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Cumulus Media Inc. (NASDAQ:CMLS)

Q4 2013 Earnings Conference Call

February 18, 2014 11:00 ET

Executives

Lew Dickey - Chairman and Chief Executive Officer

JP Hannan - Chief Financial Officer

Analysts

Michael Kupinski - Noble Financial

Avi Steiner - JPMorgan

David Bank – RBC Capital Markets

Lance Vitanza - CRT Capital Group

Amy Yong - Macquarie

James Marsh - Piper Jaffray

Aaron Watts - Deutsche Bank

Operator

Hello and welcome to Cumulus Media’s 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 to introduce Mr. Lew Dickey, Chairman and CEO of Cumulus Media. Sir, you may proceed.

Lew Dickey - Chairman and Chief Executive Officer

Thank you, operator and good morning everyone. I appreciate you taking the time today to participate in our fourth quarter earnings call. And joining me today is our Chief Financial Officer, JP Hannan.

The fourth quarter capped off a strong year of performance by our team in the face of very tough political comps. Additionally in the quarter, we closed two significant transactions, completed the first equity offering our industry has been in nine years, and refinanced our credit facilities leaving us with a simplified capital structure consisting of first lien bank debt and senior subordinated notes, again while significantly reducing our borrowing costs.

Finally, we invested an Rdio, an already exciting online music service that holds tremendous potential upside for Cumulus and serve as a worldwide distribution platform for our newly acquired content engine, WestwoodOne. Now, our sale of 68 radio stations to Townsquare Media closed on November 14. That provided us with the capital to purchase WestwoodOne, which we closed on December 12. The Westwood acquisition is important part of our forward growth strategy as it provides our company with a significant amount of exclusive and proprietary audio content, particularly in the areas of sports, entertainment, news and talk and some of the key assets include CBS Sports Radio Network, NBC Sports Radio Network, the NFL, the NCAA including the Final Four, the Olympics, NASCAR, the Masters. And then on the entertainment front, the Grammys, the AMAs, the Billboard Music Awards, the ACMs along with information services, including NBC News, CBS News, ABC News, CNBC as well as over two dozen of the nation’s top-rated tacos.

Now, with premier and exclusive national content brands, a strong owned and operated station group now more than 10,000 local broadcast station affiliates nationwide, Cumulus has become a powerful national advertising platform. The acquisition of WestwoodOne greatly accelerates that strategy, but it doesn’t attract from our stated imperative of deleveraging our balance sheet. In fact, in addition to the WestwoodOne acquisition being capital neutral, because of the sale of the small market radio assets to Townsquare, WestwoodOne will actually be a net deleveraging transaction, because of the $40 million in expense synergies that we expect to achieve over the next couple of years. As part of this overall transaction, we also traded additional small market radio stations to Townsquare for attractive assets in Fresno which further focuses our owned and operated platform on the top 100 U.S. radio markets.

Now, moving on to our results for the fourth quarter and full year 2013, I am pleased to report that on a same station basis, we met our EBITDA guidance for the quarter and we exceeded the top end range of our revenue guidance. This revenue beat was through core performance alone without any impact of M&A. Further, despite tough 2012 political comps of over $20 million, we achieved full year revenue growth on a same station basis as well. And this is a significant achievement for our team last year as we hit a very important internal goal, which was to post positive growth in spite of the political comp.

Now, going forward in our communications with the Street, we will discuss the platform on a pro forma basis, that is our existing station group, including the new Fresno assets and WestwoodOne on as if we owned them all for 2013 and 2012. This will give our investors the best insight into the strength of our current portfolio of assets and again provide meaningful comps for investors throughout 2014. Thus on a pro forma basis, the company grew by – grew revenue, excuse me, in the fourth quarter by 1% or $2.7 million to $328.3 million for the quarter. This is in the face of $11.4 million of net political advertising versus fourth quarter of 2012.

Putting our ex-political growth for the quarter at 4.3%, the 4.3% of ex-political growth was fueled by ongoing strength in automotive, healthcare, insurance, financial services and healthcare categories. Offsetting the growth partially was the weakness in most of the consumer discretionary categories, including restaurants, jewelry, clothing and electronics. This was not a surprise as it correlates to the weaker holiday sales, most of the larger companies in those sectors have already reported. As the economy slowly continues to improve, we expect to see these categories turning for us as well.

Now, moving down the income statement, we grew adjusted EBITDA again on a pro forma basis by 6% in the quarter, or $5.1 million to $96.3 million for the quarter. If you recall from our Q1, 2013 earnings call, we made certain strategic investments in our growth at the end of 2012 and we categorize those into four key revenue growth initiatives that ended up driving our operating expense line higher. These were again CBS Sports Radio, Right Now Traffic, our NASH initiative and SweetJack. We told everybody at the time that these investments would be measured and then approximately half of the investments that we announced would be non-recurring, but again strategic and very necessary to drive the incremental top line growth for our future. We have now come through those initial investments and the results are promising as we have now driven overall revenue and EBITDA growth organically for the past three straight quarters. I reiterate this was with significant political headwinds or in spite of significant political headwinds last year that fortunately now turned to tailwinds as we move into 2014.

