Richard Schmaeling – Chief Financial Officer and Executive Vice President
David Field – Chairman, President, and Chief Executive Officer
Conference Call Participants
Aaron Watts – Deutsch Bank
Avi Steiner – JPMorgan
Dan Day – B. Riley Securities
Craig Huber – Huber Research Partners
Good morning and welcome to Audacy’s Fourth Quarter 2022 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to introduce your first speaker for today’s call Mr. Richard Schmaeling, CFO and Executive Vice President. Sir, you may begin.
Thank you, Rob. Good morning and welcome to Audacy’s fourth quarter earnings conference call. A replay will be available shortly after the conclusion of today’s call at the replay link or number noted in our release.
During this call, the company may make forward-looking statements, which are based upon the company’s current expectations and involve risks and uncertainties. The company’s actual results could differ materially from those projected in these forward-looking statements.
Additional information concerning factors that could cause actual results that differ materially are described in the Risk Factors section of the company’s annual report on Form 10-K. As such risk and uncertainties may be updated from time-to-time in the company’s SEC filings. We assume no obligation to update any forward-looking statements except as may be required by law.
During this call, we may make reference to certain non-GAAP financial measures. We refer you to the Investors page of our website at audacyinc.com for reconciliations of such measures and other pro forma financial information.
I’ll now turn the call over to David Field. David?
Thanks, Rich. Welcome all to Audacy’s fourth quarter earnings call. Well, 2022 was certainly not the year we expected. We exited 2021 with strong revenue acceleration and got off to a great in 2022 with first quarter revenues up 14% and EBITDA up 152%. But as we are all painfully aware, macroeconomic and particularly advertising conditions began to deteriorate due primarily to the impact of the war in Ukraine inflation and the Fed.
And so, even though we were still able to grow our revenues by 3% for the year, our expenses were up 6%, kicking our 2022 EBITDA down to $138 million, a far cry from what we had anticipated. In the fourth quarter, our revenues were down 0.8% in-line with our flat-to-down low-single-digits guidance.
However, our expenses were elevated. Rich will elaborate on our costs, but I want to note that we anticipate that expenses will be up low-single-digits in first quarter and be below 2022 levels for the remainder of the year. In my comments this morning, I’d like to start with a brief overview of our position as we work to navigate the storm and drive our recovery.
The situation is challenging, but we are addressing it with eyes wide open and vigorously executing our action plan, taking a number of concrete measures and making headway. Before I share an update on our progress, I think it might be helpful to look beyond the number and add some broader context.
Over the past few years, we have made two strategically key decisions. First, to achieve scale through our acquisition of CBS Radio, tripling our size and establishing a strong differentiated premium content position with leading positions across the country’s largest markets and unrivaled leadership in sports and news radio. And second, to capitalize on our scale and transform into a true multi-platform audio company through a number of acquisitions, investments, and initiatives.
As a result, today we are one of the country’s leading podcasters with an emerging high potential audio streaming platform and building competitive ad tech and data capabilities, all essentially from scratch. At the time of these decisions, of course, we never expected to be hit with three hugely adverse extended events.
The global pandemic sustained supply chain disruption and now an adverse session along with difficult macroeconomic conditions. Enduring all three events, while in the midst of a comprehensive strategic transformation has been hard. All of that said, we have made good progress in our work to weather the storm and to position the company for recovery when macro conditions improve.
Earlier this month, we completed the sale of a set of towers for $17 million bringing our total non-strategic asset sales since the summer to $73 million, providing meaningful added liquidity. And we have a number of other non-strategic asset sales working their way forward.
In addition, we continue to take significant actions to reduce expenses and as a result, we expect our 2023 expenses to be flat to down slightly versus 2022 actual. We have made good progress in reducing costs, even though we now have significant expenses in a number of key areas of the business that were essentially non-existent before, such as podcasting ad tech and our audio streaming platform.
