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Cumulus Media (NASDAQ:CMLS)

Q3 2013 Earnings Call

October 29, 2013 11:00 am ET

Executives

Lewis W. Dickey - Chairman, Chief Executive Officer and President

Joseph Patrick Hannan - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer

Analysts

Avi Steiner - JP Morgan Chase & Co, Research Division

Lance W. Vitanza - CRT Capital Group LLC, Research Division

James M. Marsh - Piper Jaffray Companies, Research Division

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Andrew DeGasperi - Macquarie Research

Aaron Watts - Deutsche Bank AG, Research Division

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Operator

Hello, and welcome to the Cumulus Media Quarterly Earnings Release Conference Call.

Please note certain statements in today's press release and discussed on this call may constitute forward-looking statements under federal security laws. These statements are based on management's current assessments and assumptions, and are subject to a number of risks and uncertainties. Actual results may differ materially from the results expressed or implied in the forward-looking statements due to various risks and uncertainties or other factors.

I would now like introduce Mr. Lew Dickey, Chairman and CEO of Cumulus Media. Sir, you may begin.

Lewis W. Dickey

Thank you, operator, and good morning, everybody. Appreciate everyone taking the time today to join us for our third quarter update. Also with me today is our CFO, JP Hannan.

Today, we're going to update you on our operating performance in the third quarter and also provide guidance for the fourth quarter. We'll provide an update on the investments that we've made in our 4 key growth initiatives and discuss our recently announced acquisition of Westwood One and our investment in RDO. Finally, we'll discuss our recent equity offering and the redemption of our remaining preferred shares.

The third quarter was another solid performance by our team. In the quarter, total revenue was up $5.7 million or 2.1% to $281.1 million. X political, the revenue growth was 3.2%. This increase was again driven by strong performance in local sales where we continue to take share. We also saw growth in national sales, which was the direct result of last year's comprehensive overhaul of our national sales team. Our national sales effort has been building sequential momentum for several months now and is really just starting to show its growth potential.

Our 2.1% top line growth in the quarter, including political, indicates strong momentum heading into the fourth quarter where we faced the most difficult political comps. In fact similar to the first half the year, we expect to post slightly positive revenue growth for the second half of the year. Further, 2014 holds a great deal of potential with political wins again at our backs. We're expecting somewhere between $25 million and $30 million there and the contribution from multiple growth drivers, which we'll discuss in detail.

Now diving a little deeper into the revenue numbers. This past quarter, we saw a significant strength in auto and health care. And in fact, of the 60 categories that we track, 42 of them showed positive growth in the quarter. As I mentioned last quarter, the Affordable Care Act will be a catalyst for health care ad spending, and we expect it to intensify as the enrollment date approaches. In addition, the lobbying efforts both for and against the bill will drive incremental ad spending through the next election cycle. We expect health care marketing to be an increasingly important category for us over the long term due to the changes in the health care industry, and now hospitals have cracked the top 10 in terms of our 10 largest categories for the first time.

We saw weakness in housing as rising mortgage rates that occurred over the summer. They put a damper in the recent growth of that category. However, with the interest rates back on the decline, we expect the overall decline in that category to abate. We also saw declines in clothing retailers following what was a sluggish back-to-school season for those businesses.

Now moving down the Q3 income statement. Most radio companies will also face tough expense comps this quarter due to a onetime, nonrecurring, industry-wide credit received last year from a contract renewal with music licensing group, BMI. For us, this amount was $8.3 million. Excluding this onetime item, our core EBITDA for the quarter grew by just over $1 million.

These results continue to generate a significant amount of free cash flow that is enhanced by our reduced borrowing costs and low CapEx. Despite the political comps on the top line and the onetime credit to expense, our free cash flow declined by less than $900,000 for the quarter or 1.4%. For the quarter, we generated $61.3 million of free cash flow for the quarter. Year-to-date through the third quarter, free cash flow was $141 million, putting us on track to exceed $200 million for the full year 2013 pro forma for the interest savings from the retirement of debt and preferred. Furthermore, we are well positioned to materially exceed that $200 million number of free cash flow in the coming year, 2014.

Now the investments that we've made in our 4 key growth initiatives, which are CBS Sports, NASH, Right Now Traffic and SweetJack are really beginning to pay off. We're very pleased with the progress that each of them has made in the third quarter and with their continued progress in the current quarter. Just running through each of them, CBS Sports Radio exceeded plan for 2013 and are -- and we are off to a very strong start in the upfronts for 2014 that portend another excellent year and strong growth year for that initiative.

On NASH, the New York flagship radio station is already the second most listened-to country station in America, and our national platform rollout is right on schedule for 2014.