As an update on these initiatives, CBS Sports Radio, which is now part of a much larger sports business for our company, which now includes NBC Sports Radio, the NFL, NCAA and other premier live events that I mentioned earlier, as well as Right Now Traffic, these are all hitting their stride as national content brands. Both sports and traffic are currently exceeding expectations for 2014 and are taking share in their respective markets. And we will be again substantial growth drivers as we expected them to be. We are very encouraged by the level of interest by both the advertisers and affiliates in these products, which is a testament to the high-quality nature of the content and again the efficacy of broadcast radio advertising on sports and traffic sponsorships respectively.

For SweetJack, we have evolved the business model over the past year to in essence transform it into a sustainable EBITDA accretive strategy providing mobile activation for national advertisers, while again continuing to utilize the platform to supply local daily deal opportunities throughout our owned and operated markets. And as we mentioned, these have really been shifted more to weekly deals from daily deals to get enough traction behind them.

While our earlier three growth initiatives are hitting their stride, it’s our more nascent NASH country music brand that is really beginning to unfold in 2014 and holds tremendous potential as a growth initiative for the company. Within the next three years, it has the potential to actually eclipse the other three initiatives combined in both revenue and EBITDA contribution. NASH was launched just a year ago on FM station that we bought in New York City and its nationwide rollout is accelerating nicely and right on schedule. As it enters its second year, NASH 94.7 FM in New York is one of the most listened to country music stations in the United States, with over 1 million people tuning in weekly and has been responsible for driving country music sales in the New York area at record levels.

To-date, we have launched 21 NASH branded stations with many more to come in our O&O portfolio. The NASH branded stations all feature NASH exclusive content, including America’s Morning Show hosted by Blair Garner; NASH Nights with Sean Parr, as well as our market leading overnight and countdown shows hosted by Kix Brooks. These shows all broadcast live from our newly-built NASH Studios right in the heart of Nashville in downtown Nashville. And this state-of-the-art facility has been designed to produce radio, television and digital content and it’s quickly become a favorite gathering place for country’s biggest stars.

In total, NASH now reaches a national radio audience of 25 million listeners per week. And further we have now partnered with American Media to bring NASH to print through a national magazine reaching more than half a million readers weekly. And we are currently exploring opportunities in video, digital events and licensing that we’ll be talking more about as the year progresses. As our key strategic growth initiatives, all move forward nicely. We now turn our attention to a new and really very strategic value creation opportunities probably the best way to put it, which is our online streaming platform anchored by an investment in Rdio. While relatively new in United States, Rdio currently has a user base across 51 countries. The full service music platform provides users with free and subscription models and accessed over 20 million songs.

In Q4, we agreed to invest $75 million in advertising, content, and sales commitment and again in kind, not cash over a period of five years and Rdio, help them build a user base and brand identity in the United States. For this, we will learn up to 20% of the equity in Rdio globally. This will – excuse me, with this exclusive tie up with Rdio, we now have an important total in the widening digital audio space and a way to participate in the rapidly growing consumer segment for our on-demand music especially as the model for on-demand music inexorably shifts from ownership to access of content. In other words, the value proposition of the subscription model is superior to the retailing or ownership model when it comes to content of video and audio by the way.

Unlimited content that is accessible on virtually any device or platform for one low price. Now something that we believe is not widely understood is the digital technology is now enabling the roughly one-third of audio consumption outside of local broadcast radio listening to now be measured and monitored. For decades, people have always bought music and made their own custom playlist. This hasn’t changed. This audio consumption by consumers however was never measured and now has a transforms and takes the form of digital audio streaming rather than listening to records, tapes or CDs, it can now be measured and even monetized through the sale of advertising. This is why we say the audio spaces widening and total audio consumption is actually increasing because technology makes it more readily accessible.

Now, we remained strong believers that on-demand and custom playlist services do not replace a curated local or national broadcast experience as evidenced by broadcast radios consistently verified via Nielsen 92% national reach. Radio is so much more than just a playlist punctuated by ads and more than 92% of the U.S. population continues to tune into the morning shows, the news, the traffic, sports, the weather, the countdown shows, breaking new artists and the songs that can only be found on the local stations, not to mention what an important role radio has played in this winter’s extreme weather conditions. These new digital services simply replace the music you buy and the playlist you make, which is why is always going to natural complement to a professionally curated broadcast radio experience. As a growth strategy, we shows to make an investment in this space because we recognized that consumers will increasingly adopt digital music services as part of their audio consumption behavior and it was positioned – excuse me, and it positions us to capitalize on the potential value creation as the space widens.