I would note that all of the expense actions we have taken have been carefully managed so that we continue to fund our transformational initiatives invest selectively in critical areas of the business, while ensuring that we are still serving our listeners and customers with excellence.
I would also add that we are cautiously encouraged by a number of green shoots as we work our way forward. We achieved record breaking performance with our annual local upfront sales program for 2023. This has helped our local business get off to a relatively good start for the year. Auto, our largest category continues to show positive signs of emergence from hibernation.
In Q4, our auto business was up 8%. We are having constructive conversations with our auto customers across the country that lead us to believe that we will likely see acceleration in auto spend as we work our way through the year. And since we’re launching the reinvented Audacy streaming platform in late summer, we have seen some early signs of progress in our organic consumption.
During fourth quarter, mobile app installs increased by 23% over the prior year and our monthly active audio users were up 11%, despite adding a registration wall in the app to drive our collection of first party data.
In addition, the fundamental metrics within our podcasting business remained solid with a 9% increase in Q4 downloads and a 15% increase in U.S. listeners. We reached 43 million unique listeners across our podcast network in fourth quarter, including 29 million in the U.S. We are driving, particularly strong growth across our 2,400 sports podcast studio, which launched 93 new titles in  [ph] and is currently generating over 7x the number of downloads versus prior year, albeit from a small base.
As we look ahead, the opportunities to capitalize on our key growth drivers as noted in our prior calls remain very much intact. Those drivers include our various digital businesses, our national enterprise sales team, and accelerated audience growth from our streaming audio platform. We also are making headway on building our ad tech and ad products to open important pools of demand and accelerate future performance by increasing our sell-through rates and improving yields.
In addition, as economic conditions ultimately normalize, we expect to see a meaningful degree of recovery of radio revenues, which remained substantially lower than pre-pandemic levels and note that roughly 90% of those revenues flow through to EBITDA. Some additional color on Q4. Spot radio revenues were down 4% with local narrowly outperforming national.
Network radio was up 4% and digital was up 2% or up 5% ex-podcasting. Podcasting was down 8%. Note that our podcasting numbers continue to be impacted by the departure of our largest podcast network publishing partner, which moved off of our platform in May. Excluding that partner, Q4 podcast revenues were up 14%. For the full-year, digital revenues were up 9%, podcasting up 1%, 19% excluding the departed partner.
One other note on the quarter is that large markets continue to outperform, sorry, underperform smaller market growth. Specifically, according to Miller Kaplan Market Data, radio revenues in our markets [26%] [ph] and over or smaller I should say were 6% stronger than in our top 25 markets. Note that this is total market revenue and not just Audacy. Since our company is significantly more concentrated in the largest markets relative to our peers, this continues to cause a meaningful relative performance issue for us.
Turning to pacings as reported by a host of other media companies, ad market conditions remain challenging, particularly with regard to national and network business. We are currently pacing down 5% and expect revenues to decline by mid-single digits for the quarter. A number of national advertisers remain sidelined or have dampened ad spending due to market uncertainty.
Notwithstanding the challenges we face as we confront ad market headwinds at a time of deep organizational transformation, we believe we are making solid progress in executing our action plans in order to emerge healthy on the other side of the storm.
I want to close by underlining three key points. First, Audacy has a strong and differentiated scaled competitive position in the dynamic and growing audio space. At a time when music is highly competitive, Audacy has unrivaled leadership in sports and news radio, plus a deep line-up of compelling local personalities and award winning podcasts along with many of the country’s most popular radio brands. We believe we are the number one creator of original premium audio content and think that will be a meaningful driver of the growth and development of our Audacy digital platform.
Second, over the past few years through our transformational acquisitions investments and initiatives, Audacy has been fundamentally enhanced and today is a much stronger multi-platform company with substantially elevated product and capabilities. We are working hard to capitalize on our unique assets and further enhance our offerings with a vision of making Audacy the audio brand of choice for listeners and customers.
