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Good morning, and welcome to Audacy's First Quarter 2021 Earnings Release Conference Call. [Operator Instructions] This conference is being recorded.
I would like to introduce your first speaker for today's call, Mr. Richard Schmaeling, CFO and Executive Vice President. Sir, you may begin.
Thank you, Stacy, and good morning, everyone. This call is being recorded. 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 to differ materially are described in the Risk Factors section of the company's annual report on Form 10-K. As such, risks 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 will make new -- make reference to certain non-GAAP financials. 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, President and CEO of Audacy.
Thank you, Rich, and thanks, everybody, for joining Audacy's first quarter earnings call and our first call since we rebranded the company at the end of March.
On our last earnings call, we spoke of how we committed ourselves to not just navigating the pandemic effectively but to accelerating our transformation and emerging from the pandemic as a meaningfully stronger and better-positioned company with significantly enhanced growth potential. We are achieving that goal and have made excellent forward progress on a number of fronts during the quarter.
Highlights from this quarter include our highly successful rebranding of the company to Audacy, the acquisition of Podcorn, the country's #1 podcast influencer marketplace, the announcement of our new multiyear partnership with BetMGM and strong progress in our growth initiatives across our multiple platforms.
Rebranding the company as Audacy is a reflection of the deep and fundamental change that has already occurred across the organization as well as a sign of where we are headed. Audacy today is a very different company than before, and we needed a holistic brand that works for all of our audiences, both B2B and B2C and captures the full expanded breadth of all that we now do. We have been purposely transforming the organization into a leading multi-platform audio content and entertainment company with scaled audience reach and an important leadership position across the full spectrum of the dynamic and growing audio market including broadcasting, podcasting, digital, network, events, music, news and sports.
The acquisitions of C13, Pineapple Street Studios, the QL Gaming Group and Podcorn, as well as the significant investments we are making across various growth initiatives on our radio, digital, podcasting and sports betting platforms are fundamentally changing how we serve our listeners and customers and enhancing the growth profile of the company. We are in the midst of a strong, albeit uneven advertising recovery, reflecting the nature of our business mix. First quarter digital revenues grew 17% and national revenues rebounded to prior year levels. But local ad revenues remain well behind as many of our customers continue to be deeply impacted by the pandemic.
I noted on our prior call that a large portion of radio advertising is used to drive foot traffic and activate local audiences to go places and do things. In reviewing various customer segments for the first quarter, it is clear how this has affected our business. Several of our advertiser categories were severely down, including restaurants, retail, travel, concerts and entertainment, sporting events, movies, theater, recruitment, transportation and theme parks. On the other hand, less impacted categories performed well, including financial services, insurance, grocery, home improvement and lawn and garden.
Because the local radio advertiser base is significantly weighted toward later stage recovery categories, we anticipate a strong recovery of local advertising across those businesses will occur during the third and fourth quarters. In a positive sign of recovery, our average local customer spending is now exceeding average 2019 levels. Total local ad spending is down because of a decline in the number of customers with a substantial majority of those inactive accounts concentrated in the later stage recovery business categories.
In addition, smaller markets performed better than larger markets during the quarter, which hit us particularly hard due to our high concentration in the country's largest markets, which substantially exceeds our peers. Our events business was completely shut down during the quarter, while political spending was negligible. Events and political ad spending combined for 5% of last year's Q1 revenues. Based upon the improving state of the pandemic, we now expect to see a partial return of the events business later this year.
National radio spot revenues continue to improve. We gained revenue share in national revenues during the quarter, reflecting the numerous customer-focused improvements we have made across our national sales organization to capitalize on our scale and expanding capabilities. We believe we are well-positioned to grow our national revenues in the future as our client development initiatives continue to take hold.
