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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 - BarringtonResearch

Operator

Good morning, and welcome to Entercom's Third QuarterEarnings Release Conference Call. All participants will be able to listen-onlyuntil the question-and-answer session of the call. This conference is beingrecorded.

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. BeforeDavid Field begins overviewing our call, I'd like to read you this disclaimer.

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

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

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

David Field

Thank you, Steve, and good morning all. Thanks for joiningus today's call. As usual, I'll provide some additional color on the results wereleased earlier this morning and then share some thoughts on recentdevelopments and business conditions.

As announced earlier, Entercom's same station revenues wereup fractionally during the third quarter. Our results compare favorably to ourmarkets, which were down 2% for the quarter. It is worth noting that untilearly September, we were tracking to deliver low single-digit revenue growthfor the quarter. However, September business conditions deteriorated asfinancial and housing market earns inflated and certainly caused theadvertisers jitters.

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

If you exclude the increased expense of this agreement, oursame station operating income would have been down 1% and our same stationexpenses would have been up just 1%, which is a far better reflection of ourcore expense growth. And next year, the agreement will no longer have the sameinfluence on our expenses due to the expected more normal year of expensegrowth 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 downconsiderably. If you would exclude political, our same station revenues were up1% for Q3. Digital revenues were up 150% for the quarter, and now equal roughly1.5% of our total revenues on a run rate basis.

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

We are investing in our capabilities in each of these areasto provide our customers with enhanced integrated advertising and marketingopportunities across our three platforms, on-air, on-line and on-site. Ourefforts are bearing fruit and we are becoming increasingly effective atdeveloping innovative, multi-platform marketing programs for our local andnational customers.

Our summer ratings were reasonably strong. One analystreport across my desk this past week said that Entercom is the general marketbroadcaster with strong set of summer numbers. We have particularly goodratings in Greensborowhere we have three of the top four stations among adults 25 to 54.

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

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

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

Finally, The End in Sacramentohad a sensational summer book, growing to number one among the adults and women18-49 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 andbad books, overall we are pretty pleased with the macro ratings picture fromthis summer.

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

Within that context, however, we continue to improve ourexecution as a company and are driving slow but steady progress from ourvarious growth initiatives. We currently expect Entercom's fourth quarterrevenues 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 hadapproximately $2.7 million in political advertising. Also, during Q4 this year,we added approximately $1 million in incremental billing related to the Red SoxWorld Series run.

Before turning to Steve, I want to share a few additionalobservations. First, now that PPM results are out in three markets, we canbegin to draw some conclusion. PPM is confirmed with the diaries showed us foryears that 96% of Americans listen to the radio weekly. The recently releasedNew 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, itremains higher than any other medium, except television. Unfortunately, thereremains a disconnect between perception realty on the state of the radiobusiness. The fact is that radio provides near universal reach, is second onlyto TV in usage, offers strong local brands and personalities and is the lowcost provider among all major advertising vehicles.

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

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

We remain committed to paying our dividends, which consumes65% 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 guidancewe provide is based on same station comparison. As noted in our release, theguidance for the fourth quarter is pro forma for all transaction, that isacquisition and divestitures which we have announced to you and which is in ourearnings release, with the exception of Rochester, New York, the CBS acquisition,which we have not yet assumed operations and therefore, do not include in ourguidance.

At this point, we are not including Rochester in our revenue expanse or otherline item of guidance. As David mentioned we expect same-station revenues inthe 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 lessthan 1% for the quarter, which is similar to our experience in the firstquarter and similar to a normalized experience in the second and third quarteras David mentioned.

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

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

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

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

So with that preamble and assuming that we not close on ourtransactions before year end and that there are no further share buybacks inthe 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 ofapproximately $12.5 million for the quarter and as nothing on the release we gointo the quarter with a basic share count of 37.3 million shares.

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

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

And now a few notes on third quarter before we get to yourquestion. We are proud that during the third quarter that Entercom bought back300,000 shares of Entercom stock and with today’s announcement of our nextdividend 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 nowapproaches 9%.

And since we've began our dividend program in 2006, we paidout $3.04 per share to our shareholders, over the past two years and that’s inaddition 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 guidancewe have provided for the fourth quarter, we would expect to end the year 2007with leverage pro forma for all announced transactions of approximately 5.6times.