In Right Now Traffic, we continue to take share in the traffic market and look for this initiative to be a strong contributor to our growth in 2014.

And finally, on SweetJack, the integrated marketing options are key for today's advertisers. And SweetJack continues to gain traction by enhancing ad campaigns for local and national advertisers through our mobile activation strategy.

Now previously, we said the $25 million investment that we made in this calendar year for these 4 initiatives would breakeven by the end of the year, and in fact, it will be slightly positive. Looking out into 2014, we expect these 4 initiatives to continue to be productive growth drivers for our company, along with our pending Westwood One acquisition and our partnership with RDO, where we will be taking a reg share from all of their ad sales.

Each of these initiatives will benefit tremendously from our previously announced acquisition of Dial Global, now known as Westwood One, a premiere producer and distributor of audio content. This transition -- or excuse me, this transaction creates enormous strategic benefits as we expand our content platform to support a foundation of both broadcast and now through RDO digital distribution assets.

In addition, it will de-leverage our balance sheet by about a half a turn as a result of more than $40 million of announced expense synergies. And we believe these synergies are all achievable in the first 24 months of closing, with more than half of them in the first 12 months. If you recall our acquisition strategy track record on synergies, we had targeted $51.9 million on the Citadel acquisition over the past 24 months, have delivered $65 million of actual synergies.

Now to fund the Dial Westwood acquisition, we also needed to sell 12 non-strategic small markets to Townsquare Media, enabling us to keep the transaction capital neutral. This allows us to maintain our discipline of using free cash flow to repay debt as we work to bring leverage below 5x. We further accelerated this deleveraging activity with the successful completion of an equity offering this month that allowed us to redeem our roughly $77 million of outstanding preferred equity shortly after the quarter ended. With this recent redemption of preferred, we will save close to $10 million here in interest expense, increasing free cash flow and further simplifying our capital structure. Moreover, this offering was the first issuance of common equity by a radio broadcaster in over 9 years, bringing in a number of high-quality long-holding [ph] investors into a group of holders through an offering that was more than 2x oversubscribed.

I'm pleased to report that since the Citadel deal closed 2 years ago, we've paid down more than $420 million of debt and preferred. And that equates to a little -- almost $2 a share of value to the equity.

And finally, looking ahead to the fourth quarter, we usually just provide current pacing data, but because of the large political comps, which are about $15 million in October and November, we're going to provide some actual guidance for the quarter and for the full year.

We believe that Q4 revenue will finish between $278 million and $281 million. And using the midpoint, this equates to revenue down approximately 2% and the x political revenue for the quarter, up approximately 4%, which is an acceleration from the low 3s in Q3. For the full year 2013, our revenue estimate is $1 billion -- is the range would be $1,081,000,000 to $1,084,000,000. And this equates to full year revenue of flat to slightly positive with x political growth for the full year of about 2%. Now we believe these revenue estimates will result in Q4 adjusted EBITDA between $103 million and $106 million and full year adjusted EBITDA of $374 million to $377 million.

Now with that, I'll turn it over to JP, and we'll open it up for questions.

Joseph Patrick Hannan

Thanks, Lew, and good morning, everyone. There was quite a bit of balance sheet activity recently both within the quarter and shortly thereafter. We'll file our 10-Q with the SEC later today with full details, but in the meantime here are some of the highlights.

In August, we refinanced our Series A preferred, replacing it with a Series B issuance that carried a lower coupon. As you may recall, the Series A carried a 14% dividend which was to soon escalate to 17% in September. The Series B replaced this instrument prior to that step-up with a new 12% interest rate. There were no arrangement fees or other fees involved in this transaction outside of nominal legal costs.

Further, on October 16, the company issued and sold approximately 18.9 million shares of our Class A common stock in an underwritten public offering that resulted in net proceeds after underwriting discounts, commissions and estimated offering expenses of $89.8 million for the company. The company intends to use approximately $78 million of these proceeds to redeem all outstanding shares of the newly issued Series B preferred stock, as Lew just mentioned, and that amount also includes accrued and unpaid dividends. The remaining net proceeds from the offering will be retained in the company's treasury for general corporate purposes.

Following the offering, we now have 205.2 million outstanding shares of common stock that consist of Class A, B and C shares. We also have approximately $29.1 million penny warrants outstanding at the end of the quarter that were issued as part of the Citadel transaction. We have just 700,000, $1.17 warrants outstanding from our 2009 bank amendment and we continue to hold 2.4 million shares in reserve related to Citadel's 2010 bankruptcy proceedings. We hope to have this last matter finally closed by year end and finally issue those common shares. All total, this will bring our outstanding share count for modeling purposes to 237.4 million shares.