Turning to our Digital business. Very strong growth in streaming audio and digital marketing solutions were somewhat offset by weaker results in podcasting, which was soft due to a significant reduction in our Q1 product offerings. We parted ways with Pushkin Industries, our second largest podcasting relationship, at the beginning of first quarter, which had a meaningful impact on our quarterly results. In addition, while we have an aggressive podcast show development calendar for 2021, we had a fairly light first quarter slate. We expect to see significant acceleration in our podcasting business in Q2 and the second half as our expanding pipeline of scheduled new product releases and partnerships kick in. I'll share some additional color on that as it was a very active quarter for our podcast studios from a business development standpoint.
Our Cadence13 studios entered into an exclusive podcast partnership with global superstar Demi Lovato, the renowned singer, actress and activist. We also expanded our partnership with Pulitzer Prize-winning historian and author Jon Meacham to launch Shining City Audio, a history-focused podcast studio co-venture. One of our newest releases, We Can Do Hard Things with Glennon Doyle, debuted at #1 on the Apple charts this week where it sits as of this morning.
C13Features, Cadence's pioneering scripted studio, unveiled its first 3 feature-length movies for your ears slated to launch within the next year with more to follows. C13 is working closely with endeavor content on its initial C13 feature slate leveraging their relationships and working jointly to develop film and television projects based on the IP.
Our Pineapple Street Studios launched 2 original docu-series, My Fugitive and Stay Away from Matthew MaGill, with exclusive binge windows on Audacy and also created the new hit original docu-series Welcome to Your Fantasy. We will also be launching new projects with HBO and Netflix this quarter, and we announced a distribution partnership with The Rich Eisen Show and lots more to come.
Our underlying digital metrics reflect strong fundamentals across all of our digital businesses. Digital streaming monthly average users and total listening hours on smart speakers and connected TVs were all up solid double digits again this quarter. We also achieved strong double-digit growth in streaming RPM or revenue per 1,000 listening hours. And we posted solid double-digit growth in our app installs in the period since our rebranding.
Finally, notwithstanding the impact of the lighter product offerings, the core fundamentals of our podcasting business performed well with double-digit RPM growth. All in our digital business, representing our combined digital audio, podcasting and digital marketing solutions businesses accounted for 21% of first quarter revenues versus 10% in 2019. And as we turn to second quarter, we expect our digital business growth rate to more than double our first quarter growth rate.
As I mentioned earlier, in March, we announced and completed the acquisition of Podcorn, the country's #1 podcast influencer marketplace. Podcorn enables brands to find and collaborate with the most relevant podcasters to create native advertising and branded content at scale. Podcorn drives higher ROI for brands and enhances how podcast creators monetize their content. The company solves the problem of how brands of all sizes tap into the hard-to-access micro-influencer community. The acquisition greatly expands Audacy's product offering for advertisers and builds on our position as one of the country's 3 largest podcast publishers and the #1 creator of original premium audio content.
Podcorn's marketplace now includes over 44,000 creators, representing 47% growth since the start of the year. While the business is currently small, it is experiencing outstanding growth, and we have high expectations for its performance and strategic impact in the future. There were also a number of important developments across our radio business during the quarter. We continue to drive innovation, taking steps to enhance our market-leading news brands with expanded digital offerings.
We also continue to bolster the quality of our local sales capabilities and establish deeper cross-platform integration across our radio broadcasting, podcasting, digital and sports betting platforms. Notably, Nielsen reported that aggregate broadcast radio ratings jumped 8% in March versus February. This appears to be a reflection of an accelerated normalization of behavioral patterns as vaccinations become increasingly prevalent across the population.
Turning to sports betting. We delivered very strong growth on our BetQL platform in both active subscribers and affiliate fees. As a reminder, BetQL is a rapidly emerging sports betting data and predictive analytics platform generating value-creating insights for sports betters. We are making solid progress in enhancing the platform with expanded content offerings and enhanced content integration across our other platforms.
While the business is still fairly negligible to our overall size, we are very excited about where we are headed, particularly in light of the powerful complementary opportunities we have across our unrivaled number one sports radio business. Also in March, we announced a multiyear partnership with BetMGM, one of the country's leading sports books. We had previously announced in Q4 the landmark multiyear partnership with FanDuel, which is the single largest ad deal in the history of the radio industry. We continue to expect sports betting to grow to a $100 million category for Audacy over the next few years more than tripling our 2021 levels.