Now the audio investments allows us to play in the space without committing the tremendous amount of capital necessary to build the global service from the ground up, it’s hundreds of millions of dollars. For audio, this tie up gives them a partner with the powerful nationwide promotional platform and a fully developed national sales and digital sales infrastructure. Moreover, Cumulus brings a substantial amount of proprietary content through our WestwoodOne acquisition that can and will be further leveraged to create a wholly new and differentiated online listen experience on the audio platform.

And most importantly, none of these initiatives and investments that we made in 2013 or will make in 2014 detracted from our ability to reduce leverage and strategically manage the balance sheet. The balance sheet of Cumulus is now stronger than it’s ever been and as we celebrate our 17th anniversary in about 90 days. For example on October, we completed the first equity offering for broadcast radio in over nine years and we used the proceeds to fully redeem our preferred equity which was as everyone knows the most expensive tranche in our capital structure and slated escalate over time to a 20% coupon.

With that overhang out of the capital structure, we’ve seen a meaningful increase in the value of our equity as investors understand the strategy and appreciate its significance. It should be noted that since we closed down the Citadel assets, almost 30 months ago, we have repaid more than $415 million of debt and preferred to deleverage balance sheet. This commitment to deleveraging allowed us to reprise our first lien debt at the end of 2012, and to reduce the interest cost by $16 million with that exercise. And that in turn positioned us to completely refinance both our first and second lien debt into one new first lien tranche at the end of 2013. This new simplified debt structure is now termed out to be end of 2020. And most importantly it carries further reduced interest burden in 2014 by another $30 million.

Our cost of debt is now on the upper decile of all companies our size which we view as a significant vote of confidence in Cumulus by its vendors and a tremendous competitive advantage for us going forward. As we look ahead we see 2014 being another strong year with a relentless focus on executing our growth strategy, integrating WestwoodOne and implementing our synergies on schedule and further deleveraging our balance sheet. We are off to a solid start in the first quarter and expect our year-over-year performance to improve sequentially each quarter throughout the year accommodating with a strong fourth quarter finish driven by $10 million to $15 million of political revenue for the quarter.

Looking more closely at the first quarter, January was sluggish month for retail sales and advertising across the board, but February and March are gaining traction. As such we expect to finish the first quarter flat on both the top and bottom line with our stations actually up low-single digits and the combined – and the combined network erasing that gain as we work through the necessary disruption of the integration, the realization of our synergies and the elimination of a few unprofitable revenue streams.

Now, with that I will turn over to JP for more specifics on the numbers and then as always we will open it for questions. JP?

JP Hannan - Chief Financial Officer

Thanks Lew and good morning everyone. As Lew just mentioned it was a very busy quarter for operations, M&A activity and balance sheet management. I will take a few minutes to recap some of the numbers that Lew just gave you and try to give you greater clarity into the nuances between the as recorded pro forma and same station results. The as reported revenue for the quarter finished at $275.5 million. This number excludes all results from operations related to 68 radio stations that we sold to Townsquare Media back on November 14. We have accounted for this group as discontinued operations.

The as reported revenue total does include revenue for the Fresno and Westwood assets, however, only for the stub periods that we actually owned those assets. For Fresno that means six weeks of activity, while for Westwood the results contain only 17 days of activity. When you normalize those results for Fresno and Westwood to include their full quarter of activity including the periods prior to closing you get the pro forma results of $328.3 million. Further, we gave revenue guidance on our Q3 call indicating a range of between $278 million and $281 million. This was based on the asset mix that we had at the time, prior to selling the 68 stations to Townsquare and prior to acquiring the Fresno and Westwood assets.

I will refer to that asset mix as our same station results. Now using the apples-to-apples comparison, same station revenue for the quarter finished at $281.6 million, just ahead of our high guidance for the quarter. With regard to Q4 adjusted EBITDA the as reported results was $83.9 million. Again this excluded any contribution from the discontinued assets that we sold to Townsquare. On a pro forma basis our adjusted EBITDA was $96.3 million. We also gave Q4 same station guidance for adjusted EBITDA in the range between $103 million and $106 million, I am happy to report that we also met this guidance finishing the quarter at $103.2 million.

Now aside from these very strong results from operations in the quarter, we were also very successful in our balance sheet management and deleveraging initiatives as we just mentioned. We issued 18.9 million shares of common stock in mid-October at an offering price of $5 per share. This resulted in gross proceeds to the company of approximately $94.3 million, which approximately $78 million was then used to redeem all outstanding Series B preferred shares plus the accrued dividends to-date. After expenses and preferred redemption, the company was left with approximately $11.8 million in offering proceeds, which will be held in reserve for general corporate purposes. The redemption of the Series B shares will also save the company approximately $9.3 million annually.

