AltShares Merger Arbitrage ETF
Q2 2008 Earnings Call Transcript

Published: 22 Jul 2008

[Operator:]

Good morning. My name is Raine and I will be your conference operator today. At this time, I would like to welcome everyone to the Arbitron second quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (Operator instructions). Thank you. It's now my pleasure to turn the call to your host, Thom Mocarsky, Senior Vice President of Press and Investor Relations. Sir, you may begin your conference.

[Thom Mocarsky:]

Thank you, Rey. Good morning ladies and gentlemen and welcome to the Arbitron second quarter 2008 earnings conference call. Today, I have the pleasure of introducing Steve Morris, our Chairman, President and Chief Executive Officer and Sean Creamer, our Chief Financial Officer. In today's call, Steve and Sean will review Arbitron's activities, accomplishments, and financial results for the second quarter of 2008. They will also make some comments about our expectations for 2008. After the presentation, Steve and Sean will be happy to take your questions. But, before we begin today's presentation, I do want to note that this morning's discussion include forward-looking statements. These forward looking statements are within the meaning of the Private Security Litigation Reform Act of 1995. These statements are based on current expectations about future events. Arbitron has derived these expectations from the information that's currently available to us. Actual results might differ materially from the results projected in our forward-looking statements, which involve known and unknown risks. For discussion of the factors that could cause our actual results to differ materially from our forward-looking statements, please refer to Arbitron's 10-K for the period ended December 31, 2007. A copy of that 10-K is on file with the Securities and Exchange Commission. At this time, I'd like to turn the call over to Steve Morris, our President and Chief Executive Officer.

[Steve Morris:]

Thank you, Tom and good morning everybody. It's again a pleasure to have this opportunity to update you on the quarter and on the six months and an outlook for the rest of the year. Immediate business and radio specifically continues to suffer to an extended period of softness with the intersection of the recession in the overall economy and the continued flow of national buyers [ph] into online alternatives. The (inaudible) makes the price increase on PPM very uncomfortable and also makes new sales with discretionary peripheral items like software were challenging. At (inaudible) course, listening to radio remained strong with above 93% of the nation still in the audience every week especially if the local level radio remained an extremely important advertising vehicle for businesses all across the country. As we also note, radio has difficulty need to be seen on the context of the weakening of some of its key local competitors like newspapers. I have also encouraged by the speed with its radio groups who are jumping into internet delivery of their content. It will be exciting to work with our customers this summer as PPM measurement of internet radio screen begins, and radio stations can start to package their online and offline product for maximum affect. So as the specific for the quarter has ended, but when you sort to the impact with PPM delay, results were consistent with what we have anticipated when we provided yearly guidance back in February. We are in the middle of the major swim [ph] in our business model from all diary, the PPM and the top 10 markets and all PPM markets come next year. Without new PPM revenue, we are going modestly in the 4% to 6% range. With our expenses are being incurred and recognized in advancing our revenue in new PPM markets, it was an anticipated lower level of profitability for the second quarter, about $0.02 per share, In the second half of the year, this will change if the pricing up with the PPM starts to cover the incremental cost of the panels and should help us produce some of the year the guidance target that we’ve talked about. Focusing on a PPM operationally, we announced in early June that we are going to restart a commercial based on a PPM service with the intention of expanding from the Houston, Philadelphia base to bring twelve new markets on the stream [ph] by the end of the year. We spent the last seven months working on quality metrics with the panel in training both buyers and sellers. Last week, we start our advisory council of the areas where we are raising the bar in terms of the performance benchmarks. For example we increased our guaranty level of 18-54 delivering from an 80 DDI or designated delivery index to an 80. Well, it was not a question of statistical validity of the data, a higher DDI does add value for our customers by getting larger samples from the key buying demos. From our perspective it raises performance standards but our success over the last year in controlling demographic delivery makes us confident that we can deliver the samples market by market, add or above 90 at a consistent basis. From a purely statistical perspective we continue to believe strongly that our data last November were valid and reliable for use in buying and selling. However I said then, our business is based not only statistics but also on the confidence our customers have on the data. I feel very positive about the fact that we were successful in translating the industry’s confidence issues into factual research terms and with [ph] our advisory council, we’re able to express those issues in terms of specific benchmarks. In many instances, we’ve met or exceeded those initial benchmarks and there are additional initiatives going through the pipeline that are full of potential for further improvement overtime. I’m also pleased by the amount of training we’ve been able to provide the customers in the new markets and especially about the selling stories, we’ve been able to help build the format like urban [ph] and Spanish-language. Radio has a great story to tell even in difficult economic, in difficult economic times — and perhaps especially the difficult economic times. The programmers and salespeople who have immersed themselves in the data have [ph] been producing some exciting new ways in addition to stations to advertisers. As always there are further challenges, we very much intend to continue our pursuit of MRC accreditation and we work to secure it for all market that we opened. Today, we’re accredited in Houston but not in Philadelphia. Other markets are in the audit process. Further, like other media measurement companies, we need to continue to explore better ways to recruit from cell phone-only households but these households are not picked up on our normal random digit dialing landline homes and their numbers are increasing rapidly. This is an area in which the MRC has recently placed increased emphasis. And finally ethnically-targeted formats continue to express concerns about whether there are samples effectively represent their constituencies. This last issue has a political component being tied to minority ownership of media, which is a hot topic and watching them right now. We continue to feel strongly that our data are valid and reliable and do in fact effectively represent all segments of a population. We can and we will continue to improve our samples as part of continuous improvement but it’s time now to move forward. Another (inaudible), we continue to advance initiatives to broaden our revenue base and capitalize on PPMs multimedia capabilities. These projects are in the early stages and I (inaudible) to talk about today beyond noting that we continue to see opportunity and strong advertiser support, but more of a holistic measures in the media landscape. With that I‘m going to turn over to Sean to walk you through the financial results.

