are doing well digitally, we are doing well with our business development. In fact, I mentioned on our last call a program we developed with Shaw's Markets, which is the largest grocery chain in New England where we did a multi-platform integrated program with them, which has generated substantial incremental dollars that has kicked in over the last couple of months, and we'll continue over the next couple of years.

And also on branding content side where we continue to invest in great content on our sports station, WEEI, which is the number one radio sports station in the United States, and in addition, investing in great content on our other properties in that market that has enabled our brands to stand strong. So yeah, at the time when Boston is a flattish market, we've been able to achieve significant growth as a direct result of those efforts.

Lee Westerfield - BMO Capital

Gentlemen, thank you.

Operator

David Miller of SMH Capital Market, your line is open.

David Miller - SMH Capital Market

Yeah, hi. Just one quick question, David, on the pending transactions that you listed in your press release. Are you guys pretty much done with the programming efforts that you've essentially consummated over the last six months or so or should we expect additional programming expenses to sort of filter into 2008 with those pending transactions? Thanks

David Field

Look, we're never "done" right and don't read that as quote. We are always evaluating our portfolio, we're always thinking about where we might find opportunities to gain material lift from stations which are performing at levels below what alternatives might be. So I would never want to give the impression that we’re done and we always find an opportunity here and there that we will pursue, be it in our recently acquired stations around our portfolio that we felt for longer periods of time. So I would expect sort of a normal rate of new formats for the foreseeable future.

Steve Fisher

And as a kind of side if your question is, is there anything in the 2008 business model that could be impacted by cost to format changes? I would agree with David we don’t know at this point. There might be some next year, but I can't envision any of that would have a material impact on the business model or your models.

David Miller - SMH Capital Market

Okay, thank you very much.

Operator

Jonathan Jacoby of Banc of America Securities. Your line is open.

Jonathan Jacoby - Banc of America Securities

Thank you for taking the question. Just curious on expenses, I know we have touched on a little bit going forward and you guys have really done a great job of managing expenses, but is there any more room to cut or has the radio industry sort of cut to the bone and needs to start investing whether its in programming and or marketing? Thanks.

Steve Fisher

Hey Jonathan, would you like to come sit through our budget meetings. Its a macro question, not that the one I am proud of the operating team and the management team as they have managed expenses and what’s been lets call it a challenging revenue environment over the past several years. The simple answer to your question, is there more opportunity without hurting our basic business model and the simple answer is yes. I think we’re always trying to be prudent and balance things off. You have see us make big investment in content, whether its talent, sport rights, launching new brands, digital, or business development.

And don’t forget, digital which is been a major focus this year. We’ve invested a lot in people and resources there and yet managed a very reasonable expense growth. And so, I would say the simple answer is yes, I am not going to go into the categories , its specific for each market, each brand and how we operate and our philosophies, but the simple answer is yes. We think there is still more opportunity to maintain a very reasonable, perhaps declining expense metric.

David Field

Let me just add to what Steve just said I think there an important point. It's not just about cutting back, and how thin can we go. That's not how we look at things. We spend a lot of time thinking, how can we do things better and smarter. And so other ways that we can run this function that may have caused us $10 million in the past, run it for $8 million and you can still do a better job, because technology has changed or the marketplace has changed, or there has been some other evolution in the world that has enabled us to do things better. So I think it's really important again to reemphasize, it's not about cutting back on our capacity and our capabilities, but just doing thing smarter and more efficiently.

Jonathan Jacoby - Banc of America Securities

Thank you.

Operator

Mark Wienkes with Goldman Sachs, your line is open.

Mark Wienkes - Goldman Sachs

Thank you, good morning. No category question here first, so thinking

David Field

Come on, Mark. I wanted a [thrombus] effect that restaurants were tail and grocery is up. And like all my conclusion on micro economic turns.

Mark Wienkes - Goldman Sachs

(Inaudible). If I could wrap up on the macro versus and coming to specific questions in one question, how much of the variance in your performance for, let's say '08, do you think is going to be dictated by the general economic conditions versus your own specific company actions? 50% of your performance is going to be just lined upon in the economy or etcetera.

David Field

Again, it's a great question, Mark that we grabble with quite a bit. We would like to unfettered ourselves much possible, and again think about ourselves being competing in that $250 billion advertising pool as opposed to only $20 billion radio pool.