As a result of the company's strong operating performance year-to-date and lower borrowing costs, Cumulus has ample liquidity. We closed the quarter with $64.2 million of cash on hand and this was after making a voluntary prepayment of $50 million towards our first lien debt in September. As we've talked about all year, de-leveraging our balance sheet is a key priority for us. And as Lew just mentioned, we've been aggressively paying down debt since the closing of the Citadel merger. We have now repaid more than $420 million of debt and preferred since that closing. And over that same period, we've also repriced our first lien term loan and refinanced the soon-to-be redeemed preferred stock, all in an effort to additionally lower borrowing costs and enhance free cash flow. We will continue to evaluate other refinancing opportunities and we'll manage the balance sheet very aggressively to further bring down interest expense and enhance free cash flow. The capital expenditures continue to track right on our guidance at $12 million this year.

And with that summary, we can open up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Avi Spencer (sic) [Steiner] with JPMorgan.

Avi Steiner - JP Morgan Chase & Co, Research Division

First off, your local national growth looked quite strong this quarter, at least better than I was looking for. Was it a function of growth coming from easier code red comps or was it more of a broad based -- was it more broad based across your portfolio? And I guess, the same question for what you're seeing in the fourth quarter.

Lewis W. Dickey

I mean, it's really a combination of both as we talked about. The code reds had been -- we mentioned on the last call that we have basically turned 9 of the 10 code reds. And so that's been -- it was a very focused intense effort, if you will, to get those businesses turned and we've done so. But it's really sort of endemic of a larger or systematic, I should say, of a larger effort across our company to execute our sales strategy and our sales plan. So we've made a lot of investment in systems. We've made a lot of investment in training over the last couple of years that is really now gaining traction, and we've got -- and in fact, as we look into 2014, we've now given the order here to go and hire 50 more people as we get down to the end of the year based on anticipated demand as we get into '14. So we really have a very well-functioning sales organization today that is the byproduct of an awful lot of work on systems and training, everything from pricing to CRM to activity management, improving coverage, ad packaging, all the different things that we've been working on to make us more competitive in the local market. We just made a big push and an effort there. And that's on the local side, and it's really paying dividends. And on the national side, we've done a lot of work there. As I mentioned in the prepared remarks to, in essence, restructure that effort. Jon Pinch and Steve Shaw are very, very focused on that. And so we've made an investment in that area to have coverage and focus for our company and to now have more direct coverage of accounts. And in addition, with our relationship with Katz, leverage their organization and the investment that we've made in a dedicated national sales effort in our organization to cover 100 markets across the country and to make sure that we are addressing RFPs quickly, that we are pricing properly, we're not leaving money on the table, and that we are very active in terms of the marketplace and developing business as well. So it's really a combination of a lot of different things that we have going on a weekly basis here to drive sales across the company. And it's all starting to gain real traction. And we're just really very buoyant about where the position that this hard work has put our organization into as we go into '14. We're seeing pay off now, but it's really just starting to gain traction, so we continue to be very optimistic about it.

Avi Steiner - JP Morgan Chase & Co, Research Division

That is great. And then just as a follow-up on the guidance you gave. If I heard correctly, fourth quarter EBITDA, 103 to 105. Did I hear that correctly?

Lewis W. Dickey

103 to 106.

Avi Steiner - JP Morgan Chase & Co, Research Division

103 to 106. So if I'm doing my math right, sometimes not my strong suit, but it implies that expenses are down, at least in my model, nicely year-over-year in the fourth quarter. Am I right about that? And what's driving that?

Lewis W. Dickey

Well, we -- look, we continue to look for ways to optimize our business across the platform and we continue to find ways. We mentioned the synergies were going to continue to, in essence, make their way to the surface as we continue to operate these businesses and look for more ways to optimize the way we're structured. So I think that's important. We also talked about some of the investment spending that we made in these initiatives, some of it actually occurred in the fourth quarter of last year, and so it starts to comp through as well. And so you really see those expenses come into line in 2014 when -- because it -- again, it was -- a lot of it was startup expenses for -- half of the $25 million, as we discussed, were really in the form of startup expenses for a couple of our initiatives, and those start to comp through. And so -- and then obviously, the $8 million credit is a onetime deal and so that goes away. So that's why I think you're seeing OpEx look like it's nicely in line. JP, do you have anything to add to that?

Joseph Patrick Hannan

Yes. I mean, we have some other benefit from -- there were ongoing benefits from the ASCAP and BMI renegotiation to bring down overall royalty costs in Q4 and beyond. And then there's the, Lew mentioned, the general -- the ongoing sort of search for efficiency and how we continue to run our business day to day as efficient as possible.