[Sean Creamer:]

Thanks Steve, good morning. I’m going to review our financial results for the second quarter and the other [ph] date and provide some additional color on the performance and then we’ll open it up, open the call for questions. Starting with our financial results for the second quarter revenue was 78.7 million up 2.8 million or 3.7% compared to the second quarter of last year. Cost of revenue was 52.6 million in the second quarter up 8.9 million or a little over 20% compared to the same period last year. As expected we are incurring incremental cost versus the second quarter of last year. And that’s predominantly relating to management of the PPM panels for the previously delayed markets that are now scheduled to commercialize in the fall, as well as recruitment of the PPM panels in Atlanta, DC, Dallas, Detroit and Boston that commercialize in the fourth quarter of this year and in the case of Boston, the first quarter of 2009. Specifically, we had an average of nearly 26,000 panelists in the second quarter of this year versus 7,700 second quarter of 2007. The November 2007 decision to delay the commercialization of these markets means that we are incurring cost for both the diary and PPM in these markets for a longer period of time prior to commercialization, then we’ll be required for future markets. This obviously significantly impacts our financial results and in particular the second quarter of this year. With last month’s reaffirmation of our previously announced restart schedule, we will begin generating PPM revenue and eliminating the diary [ph] cost from these markets during the balance of this year. The panelists for the markets that are scheduled to commercialize in September are fully recruited and we are well underway with the recruitment for the December '08 and March '09 markets. In addition, the required MRC audits for the market's plan to commercialize this year are either in process or scheduled to be completed sufficiently advanced of the commercialization date. Since we bear the cost of these audits, the increased number of markets being audited this year is an incremental cost year over year. Overall, trends in recruitment from research companies remain challenging. It is increasingly difficult and therefore more expensive to recruit representative samples. This is the case for both PPM and diary [ph]. As Steve noted, one area in particular that we are watching closely is the increasing incidence of cell phone-only households − homes where there is not a landline. Many research companies including Arbitron utilize a – a phone based recruitment frame and random-digit auto dialers. Currently, federal regulations prohibit calls made by auto dialers to wireless lines without the consent from the subscriber. As a result, it's more difficult and more expensive to recruit panelists from cell phone-only households as the number of cell phone-only the household grows, it's increasingly important for us to effectively and efficiently recruit and to ensure we have representative panelists. We will continue to monitor this trend and are evaluating a number of alternatives to enhance cell phone-only representation. So far, we've identified deficiencies elsewhere and mitigate the impact of the increasing cost of recruiting PPM panelists and diary keepers. But obviously, there's no guarantee that this will be the case indefinitely. Royalties including the cost and revenue increased 1.3 million largely as a result of increased Scarborough revenue in the quarter. Selling and general administrative expenses were 20 million for the 2nd quarter that's down 256,000 as compared to the second quarter of last year and that reduction is reflective of the cost reduction initiatives that we noted last quarter that were implemented in the second half of 2007 in our corporate and sales and marketing groups. We reported share-based compensation of 2.7 million during the quarter most of which is reflected in SG&A. This is up nearly $600,000 from the second quarter of 2007. Keep in mind that the second quarter non-cash comp expenses, typically higher than the other quarters based on the timing of our annual grants and their respective investing schedules. Research and development expense was 9.9 million down 1.9 million or 16.1% compared to the 2nd quarter of last year. One of the most significant cost included in RND is IT. While we had incremental IT expense relating to PPM initiatives, we did have reductions year over the year in other areas. In particular, while we continue investing in our clients' software offerings to provide the customers with the tools they need to maximize the value they get from the enhanced PPM data, the significant investments we've made in this area last year resulted in favorable year over year comparisons. Our equity and net income affiliate was 5.2 million for the quarter, that's roughly flat from the second quarter of last year. Our share of the proportionate loss of the pile up in the second quarter was – on second quarter of '08 was 873,000 and that represents a certain shutdown cost incurred directly by a [inaudible 3.51] LLC. For the quarter of all related costs that occurred outside the LLC were 731,000 and therefore in total are – are power-related cost for the quarter or 1.6 million. With respect to Scarborough, our share of their net income for the second quarter was 6 million this compares with the income of 5.8 million reported in the second quarter of 2007. And for the quarter net interest expense was 411,000 versus net interest income of 541,000 in the second quarter of last year. Increased borrowing on our credit facility and reduced interest income attributable to our lower cash