Collin Jones - Director, IR Lew Dickey - Chairman, President & CEO J.P. Hannan - SVP, Treasurer & CFO.

Avi Steiner - JPMorgan Lance Vitanza - CRT Capital Group Amy Yong - Macquarie.

Welcome to the Cumulus Media Quarterly Earnings Release Conference Call. I will now turn it over to Collin Jones, Director of Investor Relations. Sir, you may proceed..

Welcome to our investors, analysts, employees and strategic partners. Thank you for joining our fourth quarter earnings call. Before we kick off please note certain statements in today's press release and discussed on this call may constitute forward-looking statements under federal securities 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 forward-looking statements due to the various risks and uncertainties or other factors.

A full description of these as well as financial reconciliations to non-GAAP terms can be found in our press release and Form 10K both of which were filed today at 4 o'clock PM Eastern Time. On today's call we have J.P. Hannan, our CFO; and Lew Dickey, our Chairman and CEO. With that, I'll turn it over to you, Lew..

Thank you, good afternoon, everyone. We appreciate you taking the time to join us to discuss our fourth quarter and full-year 2014 earnings. Our net revenue for the fourth quarter of 2014 was $329.2 million which is an increase of $1 million 0.3% over our 2013 pro forma results.

This brought our full year 2014 net revenue to 1.26 billion, an increase of $17.7 million or 1.4% over the 2013 full-year pro forma.

As a reminder, the pro forma numbers are presented to normalize for the purchase of WestwoodOne that closed at the very end of 2013 and the large sale and swap of radio stations we did with Townsquare Media that occurred in November of 2013.

Our revenue in the fourth quarter was positively impacted by political resulting from the midterm Congressional elections. Political advertising contributed approximately $11 million in the quarter and approximately $21 million for the full year.

This was down from the 2012 cycle and below our earlier guidance of 25 which was on par with the 2012 cycle or the full year.

As we discussed last quarter, while we were pacing positively in this category as we went into Q3, we began to see decreased demand towards the tail end of last quarter as it became more evident that the Republican Party would assume control of the U.S.

Senate, less competitive races end of the close of the campaign cycle simply meant less need for the parties and pack money to spend on advertising. In addition at weak local ad environment made local television and spot cable more of a political share competitor than in normal cycles.

We will see political advertising both candidates and issues ramping back up as we move into the 16 cycle and that's actually going to get started pretty early this year so we expect to see money start coming in as early as November of 2015.

Now as for the other and channels new sales strategies and integrated marketing offerings including events and digital helped offset the ongoing weakness in local agency business trend that we saw throughout 2014 and we're seeing it continue into 2015.

Consistent with other advertising businesses who have previously the reported, we were not immune to the material weakness and cancellations beginning around Thanksgiving and continuing through January. It was a challenging holiday sales season for retailers and it had an adverse impact on the ad spend.

However, on a full-year basis in the 56 markets that are audited by Miller Kaplan core local broadcast revenue was down 3.7% for the fourth quarter. Our stations performed a little better we were down 3.4%. 30bps better.

The national spot market for the fourth quarter was up 4.9% reflecting political and our stations performed better up 9.4% the market was up 4.9 and we were up 9.4 for the fourth quarter.

The fourth quarter results largely mirrored that of the full year were on a blended basis, local and national spot in the 56 markets measured by Miller Kaplan were down 3.9%. Our stations outperformed by 40bps and being down 3.5%. Now in addition to core local and national, our two other primary revenue streams, our NTR event and digital.

NTR stands for Non-Traditional Broadcast revenue and could include a college football or severe weather guide, events include things like concerts, craft beer festivals, bridal and women's expos, job fairs. They are becoming increasingly more important as consumers flock to live entertainment and expos.

Radios uniquely qualified to activate large audiences around entertainment events. Compared to core local and national spot the events/NTR revenue is inherently lower margin but will improve over time with both scale and experience and the consistency of annual events to draw both sponsors and audience.

We're currently testing a number of concepts across the platform for a wider rollout later this year. The fourth revenue bucket is digital and primarily made up of streaming audio display ads and email and text blast.

These products are in high demand and represent a growth opportunity for us to leverage large listening audiences and fans of our local and national brands. For our markets in 2014 digital revenue in Miller Kaplan for our markets in 2014 digital revenue was up 9%, our stations were up 30%. It's a small but rapidly growing segment of our business.