Avi Steiner - JP Morgan Chase & Co, Research Division

Great. Now a couple of more here and then I promise I'm done. I may have missed this, but is there an update on timing of closed-out Global and Townsquare? And have you been able to get in to Dial Global at all to fine-tune any of your estimates or is it still wait-and-see until that closes?

Lewis W. Dickey

It's still wait-and-see. We obviously -- we did an awful lot of diligence on the business before we bought it. And so we are -- we're very confident in our estimates, which is what we've presented. And hopefully, there's upside there. But we're very confident in what we presented based on all the diligence that we did over summer. And so to answer your question, we don't have an update on the closing. We are targeting a fourth quarter close for both these businesses.

Avi Steiner - JP Morgan Chase & Co, Research Division

Perfect. And then last thing on the balance sheet side. JP, I don't know if you can give me cash uses and sources post quarter end. I know you've got some money coming in from the over-allotment on the equity side, I believe, money that would go out for Dial Global, maybe Green Bay. Can you help me with some of those ins and outs? And then very lastly, on the balance sheet, does the voluntary term loan repayment satisfy any ECF requirements that may be owed next year? And I'm done.

Joseph Patrick Hannan

Sure. Yes, I mean, the last one, it would count against that calculation. We made that voluntarily. We intend to make another voluntary payment in Q4 with excess cash. And it's just part of our overall strategy to continue de-leveraging the balance sheet as quickly as possible using free cash flow. Yes, with your question about Q4 expenses. We will have Green Bay as the put option that Clear Channel has. I believe that'll close some time towards the end of the year. That is a $17 million purchase. We've already paid $5 million of that, so it'd be another $12 million that is due at closing. On the offering at Series B, we, as I mentioned, raised about $89 million net of expenses, and we use about $78 million to redeem the preferred, and the rest of that will go into the company treasury.

Avi Steiner - JP Morgan Chase & Co, Research Division

And so the balance is just whenever Dial Global closes and the Townsquare swap, is that $22 million? Am I thinking about that right?

Joseph Patrick Hannan

There wasn't cash coming out of pocket, right, with that transaction, so you're right.

Operator

Your next question comes from the line of Lance Vitanza with CRT Capital Group.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Just to follow up on Townsquare Dial. So when you report next, you'll show the Townsquare as discontinued operations, is that correct?

Joseph Patrick Hannan

Assuming that closes in, in Q4, yes.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Assuming it closes in Q4, right. Which is the current expectation?

Lewis W. Dickey

Yes.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Okay. And so then the -- just so I'm clear, the full year revenue and EBITDA guidance that you gave earlier, is that pro forma for the recent M&A or is that strictly on the current asset mix?

Joseph Patrick Hannan

No, that's strictly same station. There's no pro forma adjustments.

Lewis W. Dickey

Yes, Lance, because we don't know when it's going to close, so the only thing we can realistically do is just provide you with the current group of assets that we have.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Yes, I get it. That's terrific. Okay. So then turning to the business. The core revenues up 3% on a same-store quarter, accelerating to 4% in Q4. That's pretty strong. I mean, how much of that is Cumulus taking share within the radio market? And can you talk about radio's share of overall ad spending versus TV and other media? There seems like maybe there's been some pickup there as well?

Lewis W. Dickey

It's hard -- take those in reverse order, Lance. It's hard because I'm not looking at single-source data with all advertising spending to be able to say definitively whether we're taking share or not. I would say that radio advertising is -- radio in general is, I think, starting to experience a little bit of a renaissance as -- we're starting to see a much greater buzz for the medium for audio advertising in general. The space seems to be expanding. And people are realizing the value of audio advertising and how efficiently they can do it on a mass market basis with great targetability on -- using local broadcast radio. So it's a terrific value for advertisers and I think they're starting to realize it. So I think we're experiencing a bit of a renaissance there. I think it's going to -- I think it's a trend that's going to take some time to play out. But I do think that it is a tailwind rather than a headwind, I think, that we're experiencing as we move into 2014, and that's all positive. I think to your earlier question, how are we showing this group? It is really show blocking and tackling. We are really taking local share. And I mentioned what's going on with our national business. And so we are -- but we are really taking local share. And this has been a huge focus inside our company, staffing, training, managing, managing activities, systems, pricing, inventory management, and so we've made a big investment in this over the last several years. And we have a strong team dedicated to this in Atlanta and out in the field. And so we've got a sales organization of 1,400 people out there. And as I mentioned, we just gave the edict to bring on 50 more before the end of the year to make sure that we're fully staffed in key markets as we get into 2014. So it's just execution. I think the dollars are out there and our team's doing a real good job of staying on top of it.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Great. With respect to NASH FM, is there anything more you can tell us that would help us model out that opportunity, whether it's for '14 or unspecified future years?