balances drove the change. Income taxes on continuing operations for the second quarter were 359,000 versus 2.1 million last year. Net income for the quarter was 600,000 or (inaudible) $0.02 per diluted share compared to 3.8 million or $0.13 per diluted share for the second quarter of last year. Earnings before interest and taxes were 1.4 million for the quarter. That's down 3.9 million from 5.3 million that we reported in the second quarter of last year. Depreciation and amortization for the quarter totaled 4.2 million versus 2.7 million in the second quarter of ‘07 with capital expenditures for the quarter of 6.4 million. EBITDA for the quarter was 5.6 million versus 8 million and was generated in the second quarter of ’07 and our cash flow from operations for the quarter was 16.2 million. Turning our attention to the year-to-date results for the first six months of '08 revenue through June was 172.7 million up 7.7 million or 4.7% compared with the same period last year. Year-to-date cost of revenue was 87.7 million. That’s an increase of 19.4% versus the 73.5 million that we reported in the first six months of 2007 with the – the increase primarily driven by the same drivers I outlined for the quarter. Selling, general, and administrative expense were 38.5 million during the first six months of this year, down approximately 1.8 million or 4.6% versus last year. Sure [ph 1.10] they had top totaled $4.3 million through June versus 3.5 million through June last year. Year-to-date of research and development expense was 19.5 million down to 2.9 million or 13% compared to prior year. Equity and net income of our affiliates was 1.2 million year-to-date versus 1.3 million last year and again our share of the loss in the Apollo LLC year-to-date was 1.9 million and our share of income in Scarborough was 3.1 million in the same period. Net Apollo expenses outside of the LLC were 1.3 million year-to-date and that brings our total Apollo-related cost for the first six months of 2008 to 3.2 million. The result in EBIT was 28.2 million year-to-date down 1.9 million from the 30.1 million that we reported in the same period last year. And during the first six months of this year, net interest expense was approximately 425,000 and that compares to net interest income of roughly a million last year and again the increase in interest-bearing debt and a reduction in interest earned on a lower cash or a lower balances of cash and cash equivalents drove that change. Income taxes from continuing operations during the first six months of 2008 were 10.8 million and yield a projected effective tax rate for the year consistent with our expectations and inherent in our guidance of approximately 39%. So year-to-date net income was 15.9 million this year or $0.61 per diluted share and that compares with 19.3 million or $0.64 per diluted share in the first half of 2007. Depreciation and amortization for June was 8.1 million versus 5.4 million during the first six months of 2007 with the increase attributable to capital expenditures required to support PPM initiatives. Capex so far this year has totaled 13.4 million and year-to-date EBITDA for June is 36.3 million. That stopped [ph] from the 35.5 million that we generated in the first half of 2007. And our cash flow from operations year-to-date is 31.4 million. The increase in EBITDA cash flow from operations is, despite a 1.9 million decrease in EBIT, and that’s reflective of the increase in non-cash expense items such as non-cash account depreciation and amortization. We are reiterating our full-year EPS guidance 1.30 to 1.44 as well as our revenue growth guidance of 8% to 10%. With revenue growth through the first six months of 2008 up 4.7% versus last year, our guidance certainly implies an acceleration of top line growth in the second half of 2008 as the commercialization of PPM markets restarts. It is worth noting that in the initial quarter of commercialization of PPM in a particular market, there is a revenue impact stemming from the transition from diary to PPM. With both diary and PPM, we recognized the revenue as the service is delivered. In the top 50 market, the diary delivers quarterly while PPM delivers monthly. Generally, in a quarter, a market is first commercialized – the last diary book is delivered for that market and therefore all of the associated revenue is recognized in that quarter as well. In addition, with two months of pre-currency PPM, they will be – delivered with that revenue also recognized in the quarter. However, the following year could show a decline in revenue for that market as it will include a full three months of PPM revenue at currency rate but will not benefit from any diary revenue, and this is – or will be particularly relevant in the third quarter of next year as this quarter’s restart of commercialization for the previously delayed markets will result in a disproportionately enlarged number of markets and larger markets that [ph] commercializing in the third quarter of this year versus future quarters. Our balance sheet remains solid as we ended the quarter with 21.7 million in cash and long term debt outstanding of 50 million as we've levered up a bit during the year to finance share repurchases. As you know, we have board to authorization for stock repurchase program of up to 200 million and extends through December 31st of 2009, year-to-date through yesterday, we have acquired nearly 1.7 million shares at a cost of approximately 72.6 million, of that 295,400 shares were repurchased during the second quarter itself. That concludes my overview. I hope that information is helpful, but at this time I turn it over to Ray, so we can open up the call and dive into questions.