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

Question-and-AnswerSession

Operator

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

Kit Spring - Stifel Nicolaus

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

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

David Field

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

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

And finally on quarter, I think things actually are betterthan they were during September. I think the tone has been stronger in Octoberand for the first part of November. But again, as I mentioned, I would describemarket conditions as somewhat choppy and mixed with a pretty wide variancebetween what we're seeing in certain markets which are performing very well andother markets which are hurting based upon I think the macro-economic issuesthat 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 - BearStearns

Well, just to kind of reiterate that last question fromanother angle, obviously the dividend yield is about 9%, the after-tax of costof 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 flowin general, the gross dollars of that. How do you -- and you look at the 9.5times 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 evencontemplate whether you'll add another acquisition or add anymore assets to thecompany? 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, andthen I don’t know, Steve may want to add some thoughts of his own on that. Butyou are asking the same questions, of course, that we ask ourselves, and thereare never perfect answers for that. Again, we have no intention of putting ourdividend in the jeopardy, and we are very conscious of the fact that our stockis trading with a very high yield and that the incremental cost of capital forus is low, albeit finite, given our balance sheet.

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

Victor Miller - BearStearns

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

David Field

We are seeing some markets that has markets are probablydown 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 separateissue, but markets that are pacing up, approaching double digits for the givenquarter.

Victor Miller - BearStearns

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

Steve Fisher

I will define it as just as general skiddishness. We hadsome cancellations. I think there was a small degree of advertiser paralysisfor a short period of time as they attempted to sort through, the changes andthe implications of the headlines that were coming out related to sub-primelosses. 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 moreproductive manner over the last few weeks.

Victor Miller - BearStearns

Thanks

Operator

James Dix of Deutsche Bank, your line is open.

James Dix - DeutscheBank

Good morning, gentlemen. Just a couple of questions. First,how at this point would you have investors assess the progress of the CBSstation 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 growthrates?

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

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

David Field

Yeah, James. Let me grab the first part of the question thenand 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 goodabout where we are in Austin, we’ve made a lot of changes in personal and a lotof changes in sort of business strategy and culture and so forth and havereally turn things around there over the last couple of months and I thingwe're planned for a good fourth quarter and a great '08 there.

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

We -- our San Francisco assets, which obviously are notspecifically CBS, but are related about transaction and it came directly fromthe trade of Cincinnati, which we did acquired from CBS and some additionalstations in Seattle. As you may recall we launched a new radio station thereand another one of our workstation and we expect that things are going verywell for us in San Franciscoand we would expect to have a solid 2008 there as well.

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

Steve Fisher

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

James Dix - DeutscheBank

Okay.

Steve Fisher

If you back a side from the step function this year in RedSox, which was talked about, I guess a lot on this call. We gave you ampleheadlines for you going into this year as we look to 2008. The simple answer isno and I think we'll continue, as you've seen in the past to find ways, tooperate more efficiently and that's our charters management.

Your question on housing prices and predictability. Goodluck. And the simple answer is no. Clearly, everybody is aware of the headlinehousing 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 largecategory for radio. I'd note I don't know if there is a cause and effect andmaybe someone on this call will ask me perennial question on categories. Butappliances 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 grocerystores were up, does that mean people are staying home and eating as opposed togoing out, I don't know, we don't know. We've had no luck trying to forecastmarket, individual market reaction neither of you, so long answer to your shortquestion.

James Dix - DeutscheBank

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 yourtotal revenue. Can you talk about the margin of this business today and whereit can go over the next couple of years? And then secondly, when you look outinto the future, where do think the most upside is at Entercom? Is it relatedmore to the marketplace and the overall industry or just something that you cando specifically Entercom to kind of pull you out of the crowd?

David Field

Its a great question, Marci. The latter one probablydeserving a whole day of discussion. Let me take your first one first becausethat’s a lot easier. In our margins I think our incremental margins on thatbusiness are high but because we are investing in significant personal andinfrastructure and content and so for forth, I would say that as a division ifyou 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 seethe incremental profitability of that business increase.

As you're other question, there are lots of things, we talkabout the three internal initiatives, all of which we believe are going to makea difference for us. And we do believe that the impact of creating greatercapacity in our organization, to offer customers, integrated marketingsolutions is a really powerful vehicle, as we compete in a $250 billionadvertising economy and look beyond the more myopic or narrow vision ofcompeting just within the $20 billion radio space. And that's really a corevision that our management team shares and the way we are going aboutapproaching business.

So as the low cost provider, with near universal reach and atremendous tool kit of opportunities for our customers, we should be able tocomplete very effectively in that $250 billion world. And that's what ourprimary focuses and what I think the best potential driver for future businesswill be. Beyond that, obviously there is a macro question of the optics ofradio in the world of how today its evolving and again we think the basicfundamentals of radio are heck of lot stronger than the perception of radio dueto the noise from some many new gadgets and new developments. And again, weneed to do a better job of an industry of articulating our value propositionand that's not a Entercom issue, that's an industry issueand 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 foryou that you think you can apply to '08 and make Entercom that much better? Andsecondly, on political revenue, as you look at '08, if you quantify that thesame, bigger, less than '06 and why?