Lewis W. Dickey

Well, NASH is a -- the radio station is one component of NASH. And as we get into 2014, you're going to see -- through our network -- now obviously, if you think about it, through our network today, we have country offerings that are in the network, but they're all going to be under the NASH. So they're, in essence, going to be consolidated at the beginning of next year under the NASH umbrella. And there'll be a dedicated product offering to the broadcast community for NASH, everything from licensing the IP to getting on the promotions and the events and the digital aspects of it, and even the merchandising. So all of that's going to play out. We expect to have the initial video strategy start to roll out probably in the back half of 2014. The print strategy for our national magazine will be in the first half of 2014, and in fact, we already launched our preview edition in Atlanta in October to -- in essence, it's sort of a soft opening, if you will, for it to then get ready for the national launch in 2014. So all of that's coming together and will be a major push once we -- and then -- as I said, the broadcast side, the syndication side, we're waiting to have the networks combined and closed so we can have one focused offering between -- with our new network offering in the marketplace. So the FM in New York is on plan and then the national offering will be in addition to that, and that will be a 2014 event.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Question is just on the second liens. Could you remind me, JP, the call structure there? I believe it steps down shortly, but I can't recall the details.

Joseph Patrick Hannan

It did. It stepped down to 102 in September, then it'll go to 101 a year from September.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

So it did step down. And the plans there are to refinance that or do you think you -- do you increase the size of the first lien or how do you kind of go about that?

Joseph Patrick Hannan

Like I said, I mean, we've been going tranche by tranche through the capital structure and be very methodical about our approach. We've taken down borrowing costs substantially over the last year, and we're looking at all options right now. And hopefully, we have some more to talk about on that end soon.

Operator

Your next question comes from the line of James Marsh with Piper Jaffray.

James M. Marsh - Piper Jaffray Companies, Research Division

Just 2 quick housekeeping questions and a longer-term question. So could you just give us a sense for what specific ad categories you're doing well in the third quarter and just how that shifts as we move to the fourth quarter? And then as you were mentioning, Lew, the NASH Magazine, has it gotten to a point that you're actually guaranteeing a rate base for advertisers for that magazine? And then I guess my long-term question relates to the connected car. I'm just was hoping to get your view on how, if at all, this could change the competitive landscape and what steps at Cumulus you guys are thinking about today to either insulate you from that competition or provide a little bit of offense there?

Lewis W. Dickey

Well, why don't we -- that was a few questions there. Let's sort of take them one at a time. With respect to NASH and the magazine, James, this is really going to be more of a -- as we said, think of NASH as ESPN for country and so we're going to be doing platform deals with advertisers for web, for video, for radio, for digital audio, for online and events. And so it's going to be -- rather than treat this as a standalone magazine, it's going to be part of an overall platform by -- for advertisers. That's the way we're doing it. It is going to have national distribution, and we're working with AMI on that. So I think that ultimately we would expect to see in Walmarts and Targets across the country, as well as drug stores, and it will be widely distributed. Ultimately, as it takes off, there will be -- and we're also going to be exploring subscription models for NASH to have premium content and then potentially magazines delivered to homes and things like that. So there's going to be a lot be a lot of different things. This is -- there's going to be a lot of experimenting that we're going to be going in 2014 to figure out how to best optimize this content platform that we think is very, very special. And then, in terms of the connected car, look, the -- one of the reasons we did this deal RDO is we -- pro forma for the Westwood deal, we're going to have a significant content platform. And we've got great broadcast distribution through our O&O group. We also, through the pro forma network, will have relationships with most of the commercial broadcasters in the U.S. to provide them with products and services. And so we've got great distribution for this content engine on the broadcast side. On the digital side, now through the RDO partnership and deal, we now are in a position to have a very strong footprint in -- for digital distribution of our content. And so we believe that the audio space is widening. We believe the audio space is nascent. We believe the audio space is not a winner-take-all space. We believe there are going to be a handful of competitors that are ultimately going to survive. And we also believe it's going to probably look very different in 5 years than it does from today. We sort of say, internally, it's a little bit in the MySpace space of development here. So we think that it's -- there's a lot of greenfield out there, and it's very, very right for a compelling offering. We also believe there are 4 components to it. We think that it has to be properly defined. There's on-demand, there's custom playlist, there's national channels and there's local streaming of broadcast radio stations. And so those are all very -- those are all 4 very distinct components of digital audio. And RDO, within the next 6 months, will play in the first 3 of those, and then over time, in all 4 of them. So we believe it'll be a very compelling offering and have a great value proposition. And then from the monetization angle, this is going to really help turbocharge our digital efforts in terms of giving us greater scale to take to market. So by the end of the year, they're going to have about 20 million registered users, and they have not had a free ad-supported product before, similar to Pandora and Spotify. So they'll have now a free ad-supported product, and Cumulus will be monetizing the inventory there. So it gives us a great deal of scale to take back into the digital shops, along with our existing inventory to maximize the value and be involved in a lot in conversations with large advertisers and large shops. And so that's going to be very important. And that's on a fresher model for us, so it could be an interesting growth driver for us in 2014 as well. So I think this space is -- it's in -- it's changing and it's going to be an important space, and today it represents about 1/3 of audio consumption. And we'll see how that pans out over time, but we believe that we've got a very interesting offensive play here to distribute all this content that we've got on the digital side in addition to what we're doing on the broadcast side. And as I mentioned at the outset, broadcast radio is alive and well. And you can see through the growth that we're generating in our platform and, obviously, based on the demand forecast that we've got in the marketplace, we are hiring more sellers to go out and capture more dollars into 2014. So we're very bullish about what we see on the broadcast front. And then on the digital front, we've got what we believe is an excellent complement. And then on the on-demand side, radios never had it -- radio broadcasters have never really been able to play in music retailing before. And so through -- and we believe that things are moving to -- in terms of content, both audio and video, we believe they're moving to the -- it's moving to the subscription model. It's moving to, in essence, access versus ownership. And this will give us an opportunity to play in that arena that we never had the ability to do before. So as time goes on, I think this is going to be an excellent addition for us in terms of ability to create value for our shareholders.