Now moving down the income statement, adjusted EBITDA for the fourth quarter was $90.4 million, a decline of $6 million or 6.2%. For the full year adjusted EBITDA was $329.5 million, a decline of $33.8 million or 9.3%. For the fourth quarter our content costs were $116.7 million, an increase of $8.3 million or 7.6%.

The majority of this increase relates to the launch of three new stations in 2014 in Chicago, New York and San Francisco. Each of these launches had initial startup costs as well as ongoing operational expenses, they have strengthened our clusters in these markets and will be revenue drivers moving forward.

A launch in Chicago was positively impacting full year 2015 and the launches in New York and San Francisco will have an impact in the back half of this year accelerating into 2016.

In addition to the startup stations $2.1 million of increase resulted from seasonal contract sports rights exploiters for the San Francisco Giants, the San Francisco 49ers, Kansas City Chiefs and the Los Angeles Kings.

An additional 1.5 was related to the rollout of NASH and the remaining expense increases were related to restructured producer contracts at WestwoodOne which we’ve discussed on previous calls. Now with regard to direct operating expenses which comprises SG&A, sales, general and administrative costs across the company.

For the fourth quarter these expenses were $116.9 million, a decrease of $5 million or 4.1%. These savings were primarily the result of expense synergies at WestwoodOne being offset by the inclusion of operating expenses at the three new radio stations that we didn't have a year ago.

As you can see there has been a lot of movement and many new elements impacting our cost structure that didn't exist a year ago. Our focus has been to make targeted investments for growth while continuing to extract efficiencies across the platform in order to maximize free cash flow.

This optimization of our cost structure will be largely complete by the end of Q1 and fixed costs should be basically flat year-over-year for the last three quarters of 2015. Now with that overview of the current results, I would like to provide some more color into our three main areas of strategic focus, our Station Group, WestwoodOne and NASH.

This structure will be a framework for how we discuss our business going forward. The Station Group throughout 2014, the focus of our Station Group has been staffing, sales and content execution.

Over the past five months, I've been reorganizing our managerial ranks to repossession us to be flatter and drive greater ownership of the company's operating plan into the hands of our 95 managers who each run one of our business units. Entering into 2014, the corporate structure we had in place had remained largely unchanged for more than a decade.

With the retirement of our long-time COO John Pinch late last year, it opened up an opportunity to reevaluate the way we're managing what is now a much larger and more diverse enterprise.

We also engaged Spencer Stuart to help us find an EVP of radio and after a five-month process, we have determined that with our newly fortified regional oversight structure which we will finalize later this month, we will not need in EVP of radio and I will continue managing the day-to-day operations of the company.

We will also be announcing a couple of key hires in research, marketing and brand sponsorship in the next 30 days and expect to have our executive leadership team largely in place by the beginning of 2Q.

I'm pleased with the tremendous progress we've made in the last five months and can confidently say that with the totality of these changes we will be competing with the strongest and most talented team in our country's history.

For Cumulus, our focus on sales execution means optimizing our effort against core revenue streams of local and national spot while developing incremental opportunities in digital and events to leverage our audience into a greater share of wallet from our clients.

We've been positioning our platform to have best-in-class sales infrastructure to maximize yield on our core spot business, while we also compete aggressively with new products that complement and enhance the efficacy of a broadcast radio ad buy.

Traditionally, we're monetizing our digital assets on the local side at the highest rate in our company's history, as evidenced by our rapid digital growth in 2014.

We're taking advantage of increased demand with an increased focus on digital sales training and aggressive monetization of the over 70 million monthly uniques across our website, streams and mobile apps.

Lastly, we have increased our coverage on programming strategy and station level execution with the additions of some talented programmers in country, sports, rock, talk and other music-oriented formats. Ratings successes are a unique combination of art and science and the team to lead this effort is now largely in place.

Additionally, we have had a keen focus on securing our existing talent to reduce risk long term while investing in up and coming talent to continue generating the best local content for our audience.

We're encouraged today by positive ratings momentum in key revenue markets for us including Chicago with WLS and WKQX, San Francisco, NASH 92.3, KSFO and KSAN, Washington DC with WMAL which is now closing in and nearing, all closing the gap dramatically between it and WTOP which is the country's number one billing radio station.