It is truly an exciting time at Audacy. We achieved a number of important strategic enhancements during the quarter, including our rebranding, the acquisition of Podcorn and the new partnership with BetMGM. Through our targeted acquisitions as well as the significant investments we are making across the business, we are positioning ourselves to compete effectively in these rapidly growing areas while at the same time fully participating in the recovery of local advertising as some of the mothballed segments of our economy reopened in the months ahead.
Our competitive offerings are differentiated by the premium nature of our exclusive content. And our unique combination of news, sports, music, podcasting and local gives us a powerful position to compete for an increasing share of digital listenership across our digital platforms. We have announced our business -- sorry, we have enhanced our business model meaningfully by significantly reducing expenses, while at the same time improving how we serve listeners and customers and enhancing our national sales organization to capitalize on our significant revenue development opportunities. We are emerging from the pandemic as a meaningfully stronger and better-positioned company with enhanced growth potential and are committed to an exciting strategic road map that will continue to unlock new growth opportunities in the months and years ahead.
In closing, I'm pleased to note that our second quarter pacings are up more than 60% over 2020, reflecting big improvements across all segments of our business from the depressed levels of the prior year. And while our local results remain hampered by the high concentration of local radio advertisers in later stage recovery categories, we are looking forward to a strong recovery from those customers in the months ahead.
And with that, I'll turn it over to Rich.
Thanks, David. For the first quarter, our total net revenues were down 19% year-over-year, driven largely by spot advertising revenues, which were down 24%. In addition, our Events business with pre-COVID made up about 3% of our first quarter revenues, continued to be significantly disrupted and for the quarter were down 98% year-over-year. After a slow start owing to peak of COVID cases in January, our spot revenues improved each month during the first quarter. And as David mentioned, our national revenues came in flat versus prior year.
Local spot continues to be significantly disrupted. Many of our largest markets, which account for the majority of our local revenues, like New York,
L.A. and Chicago remain locked down through the end of the first quarter. And these cities have only started to meaningfully ease restrictions over the last several weeks.
From an advertising category perspective, our top category, auto dealers, is still fairly disrupted due to new car supply shortages and COVID restrictions. Other key categories that require people to get out and go somewhere and amongst other people, like concerts, sporting events, amusement parks, and casual dine-in also remain depressed. In the first quarter, active local advertising was down more than 1/3 from pre-pandemic levels. And those that were active spent more on average than prior to the pandemic, which we'll take as a good sign for the future.
Our markets are starting to report increased levels of sales activity and growing optimism. We remain confident that as life gets back to normal and local businesses fully reopened, they will see local spot advertising revenues rebound during the second half of this year. Our digital revenues for the first quarter were up 17% year-over-year, driven significantly by streaming and marketing services and accounted for 21% of our total net revenue.
For the second quarter, based on our current pacing, we project that our total net revenues will come in between $300 million and $310 million or up 71% to 76% year-over-year. Our total operating expenses for the first quarter came in at $248.9 million. And excluding onetime in unusual costs of adjusting out noncash items like D&A, our total cash operating expenses came in at $230.5 million or down $32 million or 12% versus prior year.
Looking at the second quarter, we expect that our total cash operating expenses will be up about 1/2 the rate of our year-over-year revenue growth. For the first half of this year, we expect that our cash operating expenses will be down versus our 2019 pro forma expenses for our pre-COVID expenses by over $85 million. And for the full year, we now expect our total cash operating expenses, fixed plus variable to be down $140 million or more versus 2019 pro forma of $1.19 billion.
Turning to our financial position and liquidity. In March, we invested $14.6 million to acquire Podcorn, the country's #1 podcast influencer's marketplace. This platform enables brands to connect with podcast creators for native advertising opportunities at scale. The consideration for this acquisition also included a performance-based earn-out over the next 3 years. In March, we also issued $540 million of 6.75% senior secured second-lien notes and used the proceeds to retire our 7.25% senior unsecured notes and to pay down about $117 million of our first-lien debt. This transaction refinanced 40% of our scheduled 2024 maturities and increased our liquidity by about $30 million.