Operator

Your next question comes from the line of Michael Kupinski with Noble Franchise (sic) [Financial].

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

First of all, thanks for the Q4 guidance and full year guidance. And obviously, it's a terrific year, and hats off to you guys. A lot of moving parts this past year and a lot of work and greatly appreciate it. In terms of auto, what is it as a percent of total revenues?

Joseph Patrick Hannan

Auto right now is about 14% of total revenue.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Okay. And were there any categories that were surprisingly weak in the quarter?

Lewis W. Dickey

Well, we mentioned -- I wouldn't say surprisingly, but we mentioned obviously the mortgage business had softened for us and when we saw rates go up, I'd say, Mike, it really wasn't surprising based on the -- as we saw a backup in rates we saw -- and you've seen a lot of announcements with banks and lending institutions laying off mortgage brokers. But that -- it goes in cycles. And obviously, the long bonds are rallying and spreads are coming in, we expect mortgage rates to fall again, and doing so, we expect to see more activity there. So that really just is perfectly correlated with where rates are at any given time. And so that was -- and the rest of the stuff is -- as we mentioned, we saw 2/3 of the categories actually experienced growth and nothing was a tremendous surprise with the expect of -- with the exception of apparel retail into the quarter. And we haven't followed the quarters of the retailers, but based on what we see in our book, looked like things were a little soft in that arena for back-to-school sales on apparel.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

That's where I was going. Okay. And what is the biggest opportunity for synergies in Dial Global acquisition? Is it mostly on the costs or are there some revenue synergies? And can you just add a little color -- how you feel so comfortable in achieving more than 20 million in synergies the first 12 months? Are there some obvious cost cuts that you can identify for us?

Lewis W. Dickey

Well, yes, in other words, you've got 2 businesses that have large fixed-cost infrastructures to perform the same functions. And so as a result, you've got a lot of duplicative overhead. And so those are immediate opportunities to create efficiencies. And so that's really what's driving the near-term cuts there. You have 2 businesses that are, in essence, structured to perform the same basic functions, which means they have to staff a large fixed-cost infrastructure to do so. And that becomes duplicative and, as a result, becomes an opportunity to create efficiencies.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

And then in terms of the rollout of the CBS Sports, can you just give us an update where that rollout is at? I mean, are all the old ESPN stations now converted over to CBS Sports? Do you have affiliated stations outside of your group? Or just kind of give us some color on where that rollout is?

Lewis W. Dickey

Yes, we sure do. I mean, between us and CBS, we've -- we're running inventory for the network on most of our sports stations and we've got some of the updates on some of our other male-based stations like rock stations and some of our talk stations have it as well. But in terms of the overall, we're over 300 stations. I think it's around 320 stations now for total affiliate base. So that far exceeds the sports stations that either Cumulus or CBS has bringing to the table. So we're -- we probably are affiliated in -- well, I know we are well over 200 stations beyond the O&O group of Cumulus and CBS. And so it's off to a very good start and the revenues, as I say, we hit plan in '13 and we are off to an excellent start in upfronts in 2014.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Great. And then finally, is there any color that you can add, JP, on the prospects of your refi in terms of prospect of interest rates or what you might be looking for if you are capable to refi in terms of maybe maturities or anything like that? Any color that you can add at this point?