But the reality is there is only so much of that you can accomplish and we are still largely – our performance still is heavily correlated to macro trends in the economy and also macro trends in the radio business. And so the delta between what we do and what our peers do, I think can continue to expand adding on both side.

I think you are going to -- we’ve seen over the past year that delta in performance within the radio industry or the variance structure has increased. I think that will continue to be the case, because again, we are more and more competing in this broader universe and it reveals --

Mark Wienkes - Goldman Sachs

The variance across companies you are talking about?

David Field

Sorry.

Mark Wienkes - Goldman Sachs

The variance across company performance.

David Field

Yeah I mean within the radio industry that the variance between the performance is greater than it was lets say, five or ten years ago, because I think we are competing to a greater extent in a broader less forgiving world, which rewards companies that are I think doing a good job of competing in a boarder universe and punishes those don’t.

Mark Wienkes - Goldman Sachs

Yes, then, on that point, the blogging world than others already XM and Sirius merger having been approved, I guess how did that happened? How do you think about changes in the market that they like to call the audio entertainment market from that combined company and then once that further implications from that SEC action towards the radio industry broadcast treasury?

Steve Fisher

Look, I think its too early to start answering questions like that because by no means do I believe that that has, -- that is a better it can play and I think that if one thinks about the implications of an approval of that merger and what that could mean in terms of other -- of other media consolidation, its pretty staggering. So lets wait and see whether it happens first before we start answering questions like those. (inaudible) prior to the government approves a monopoly in national play video.

Mark Wienkes - Goldman Sachs

Got it. Okay. Thank you.

Operator

Eileen Furukawa of Citigroup, your line is open.

Eileen Furukawa - Citigroup

Thanks for taking the question. The couple ones, I just want a little update on the inventory side of the business and as we entered these more difficult time, how is the inventory levels been for you and your competitors that you are seeing out there in terms of both, not only just minutes but in terms of units as people are continuing to look to short ads?

And then secondarily, you talked a little bit about the PPM and how it is looking good in the New York market and how it's increasing. In big contrast of what we heard with Cox Inc., they felt that transition with People Meter was bringing down the Houston market as a whole down 5%. Do you think that the transition of People Meter is going to inflate or deflate market revenues? Thanks a lot.

David Field

Sure. units and ads, I think the number of minutes seems to be decreasing, the number of units seems to be increasing again, as you mentioned, with the transition to shorter. I think in the long run, again, it's a very good thing for the industry for reasons I've discussed and others have discussed previously. So I think it's a real positive trend for the future.

On PPM, I want to be careful, because you may have misconstrued my comments. I think it's way too early to see what PPM will do to New York ad revenues. I was really speaking to the validation of radio listening levels, which remain spectacularly high and which people do not sufficiently know.

Nobody steps back and says, here is the industry that reaches 96% of Americans every week and reaches them for a dozen or 14 hours or whatever it is a week, which is a spectacular marketing model. And that was my point. And I also added that within the winners and loser formatically, I think the Entercom portfolio is very well positioned for that world.

And again, I haven't seen a lot of discussion about that. But I think as people start sorting through winners and losers within that, I think we will be served well.

As to the disruption of the advertising, the primary comment I've heard about Houston and Philadelphia is, first of all, there really hasn't been a disproportionate disruption in those markets on revenue. Yes there has been some natural transition that's occurred. Yes there has been a lot of discussion. And I don't think Arbitron did as good job as they should have in preparing the market for it.

And what I’m hearing is that in New York and another markets that are coming up in '08, both the industry and Arbitron are doing a far better job of getting in front of advertisers and clearing through the questions long before the book, the new books hit, so that advertisers can advance around, and hopefully we will see a much cleaner transition in those markets.

Eileen Furukawa - Citigroup

And just a follow-up clarification point. You talked lot about real estate weakening, weakness in markets. What exact markets are you talking about in your portfolio of stations that are getting, in your mind, hit by real estate?

Steve Fisher

I think we are seeing most -- I think Florida and California are two regions or areas or states obviously that we are seeing a more adverse impact than others. And again, I’m not commenting on our execution within those markets, but rather on general market conditions.

Eileen Furukawa - Citigroup

Thanks a lot.

Operator

John Blackledge of JP Morgan, your line is open.

John Blackledge - JP Morgan

Thanks for taking the questions. I’m sorry if I missed this. Just wondering what your performance was in September and what your market performance was. That's question number one. Number two, does it makes sense for terrestrial operators including yourself to pair up with internet pure play like Pandora as you kind of grow out your digital platform?