At the end of the quarter, our liquidity was $221 million, up from $160 million at the end of last year and was comprised of $169 million available under our revolver and $52 million of cash on hand. Our net capital expenditures for the quarter totaled $7.3 million and are tracking at the low end of our full year guidance range of $70 million to $75 million.
With that, we'll now go to your questions. Operator?
[Operator Instructions] Our first question comes from Aaron Watts with Deutsche Bank.
Appreciate all the color and encouraged to hear that it seems like you're turning the corner on advertising. David, I'm just curious, as you sit today, do you view it as a matter of kind of when, not if you get back to pre-pandemic, either revenue or EBITDA levels? And if it is when, a matter of time, any sense for when you might cross that kind of threshold and get us back above those prior levels?
Yes. Thanks, Aaron. We spend a lot of time thinking about it, and we evaluate a lot of information that we have to access. As I mentioned, we're looking at, as Rich mentioned, an increase in revenues of 70-plus percent in second quarter coming off of that very rough second quarter of last year, and we expect to see further recovery as we go through the year. We see no reason why we shouldn't be back to 2019 EBITDA levels in 2022. And that's our best thinking as of this point in time.
Okay. That is helpful. And then kind of secondly, on the digital side, maybe specifically with podcasting, you made some early moves into the space. You've continued to bolster your assets there, are you happy with kind of your mix in terms of like publishing versus distribution? And are there any areas there that you'd -- you think there's opportunity to continue to grow, whether that's organically or inorganically?
We feel great about the progress we've made in establishing a digital business pretty quickly and having to catch up to some others that have been ahead of us by a few years, both inside and outside of our space, right? I think that we've created a podcast studio between C13 and Pineapple Street that stands tall with anybody and everybody in terms of their reputation, the quality of work we're doing, the quality of partners and the pipeline that we are building. So we feel terrific about that.
On the distribution side, I think you're going to see us continue to take the Audacy app and build it further and enhance that consumer experience and make it into an even more robust player, which we think is an essential part of the world we live in today. And that was part of the motivation for the rebranding, was to give it a new patina that we think will be compelling to all audiences going forward. So we're excited about that.
The addition of Podcorn is a really terrific enhancement as well because we have differentiated ourselves by the quality of premium content that we have on our radio stations, with our news and our sports and a lot of our great personalities and the high caliber, the intelligent caliber of the influencers across our network. And so to be able to extend the platform into sort of the mid and longer tail of influencers and have now over 44,000 there, we think that creates lots of opportunities for us going forward to serve our advertisers in ways that are really important and previously a problem in the marketplace to solve. And all that said, we're still hard at work, and we're still looking for opportunities to embellish and enhance our offering for listeners and customers, and we're excited about how we're positioned going forward.
Okay. Great. If I could squeeze 1 last question in, maybe for Rich, and I apologize if I missed this earlier in your comments, but putting my credit hat on, as I think about your leverage, obviously, that will recover as EBITDA recovers, David and you just talked about that. But how should we think about your ability and focus on bringing down the leverage? And where would you like to see that live maybe 1, 2, 3 years out? And that's it for me.
Yes. So look, right, we're focused first things first on reducing our total leverage and our first-lien leverage. We do expect to be comfortably compliant with our first-lien covenant at the end of this year, and that's a 4x covenant. And longer term, we're targeting to be inside 4x total net leverage. So I think a little bit, but we see a path to get there in a couple of years time.
[Operator Instructions] Our next question comes from Steven Cahall with Wells Fargo.
Steven, you maybe muted.
Sorry about that. So apologies, I joined a little late. And apologies if you already answered this. I think digital decelerated a little bit sequentially. Just wondering if you could speak to some color there. Is that timing of sports? Is that timing of new podcast deliveries? And any sense if you could give us maybe as to what the podcast growth was in the quarter and the non-podcast digital might be helpful.