Steve Fisher

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

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

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

Bishop Cheen -Wachovia

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

David Field

No. Again, I think what you are hearing me articulate onthis call is what we've been articulating for a while. But it is anevolutionary process, and we continue to achieve greater and greater momentumwithin the organization. But it is a change in mindset in terms of the skillsets that we have within our organization and how we approach the business. Andit 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 - BMOCapital

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

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

David Field

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

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

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

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

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

Lee Westerfield - BMOCapital

Gentlemen, thank you.

Operator

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

David Miller - SMHCapital Market

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

David Field

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

Steve Fisher

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

David Miller - SMHCapital Market

Okay, thank you very much.

Operator

Jonathan Jacoby of Banc of America Securities. Your line isopen.

Jonathan Jacoby -Banc of AmericaSecurities

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 reallydone a great job of managing expenses, but is there any more room to cut or hasthe radio industry sort of cut to the bone and needs to start investing whetherits in programming and or marketing? Thanks.

Steve Fisher

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

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

David Field

Let me just add to what Steve just said I think there animportant 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 wedo things better and smarter. And so other ways that we can run this functionthat may have caused us $10 million in the past, run it for $8 million and youcan still do a better job, because technology has changed or the marketplacehas changed, or there has been some other evolution in the world that hasenabled us to do things better. So I think it's really important again toreemphasize, it's not about cutting back on our capacity and our capabilities,but just doing thing smarter and more efficiently.

Jonathan Jacoby -Banc of AmericaSecurities

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, sothinking

David Field

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

Mark Wienkes -Goldman Sachs

(Inaudible). If I could wrap up on the macro versus andcoming to specific questions in one question, how much of the variance in yourperformance for, let's say '08, do you think is going to be dictated by thegeneral economic conditions versus your own specific company actions? 50% ofyour 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 withquite a bit. We would like to unfettered ourselves much possible, and againthink about ourselves being competing in that $250 billion advertising pool asopposed to only $20 billion radio pool.

But the reality is there is only so much of that you canaccomplish and we are still largely – our performance still is heavilycorrelated to macro trends in the economy and also macro trends in the radiobusiness. And so the delta between what we do and what our peers do, I thinkcan continue to expand adding on both side.

I think you are going to -- we’ve seen over the past yearthat delta in performance within the radio industry or the variance structurehas increased. I think that will continue to be the case, because again, we aremore 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 variancebetween 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 lessforgiving world, which rewards companies that are I think doing a good job ofcompeting in a boarder universe and punishes those don’t.

Mark Wienkes -Goldman Sachs

Yes, then, on that point, the blogging world than othersalready XM and Sirius merger having been approved, I guess how did thathappened? How do you think about changes in the market that they like to callthe audio entertainment market from that combined company and then once thatfurther implications from that SEC action towards the radio industry broadcasttreasury?

Steve Fisher

Look, I think its too early to start answering questionslike that because by no means do I believe that that has, -- that is a betterit can play and I think that if one thinks about the implications of anapproval of that merger and what that could mean in terms of other -- of othermedia consolidation, its pretty staggering. So lets wait and see whether ithappens first before we start answering questions like those. (inaudible) priorto 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 wanta little update on the inventory side of the business and as we entered thesemore difficult time, how is the inventory levels been for you and yourcompetitors that you are seeing out there in terms of both, not only justminutes but in terms of units as people are continuing to look to short ads?

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

David Field

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

On PPM, I want to be careful, because you may havemisconstrued my comments. I think it's way too early to see what PPM will do toNew York adrevenues. 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 thatreaches 96% of Americans every week and reaches them for a dozen or 14 hours orwhatever it is a week, which is a spectacular marketing model. And that was mypoint. And I also added that within the winners and loser formatically, I thinkthe 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, Ithink we will be served well.

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

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

Eileen Furukawa -Citigroup

And just a follow-up clarification point. You talked lotabout real estate weakening, weakness in markets. What exact markets are youtalking about in your portfolio of stations that are getting, in your mind, hitby real estate?

Steve Fisher

I think we are seeing most -- I think Floridaand Californiaare two regions or areas or states obviously that we are seeing a more adverseimpact than others. And again, I’m not commenting on our execution within thosemarkets, but rather on general market conditions.

Eileen Furukawa -Citigroup

Thanks a lot.

Operator

John Blackledge of JP Morgan, your line is open.