As we discussed in anticipation on prior calls at the end of the quarter, we did refinance our first and second lien term loans into one new $2 billion first lien loan at LIBOR plus 325 basis points that carries a 1% LIBOR floor. We also extended the tenor of this tranche for another two years taking the majority after the end of 2020. This refinancing saves us almost $30 million in interest cost in 2014. Along with our 7.75% notes, our total cash interest payments in 2014 will be approximately $130 million. Capital expenses for the year came in just under our $12 million guidance, finishing at $11.5 million. This left us with cash on hand of approximately $37 million at year end. We maintained the full availability of $200 million on our revolving credit facility giving us substantial liquidity going into the New Year.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Michael Kupinski with Noble Financial. Your line is open.

Michael Kupinski - Noble Financial

Thank you and thanks for taking the question and congratulations on your quarter. I know that you had a lot of moving parts in that. I know that you constantly look at the portfolio and look for adjustments. Are you seeing anything out there now that may bring another realignment or do you plan to focus on what you have and particularly integrating WestwoodOne at this point?

Lew Dickey

Well, Michael we are very focused on operating what we have and successfully integrating WestwoodOne, which I say we are off to a very good start on. There is always going to be small things around the edges, where we can – whether it be a swap or a sale to buy something else and so those are the types of things that I would look for, but nothing on a wholesale basis.

Michael Kupinski - Noble Financial

And now that you have your hands in the weeds with WestwoodOne, any additional thoughts or updates on the integration, I know that you have indicated that you still think that you are going to get about $40 million in cost synergies as guys have been doing great at extracting those synergies and above your targets in the past. So I was just wondering if you are anything – additional thoughts that you have on WestwoodOne?

Lew Dickey

I’d say six weeks into it. Our confidence in both the amount and timing has only been reaffirmed.

Michael Kupinski - Noble Financial

And in terms of national advertisers, I mean, anything – any thoughts on what’s going on, on the national front?

Lew Dickey

Look national is starting to gain a little bit of traction and we are – we are positive in the first order on our national sales pacing.

Michael Kupinski - Noble Financial

And in terms of radio tends to do better at biannual election years than it does in Presidential election years, any thoughts on political on how it might shape up for the balance of the year?

Lew Dickey

Well, if you track political, it’s been in essence moving forward with the off Presidential years, basically matching the prior Presidential year and then when the step function growth becomes in a next Presidential year. So we would expect trends to follow soon and for ‘14 to match ‘12 and then for there to be a step function up in ‘16. And that’s I would mention, we had a top political comp last year and we are able to grow in spite of it and now that turns to a bit of a tailwind for us, which most of it as you know comes in the back half of the year, which is why I mentioned that we would expect our performance to improve sequentially throughout the year.

Michael Kupinski - Noble Financial

Thanks, Lew. And just one final question, in terms of monitoring your corporate G&A particularly your stock-based compensation, how is it – what is it that you base the stock-based compensation on, I mean, as we look out on our quarterly basis and try to model that number?

Lew Dickey

Well, it’s – at this point it’s mostly stock options. And it’s a Black Scholes calculation over the best in period of those options. We will actually disclose quite a bit on this in our 10-K when we filed it on March 17.

Michael Kupinski - Noble Financial

Okay, perfect. Thanks JP. That’s all I have. Thank you.

JP Hannan

Thank you.

Operator

Your next question comes from the line of Avi Steiner with JPMorgan. Your line is open.

Avi Steiner - JPMorgan

Thanks for taking the questions. Several here. Lew first off talked about a number of strategic investments you guys have made over the past year and gave a great overview. Any sense you can give us on how some of the bigger ones will contribute to growth in 2014, I know that is a loaded question so I can ask it differently which is outside of those new initiatives in political. Do you expect core radio revenue to grow in 2014?

Lew Dickey

Well, I mean, we’re seeing it out of the gate. National is up and our core local is up. And so most of those initiatives that we talked about really are at the network level if you think about it and so core local spot and national spot is pacing up for Q1. As we say as the year goes on, you start to get incremental demand from political which actually tightens inventory and helps pricing so, it’s too soon to call the year, but so far we think it should be a solid year.

Avi Steiner - JPMorgan

Okay, great. And then the Rdio investment, does the 20% stake roll in pro rata over five years along with your own $75 million investment?

Lew Dickey

That’s correct.

Avi Steiner - JPMorgan

Okay, perfect. And then I think early in the year there was LMA entered into with Merlin Media in Chicago. Can you throw some numbers around that if possible and maybe how we would think about timing and put call rights if any?