So you did miss some comments on that, and we talked about the fact that our streaming audio and our digital marketing solutions businesses performed really well. And in fact, ahead of our fourth quarter digital overall growth rate. We got held back by softness in podcasting, which was really about the parting ways with Pushkin, our second largest partner as well as the -- a slower podcast slate or a reduced slate of offerings in the first quarter. And we talked about how in second quarter and beyond we have an accelerating schedule of new releases and partners and so forth. So we feel good about our podcast business, and we feel good about our digital business, recognizing that in first quarter, we were held back by the softness in podcasting for the reasons I mentioned.
And then we also said, Steven, we expect our second quarter digital growth rate to be more than 2x our first quarter growth rate.
Great. That's helpful. And then maybe either for Rich or JD. Just wondering if you could talk about the line of sight that you get on content from Podcorn. That sounds like a pretty interesting area of influencer opportunity. So as we just think through the podcast ecosystem, what benefits do you feel like you'll get from that acquisition that maybe you didn't have before? And the Pushkin example is an interesting one. Do you feel like you can sort of lock into this content a little better with the Podcorn acquisition?
Well, you don't have JD on the call. So you're stuck with me. I guess what I would say is that the Pushkin was our lowest margin partner. And we do feel that it is a robust marketplace. We have a very active engine of original products that we are building. We have a great slate of new partners and new products that we discussed on the call and a bunch that we haven't mentioned or that we haven't announced yet.
So we feel good about that. And yes, there'll be a little bit of movement in the marketplace, as we've already seen and will continue to see as some of the creators jump from 1 partner to another.
As far as the strategic importance of Podcorn, again, I think that it has great value as we integrated into our business to create a differentiated and important opportunity for brands to connect with influencers -- with micro-influencers who are providing terrific ROI, but where the marketplace requires a technical solution, which these -- which Podcorn delivers. Before this solution, there really was no way to do native advertising at scale across 44,000 and growing participants. So we think it's really important for that for our customer offering in the marketplace and will be an important part of our growth going forward.
And then last one for me. I know you all have been maniacal on costs, and the business is a little different today than it was in 2019, more digital, more sports betting. So as we think about sort of getting back to '19 level run rate of EBITDA, what else do you think we need to kind of get through? Or do you feel like that we're on pace to get there sometime this calendar year on a run rate basis given the cost efforts that you've made?
Yes. Look, I'll repeat what David said earlier that our best guess is that we're going to get back to 2019 EBITDA levels in 2022. That's what it looks like to us now. We do see a pretty significant rebound in local in the second half. We're seeing increased sales activity now. So there's good signs, and we think that's a pretty reasonably possible scenario. In addition, Steve, you might not have heard that we also said that we now expect our full year total operating cost -- cash operating costs, fixed plus variable, to be $140 million or more less than 2019 pro forma. Not all of that is permanent. Most of it's permanent. Over $100 million of it is permanent. And we'll provide more specificity about that later this year. But the company continues to work on additional efforts to improve our productivity to work these type of costs. So I do expect more good news in that front over time.
Next question comes from Avi Steiner with JPMorgan.
So a couple of questions here. One, and I apologize if some of this may be repetitive, but how do we think about the flow-through of margins as revenue recovers and your mix of broadcast versus digital changes?
Yes. Look, it's -- the digital business on a marginal basis is as profitable as broadcast. And I'll say more the legacy business or the business ex-podcasting. Podcasting right now for us is a single-digit operating margin. We're making progress, and we do expect over time to get that margin up into the low 20s, but it's an effort to reshape the content mix. It's an effort to do a number of things. It's going to take a little time. But the rest of the business, the streaming business, the marketing services business, the marginal flow-through rate is low to mid-20s. The broadcast business, still, if you look at the spot revenues as they recover, the flow-through on that mid- to upper 80s. So when we look at the back half of the year, if the spot does accelerate, as we hope and believe, we should see our EBITDA margin start to recover and expand back to more like it looked like in 2019.