[Operator:]

Thank you. (Operator instructions) Our first question comes from Alexia Quadrani of JP Morgan. Please go ahead.

[Alexia Quadrani:]

Hi! Thank you. A couple of questions. Could you discuss the cost implications of the planned increased samples and how that may impact your long term margin goals?

[Sean Creamer:]

Alexia (inaudible) – the – I assume you're talking about the – the 10% increase we talked about with our advisory council last week?

[Alexia Quadrani:]

Yes.

[Sean Creamer:]

There are a – at least three ways to get up there. So that we're going to have to do because the (inaudible) was subscribing on a cell phone only, we're moving down the path of collecting cellphone-only data. As we do that it's going to have the effect of picking up the samples in from (inaudible) areas where cellphone-only is concentrated. So because we're going to do that anyhow that's kind of the first increment of the 10%. The most efficient way to get the samples-size increase is simply to convert what is currently 6 to 11. A demo at the low end of the range is not typically been a radio demo, it's more of a TV demo and I think the feeling of the industry is they would rather have that sample moved into the 12 plus we're below the advise to take place and we can do that relatively efficiently. The run rate on – on moving that sample into the 12 plus is a – is not a material impact on us. And there is a third way to get at it which is further down the road. It's called stratification and I won't take you into that now, but there's – there's a brighter [ph] ways for us to get there and I think we believe we can do that relatively efficiently. An alternative to the 6 to 11 redistribution as well as is – if we can modify that – that sample, we would be able to use better than any revenue generated from that to subsidize the cost of increasing 12 plus up. That is a variation on Steve's point in terms of redistribution.

[Alexia Quadrani:]

Is it choosing [ph] to back away from your long term margin targets cause it's hard to figure it out or you still think that's an unachievable goal?