And third, in these turbulent times, we recognize it is difficult for many to look beyond the current challenges. While we have much work in front of us, and are subject to external factors beyond our control, we believe the earnings potential for today’s enhanced Audacy in a normalized economy should exceed where we were in 2019. We have no shortage of growth drivers and opportunities across the business.
And as noted earlier, while we expect a significant improvement in radio revenues as the economy recovers and auto and other disruptive categories increase their spending, we can achieve a healthy EBITDA recovery at substantially lower levels of radio ad spend than before.
Finally, before turning it over to Rich, I want to thank the outstanding team at Audacy for their dedication and tenacity and all the great work they are doing to enable us to navigate the storm and capitalize on our opportunities. We are very fortunate to have such a talented group of individuals on the team. Rich?
Thanks, David. Our total net revenues for the fourth quarter came in at 342 million, down 1% year-over-year and down close to 4% ex-political. Our core spot revenues were down 8%. National spot continued to be somewhat weaker than local. Our political revenues for the fourth quarter came in at 13 million versus 4 million in the prior year and for the full-year our political revenues came in at 25 million and were up 19%, compared to the 2018 election cycle.
Looking at our top spot advertising categories, auto dealers, our largest category, was up 9% year-over-year in the fourth quarter and auto in total, including dealer associations, was up 8%. Our second largest category hospitals and clinics was down 10% for the quarter and our 12 get out and go categories were also down 10%. Banks and mortgage lenders, our third largest category, was down 6%, which was significantly better than the close to 40% this category was down year-over-year in the third quarter.
And our fourth largest category, sports betting was down 4%. Our digital revenues in the fourth quarter were up 2%. Our growth is still way down by the loss last year of our largest podcast network client and it will continue to be weighed down by this loss through the second quarter of this year. We also saw in the fourth quarter, a softening of demand for both streaming and podcast advertising. Our network advertising revenues remained resilient and were up 4% year-over-year in the fourth quarter and our sponsorship and event revenues were up 20%.
Turning to the outlook for our first quarter revenue performance. We project that our revenues will be down about mid-single digits for the full quarter. National spot advertising has weakened further relative to local. And our network advertising is now pacing down year-over-year. We also see continued softness in advertising demand for both streaming and podcasting.
Moving to our fourth quarter expense performance, our cash operating expenses came in at 305 million or up 9% year-over-year. Our expenses were $10 million greater than we expected, due to the accelerated recognition of deferred podcast content costs as a result of revenues falling short of our projections for a number of titles. This change in our accounting estimate also takes into consideration projected continued softness in the podcast advertising market versus our prior expectations.
During the course of 2022, the company enacted a series of actions to reduce its operating expenses and is in the process of implementing further actions during the first quarter. For 2023, we expect that these actions will fully offset the impact of inflation and the projected growth in our variable selling expenses and that our total operating expenses for this year will be flat to down slightly.
These expense reductions have come across our full P&L and we continue to work to innovate within our cost structure and to drive higher levels of productivity. This has and will continue to be an ongoing effort. And since we closed the CBS Radio merger 5 years ago, the company has steadily driven higher levels of productivity and these efforts have enabled us to reduce our full-time and our part-time workforce based on full-time equivalents by over one-third, while investing strongly in building our national sales team, our digital organization and our technology team among other organizational capabilities.
In the first quarter, we expect that our expenses will be up low single digits and that our expenses will be down year-over-year for the remainder of this year.
Turning to our financial position. As noted by David, in the midst of this difficult economic period, we have continued to make progress in bolstering our capacity to sustain compliance with our financial covenants and we have improved our liquidity, including by monetizing non-core assets, and by amending our receivables purchase agreement as announced in January.
Our compliance basis first lien net leverage was 3.8x at the end of December, compared to our maintenance covenant of 4x. Our liquidity was 145 million at year-end, up from 115 million at the end of September and after accounting for the maturity of 22.7 million or our revolver in November.