That's very helpful. And then just on the acquisition front, you've been fairly acquisitive, albeit small tuck-ins as I'd characterize them. As you look at kind of your core competency set and where you've been focused, are there any interests -- areas of further interest of either expansion or bolstering what you have? And how should we think about that going forward?
Look, I think that we had a strategic need to be in the podcast space. And when you look at the price points that we've paid to enter that space and become a formidable player in it, it really is a fraction of what some of the others in the space have paid. And we have been able to be strategic, while at the same time, I think, very disciplined in that. It's also worth noting that the headline on the action network having been sold for, I want to say, $240 million, give or take, our recent purchase of QL Gaming Group, which is smaller and at an earlier stage, but acquired at approximately $30 million.
And we think with a path to get pretty darn valuable here going forward as that gets built. So we feel really good about our track record and what we've been able to do and create value while minimizing the impact on our balance sheet. And I think that we'll continue to be prudent and disciplined. We're very mindful of our balance sheet and the importance of getting our leverage down quickly here as we see recovery. So we will be very selective. But we will keep our eyes open if we see anything that we think is really value-creating for our shareholders and smart for us.
That's great. And maybe 1 last 1 at kind of a high level, if I could. How should we think about CPMs? Or how do you see CPMs evolving as maybe more listenership happens on smart speakers, et cetera, where you've got better targeting capabilities and can deliver more to advertisers?
I'm sorry, you broke up. Can you repeat the question, please?
I'm just curious how you see -- go ahead.
Yes, I'll take it, David. We're seeing a very significant increase now, Avi, in our RPMs. So as we've seen increased demand, we're streaming inventory as that increasingly becomes an important part of marketers' arsenal. We're seeing those CPMs increase quite significantly. And so we're optimistic about continuing growth in our CPMs in both streaming and in podcasting. And we're -- and we also expect as demand recovers our CPMs in the broadcast space increase also. So the outlook on that front is quite good.
I guess, is it fair to say that CPMs should be better than broadcast on a relative basis longer-term as the industry moves more towards targeting?
Looks that way. That's -- there's obviously local CPMs of broadcast can be quite high. But when we look at it on an average, we do think that the digital CPMs will eclipse the broadcast CPMs.
I agree with that with the 1 caveat that one of the things that makes the broadcast radio so valuable is the power of the influencer and the endorsements. And I do think that also justifies premium CPMs that we will continue to garner in the future.
[Operator Instructions] Our next question comes from Dan Day with B. Riley.
I just wanted to ask a couple about the rebranded Audacy app. Just first, any specific metrics you guys are looking at sort of over the course of the year that maybe you think to find success for the app, whether it's monthly active users, et cetera, et cetera. And then it seems like you're kind of putting some content exclusively on the Audacy app, I guess, to kind of drive engagement there and drive downloads. Just I guess, talk about the balance between continuing to put content exclusively on that app to get people download it versus -- obviously people want as wider reach as possible with their podcast. So just that and anything else you think is important with the new Audacy app.
Sure. Thanks, Dan. Well, look, we are putting a lot of energy into the road map. And I think you're going to see us continue to capitalize on our differentiated content slate. And a great example, what you've cited is our first effort at the exclusive content window. And it's important to recognize that what we're doing there is allowing for a binge window. So these 8-episode-or-so series are being rolled out on other platforms on a weekly basis. But for those hungry for the next episode, the only way they can binge it is on our platform. And I think you're going to see us doing similar types of innovative product rollouts to drive further adoption of the platform as we continue to incorporate other compelling features and continue to add more great content.
The Audacy app has been a -- the fastest-growing digital audio app in the country for the last couple of years. But we recognize it's much smaller than some of the peers. And yet when you look at the content that we offer and you look at the bully pulpit of our broadcast radio group, particularly in spoken word, we think there is an opportunity for us to really accelerate that growth and make it into a really nice value driver for the company going forward. And you'll see more announcements on that as we go through the year.