Houston KRB, Detroit WDVD, Indianapolis, The Beat 93.9 which we're proud to say is the only station to produce a number one showing and a full book on PPM after a format change. So we've launched that station, it went 15th to number one in Indianapolis.

And then in Nashville, both NASH FM 103.3 and our second NASH format which is NASH Icon are now the top country brands in Nashville. So 103.3 and NASH Icon 95.5 are the two top country brands in Nashville now. And then in Cincinnati, Warm, WRRM, WGRR and WOFX are all performing very strongly and in the top five.

Providence, WWLI and WPRO-FM, performing extremely well. And then in Albuquerque, NASH-FM 92.3, also performing very well. So we're starting to develop some good solid ratings momentum in key revenue markets across the country for us.

Now moving on to WestwoodOne, we're now turning the page on our first year of ownership and moving into the second year of our two-year integration plan. We're ahead of schedule on merger synergies and are very bullish on the long-term strategic opportunities of this content platform.

Like the Station Group, we're focused on staffing and execution and expect to have the team and organizational structure fully in place by the end of Q3. We're a couple quarters behind the radio group on this plan.

With the addition of WestwoodOne, we now have an integrated audio content platform that consists of iconic sports, entertainment, news, talk and information brands distributed to nearly 10,000 broadcast radio affiliates across the country, as well as digital audio partners with local activation reaching more than 240 million people now on a weekly basis.

So let's discuss how we got there. We closed on our acquisition of WestwoodOne in mid- December of 2013, so at the end of 2013, after an extended period between signing and closing due to an unexpected DOJ investigation.

This unfortunate timing caused us to miss the upfront markets and as an integrated offering and thus started us from a lower revenue base in 2014. It also resulted in key defections in the sales organization prior to closing due to the uncertainty.

In June of 2014, we moved our entire national sales organization under the WestwoodOne umbrella including national spot, network sales and national digital. We're now one of two radio companies that allow advertisers at scale to buy across multiple ad channels to create an integrated broadcast and digital campaign with local activation.

Additionally, we're building a business development team targeting new advertisers to radio and are seeing some early successes, particularly with our WestwoodOne sports assets including the NFL and the NCAA tournament where we just set a new record for billing.

Our national digital team, also under the WestwoodOne umbrella, takes to market inventory on behalf of our pure-play partner, Rdio, as well as owned and operated digital inventory. By leveraging the demand for streaming audio, we have been able to meaningfully increase monetization across all digital products in the national marketplace.

And ahead of the network upfront season which began in September of 2014, we combined all of our ad sales products from two legacy networks which would, the Cumulus Media network, as well as WestwoodOne, Dial Global and based upon the feedback -- based upon the feedback from the advertiser community.

In addition, our combined sports 24/7 and play-by-play assets are all showing substantial promise, our sports networks and play-by-play assets as we enter 2015. Finally, we were able to execute on synergies from duplicative systems, contracts and administrative costs.

In total, we've now reached $50 million of expense synergies, $25 million of which were realized in 2014 and another $25 million which will be realized in 2015 with some reinvestment and some costs associated in achieving those synergies.

Now when we explored the acquisition of WestwoodOne, our strategic rationale relied on the power of a robust national sales platform and really the reality that content is king and the opportunity to bring more advertiser dollars into the radio space.

Additionally, we funded the acquisition in a capital neutral way through the sale of small-market radio assets which we viewed as non-core.

As we enter 2015, we're halfway through our two-year integration and remain pleased with our progress and excited about the future of audio content and confident in the incremental efficiencies we will realize over the next 24 months as our Station Group and WestwoodOne become highly integrated businesses producing and distributing exclusive premium content and monetizing it more effectively in the national spot, network and digital sales channels.

Now moving on to NASH, consistent with the theme evolving in the media landscape, in early 2013, we set out to create a new multi-platform lifestyle entertainment brand targeting the 90-million-plus audience segment of self-identified country music fans.

We launched NASH 24 months ago as a single station in New York City with the hopes of expanding it into a national multi-platform media business.

In looking across our local, national and content channels, we identified a key strength as the leading country platform and also recognized that country fans are a large, passionate and highly desirable audience segment difficult to reach at scale.