Lew Dickey

That’s an essence sort of a rent owned deal for us and it’s over four years and so we’re just getting started with that. So, we don’t have any real guidance and there is a reformatting that we did just with one of the assets in essence to start some starch on one of the two assets. So, we’re really just getting out of the gaze there and it’s premature to provide a guidance on that and one thing back on Rdio, it is earned ratably over five years to your question, but if there was a sale of the asset or change of control with – it would accelerate and vest.

Avi Steiner - JPMorgan

Thanks for the clarification on that. A balance sheet one for your J.P., I think there was a $15 million draw on the ABL facility at year end. Can you talk about that and why that was drawn and where that stands today?

JP Hannan

There was – when we did our refinancing.

Avi Steiner - JPMorgan

At $25 million, I apologize, I think its $25 million, but go ahead.

JP Hannan

We had two separate facilities, the $200 million revolving facility that is undrawn and then we also put in place the $50 million secured receivables facility. At closing, we drew $25 million of that and we have since paid that back.

Avi Steiner - JPMorgan

So, so nothing today, perfect. Almost done here, thanks for taking all the questions. The $40 million in cost saves that Lew you mentioned and then the $363 million of pro forma EBITDA in ‘13, I just want to make sure that $40 million is not in that number.

Lew Dickey

There is none of it in there. We have just begun affecting those synergies.

Avi Steiner - JPMorgan

Excellent. Last two, NASH investment with American media, can you talk about any cost there on your part if it’s anything material.

Lew Dickey

No, it’s nothing material. We have now housed there, we’ve now housed there staff from the – from country weekly in our NASH campus that we’re building out to in essence be the content engine for all things NASH and so they are in there working now to produce the publication of the February the 17th issue which is the new stands now has a 16 page glossy NASH insert so, in essence it’s a magazine within a magazine that overtime will actually flip and it will be NASH magazine what Country Weekly what country weekly inside of NASH Magazine and so, we want to preserve the 0.5 million readers that they have and have been a part of that publication for over 17 years and it’s the authoritative publication in country music and distributed on new stands and in Wal-Mart across the country and then obviously this will be a great outlet for us to take advantage of all that content is created and be part of this overall multiplatform brand for us to create audio content for our O&O and affiliates of NASH as well as provide another showcase in different medium for the country stars to get their news and information out and in essence to help create this lifestyle brand. So, think of it is a multiplatform approach if you will to helping that in essence to relating to the country music fans with the artists and we expect this to – we expect this to be another important component of it as we have said in the past.

Avi Steiner - JPMorgan

Great. And I will just finish up with an easy one I think. Can you just update us on where you stand with the non-core asset sales? I know it has come up in the past couple of calls. Thanks.

Lew Dickey

Yes, we’re – we should have more to talk about this over the next quarter or two where in the process on the Los Angeles land sale when the process of waiting for zoning applications to commence and we can finalize the sale process. But we have got a very good idea of what the value of the property should be and we are in the process of let’s say the zoning and then getting and then having the process with the realtor in essence the outreach is going on we have got a tremendous amount of interest in the property and so now that is we will be awaiting bids here probably in the next 90 to 120 days.

Avi Steiner - JPMorgan

Thanks for the time.

Lew Dickey

Thanks.

Operator

Your next question comes from the line of David Bank with RBC Capital Markets. Your line is open.

David Bank – RBC Capital Markets

Hi, thanks very much guys and thanks for the extra transparency on all those numbers. Two quick ones, but first is look I think not only do you bring a lot of sort of technological best practices into the national network business, when you also sort of just basically bring more I think credibility for advertisers and so I am curious as you emerge from that first annual process what did you see in terms of pricing and general traction that gives us some visibility in terms of how you can lift that portfolio. Second question, is Lew you outlined that four key initiatives CBS Sports, Traffic, NASH, SweetJack and the investment that was upfront, can you kind of give us a sense for the first two quarters what the headwinds were on expenses and will those sort of directly turn into tailwinds now that we sort of passed that investment phase? Thanks very much.

Lewis Dickey

I will answer those in order and JP will take the second question. But as we mentioned just as a quick aside on that about half of that $25 million we talked about were in essence in non-recurring startup expenses for that. And so and then with the other half in essence being loaded onto the P&L on an ongoing basis and obviously we are comping through that, so now it becomes a straight away comp. But with respect to visibility on the network side remember we didn’t – we hadn’t closed the WestwoodOne purchase until in essence the conclusion of the upfronts.

And so we will not benefit from that this year, but we certainly will as we get through Labor Day and go into the upfront season for 2015. So we are excited about that and that will be – and that should provide incremental growth for us on the network in 2015 having all these assets together. And to your point on visibility with the network and technology, we are rewriting in essence all of the systems around trafficking, inventory management sales planning, all of those things are the way research is implemented. So we are hard at work rewriting all of those systems as they apply to WestwoodOne and in our legacy network now that they are combined.