John Blackledge - JPMorgan

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

And then lastly, are you concerned that industry revenues gofrom flattish to down 2%, 3% over the next couple of years and even excludingkind of like cyclical issues, and what's the driver for argument that therevenues 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 meanI don't know what revenue is going to do in '08 or '09. And again, I'd pointout that if you look at our Q3 performance and you look at our Q4 guidance inthe context of political comparisons, we are not declining. And in fact, we'veactually -- again, it's not a robust growth. But on a normalized basis, we wereup. We actually were up normally in Q3. But as political up 1 in Q4, normalizedour guidance, and I think again it's up slightly.

And I think with our initiatives and with any change inindustry optics that move us closer to the reality of industry conditions fromthe listeners' standpoint and away from some of these inceptions where we getlost 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 outthat this equilibrium should it ever be narrowed would work in our favor. Sowe'll see how that plays out. As far as September is concerned, we performedfar better than the industry. We were down 1% for the month. And your digitalquestion, I'm not sure I completely understood. So maybe you can share thatwith me again, please.

John Blackledge - JPMorgan

Yes. Does it make sense for terrestrial operators to pair upwith 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 thispoint in time, I don't see it, but obviously we are looking at ways in which wecan continue to expand our content and our plans and continue to look for waysthat technology evolves to serve our listeners and our customers in new ways.So we continue to think about those contents.

John Blackledge - JPMorgan

Thank you.

Operator

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

David Bank - RBCCapital Markets

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

Steve Fisher

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

David Bank - RBCCapital Markets

Okay. Thank you.

Operator

Victor Miller of Bear Stearns, your line is open.

Victor Miller - BearStearns

A just one quick follow-up on WRKO. Could you tell aboutthought 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 reallytranslate to increases revenue there, and did WEEI suffer any revenue losses?Thanks.

Steve Fisher

Yes. We are thrilled with how WEEI has faired, namely eventhough we took of the Red Sox, our ratings have remained outstanding and so aspredicted that's worked out terrifically for us. WRKO situation is littledifferent, because while the dishes was playing out, unfortunately we had acontract dispute with our number one personality who has been off the year forthe last couple of year and had a high profile contract dispute over the courseof the summer and I think that was meaningfully disruptive to both ouradvertising and to our listening strategies. We very much hope and expect tosee a positive resolution to that situation, but it’s obviously put us behindschedule 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 BishopCheen'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 nextyear? Or might be going to be with some broadcasters indicated that they areaggressively raising the lower -- lowest unit rate into the patient ofpolitical next year. And do you have to have the lowest unit rate in placeprior to political and then if you could just give some color if you areraising the lowest unit rate and if so by how much? And then finally my nextquestion is on, I am sorry, if I missed this, but can you give more color onour local versus national, particularly ex-political year-over-year in thefourth quarter?

David Field

There is a -- we do a lot of training for our people onpolitical. They are well aware of the implications of low cost, of the lowpolitical rate and as a result they understand that there is window before theelections which they need to be particularly careful. They know the rules. Theyunderstand their business models and they need to make the right businessdecisions 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 fourthquarter, as David mentioned, there was no meaningful difference in the third,nor do we anticipate any meaningful difference between the two categories inthe fourth quarter.

Michael Kupinski -Noble Financial

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

David Field

Again, it is a local decision, Michael, as to how each ofour managers do it. They need to make the right business decisions on theirlowest 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 ratesin anticipation of political. We manage our rates in terms of what's best forbusiness.

David Field

That's a supply-demand function. And they do what they thinkis 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 toenable you to cover your expense increases and outperform on the topline as youconsistently tend to do with your programming acumen and still generate atleast mid-to-single digit cash flow on EPS? Do you need couple of percent typeindustry-wide revenues? What do you think?

Steve Fisher

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

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 prettydifficult in forecasting this business, given the short cycle nature of theindustry.

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 ascenario 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 acouple of times is PPM issue. And it seems like it's not rich as much as usagethat the total time spend has been a little less, even though it's still veryhigh and that there is struggle with the cost per point pricing versus the moreaccurate audience measurements that tend to be down a little bit. And how doyou grapple with that and do you think what was mentioned on the Cox Radio callthe other day is a real fair.

Steve Fisher

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

We have an incredible reach story that has been validatedand dramatically enhanced by the PPM, and we still have a medium which reachesAmericans 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 goodposition, 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 outof the PPM methodology, which they will prefer to the Diary, I think when thedust all settles -- and yeah, there was always going to be noise and debate andback and forth, okay? That's going to happen. But at the end of the day, radiois 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 allconcerned about having to pay performance royalties?

David Field

I think on the merits of the argument, we should not beconcerned with that. I don’t want to get into all the inside Washington back and forth on that. Butobviously, 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 appreciateeverybody’s time here this morning and look forward to reporting back to youagain in three months. Thanks.

Operator

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

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Source: Entercom Communications Q3 2007 Earnings Call Transcript

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