Our fourth quarter cash flow benefited from strong political revenues, $40 million of proceeds from the sale of land and property in Las Vegas in November, a significant reduction in our investment in working capital, which is the fruit of a collaborative effort by many people across our organization, and a two-thirds reduction in our capital expenditures, which came in at $8 million for the fourth quarter versus an average of $24 million per quarter, September year to date.
For 2023, we expect that our CapEx will come in at around $50 million or about 40% less than what we spent in 2022. And we expect that our cash income tax payments for this year will be less than $10 million. The company is continuing to work a pipeline of additional non-core asset sales, which are being executed via our unrestricted subsidiary, Audacy Atlas.
Audacy Atlas closed on the sale of a package of broadcast towers for $17 million, earlier this month and we expect to generate another $25 million or so of proceeds from asset sales over the remainder of this year, which will bring the cumulative total of such sales since last summer to close to $100 million.
On January 27, the company entered into an amendment of its receivable purchase agreement with DZ Bank. This amendment modify the annual financial statements provision regarding a [going concern] [ph] order report to [precent] [ph] such a qualification for 2022 if solely resulting from a potential breach of our first lien covenant under our revolving credit agreement. This amendment makes the receivable purchase agreement covenant consistent with the existing similar provision under our credit agreement.
In addition, the amendment reduced the minimum liquidity requirement from $75 million to $25 million. As a result of these actions and the further actions we plan to take, we continue to believe, assuming that the advertising environment does not get significantly worse that over the next 12 months that we should be able to sustain compliance with the requirements of our debt facilities and we believe that our liquidity ought to be sufficient to support our operations and a normal seasonal fluctuations in our working capital.
None of the company’s debt matures in 2023 and our upcoming 2024 maturities are all first lien. The company’s second lien bonds do not begin to mature until 4 years from now in 2027. Over the last several months, the company has conducted a process working in close consultation with our Board of Directors and our advisors to evaluate options to manage our liabilities.
Before the end of the second quarter, the company plans to approach its lenders to explore refinancing opportunities. Beyond this statement, we will not be providing any further details about our plans at this time.
With that, we’ll go to your questions. Operator?
Thank you. [Operator Instructions] Our first question comes from Aaron Watts with Deutsch Bank. Please proceed with your question.
Hi, guys. Thank you for having me on. I’ve got a few questions here. David, maybe I’ll start with this. Can you talk a bit more about the cadence of advertising momentum as you progress month-to-month so far this year? And what if any signs are there currently that give you optimism for a pickup later in the second quarter or in the second half of this year across whether it’s digital or your terrestrial station group? Thanks.
Yes. Thanks, Aaron. So, we know anecdotally across a wide swap of our customers that many advertisers remain cautious about the business, about business uncertainty and they all read the same headlines and all have the same concerns. And so, as reported by others as well, we think advertisers have tightened their purse strings as we get through this quarter. And believe that many of them are looking to increase their spending going forward as things improve.
Obviously, that’s speculative. We do know that this economic cycle doesn’t last forever, but we’ve been dealing with it now and we’ll start lapping against comps from it. As things slowdown in the second quarter of last year.
Okay. That’s helpful. Makes sense. And then, Rich, maybe a question on the margin side as you embark on this New Year and given the current backdrop, combined with the fact I know you’ve been refining your digital focus and your cost base, how should we think about your digital margins beyond this, sort of temporary dampening due to the accelerated podcast expenses?
Look, we look at our digital margins at the contribution margin level. And our digital business is quite profitable. Podcasting is clearly [laggard] [ph] at the moment. We’re making progress in podcasting. It’s been tough. We’ve learned a lot really, frankly since we acquired Cadence13 and the company is a lot smarter today about how we’re going to participate in the podcast space going forward. And where are there more fertile areas for growth and profitability.