And so it’s going to provide dramatically more transparency and access for the buying community to be able to think about in terms of both addressability and accountability that has never been seen before in that business. So all of those things point to higher value for the ad unit and one of the things that has been the knock on those add units in the past, so and also I think in doing so we are going to be able attract advertisers outside of the pool as now audio is becoming more important to advertisers as an important part of the media mix. And I think having Nielsen now out helping with this and helping to legitimize the value of audio advertising across the board is going to be helpful as well.

So, it is a – we are excited about – again were playing the long game here, but we are very excited about what this acquisition will mean for us long-term. And as I say we are making the investment in systems and as you know we have – we in essence write all of our own systems whether it would be traffic and billing, music scheduling, CRM, studio automation all of those things we develop internally and we are in the process of doing that now for this greatly expanded network effort. And we expect all of that to be in place by the fall in time for the upfront. So the value creation in that side will really start up to take place end of this year and into 2015.

David Bank - RBC Capital Markets

Okay, thank you very much.

Operator

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

Lance Vitanza - CRT Capital Group

Hi guys. Thanks for taking the questions here. First off, I believe you said that Q4 revenue was up 4.3% ex political, but can you break that into station group versus network?

JP Hannan

Overall, the station group local was up 1.5%, national spot was almost 5% at the local level.

Lance Vitanza - CRT Capital Group

And those are ex political.

JP Hannan

Yes.

Lance Vitanza - CRT Capital Group

Okay. It sounds like the station group growth in Q1, it sounds like while it is still positive it decelerated a bit. We’ve heard from some other broadcasters that the weather has played a role. Did you see any of that or are you seeing any of those?

JP Hannan

The weather has clearly played a role in retail sales and obviously we are closely correlated with retail sales. So, we – again we think that all these things tend to level out in the end and so but it’s without question, it had a dampening effect in January retail sales and ultimately in advertising for January, people couldn’t for obvious reasons, people couldn’t get out of their house, but couldn’t go shopping, car lots were snowed in and so, it was in a big part of the United States east of the Mississippi, it caused a lot of problems and so, we felt that again as I said I think things tend to even out and in spite of that we expect our revenue to be flat in the quarter naturally up on the station group both locally and nationally and that’s – and we really don’t get the benefit of any political 1Q. But we expect core to be up in spite of that and then as we mentioned that’s going to be offset by some short-term dislocations on the network side as we’re bringing all this together and merging sales staffs and merging systems and affecting our synergies and eliminating some unprofitable revenue contracts that actually lost money as we were bringing money in. So, that’s in the case we saw that and we picked up the Citadel Radio network as well. So, those are normal course of business things that we need to do and we’re in the process of doing those now getting behind us and so it will be a bit of the drag for the first quarter or two and then we move on.

Lance Vitanza - CRT Capital Group

And then speaking of political, can you give us the pro forma political revenue numbers for 2012 and 2013?

JP Hannan

Pro forma 2012 whole year was $21.7 million and ’13 was $4 million.

Lance Vitanza - CRT Capital Group

Okay. And then moving…

JP Hannan

Now, $12.7 million Q4 of 2012, one-fourth we saw in Q4 of 2013.

Lance Vitanza - CRT Capital Group

Great, okay. And then on Rdio, as you think about the opportunity there and I find this very exciting, but as you think about the opportunity, now Pandora is saying that they are seeing like 1.6 billion listener hours per month. Do you think the opportunity there is just that that number, the listener hours continues to grow and you get your share of the growth or do you see an opportunity to take listeners away from some of the guys that are out there today?

JP Hannan

I think that this is not going to be a wine or take all space like search, or particularly search and maybe even social when you think about Facebook or Linkedin. We think that this is going to be as I mentioned in my prepared remarks that this is going to an essence where plays how people buy music and how people make their own playlist. And so because the model is much better, it’s easier, it’s on your mobile device which is where everything is going and again the business model, excuse me, the consumer value proposition for one low price whether it’s 995 a month or $99 a year, they have access to basically every song that’s made and every song that comes out and so that the model is moving from ownership of content both video and audio to access with content in the cloud and to be able to get it anytime anywhere and that’s why we talk about the space widening that in essence component of audio consumption which is on demand or I want to make my own playlist is an essence widening because people have more access to it today through their mobile device system ever before. And so we want to make sure that we’re – think about it’s almost playing in the retailing space or e-tailing space that broadcast radio could never play in before and now through these on demand services if you’re part of it which we will be through audio, we actually have a stake in that now.