[Sean Creamer:]

Well, I think our view with respect to the sample size increase is that we have historically shown innovation and – and ways to become more efficient in – in quantifying the anticipated cost of that 10% increase. We don’t view that in any way as a significant model adjustment.

[Alexia Quadrani:]

Okay, and what has been the reaction against [ph] of the plan to increase the samples from many of the broadcaster’s you have broken to?

[Sean Creamer:]

Very positive, Alexia. This is a sample size (inaudible). It is going to be an issue for us forever in these services because the fragmentation of delivery with online and HD and all the other ways they want to get there. There's a signal out there and they know as we do that it's going to put continuing demands from more and more samples. So this I think they viewed as something we had asked for very, very strongly and I think they viewed our plan last week as very forthcoming on that subject.

[Alexia Quadrani:]

And just lastly, it sounds like you have a better way (inaudible),authorization to last. Do you expect an acceleration in your buy back in the second half?

[Sean Creamer:]

Well, I think more than the authorization itself extends through the end of next year, so we’re less than a third of the way through that time period and have purchased roughly 40% of the authorizations. So I think we – we feel like we’ve been active and our – I think track record speaks for itself. We are holding ourselves accountable as we always do for deploying capital in the highest return, opportunities that are out there and obviously the activity we have done in the market and our staff suggests that we find in return the current prices compelling but that does not mean that we are not also looking at other alternatives. We said that consistently and that remains our mantra as we will deploy the capital in the highest return opportunities available to us. Historically that has been in the form of repurchases. Once authorized we’ve executed and I think that would speak for itself.

[Operator:]

Thank you. Our next question comes from Jim Boyle of CL King. Please go ahead.

[Jim Boyle:]

Good morning. Sean, is there any other expense implications from the faster the threshold benchmarks?

[Sean Creamer:]

Well, we have been very transparent in terms of our performance relative to our metrics. What I can say is the performance today in the markets that we’re ready to launch in about (inaudible) performing at or above even though there’s (inaudible) levels, so from our perspective there is no cost implication because we are performing and expected to continue to perform at those levels going forward.

[Jim Boyle:]

Okay. And Steve, would the new benchmarks time in and the increased panel size professionally help with the MRC accreditation down the line?

[Steve Morris:]

That actually isn’t the key MRC agenda, that those are very much radio industry subjects. The MRC’s primary focus is on things like what they call SPI, the sample performance index, compliance rate and differential compliance rates. That’s where (inaudible) their hit list and the DDI samples sizes, I think they would (inaudible) and at all for good but the place that they will concentrate are those other areas. We told the advisory council last week that at this phase of the roll out, we are going to be placing the number one priority at addressing those issues with the MRC. We kind of hold the levels of the benchmarks and guarantees that we put out there, we’ll have some ongoing effort to improve those, but extent that we going to shift the priority a little bit is going to be to really focus on getting those SPI compliance rate and differential compliance rates, work through the MRC so we can get the accreditation.

[Jim Boyle:]

Also Steve, would the radio industry revenue drop enough even more than before in the last 5-6 months, does that hurt your non-diary revenue of late and two, has it caused any diary contract renewals to be done at lower than expected increases?

[Steve Morris:]

I don’t think we have a consistent pattern here, and Sean can correct me on this, but I think it is clearly difficult, as you know we have a very high percentage of our business under contract already from (inaudible) inquiries for the last year. It clearly is more difficult to make those new sales of software but we are continuing to do that. We have a product called IRS which is a yield management system and even in difficult times, extracting efficiency from your management of your inventory makes sense, so as long as we have products where we can show return of investment, people are going still to buy but clearly the overall pattern is one of a whole and [ph] tied on expenses, so in general your point is correct, but there is no major shift.

[Jim Boyle:]

Yes. I think that – that is exactly right. I think we have pretty consistently been tempering expectations on peripherals with the expectations and as we really stand right in front of the PPM uplift, kicking-in in multiple markets so that is going to be more difficult itself. And at year to date has proven to be the case, software is certainly not dropping significantly but it is flat to down slightly year-over-year but our expectation as you pointed out is - that is a tool that will ultimately would be increased granularly the data. I think even more critical as we move forward but I think the digestion phase, as I referred to it of the PPM pricing uplift will have so much [ph] impact on the peripherals and it is showing itself to a certain extent this year. Thank you.