David talked about 2,400 sports, a really natural place for us to grow our podcast presence. We are growing our local podcast portfolio also trying to create a daily habit of podcast consumption from our local podcast studios, very profitable, seeing very significant growth there. So, look, I think we’re a lot smarter today than we were several years ago and see a bright future in the growth of podcasting as essentially time [shifted consumption] [ph] of audio. And we see that time shifted consumption of audio people get what they want anytime, anywhere is a proposition that we think there’s a lot of headwind for growth.
Okay, helpful. And then one last one if I could, really a clarifier. On the acceleration of the podcast expenses that you saw in the fourth quarter and sounds like you’ll see in the first quarter as well. The drivers of that acceleration, the declining revenues in podcasting, is that something that – if the environment remains challenged, you could see happen again this year or do you think this is more of a one-time event?
Yes. So, let me clarify how you’re characterizing it. So first, what we’ve seen is a deceleration in the rate of growth. So, these titles are growing. They’re not growing as rapidly as our model has anticipated. So, we’re a content studio, we’re producing content and capitalizing those costs and amortizing those costs over the life of a given title. And so, the rate at which we recognize those costs is dependent upon future performance and we’re always updating our estimate of the recognition of those costs. And clearly, we’ve seen a slowdown in the growth of podcasting.
It’s not, it hasn’t turned down, it’s still growing. It’s just not growing as rapidly as we previously anticipated. And so, that’s caused us to recognize costs more rapidly than we thought. And I think what we’ve done is fairly conservative and I hope, Aaron that we won’t have to penalize P&L going forward because things turn down worse than we expect. I think we’ve tried to be conservative in that accounting judgment, but we continue to refine those estimates, of course, and account for any change in our estimates prospectively.
So, we’re focused on it like a [indiscernible] and you’re asking about the future. And maybe your crystal ball is pretty good, but it’s hard to know.
Let me just add one more thing to what Rich has said, and that is that we are seeing still great enthusiasm to expand podcast investment on behalf of brands that where we’re seeing little choppiness in the marketplace tends to be more on the DR side and largely driven by some of the performance shops DTC advertisers because funding for some of those companies has cut and cut back a little bit. So, it is somewhat driven by that and the overall tone and tenor of longer-term investment in podcasting remains very enthusiastic.
Okay. Appreciate the clarification and the time. Thanks.
Our next question is from Steve Cahall with Wells Fargo. Please proceed with your question.
Good morning. This is [indiscernible] on for Steve. Maybe just a follow-up on the margin. Can you help us unpack your cost guidance with a little more detail? You’ve taken a lot of fixed costs out of the business through COVID and announced additional cost actions. Could you just help us think through how those items flow to the base and where fixed versus variable cost splits currently?
Yes. So look, our variable cost in 2023 are expected to be about 27% of our total costs. And when you look at the composition of our revenues, particularly within digital, our digital marketing solutions business continues to grow strongly. I think you mentioned David, up over 20% in the fourth quarter. And we’re seeing growth in other product lines like podcasting that has cost of goods sold tied to it. So, those expenses are growing consistent with revenue and they’re a driver of expense growth.
We have continued to reduce other expenses from our facilities costs across the country to personnel costs, a whole host of items and there’s more to be done frankly. So, we have – our guidance today of flat-to-down low-single-digits or down slightly for the full-year is really what’s been being enacted right now. And we’re still at work. There’s more work to be done, to refine our cost, to drive higher levels of productivity over time. It’s an ongoing effort.
And so, I do think that again for the full-year, you’ll see that our total expenses will be flat-to-down slightly. And that includes after the impact of our variable expenses and after the impact of inflation.
That’s really helpful. Then maybe switching over to ad trends with the divergence between local and national that you’re seeing, how would you frame the potential risk of national being a leading indicator and local eventually seeing similar trends?