And so as the space widens, consumption continues to increase same thing with video by the way. More video is being consumed now with the second screen and through mobile devices than ever before. And so it’s a question of positioning our company with and as you know content is king in all media and now through the acquisition of WestwoodOne, we are incredibly positioned in the world of audio content with all of these exclusive assets that we have and this infrastructure we have to create and distribute content across multiple platforms and then through our investment in sales in the systems that we’re building. In essence of monetization engine to monetize that content whether it’s distributed digitally or broadcast or to our O&O group or through our 10,000 affiliates and ultimately even internationally which is what – which is a distribution channel audio open up for us.

So, it’s a very well capitalized business that is in essence positioned we believe to be one of the survivors in this space and I think it will be handful of them that will be – in an order to be at one of these last standing survivors in that game, Lance, we believe that you got to be a digital player and excuse me, a global digital players and that is something where Rdio is excelled so, again we think this is the smart bet for our company. It’s a low risk bet for our company. It takes full advantage of what we can bring to the table, which is exclusive content to our WestwoodOne acquisition, which is distribution, promotion, and then through our sales infrastructure, the ability to monetize the free ad supported service which will also provide a lift to our own digital initiatives because again that is a game where you need extreme scale to be to get in the shops and compete. So, it’s going to help our broadcast digital component meaning our station websites and local broadcast streams as well as to be able to create value there so, we like it in all fronts and that’s why say we think this is an interesting value creation opportunity and quite frankly, bit of a free option for equity.

Lance Vitanza - CRT Capital Group

Thanks very much.

Operator

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

Amy Yong - Macquarie

Good morning, Lew. Can you help us quantify the opportunity for NASH as you roll out to additional markets? And I guess the longer opportunity in present TV. Any way you can frame this for investors would be helpful. Thank you.

Lew Dickey

It’s a little premature on that and we’ll have more to say about that probably in 90 days or a little bit less than that on our next call and because when we think about it today as I mentioned we’ve now rolled out a morning show in 21 markets. We expect that to be in 50 markets by the end of the year and the goal is to have that in 100 markets by the end of next year or NASH nights programs which of course outside of prime time – midnight, we are not getting the highest rates, but that is already now in the 100 markets, same thing with our – in our overnight shows and more than that and our countdown shows in more than that. So, as all of these things take on the brand that we’re in discussions with large advertisers about large platform deals, those – in these decisions take time by the way, but to play out, but as we’re building the asset mix as we’re building the platform we will be an increasingly more discussions with large national advertisers who wish to engage with this audience of country music fans which is closed to 100 million people across the U.S. now and they want as with all of the situations they want ability to be able to do this in a way that can be executed across multiple platforms, multiple touch points and to be able to get their message across and do so with the few points of contact is possible and that’s the value of NASH that can in essence offer a very large consumer segment to large national advertisers.

And then to our local affiliates as well as our local owned and operated radio stations, it provides a tremendous amount of high quality exclusive premium content and ways to create local activation whether it’s with wireless carrier with an automobile dealership, with a fast food business, it creates – or a retail establishment, it creates interesting ways for them to go back out with ideas to be able to get people excited and activate consumers. And so that’s the name of the game today. So, we think this is – it’s premature to be able to say this is what the opportunity could be but as time goes on and we build the asset mix will be in a better position to frame it for people but in other words, we sort to have great up to-date real-time information as we’re rolling out the asset mix and what it means for us and then from a cost perspective because again we are replacing and then particularly as we rollout the morning show there, lot of this is in essence self liquidating in terms of the investments that we’re making in the shows itself as we’re able to distribute that content across our O&O platform. It becomes self liquidating. So, it’s not –we are not – it’s not a terribly expensive venture for us, but because of the distribution platform we have it’s very strategic and as I say we are very pleased with how this initiative is going to-date. In fact when I get off this call I am on my way to Nashville where the CRS is going on right now as we continue to have meetings and work on specific content deals to continue to build the brand.

Amy Yong - Macquarie

Okay, thank you.

Operator

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

James Marsh - Piper Jaffray

Great, thanks very much. Two quick questions, the first is regarding the NASH brand and, Lew I was hoping you could elaborate a little bit more on what you mean by expanding into video. And I guess I am trying to get a sense of potential scale here. You talked about starting your own cable network or partnership, partnering with the cable network or are you simply talking about potentially doing a TV show because I am just trying to get a sense for how big this big this could be. I know Clear Channel partnered with CMT and I didn’t know if that was a non-exclusive deal, but if you can just give us some sense of what the scale there could be? And then I have a follow up.

Lew Dickey

Sure. And James, for instance the CMT partnership was one that we had before that and we left that partnership because we have other designs. And so I think the way that we to be thinking about our video strategy going forward is I think it will have multiple components and so look for a NASH award show on broadcast television or network television. I think that there will be a linear cable component. I think there will be potentially an OTT component. So I think there is a lot of – and we are in full discussions right now with distributors and producers about content and our brand and our access to content and live events through our brand and our station group that can provide. Our morning show alone is a 1000 hours of day time television. And the studio was built with 7 HD cameras and we are capturing video every morning. So it is as we bring a show runner on to start to in essence productize and produce that as a morning show that’s going to be a valuable piece of content. And so as you know sort of a long-winded way of answering your question, this will all develop over a period of time. We want to make sure that we are appropriately developing the right sequencing of this that maximizes our leverage at all points along the value chain. That’s probably the best way I can give it to you.