Our radio platform now reaches more than half the country segment on a weekly basis and we're using this unparalleled reach to build a multi-platform NASH brand with limited incremental investment. Let's highlight a few of the successes to date. We now have 83 stations, excuse me, 83 country stations with NASH or NASH Icon branding.

I flashed some of the ratings successes within our own platform earlier. Ratings successes are building across the country and platform sales opportunity will drive revenue growth for this package of assets in 2015 and accelerate into next year.

After using our owned and operated platform as the test kitchen, we've begun external network syndication of America's Morning Show NASH Nights Live with Shawn Parr and the NASH Icon 24/7 format to complement our existing syndicated products which include American Country Countdown.

That's the definitive country countdown show hosted by iconic country superstar Kix Brooks of the Brooks & Dunn fame. And also we have Country Weekly magazine which will be rebranded NASH Country Weekly magazine in the coming months along with a complete redesign.

The more contemporary look and feel will complement the aspirational nature of the NASH brand and broaden the audience opportunity for both subscription sell-through and advertising dollars. And on our label, we now have three signed artists on the NASH Icon music label, Reba McEntire, Martina McBride and Ronnie Dunn.

The first NASH Icon single was Reba's Going Out Like That which went to number one, both U.S. and Canada, on the charts and with the support of the entire NASH platform we sold more albums in the first week of this single than in any other prior single in her career.

And then lastly, the American Country Countdown Awards, as part of the NASH platform, was produced by our partners at Dick Clark Productions and aired on Fox Network on December 15. It was our first network television presence.

We were very pleased with the event and it received universally positive feedback from viewers, advertisers and certainly from the artist community. We have an opportunity with NASH through the concept to continue to create meaningful value for shareholders by leveraging the core platform.

All of our country radio stations and WestwoodOne content and affiliations with an exceptionally popular entertainment brand that has the potential to be the proxy brand for 90-million-plus person -- segment, audience segment for country music fans.

On our last call, we said that we expected NASH to deliver about $25 million of incremental revenue with little or no contribution in 2015 and we reiterate that the platform is on track to deliver its goals.

Now in conclusion, it's been a long three years of acquisition, integration, portfolio management, investment and development to get us where we're today. Our business model is now clear with the Station Group, WestwoodOne and NASH functioning both independently and in an integrated fashion to compete in a rapidly evolving media landscape.

We’re well-positioned to drive margin expansion, free cash flow growth and support our plan to continue to pay-down debt. We reiterate our continued commitment to pay-down $600 million of additional debt by the end of 2016 by using cash from operations and the proceeds from the land sales in Los Angeles and Washington DC which J.P.

will update everyone on in a few minutes, as well as additional non-core, non-cash flow producing assets. We will not be giving any forward guidance today, as we will be reporting earnings in right about 60 days and the choppiness seen in Q4 has broadly continued into the first quarter.

So we'll have more visibility as we report Q1 and give guidance on Q2 and full year in 60 days.

Current pacing for Q1, however, is down mid-single-digits with the Station Group pacing down low-single and sequential and the Station Group's pacing down low-single was sequential improvement in each month, January to February, February to March, March to April and then all the way through Q2.

It's early, but the Station Group is currently pacing up mid-single-digits for the second quarter. And on the network side, we expect a tough couple of quarters for WestwoodOne as we finalize the integration and comp through the restructuring and termination of non-cash flow producing contracts.

This will all play itself out over the next few quarters. Despite revenue challenges on the network, continued expense efficiencies will offset Westwood's revenue decline in 2015. With that, I'll pass it over to J.P. who will take you into a deeper look into the income statement and balance sheet. And then, we will open it up for questions.

J.P?.

Thanks, Lew. Good afternoon, everyone. We finished 2014 with total debt of $2.5 billion. As you've heard from us throughout 2014, deleveraging and repaying debt has been a top priority for the company. During 2014, we repaid $146 million of debt that included $50 million in Q4.

And we laid the groundwork to accelerate those payments in 2015 and into 2016, as we continually strive to strengthen our balance sheet. In addition to utilizing free cash flow from operations to repay debt, we also began the process of monetizing several non-core assets that we picked up in our 2011 acquisitions.