I hear the question. I don’t think we see any evidence of that. I think that, by and large, the sample size of the local advertising base is probably more indicative of the general tone and tenor of business today. And I also know that from our conversations with our national customers, again, there doesn’t seem to be so much a sense of long-term reduction. It tends to be more one of caution and restraint again more than a definitive long-term reduction in budgeting.
Got it. And then maybe last one for us. With your 50 million CapEx guidance, is there continued digital investment within that? And then how should we think about the maintenance capital needs of the business moving forward?
Yes. The digital [investments] [ph], the primary driver of our non-maintenance CapEx. Our maintenance CapEx is down to about $20-ish million. And look, there’s a lot of – so we launched our new platform in July of last year. There are new features and benefits that will roll-out over the course of the year that that platform will become increasingly interactive or increasing the level of personalization with some really interesting features coming that we think listeners are going to love and that’s an ongoing investment.
It’s kind of, you kind of think about it as a generational investment frankly. You think about our companies, you know over 50 years old and broadcast technology had served us so well for the last 50 years is still serving us well but, you know the future is going to be increasingly [what we believe] [ph] streaming, and we’re going to serve listeners anywhere they want to listen and they’re increasingly listening via streaming and we’re going to have an offering, we think that people are going to love.
Great. Thank you.
Our next question is from Avi Steiner with JPMorgan. Please proceed with your question.
Thank you. Just to go back to the podcasting expense acceleration very quickly, I guess, what happened timing wise from the November guide on the expense side, some specific event that triggered it? And then if I understand everything you’ve answered previously, that’s something that could reverse to the positive of growth accelerated on the podcast side? I just want to make sure I understand that? And I’ve got another one.
Yes. Avi, we’ve heard your question, but if you could – your voice is somewhat quiet. So, what evolved was the outlook for 2023, so as we really completed our planning process for 2023 and took stock of the trends we were seeing in podcast demand and just commentary from others about the expectations for the overall advertising market, we tempered our view for growth in podcasting in 2023. And that’s what drove the revised estimates in our accounting judgment for the recognition of deferred podcast costs. I hope I got your question? Did I miss anything?
I think that’s – I just want to know if it could possibly reverse? I think it was the end of my question. If you could touch on that.
Look, if the economy starts to pick up in the second half of this year, that likely means that our podcast margin is better than we were expecting. And so, I think that’s what you mean by reverse. It would – we recognize costs that based on our current expectations for revenue in 2023 and beyond, and if things turn up and are stronger than our model currently anticipates that will cause our podcast margin to expand.
And Avi, let me just add one more thing, which might be helpful on the whole podcasting front. The terms of most of these agreements tend to be a couple of years, so they tend to be relatively short. And secondly, and you’ve heard this from others, the market has become more rational. And the early gold rush or land rush that occurred over in prior years has dampened to some extent and now I’d say, there’s more balance in the marketplace and so the deals that we are cutting I think are more friendly for us and that also I think will, in order to the benefit of our margins going forward.
If I could add to that, David, because at least when I look at the composition of our podcast revenues, Avi, an increasing percentage of our revenues is tied to our own content, and we capitalize those costs and recognize the cost of a title that we produce internally our own proprietary content over the expected life of the title, like a film studio.
And so, it’s [closed] [ph] and we are working to increasingly increase the proportion of revenue for own proprietary content. And with a good mix of [great content] [ph] from other publishers, but long term view of that segment of audio is really quite robust.
Okay. Thank you for the clarification explanation. Just on that last comment about capitalization, does that mean some of those costs, I guess, are running in CapEx initially? Am I thinking about that correctly? And if not…
No, they’re classified elsewhere on our balance sheet [indiscernible] not CapEx. We just capitalized content costs.
Okay, perfect. Thank you. And then just on the unrestricted subsidiary Atlas, I don’t know if you can tell us what assets are there today or in any way frame the size, the opportunity of asset sales as you [Technical Difficulty] forward?