And then lastly, are you concerned that industry revenues go from flattish to down 2%, 3% over the next couple of years and even excluding kind of like cyclical issues, and what's the driver for argument that the revenues don't start to dip versus staying flat to up? Thank you.

David Field

I’m not sure I’m conceding your last question, right? I mean I don't know what revenue is going to do in '08 or '09. And again, I'd point out that if you look at our Q3 performance and you look at our Q4 guidance in the context of political comparisons, we are not declining. And in fact, we've actually -- again, it's not a robust growth. But on a normalized basis, we were up. We actually were up normally in Q3. But as political up 1 in Q4, normalized our guidance, and I think again it's up slightly.

And I think with our initiatives and with any change in industry optics that move us closer to the reality of industry conditions from the listeners' standpoint and away from some of these inceptions where we get lost in the shuffle, I think that's the potential for a major positive lift.

So I'm not predicting that. I am not really pointing out that this equilibrium should it ever be narrowed would work in our favor. So we'll see how that plays out. As far as September is concerned, we performed far better than the industry. We were down 1% for the month. And your digital question, I'm not sure I completely understood. So maybe you can share that with me again, please.

John Blackledge - JP Morgan

Yes. Does it make sense for terrestrial operators to pair up with kind of pure play internet radio operators like Pandora to, I don't know, kind of broadening your platform? Just like hypothetically thinking about it?

David Field

Yeah, I mean it's a tough hypothetical. I guess at this point in time, I don't see it, but obviously we are looking at ways in which we can continue to expand our content and our plans and continue to look for ways that technology evolves to serve our listeners and our customers in new ways. So we continue to think about those contents.

John Blackledge - JP Morgan

Thank you.

Operator

David Bank of RBC Capital Markets, your line is open.

David Bank - RBC Capital Markets

Thanks. A couple of questions. First, on the digital business that now comprises of [1.5%] of your overall business. How much of those advertisers are new advertisers versus advertisers who are advertising on the radio platform. So actually, the guys who hadn’t been advertising on Entercom at all and they are now advertising on the online platform? The second question is as, as the Google Audio platform serves roll from data to full rollout with the Clear Channel inventory at the beginning of the summer. Have you guys seen any impact on the industry? Have you guys seen any impact in your markets any thoughts on Google Audio at this point?

Steve Fisher

I mean, I'll go on the reversal order, to your later question we've seen no impacted at all, it doesn’t mean, they are doing well or purely -- we just don't see any impact on our world. And to your first question, it's a mix bag, you have some advertisers who are radio advertisers who love the ability to extend their interaction with our audiences through online opportunities. You see the other advertisers who frankly are intrigued with our digital offerings and are not that interested in what we offer them on-air. Who are doing digital only programs with us, or in some cases starting with digital and then adding in the radio. So, it's all the above and it's a good thing.

David Bank - RBC Capital Markets

Okay. Thank you.

Operator

Victor Miller of Bear Stearns, your line is open.

Victor Miller - Bear Stearns

A just one quick follow-up on WRKO. Could you tell about thought to us on how that land up -- are you pleased with the progress there, when do we really see the ratings gains that we've seen in WRKO really translate to increases revenue there, and did WEEI suffer any revenue losses? Thanks.

Steve Fisher

Yes. We are thrilled with how WEEI has faired, namely even though we took of the Red Sox, our ratings have remained outstanding and so as predicted that's worked out terrifically for us. WRKO situation is little different, because while the dishes was playing out, unfortunately we had a contract dispute with our number one personality who has been off the year for the last couple of year and had a high profile contract dispute over the course of the summer and I think that was meaningfully disruptive to both our advertising and to our listening strategies. We very much hope and expect to see a positive resolution to that situation, but it’s obviously put us behind schedule here, as we have sort of waited through that disruption. Thank you.

Operator

Michael Kupinski of Noble Financial your line is open.

Michael Kupinski - Noble Financial

Thank you for taking the question. Following up on Bishop Cheen's earlier question I realized that this was small part of our business, but how do you prepare for the prospect of strong political advertising next year? Or might be going to be with some broadcasters indicated that they are aggressively raising the lower -- lowest unit rate into the patient of political next year. And do you have to have the lowest unit rate in place prior to political and then if you could just give some color if you are raising the lowest unit rate and if so by how much? And then finally my next question is on, I am sorry, if I missed this, but can you give more color on our local versus national, particularly ex-political year-over-year in the fourth quarter?