Proceeds of these sales will also be used for debt repayment. In 2014, we sold a limited partnership interest in the San Francisco Giants baseball team that we inherited from Susquehanna and sold it for $13 million. We then entered into a contract to sell the large parcel of land in Los Angeles that was acquired from Citadel for $125 million.

We ran a very extensive process in the LA land sale to yield the maximum results and anticipate that transaction closing towards the end of this year or very early in 2016, depending on when we receive zoning approvals. Most recently, we launched a process to sell another large parcel of land in suburban Washington DC.

This process has already received interest from more than 100 parties and we anticipate finalizing a sale towards the end of the year, around the same time as the LA land sale. We believe the proceeds of this sale and the highly successful LA transaction will enable us to repay another $200 million of debt shortly after both transactions close.

These two transactions, together with monetization of other smaller inherited Citadel assets, will have effectively rebated 10% of the overall purchase price of Citadel back to our shareholders. We continue to enjoy the benefits of our net operating losses and other deferred tax assets to shield us from paying current cash taxes on the federal level.

These tax assets will absorb most of the gain on the non-core asset sales and we anticipate the net operating losses will be depleted entirely on the federal level by the end of 2016. Elsewhere on the balance sheet, our capital expenditures for the full year were approximately $19 million, coming in just under our last guidance.

For 2015, we see capital expenditures being relatively flat to that 2014 full-year amount. Finally, we finished the year with $7.3 million of cash on hand. As Collin said, we filed a 10-K at the beginning of this call. And with that, we can open it up for questions.

Operator?.

[Operator Instructions]. Your first question comes from Avi Steiner with JPMorgan..

I want to start one slightly backwards looking, but if you could tell us how ad revenue trended by months in the fourth quarter? And then, Lew, I think you highlighted local agency business with respect to Q4, can you flesh that out a little bit? And then, if you can remind us how much of your advertising revenue category is local versus national? And then I've got a couple more.

Thank you..

Avi, in reverse order, we're running about 85% local and 15% national. And then, that's at the station side, the station represents about 70% -- Station Group represents about 70% of our revenue and 80% of our cash flow and the network, obviously, is all national.

The question on fourth quarter, the October was up high-single, November was flat and December was down mid-single. And so that's obviously, that was the negative momentum in pacing we saw in advertising in those months..

And I know you don't want to spend so much time on [indiscernible] but I think you mentioned Q1 overall down mid-single, stations down low-single, is the offset there just WestwoodOne? And then if we look ahead broadly, I think you mentioned some new stations launched and some good ratings books, I just want to flush out how much time between those ratings books until it actually hits revenue? And then very big picture, we've got a slightly better consumer here, slowly improving economic environment, do you think -- this is not a guidance question, but do you think core ad revenue for the industry can grow on the back of those factors?.

It's hard to say, Avi, in terms of how it's going to play out for the rest of the year which is why we're loathe to give any guidance on that this early. Second quarter, clearly, is -- and here we're already into March. So second quarter is around the corner.

Second quarter is pacing up solidly on the station side, mid-single in all three months, but, as I say, it is early. With respect to your questions on the contribution of the stations, Chicago is impacting us pretty quickly and we're up, we're pacing up. I think the market is going to be down in Q1 in Chicago. My guess is it is and we're pacing up 20%.

So the cluster is doing extremely well and is an excellent growth driver for our company and the ratings are improving very nicely. As I mentioned, on WLS which is the station that we acquired with Citadel and then KQX which was the new station that we put on 101 earlier -- last year. Probably early last year. And it's starting to pan out nicely.

In San Francisco, the station we started there competes against KRTY which is a country station in San Jose and we've already beaten them in the San Francisco book and are drawing very close to them in the San Jose book.

And that's a station that bills probably $6 million and so we don't have anything on the books right now, we're just getting started. Revenue should follow ratings there and it should start to produce. But, again, we look at those as, start to become growth drivers, same with MBM in the back half of this year.

So Station Group is actually moving nicely. I'm pretty pleased with how things are going. We've got most of our markets in solid shape. Obviously, when you have 460 stations you're going to have a few problem children. We do but for the most part, I feel very good about the direction we're going on the Station Group.

And as I mentioned on the call, we're a couple quarters ahead of the network in terms of the turn, having the team in place and driving revenue growth..

And on WestwoodOne, I think you said you sat out or missed the upfront, is there a way to quantify that impact and what it may be once you go through an upfront with Westwood?.