Joseph Patrick Hannan

Not yet. I mean, we're looking at all the above opportunities to not only reprice but potentially restructure and potentially extend maturities. We already have fairly extended maturities though, so it'd just a little premature at this point to talk about. But there's definitely an opportunity. The second lien is callable at 102 now and even the first lien that we just repriced a year ago, the soft call, the 101 soft call on that steps down in December. So there's a lot of opportunity there, and as I said, more to talk about hopefully soon.

Operator

Your next question comes from the line of Amy Yong with Macquarie.

Andrew DeGasperi - Macquarie Research

This is Andrew for Amy. I know you gave guidance and you don't usually give out pacings once you do that. But do you have the monthly pacings maybe even for January at this point? And secondly, can you identify the sales infrastructure investments of these -- part of the ongoing investments you have in the 4 categories you've mentioned?

Lewis W. Dickey

In reverse order, we don't have pacing for January and it will be way too early. This is much more of a short-cycle business to take a look at something that far out. On the network side, we're getting -- the upfronts are coming in. And as I say, that is pacing up nicely on the network side for the upfronts, particularly as we see in our sports business. With respect to -- what was the second question?

Joseph Patrick Hannan

Investment in sales.

Lewis W. Dickey

Investment in sales. Yes. No, that is not -- that is -- we gave the Street a particular number that was an additive investment or an incremental investment in 2013 for those initiatives, and that was $25 million. The sales investment is something that's been in our P&L for a couple of years now. And that's -- and that consists of people, that consists of software development, that consists of training, that consists of obviously travel, all the different things that go along with that to -- and oversight and executives to manage that business and recruitment. So all of that is -- as I say, has been baked in the P&L for a couple of years now. And it's an investment that, because we have a platform and we operate at scale, we're in a position to afford to make those kinds of investments, which scale nicely as we distribute that out across 1,400 sellers in roughly 100 markets to run the business, in addition to what we've got with our national spot team as well and our network team and our brand solutions team, which is business development. So that's something that's been a part of our company for a long time and it takes time to-- it takes time to hire, train, develop people. It takes time to build systems and create them. Nice thing is, you don't have to do it twice. And we're now in the phase of that investment where it is truly gaining traction and it is baked and it is implemented, and we're seeing the results from it. And it's something that's sustainable and it's a very solid foundation to build a good sales organization over the long term.

Andrew DeGasperi - Macquarie Research

Great. Just one more question. On the -- I know this got been asked before and I apologize, but the ad categories post pro forma for all the acquisitions, is there anything in particular that's going to stand out after this is all done and closed? Or should it be similar to what you have now?

Lewis W. Dickey

I think it's very similar to what we have now. We're obviously -- the only the asset we're taking on is Fresno, and I don't have the information for Q3 on Fresno by category or Q4 pacing by category to be able to tell you if it's an outlier. But it would be hard to imagine, I think, probably in that part of the world in San Joaquin Valley, agriculture is probably a bigger category than it would for the rest of our stations. But short of that, I can't imagine that there's anything terribly different or an outlier.

Operator

Your next question comes from the line of Aaron Watts with Deutsche Bank.

Aaron Watts - Deutsche Bank AG, Research Division

JP, just a couple of clarifiers for me. Fourth quarter political for this year, did I hear you say $15 million is the right number to use?

Joseph Patrick Hannan

Comp, correct, yes, from last year's 4Q.

Aaron Watts - Deutsche Bank AG, Research Division

Okay. Got it. And then secondly, the -- I know you're going to file you Q, I think I heard you say, later today, but can you give us a balance on the first lien term loan?

Joseph Patrick Hannan

I can't -- so the current -- the first lien after the $50 million that we just paid down is $1,237,260,000. I'll give you the second one while I have it, the second, 785,497,000. You have 610 million of bonds outstanding and so that's -- gross debt is $2,632,000,000 and change.

Aaron Watts - Deutsche Bank AG, Research Division

And on the EBITDA guidance of 103 to 106, what's the right number to compare that to last year?

Joseph Patrick Hannan

Yes, hold on a second here. I guess it's the one number I don't have right in front of me.

Aaron Watts - Deutsche Bank AG, Research Division

I can -- I had one other one I can ask in the meantime. I think you guys had talked about having $100 million of noncore assets that you could look to dispose. I was just curious if kind of post the Dial and Townsquare transaction, has that bucket kind of been moved out or is that $100 million of assets that you might sell at some point or consider noncore still remain?