[Operator:]

Thank you. Our next question comes from Mark Bacurin of Robert W. Baird. Please go ahead.

[Mark Bacurin:]

Good morning. A couple of things, first of all, this MRC accreditation that you are going through (inaudible) some of these upcoming markets for PPM I just want to be cleared that there is nothing that can really come out of that process that would potentially derail the current schedules you’ve laid out?

[Steve Morris:]

Yes. As we describe the process in previous call, communication (inaudible) with a very precise set of guidelines. The MRC process – it is a process – ongoing process and when we have conducted and audit the market and that audit has been illuminated to the committee that oversees the PPM and the accreditation process of PPM. We’ve done those two things, we can report with commercialization. We do that in parallel with a nature commitment to achieving accreditation in each of these markets. So, in order for us to stop a roll out, we will have to be convinced ourselves that the data was in someway fundamentally bias and now it become an arbitrary judgment about that and we have felt strongly for a year that the data in fact is solid and reliable and ready to go so we continue to be in that position and would expect to move forward for the roll out plan.

[Mark Bacurin:]

Great, and then secondarily on Sean you mentioned getting the benefit of PPM revenue, it sounds like you’ve been Q3 as the (inaudible) precurrency ph]. Is there a way to think about pricing in the precurrency phase relative to one that actually goes live during currency (inaudible) or is there a considerable difference between the pricing for the services as the contract ramp up?

[Sean Creamer:]

Well, the actual difference between a precurrency and currency, precurrency is effectively a diary rate.

[Mark Bacurin:]

So, you are basically getting a double diary rate for those few months for your precurrency – because you’ll diary the market as well.

[Sean Creamer:]

I say differently because of the delivery dates. They are paying for them and as those services is actually delivering monthly versus quarterly, so they are not paying for incremental months. They are simply getting the recognition – we are getting the recognition bundled in one quarter in the first quarter that it gets commercialized.

[Mark Bacurin:]

And is precurrency typically two to three months ahead of currency now of this month?

[Sean Creamer:]

Its two months, that’s right.

[Mark Bacurin:]

Okay. And then talking just about panel trends, last summer you had some problems given just people vacation harder to reach, are you seeing a noticeable change in terms of recruiting difficulties or just panel trends moving in the wrong direction we’ve entered the summer months now?

[Sean Creamer:]

Well, we – there is always is whether the diary of PPM or whatever, there is always – you got to lose some people to vacations and there’s got to be a down peak in the summer week, (inaudible) that last year we went down under our sample targets and we weren’t happy about that. This year we are a lot smarter about how we are managing the panel. We also pumped up [ph] our recruitment prior to summer so that we are able to absorb a decline in the compliance rates for example and still keep our total sample above the targets. So, we are very much on top of this year and I don’t expect you’ll have market where we drop under 100.

[Mark Bacurin:]

Great, and then just finally as I relate to sort of the out of home television measurement opportunity, are you generating – I would suspect (inaudible) Houston until you are generating some revenue there but I’m just wondering if you could sort of site for us – I wouldn’t – I don’t think that’s worth – it’s not a material point right now so that we are talking to industry in all fact I think there is opportunity there but it will get better as we get more market opened right now, we just kind of - sort of a test, (inaudible) kind of thing. So there is no material revenue there [ph].

[Mark Bacurin:]

Okay, perfect. Thank you.

[Operator:]

Thank you. (Operator instructions) Our next question comes from Troy Mastin of William Blair and Company. Please go ahead.

[Troy Mastin:]

I'm hoping you can up date us on trends on recruiting and retaining PPM panel members as you are moving into these new markets, so if you could maybe compare what you are experiencing today versus what you are experienced say last year if you are seeing efficiency improvement, if your cost for a new panel member or your maintenance cost of retaining panel members are stable increasing or declining on (inaudible).