David Field

There is a -- we do a lot of training for our people on political. They are well aware of the implications of low cost, of the low political rate and as a result they understand that there is window before the elections which they need to be particularly careful. They know the rules. They understand their business models and they need to make the right business decisions as to what makes the most sense for them in pursuing their agenda.

Steve Fisher

And on your question on local and national in the fourth quarter, as David mentioned, there was no meaningful difference in the third, nor do we anticipate any meaningful difference between the two categories in the fourth quarter.

Michael Kupinski - Noble Financial

Are you raising significantly your lowest unit rate this year and anticipation of political next year?

David Field

Again, it is a local decision, Michael, as to how each of our managers do it. They need to make the right business decisions on their lowest unit rates, and they fully cognizant of the implications on political.

Steve Fisher

I would say it's in a side. I don't think we manage our rates in anticipation of political. We manage our rates in terms of what's best for business.

David Field

That's a supply-demand function. And they do what they think is in best interest of their station and follow the rules.

Michael Kupinski - Noble Financial

Okay. Great. Thank you.

Operator

Jim Goss of Barrington Research, your line is open.

Jim Goss - Barrington Research

Thank you. Good morning, Dave. Good morning, Steve. One, going back to a little to what Marcy & Bishop had started talking about, what level of industry-wide revenue trends do you feel would be sufficient to enable you to cover your expense increases and outperform on the topline as you consistently tend to do with your programming acumen and still generate at least mid-to-single digit cash flow on EPS? Do you need couple of percent type industry-wide revenues? What do you think?

Steve Fisher

I'll take that. It's Steve. I'll take that, Jim. One, we don't and I think we've consistently not predicted the outcome. We give all the factors we see. But you are asking a math question, so let me back into it. We don't see anything next year or frankly into the foreseeable future as it relates to our expense business model. So if you were looking to get a mid-single digits on EBITDA growth or mid to high on free cash flow per share growth, that would imply low single digit on the revenue. So that's just the math.

Jim Goss - Barrington Research

Do you think you can get there or do you think there is --

Steve Fisher

That's a different question, which I think we find it pretty difficult in forecasting this business, given the short cycle nature of the industry.

Jim Goss - Barrington Research

Well, the other contentious issue is --

Steve Fisher

I can't answer to your question as I can come up with a scenario that would indicate that whether it plays out or not, I don't know.

Jim Goss - Barrington Research

The other contentious issue that's been talked about a couple of times is PPM issue. And it seems like it's not rich as much as usage that the total time spend has been a little less, even though it's still very high and that there is struggle with the cost per point pricing versus the more accurate audience measurements that tend to be down a little bit. And how do you grapple with that and do you think what was mentioned on the Cox Radio call the other day is a real fair.

Steve Fisher

I mean imagine if this was a newspaper industry and maybe we just got PPM, and it was determined that all of the circulation of every major newspaper in the country was up two to three times. It would be held that it's the incredible windfall, the most spectacular development in the industry.

We have an incredible reach story that has been validated and dramatically enhanced by the PPM, and we still have a medium which reaches Americans for 12, 13, 14 hours a week, which is a spectacular amount of time. And we are the low cost provider. So I think we are in a very, very good position, and I think we are very well positioned as a medium for the future. And I think as advertisers look for more and more accountability, and then out of the PPM methodology, which they will prefer to the Diary, I think when the dust all settles -- and yeah, there was always going to be noise and debate and back and forth, okay? That's going to happen. But at the end of the day, radio is a medium which is stronger in the PPM world.

Jim Goss - Barrington Research

All right. Thanks.

Steve Fisher

Operator, we have time for one more question.

Operator

Thank you. Kit Spring of Stifel Nicolaus. Your line is open.

Kit Spring - Stifel Nicolaus

I don’t think this is going to happen, but are you at all concerned about having to pay performance royalties?

David Field

I think on the merits of the argument, we should not be concerned with that. I don’t want to get into all the inside Washington back and forth on that. But obviously, we don’t believe it's going happen.

Kit Spring - Stifel Nicolaus

Thank you.

Steve Fisher

Okay. With that, why don’t we wrap for today. We appreciate everybody’s time here this morning and look forward to reporting back to you again in three months. Thanks.

Operator

That concludes today’s conference call. You may disconnect at this time.

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Source: Entercom Communications Q3 2007 Earnings Call Transcript
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