We certainly missed it going into 2014 and then, because we were so delayed in this, reconfiguring all of our networks and it's a very complex and it would be a long explanation, but reconfiguring all of our networks to bring a unified set of inventory to market is a long and tedious process and we still don't have it completely set.

And as I say, we will pay for that throughout 2015 and really be in a position, as I say with that business, that's why we said it was a two-year integration and we're, in essence, in month 14 right now. But we feel like that whole team will be in place, I think, by the end of the summer and we will be ready to go for the upfront.

So that is our direction and our goal here, complete systems integration, all of our networks aligned properly to take to market for the upfronts, our sales organization completely staffed and that, we're in the process of doing that right now.

So as I say, it's a couple quarters behind the Station Group, but we will be there by probably, sometime in middle of Q3 is when we hope to be ready to go, but certainly before the upfronts that start right after Labor Day..

And I'll end it here and thanks for taking all the questions. On the land sales that are going to close, can you use proceeds for something other than, your bonds, other than your bank debt, number one.

And number two, a competitor of yours entered an agreement to sell a portion of their tower assets and I'm wondering how Cumulus thinks about that? I'll head back in the queue, thanks a lot, gentlemen..

The proceeds from the land sales will go to pay-down term and that's what we have -- that's what they need to -- according to the credit agreement and that's what we've pledged to do. And as J.P. said, look, we guided $200 million on that. We've got the LA piece under contract for $125 million and we went wide with this as well.

We've got over 100 interested parties and we've already had a preemptive bid that would put us over that number of guidance that we gave. So we feel between those two pieces of land that should be a nice, in essence, it's a year's worth of free cash that we can take into to continue to retire debt and we're focused on doing that..

The next question comes from Lance Vitanza with CRT Capital Group..

My question is about, I guess, the markets that you're in. You beat the competition in those markets yet your core ad revenue trends were weaker than some of the broadcasters that we follow and in any case, not, I imagine, where you want them to be.

So is this a case of the various markets needing to kind of come back or is there anything you need to do or want to do to fine tune the portfolio?.

Lance, a couple things on that, because we need to make sure that there's true apples-to-apples. We have 56 markets which represent basically our largest 56 markets. It's over 80% of our revenue and cash flow for the company and it is a real good proxy for the environment that we're competing in.

As you know, we compete in 8 of the top 10 markets and 9 of the top 12. And then a number in the top -- more in the top 25 and, again, a handful in the top 50. It's a large and distributed group that is heavily weighted in the major markets and top 50 and certainly top 100.

And so the numbers, when we gave our full-year of a positive 1.4%, that includes all revenue. Our fourth quarter of up 0.3% includes, again, all revenue.

So when you talk about core revenue, I just would caution you to make sure that it is, when I say core, I'm thinking about local and national spot revenue, selling a 30-second or 60-second commercial announcement. And total revenues, when we include the other buckets that I mentioned on the call which are digital, NTR and event business.

And so when you put all those in that starts to, in essence you're adding incremental revenue streams that are often at a lower margin. And there are more opportunities for us to grow.

And as I mentioned, obviously we're working hard on the digital front and on the event side, we're testing a number of concepts and we're working to try to come up with what best fits our platform. We will have a number of NASH events, our NASH Bash events throughout the country.

We will most likely have a tour that will flow with our record label that will also be event revenue. So we're looking for more things to drive that side of the business. But the core revenue is what we would call local and national spot revenue as defined by Miller Kaplan in their audited reporting..

Can I ask one other question about the asset sales. The LA land sale closing, I'm not a real estate guy but that seems like an awfully long time. I think you announced that last year and it may not close until early next year.

Is there any risk to that transaction closing or how would you handicap whether or not the transaction does in fact close? Thank you..

We feel strongly that it's going to close. We're under contract with a very reputable developer in Los Angeles who is in the middle of multiple projects in the Los Angeles Basin and obviously, is well-suited to develop this parcel and has a strong balance sheet. So from that perspective, we don't see risk in that transaction.

It required a rezoning of the property and so, hence is what takes the time period to have that property in essence, rezoned.

And so there's a high degree of confidence that it will successfully be done and this firm is investing -- it has a significant amount of escrow hard and it is investing a lot of funds in the -- as it continues to plan the project and put all the pieces in place to break ground and close.