Awesome. Just any thoughts on some sort of paid music streaming offering like a Spotify or what iheartmedia has in there. And then Apple and Spotify and both obviously said that they're going to roll out options to allow creators to monetize their podcast via subscription. So any thoughts on throwing that in there as well?
Look, you would expect us to look at everything and anything, and we think it's just an exciting time to be in this hot space. And as they explore new business models to enhance value, we'll continue to work hard to accelerate our growth. And if we see opportunities there to augment our model in ways which work for listeners and shareholders that would be great. But right now, we've got work in front of us, and we'll see everything plays out.
Cool, just 1 more for me. Any difference in the rebound between sports versus news versus the music stations, just particularly interested in sports with the sports betting headwind -- tailwinds there. So just anything you could point to would be great.
Sure. Insofar as sports-specific revenues are concerned, meaning sports betting, no question, there has been a disproportionate impact on our sports stations and our sports content, pretty much limited, though, to the states where mobile gaming has been legalized, obviously. And we'll see that evolve over time. I think our news and sports stations more broadly have done a little better than music. But I think the broader point here is it's less about the format than about the customer base. And so if a local customer is still in hibernation mode or not ready to get back on the air, that's going to affect all of our stations. And that's why you see sort of a more -- a broader slowness in local advertising across all platforms.
[Operator Instructions] Our next question comes from Craig Huber with Huber Research.
I apologize if you've covered some of this. I was on another conference call at the same time. Can you just explain, if you would, your network advertising, why it was down so much? Obviously, it was very strong year-over-year in the fourth quarter, middle of pandemic. But what happened in the first quarter? What changed the marketplace from your vantage point?
Yes, the biggest driver for us was we reduced the amount of inventory that we work with one of our industry partners. And that was the biggest driver as we recovered that inventory. And I think going forward, you'll continue to see us do well in the network space, as we concentrate to a greater extent on our own Audacy audio networks.
So you pulled it back to your own sales force, you're saying, that inventory and then you're going to try and sell it yourself. But you might not necessarily sell it on network or what are you suggesting? I mean, what should we expect for the rest of the year, I guess, what I'm asking for that line.
Right. I think that remains fluid, and we'll continue to allocate inventory across our local sales force, our national content -- our national partnership team and our own networks as we see fits best given demand patterns and how things evolve going forward. So that's not locked in stone. But what is important is that we see an opportunity, I think it's in our best strategic interest to have more control of our inventory than we have in the past.
And then on your spot advertising, if I could, was there a material difference in the year-over-year percent change for local versus national?
Yes. We did touch on that in the remarks. Our national business actually got back to last year's level. Local was significantly down for reasons discussed.
Okay. I appreciate that. And then, Richard, curious if you could answer this. How much net debt are you expecting to be able to pay down this year, assuming you guys don't do any further small acquisitions, just to kind of cut to the chase here than the story?
It does about less than $100 million to more than $75 million, like in that range.
Okay. That's helpful. What percent of your ad revenue is sports betting right now?
Yes, we said previously that we expect sports betting revenues this year to be about $30 million to $33 million. So it's a small percentage of our total revenue today, but growing. We expect it to be up 50% or more versus last year. Then I think you know, Craig, that our outlook is we expect it to be a 9-digit category for us in a couple of years.
And my last question, guys, on the cost front, what is your latest thoughts on the rebound of your cost that you're expecting going forward, assuming the virus keeps getting hopefully better here? And so how much -- what do you think the costs will end up settling at versus your pro forma cost number for, say, 2019?
Yes. So what we said is we updated our outlook for this year, Craig, that we think our costs will be down versus 2019 pro forma by $140 million or more. And then with regard to the outlook, I mean, more than $100 million of that is covenant, and we'll give bigger guidance about 2022 and beyond later this year.
Thank you. I would like to turn the floor over to management for closing remarks.
Great. Well, thanks, everybody, for joining us today, and we very much look forward to reporting back to you all next quarter. Take care now.
This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.