Yes. I think we’ve done that, right. So, the company did drop down a package of assets into our unrestricted subsidiary Audacy Atlas. We’ve sold over $70 million of property and towers through the end – well, through this month. And we gave guidance, Avi, that we expect by through the remainder of this year that we think will have another $25 million or so of added proceeds. And look, this is a measure to help us weather the storm. And work our way out of what’s been a difficult time. And that’s the goal. That’s our objective as we’ve said all along.
And just add one more thing to what Rich has already provided. Every sale that we’ve done to date and every sale that we plan is non-strategic in nature.
Okay. That is helpful. And then last one for me and thanks for the time. So, I guess borrowings are up at least on a principal basis and particularly about the 24 maturity and I…?
Hey, Avi, you broke up there. We didn’t…
We can’t hear your question.
All right. I’ll go back in the queue. Thank you.
Our next question is from Dan Day with B. Riley Securities. Please proceed with your question.
Yes. Good morning, guys. Appreciate you taking the question.
So, it looks like we’re past the heaviest piece of the investment on the digital side in this transformation both CapEx and OpEx. Just any guidance on and it might be tough to say just with the uncertainty around ad spend, the macro and all that. Just when do you expect that to start resulting in some incremental revenue and like what buckets that would be, whether it’s on ad tech initially or just how you expect initially these digital investments to result in an upward in revenue and the timeline for that? Thanks.
So, you can classify it, I think, into a few different buckets. There’s the acceleration that we expect to see in terms of audience size and usage on the digital audio platform. That we have reinvented and are in process of continuing to roll-out. There is increasing demand that we would demand pools that we currently can’t access such as programmatic guaranteed revenues, which are becoming increasingly important.
And to that end, we are building ad tech and ad products. And then in addition to that, there’s also just enhanced revenue operations and being more effective in driving multi-platform business across the organization. I think you’re going to see those accelerating as we get into the second half of the year and really feeling a much bigger bump in 2024 and beyond.
Yes, thanks for that. One more for me. I know like over the last year or two you had, sort of a concerted effort to bring in some individuals with stronger relationships with national advertisers trying to win some of those dollars back to Audacy, obviously, the macro is tough, but if we put that to the side, just any update on how those efforts are progressing specifically with, kind of stronger ties to the national advertisers?
That’s a great question. We are, I think objectively making great progress in that regard. We are, at this point, a preferred partner or engaging brands at a much higher level and agencies at a much higher level than in the past. And we are – and we have expectations of significantly higher revenues from several of those large agencies based upon our dealings.
I would say that and you touched on your own answer, Dan, the current significant slowdown in national and network advertising has dampened the pace or let’s say the curve of which we are capitalizing on that opportunity.
So, that’s a long way of saying, I think the strategy is sound. The company’s scale and differentiated assets and capabilities put us in a position to capitalize on that strategy, but we’re running into some pretty stiff national headwinds that have delayed the impact of that of the rewards from that strategy for the time being, but we do fully expect them as we go forward.
Understood. Sorry. [Indiscernible] No. Okay. Just one more for me. Maybe if you could just unpack auto a little bit more? You talked about it a little bit in the prepared remarks. I know it’s a larger category for you. So, maybe just what you’re expecting there? You had said, I think it was, I don’t know 40% or 50% down relative to 2019 in the past. Just wondering if you could update us on where those dollar figures are at now?
Sure. So, your memory is good, but a little exaggerated. I think we’ve said it’s down 40% from where it was in 2019. As we noted in Q4, the digital radio expense – digital radio revenues were up – sorry, our radio revenues from auto were up 8% and we’re continuing to see growth in 2023, both in terms of radio and in terms of digital spending from those customers as well.
And as you might imagine, we have a pretty broad set of relationships with the Tier 1, 2 and 3 players in the auto space. And based on those conversations and the improvement in supply chain and the realities of the car market, today as opposed to where it has been over the last couple of years, we remain optimistic that we will see acceleration in auto spend in the second half of 2023 and beyond, again based upon what we’re hearing.