James Marsh - Piper Jaffray

Okay, that’s very helpful. And then just secondly, on HD radio, I was wondering if you can just give us some type of update there, how are you guys using this new technology and are any of these new revenue streams starting to show any particular promise, any of them becoming material?

Lew Dickey

Well, I think Bob Struble and his team have done an excellent job over there. They are in now, I think 40% of the new cars that are coming off the line, the technology works and there are supplemental channels for each of the main HD channels, which are the existing frequencies. And one of the things that we have through our Westwood acquisition is this 24/7 business. And we think internally about our planning. We are working on formats that will be in essence niche formats that should play in the largest markets that can be good HD programming for broadcasters who because it’s very nascent they don’t want to spend a tremendous amount of money promoting or promoting content or developing content. And if we can do that for them on a turnkey basis I think it will in essence embolden people to take some risks and go ahead and put some interesting new formats on these HD supplemental audio channels. And I think that’s quite frankly ultimately is going to be where this will take root. Frankly I would like to see the user interface improved on that in terms of accessing this, I don’t know, but it’s intuitive as it can be and I know people are working on that right now. But I think all this is coming along and this is something that is – as I have always said this is something that is a long-term play and continues to gain traction. It’s not the main idea, but I do think that having the ability to have these incremental channels over time in the dash is going to be important for our industry.

James Marsh - Piper Jaffray

Okay, thanks very much.

Operator

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

Aaron Watts - Deutsche Bank

Hey guys. Lew, one follow-up on your comments about potentially some more non-core asset sales taking place, as you and your head kind of prioritize the use of the proceeds that may come out of those sales, how do you think about that?

Lew Dickey

We think, first thing Aaron is to continue to pay down debt. And if we find some attractive assets plays to makes sense for us as we think about strategically building out our NASH network, where we want to potentially secure distribution there. That’s something that’s always going to have high priority for us, but that’s the way we are thinking about it, sort of number one priority is to pay down debt.

Aaron Watts - Deutsche Bank

Okay. And then just bigger picture on what you are doing with NASH and recognizing it it’s still pretty nascent, but is there any application to other genres of music or is country just a special niche that you feel you can build out to the scale you want or is there an opportunity to kind of implement the cost structure of a NASH in other areas?

Lew Dickey

Well, it’s an interesting question and it’s something that we’ve given a lot of thought to and we’re very focused on executing this right now.

Aaron Watts - Deutsche Bank

Okay, fair enough. And then last one for me, just thinking about some of the chatter and buzz that came out of the connected car thoughts on that earlier this year, recognizing that is probably a couple of years away from realizing itself. But with Rdio and others of its peers suddenly being maybe easier to access for drivers and listeners, how does that impact your terrestrial listenership base?

Lew Dickey

We think that the ability to have access to digital applications in the car is no doubt that that’s going to continue to gain traction over the coming years and which is why we want to have a strong competitor in the space and which is what we are doing with Audi. But that doesn’t – the inherent consumer demand for their local radio stations and curated content and so we talked about the Whitney of assets that we have and bring to the table, as I say radio is a lot more than a playlist punctuated by adds. And so it’s so much more than that and when you measure the – remember, I spent a lot of time for searching radio consumption before getting on the principle side in.

And there is I can tell you for a stand that people are – that’s why we view it as the widening space, but it really is people want to spend the vast majority and it’s two thirds of their time consuming other things. They want their local support, they want their news and they want their traffic and their local DJs that they know, assure they like to listen to music and they want to discover any music we add features for that as well. So, these apps enable that to happen and this is for decades people have always bought music and made playlist. And so, think of this is just a way to do that in a much more easier fashion than ever before. And if I frankly now I think on the subscription model in a more cost efficient fashion ever before. But it doesn’t change the basic consumer behavior with respect to audio consumption and having that in the dash is going to make it easier and which is why again we believe that having an entrant in that space make sense for us strategically in long-term. But it just doesn’t replace what radio brings to the table and any more than a YouTube video replaces a $6 million production of an hour of television drama, which is why the viewership levels are so different for those products.

Aaron Watts - Deutsche Bank

Okay, great. Thanks for the thought.

Operator

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

Lew Dickey - Chairman and Chief Executive Officer

Thank you, operator and thanks everyone for joining us. And we look forward to give an update in about 90 days. Take care. Have a good day.

Operator

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

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