[Sean Creamer:]

That's a big question (inaudible) but this in terms of our success on metrics are example performance index, the SPI, the compliance rate, the overall sample size [ph], the DDIs by demos – we’ve learned a lot in the years. So, we are doing this better than we did it a year ago and our SPIs are strengthening some and the compliance rates are strengthening some. And we made a lot of progress in terms of bringing 18 to 34 samples up. So overall, I would say that our recruitment activity is stronger. It is actually stronger than it was a year ago in terms of the cost per respondent San Diego.

[Troy Mastin:]

Yes. There’s certainly efficiencies that we’ve already realized. I think the reality is the more you do it, the better you become at it which makes perfect sense and I think that’s actually born itself out; in our case, versus a year ago. On the balance, been able to find – I’m not suggesting that in every single measure we’re hitting exactly where our model is suggesting. In some cases we’re doing better; and in other areas, we’re doing worse. But we have a path, we believe, in each case to get ourselves back on track but that is pretty much for the way the diary has operated for forty plus years. We have identified efficiencies elsewhere to subsidize crossover onto another area. We mentioned cell phone only recruitment. We mentioned it because I think it’s our responsibility to talk about evolving trends that could have an impact. That’s one that’s certainly is occurring today and one that we as a company are dedicating significant resources to addressing and so far, we’ve been able to cover the incremental costs associated with doing that from efficiencies that we’ve actually realized in other areas. So I’d echo what Steve said on balance. I think we are seeing new efficiencies. There’s more to achieve. There’s things that we’ll continue to do in the short term on a largely manual basis that there are automation initiatives well under way to address which we know will improve those metrics. And we also are convinced that the markets we are setting up right now are the most challenging and as we move into not only increasing numbers of markets but the smaller, and in our view relatively easier markets, those metrics improve as a result of that as well. So I think there are a number of levers just like in our diary business that we’ve been effectively managing today and our expectations, we’ll continue to do that.

[Sean Creamer:]

And if you take a step back from the PPM and you look more broadly at the research industry and the headwinds that the industry is facing in terms of higher cost. How do you think that scope of that line looks? Is it getting increasingly more challenging or marginally less challenging on a cost basis or a panel recruitment basis if you look at it probably from the industry that we kind of eliminate the learnings [ph] that you get with PPM?

[Troy Mastin:]

Well, I would say it’s our job to paint the picture based on the fact that they stand today. We’ve not seen any reversal of the trend, that it is more difficult to recruit (inaudible) and analysts. We also internally say at some point that trend has to reverse but we’re not counting on it. So I would suggest not just for Arbitron but for all research companies that trend has maintained a pretty steady direction which is it’s more difficult with privacy issues etc.

[Sean Creamer:]

Which is very much why we have an escalator built into our pricing because in our experiences, extend over the last x number years, that every year it does cost us somewhat more, and of that 4% on average pricing that we get is necessary to provide the extra incentives, whatever it is that we do to help (inaudible) that trend. So there’s some amount of cost reduction [ph] and some amount of appraising that has a lot of to deal with that.

[Troy Mastin:]

Okay, now I want to ask a quick question on the diary market that you’ll continue to operate post-PPM, if you can give some perspective on what percentage may be of those contracts or the revenue that has come up in the past, say, 6 months – I’m not sure if you answered the question earlier about – if you’re having to make any pricing concessions – and by pricing concessions, I mean the expected ramps [ph] that you would get to annualize or so percent increase in the diary market on a go-forward basis.

[Sean Creamer:]

I’m sorry, Troy. Just to make sure we’re clear on the question, you’re talking about diary markets that are today and will indefinitely be diary markets, not ones that are transitioning to PPM in the coming years?

[Troy Mastin:]

Correct.

[Sean Creamer:]

Yes. I mean in terms of renewals and our experience in renewals, there has been no significant change there. Obviously, there’s a well-publicized (inaudible) there on diary markets but outside of that I don’t think there’s been any significant change. This doesn’t happen to be a particularly heavy renewal year for our diary business but in most recent years passed that is – it’s been pretty consistent in terms of renewal rate.

[Troy Mastin:]

And I think you’ve got one large renewal at the end of the year, correct? Is there any insight you can lend to that?