Okay, great. Appreciate the time, guys.
Thank you, Dan.
Our final question from Craig Huber with Huber Research Partners. Please proceed with your question.
Great. Thank you. I got a few questions. Can you maybe just touch on a little bit further about your ad trends by month or maybe January versus March? Is March materially worse? I think you signaled that pacings for the first quarter were tracking down about 5% or so? My first question.
Yes, I would say January was better than February and March is probably likely to fall somewhere in the middle at this point in time.
Okay. And then on the cost front, you guys have obviously done a Herculean job taking out cost here this last three years, given all the macro issues you and others have had to deal with here and stuff. And obviously, you’re talking about cost this year, flat to slightly down and stuff. Obviously, inflation working against you and stuff. Do you feel if the environment gets worse than you’re looking for here that you have any room without doing permanent damage to the business being able to take out more cost than that if things short-term get worse on the revenue front?
Let me tackle that at a high level, Craig, and then Rich may have some additional comments. So, our P&L, our margins are still saddled with the fact that there’s sort of three components going on there that I think are hurting us. One is the fact that we have a number of sports play by play agreements that are margin killers. And we, for example, elected not to renew the Chicago Bears play by play agreement this year, which will save us bottom line $2 million, $3 million, which I think you’ll see us continue to be really disciplined going forward on some of those contracts.
In addition, as we’ve discussed on this call and others, we are spending a lot of money to transform the company and navigate the storm, but at the same time invest in where we think it’s critical for us to be strategically, and as we are rewarded for those investments, that too will see margin improvement. And to some extent, we have some belt and suspenders elements in our operations where we are building our future, but at the same time, funding how we’ve done things historically.
And so, that has also obviously impacted costs. And so, we do think that as our new technologies take hold, it will alleviate some of those costs. And lastly, I think, I mentioned earlier that our market composition continues to hurt us in the sense that the markets where we’re focused on are growing 6% slower than the smaller and middle sized markets and that too, given the operating leverage in this business, absolutely is a margin killer.
So, I think all of those factors point to stronger margins ahead and the opportunities to reduce expenses as we continue on our product – our ad product roadmap and continue to work through some of these opportunities. Rich, I don’t know if you want to add to that?
Okay. My next question, ratings of your traditional radio. Can you just update us on the data you have on ratings, your traditional radio and maybe compare that to the digital side of things if you would for the latest period?
Our ratings I would say have been – the general trend over the last few months have been good. I think we’ve ticked up slightly vis à vis some of our peers. The other thing that is a consideration for us is that we – and I don’t want to go into the rabbit hole here, but we have a number of our radio stations where we are still bifurcating our ratings and digitally – having digitally addressable as opposed to total line reporting and that I think has also been a factor in our numbers, but all of that said, the general trend has been good vis à vis our overall ratings.
And I guess my last question, what is your – you’ve touched on this a little bit, but what is your take on why your national advertising is significantly worse than local and just a little bit further about why you don’t think your local advertisers are going to catch up on the downside versus what national is? We’re all working obviously in the same economy here and so forth, what’s your take there please?
Well, I don’t think – I would say that what we’re experiencing is consistent with what we’ve heard from peers in radio and also outside. I think it’s a phenomenon that is more global and certainly not unique to Audacy. As to why, I think that our local customers are, sort of more focused on what’s actually going in their day-to-day businesses whereas national brands tend to be a little more removed from the day-to-day of the business. And so, if anything, I would think that local would may be a better barometer of actual business conditions than national.
Okay. That’s it. Thank you very much.
Thank you, Craig.
We have reached the end of the question-and-answer session. I would now like to turn the call back to David Field for closing comments.
Thank you everyone for attending today’s call. We look forward to reporting back to you for our first quarter call this coming May. Appreciate it.
This concludes today’s conference. You may disconnect your lines at this time and we thank you for your participation.