Lewis W. Dickey

No, it still remains. And it's actually -- it isn't broadcast assets. It's land and towers. And we have a couple other assets that were embedded in the portfolio that we acquired, and quite frankly, that we acquired from Susquehanna that potentially we will be in a position to monetize. So I believe that's a good number over time and we just want to be judicious about how we attack it to maximize value. But we believe that we have about $100 million. And then on top of that, or I would say additive to that, we're going to explore some potential ways to maximize the value of our towers. And we've got over 200 tall towers in the platform that have significant value. You see a lot of the trades that have taken place in that sector and so we are exploring several options right now to maximize the value of that towers, and that's over and above the -- what we would call the $100 million of embedded assets inside the company.

Aaron Watts - Deutsche Bank AG, Research Division

Okay. And Lew, one last one for me. Just any differences you're seeing on the station side with small -- your smaller markets versus your larger markets? Or have they been kind of performing in line?

Lewis W. Dickey

They've been really performing in line. Now national advertising is always first to reappear back in the larger markets, so I think you're seeing that and then it's a waterfall down to the smaller markets. There's always -- we've been doing this a long time. There's always a bit of a lag for national dollars to flow down to the smaller markets. And that -- nothing is different about that. But short of that, no difference whatsoever. It really comes down to execution more so than market size.

Operator

Your last question comes from the line of Davis Herbert (sic) [Hebert] with Wells Fargo Securities.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

Just wanted to drill down a little bit on your large market focus. I think you've talked about sharpening your focus on the top 100 markets. How close are we to you guys being, I guess, having the right mix of stations here? Or is there more wood to chop in terms of selling small market?

Lewis W. Dickey

We like our platform. We like the portfolio of assets that we have. It wasn't a function of wanting to sell something. It was just a function of what we said looking forward, look for the additions to the company to really be in the larger markets, primarily the top 50 markets. And so where it makes sense to, as we mentioned earlier, Davis, we wanted to fund the acquisitions as we build our platform, particularly the content acquisition in Westwood One Dial Global and do so on a capital neutral basis, because overarching all of this portfolio management and this corporate development, overarching all of it is the desire to get to below 5x leverage as soon as possible. And so that's why we want to make sure that anything that we're -- anything that we've been doing here has been capital neutral. We've been paying down debt and it's been, I think, some pretty handy portfolio management to, in essence, reposition the business. But longer term, as we continue to invest in broadcast assets, it will be in the top 50 markets as we continue to grow our platform to complement our content platform in terms of providing distribution. So it becomes more of the network television model with syndication and production.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

And then on your digital strategy, can you remind us when your deal with iHeart expires? And whether you'd be interested in the RDO, I guess, filling that spot for the longer term?

Lewis W. Dickey

Well, look, iHeart is -- as I mentioned earlier, there are 4 components to digital audio: on-demand, custom playlist, national channels and then local streaming of broadcast stations. And iHeart is -- in addition to all of our stations, by the way, have their own apps. And so listeners can go to our sites or download our individual station apps. Or as a content aggregation play, we are exclusive to iHeart, which is an excellent app and they're growing that business nicely. Ultimately, RDO will have a content aggregation play but not in 2014 and -- but RDO -- but in the meantime, what RDO -- what I believe are the important essential components of digital audio. It has on-demand; think iTunes and Spotify. It has custom playlist; think Pandora and Spotify. And then the national channels, which would be akin to SIRIUS XM, is what we're going to provide, in essence, custom curated content for this digital platform based upon the content engine that we will have now and create, I think, a very unique listening experience on a mobile digital platform for consumers. And so I think that'll make it highly differentiated from the existing offerings that are out there, Pandora and Spotify. So that's what we're focused on. And then obviously as a growth engine, with Cumulus as the monetization vehicle for all of that inventory from the free ad-supported service which didn't exist before, that should provide incremental revenue and also help us optimize the value of our existing digital inventory. And that's the way to think about it.

Davis Hebert - Wells Fargo Securities, LLC, Research Division

And then just the last question for me, a big-picture question. Clear Channel signed a deal with -- an all-encompassing deal with Warner Music. Some are calling it a landmark deal, but it seems like Clear Channel is somewhat alone in signing most of these record label deals, these all-encompassing record label deals. Do you think the industry will eventually move forward together in some of these deals? Or do you feel like this is more specific to what Clear Channel's trying to do with iHeart?

Lewis W. Dickey

I don't know. You'd have to ask them. I think that's something that -- they're smart guys, good competitors and great operators over there. So that's their strategy. It's not something that we're focused on at this time.

Operator

There are no further questions in queue at this time. I'd turn the conference back over to our presenters.

Lewis W. Dickey

Thank you, operator. We appreciate everybody's time today, and we look forward to talking to you in the new year. Take care.

Operator

This concludes today's conference call. You may now disconnect.

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