[Sean Creamer:]

We don’t discuss the specific of any individual negotiation or renewal. I think with respect to 2008 which is the year we are talking about there, we are reiterating our guidance today and read into that what you might, but in terms of implications going board, the trends are not decidedly, different from our experience in the past in terms of (inaudible).

[Troy Mastin:]

Okay, then, one final question, 3.7% growth in the quarter. If we assumed that you’ve got 4% escalators on your ratings business, I would assume this implies a lower growth rate and your other ancillary services. Is there anything I am missing on that, simple math?

[Sean Creamer:]

No. I think that certainly is a part of it. What I would tell you is the transition to PPM certainly has a number of moving parts. As I have mentioned our diary service delivers quarterly and PPM delivers monthly and since we recognized revenue when that service has delivered, then it’s going to impact our seasonality. So quarter to quarter, our billings and delivery will change to the roll out and therefore so with our quarterly (inaudible). So that, lead in some cases to a bit of an apples-to-oranges comparison of quarter to quarter. And in fact, that anticipated volatilities one of main reason we stopped issuing quarterly guidance. We don’t manage our business quarter to quarter and we think you guys should be evaluating our performance the same way we do. Throughout the first and second quarter rate bounced around a bit, our year to date growth is 4.7% is right on track with our expectations. We really had no new PPM market commercialization year to date and so obviously PPM revenue growth in part because of that anniversary of the 5-month impact in the first year that PPM revenue growth was somewhat limited. Our software and ancillary have mentioned with somewhat soft year to date and international sales with PPM equipment which has really no seasonality to it. Year to date compared year to date last year is down for $500,000. So you put all those things in the pot and does it sort of feel right that we are around 4.7% absolutely. Don’t know if that it provided too much or too little detail but that’s the way were looking at it.

[Troy Mastin:]

Okay, I am going to steal one more. It seems like some (inaudible) have seen a weakening later in the first half, may be June being a particular month since _(inaudible) the softness, I am curious if you can seed out any trends on a monthly basis in terms of demand that you are saying.

[Sean Creamer:]

Well, I guess one of the benefits of long-term contracts is there’s not a lot of new sale in a particular quarter to have an impact immediately. We have tremendous top line visibility and with the exception of ancillary services, the rest of the revenue is largely contracted, and so there’s very little at risk in terms from here at the end of the year. Don’t want to minimize the fact that there’s always new business but the predominant pushing of our revenue right now for the balance of the years are already on the contract.

[Troy Mastin:]

Are there any other measures you might look at in terms of – I don’t know, pipeline activity or anything that would indicate that there’s been any notable change through the quarter.

[Sean Creamer:]

I think – we certainly continued to look at our customers and the health of the industry, but that has not yet translated into any visible signs with the exceptionable of what we’ve already talked about in terms of ancillary services and I believe that has something to do with the current state of the industry but as much we were more to do with the fact that PPM pricing is really keying up for a more significant impact to them in the next couple of years.

[Troy Mastin:]

Okay, thank you.

[Operator:]

Thank you. Our next question comes from Steven Rott [ph], Carl Domino [ph]. Please go ahead.

[Steven Rott:]

Hi. I apologize that I have missed it earlier, but I just was trying to get the Continental Revenues for Q2 of ’08 and Q2 of ’07. Male Okay, I will – if that was the only question, I will pull that together. I don’t have that right in front of me but before we got off the call, I will give that to you.

[Steven Rott:]

Thanks.

[Operator:]

Thank you again, no further question at this time. I would like to turn it forward to Steve Morris in his closing comment.

[Steve Morris:]

Well, I told (inaudible) if you got the answer on the –

[Sean Creamer:]

I do, from a Continental prospective, the revenue for the quarter was about $1 million last year first quarter – last year, sorry, second quarter.

[Steve Morris:]

Okay, thank you all for your time and questions. This is obviously a very difficult time for the economy for radio [ph] industry and as we push forward to accomplish this transition, obviously its not entirely smooth sailing but I think were moving ahead step by step and and taking a lot of progress and we will keep you posted.

[Sean Creamer:]

Thanks.

[Operator:]

Thank you. This concludes today's Arbitron second quarter 2008 earnings conference call. You may now disconnect and have a great day.