So we feel confident that it's going to be -- and more importantly, the professionals that are advising us feel very confident that this is going to close. And then on DC, we don't require a rezoning and so that transaction should actually occur inside of the LA transaction and we have been consistent in telling the Street that..

I would just keep in mind with the LA transaction actually, we actually just signed that just before our last earnings call, but it's such a highly desirable piece of property, the LA Times picked up on it, there's been a lot of publicity and I want to talk about that early, early in the process, but we actually just signed that not too long ago..

The next question comes from Amy Yong with Macquarie..

A few questions. Just, first on costs. Lew, you mentioned flat costs.

Can you just clarify what you mean by that? I think you mentioned flat versus last quarter, what does that include? Does it include SG&A? If you could just clarify that guidance that would be helpful? And then, as you grow the business and invest in other initiatives and rollout stations, NASH, how should we think about content costs going forward?.

Okay, Amy, so I'll hit all that in one answer which is, what we talked about was fixed costs, that would include investments. That would include NASH, that would include everything that we have going in the company flat Q2 through Q4, so Q2, Q3, Q4 over prior year. Flat costs going forward. The variable costs on that will be based on revenue.

So if revenue was up, then we will see cost of sales go up correspondingly with the variable costs, but short of that, costs will be flat Q2 through Q4 and that includes the Station Group and network and NASH from where we're today.

Q1, we're still in the process of integration, particularly with WestwoodOne and the costs will be higher in Q1, but as I say, those will be the costs against -- the cost will be higher in Q1 versus prior, but not in Q2, Q3 and Q4..

And then, just a bigger picture question, you mentioned a bunch of management changes, can you talk about some of the metrics on how you're measuring their performance and perhaps its growth, free cash flow, just anything that you can add to that would be great?.

Yes. When we make a change in a market, it's a couple of ways, Amy. When we make the change in a market with a market manager and hire a new market manager, the performance of that market is reflective of how we measure that particular market manager.

And so their ability to get in and make an impact and more effectively execute our operating plan which is controlling costs and driving revenue in a particular market. Each of our markets, as you know is a business unit and that's why we say, we've got 93 of those plus the network and NASH. So we've got about 95 business units in the company today.

So that's how we measure the effectiveness of a manager and as I mentioned, we've made a number of good hires and have helped turn around a number of situations that we have in the company. And the Station Group is starting to perform nicely here and we said that 70% of our revenue and 80% of our cash flow..

[Operator Instructions]. Your next question comes from Dave Bank with RBC Capital Markets..

This is [indiscernible] on behalf of Dave. Just two quick questions for you. First, it looks like the industry-wide [indiscernible] results have kind of re-accelerated in recent quarters.

Can you talk about what you're seeing here and how much of the slowness in network is secular versus economic versus company specific?.

I got the second question, what was the first question again, please?.

Just talking about the drivers of the network declines, is it secular, economic, company specific?.

So the whole question is on the network, not the station?.

That's the first question..

Okay. Well with respect to the network, the network space is actually fairly healthy. The network space is performing, actually in 4Q and early in the start of the year, we believe the network space is outperforming the station space, and so the station side.

And so we think it's a strong business, it is a low-cost provider and it is, again, a very attractive way for national advertisers to reach an audience and to do so very cost-effectively. So it's a solid space, for us it's execution and that's what we're intently focused on right now.

And as I say, part of it is integration, not to make excuses and part of it is execution and we're working through those issues and as we said, this would be a two-year integration and we're about 14 months into it.

The cost synergies are coming nicely and we're now very focused on building our sales organization to take advantage of all these great content assets we have..

And then second question and I apologize if I missed this, but with regards to the morning show replacements, do you expect the DC comps to still ease in 1Q and New York in 2Q?.

DC is positive in 1Q and so New York, we expect to go -- New York is going to be close to positive, excuse me, close to flat in 1Q, but we did say that would comp through in the first quarter and we expect New York to grow in the second quarter..

At this time, there are no further questions. I'll now turn the conference back over to Mr. Dickey..

Thank you, operator. I appreciate everybody taking the time to get an update today and we will be talking to you in 60 days. Have a good day. Thank you..

Thank you for your participation. This concludes today's conference call. You may now disconnect..