Q4 2019 Earnings Call
Ladies and gentlemen, difficile, Peter today's conference calls scheduled to begin momentarily until that time your life, we're gonna be like some musical to think if your patient.
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Ladies and gentlemen, thank you for standing by and welcome to the Iheartmedia Inc. fourth quarter earnings Conference call. At this time, all participants are gonna listen only mode. After the speakers presentation, there will be a question and answer session.
Last question during the session you'll need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Karim Chip head of Investor Relations. Please go ahead.
Good afternoon, everyone. Thank you for taking the time to join US on our fourth quarter 2019 earnings call.
Joining me for today's discussion, Bob Pittman, or chairman and CEO and rich Bressler, President COO and CFO. Please note that in addition to our press release, we'd have an accompanying investor presentation that you can follow along with our remarks.
Before we begin let me quickly cover the safe Harbor on slide two.
During this call we will make forward looking statements, including projections are estimates about the future performance of the company.
These estimates are based on current expectations and assumptions that are subject to risks and uncertainties actual results could materially differ and these risks and uncertainties are discussed in more detail.
Filings with the FCC.
During this call we will refer to certain non-GAAP financial measures reconciliation between GAAP and non-GAAP financial measures can be found in our earnings release, where in the presentation available on our website and now I'll turn call over and above like screen and good afternoon, everybody. Thank you for joining our fourth quarter 2019 earnings conference call We'd love.
Strong results in the fourth quarter to cap off what was a transformative 2019, which included emerging from bankruptcy and listening on the NASDAQ Global select market and we're looking forward to an even more successful 2020 before we get into our results I'd like to provide a brief recap of some of our key accomplishments in 2019.
That helped to solidify our hearts position as the number one audio company in the U.S.
First we have continued to leverage our leadership position through the unique multi platform array of assets to drive outperformance of the broadcast sector and the capitalize on an environment in which audio has never been hotter.
I heard radio stations are number one in audience more markets than the second and third largest broadcast radio operators combined that's also true in the top 50 markets as well and we continued to outperform the broadcast radio market in 2019 in terms of revenue by over 350 basis points in the major markets and in terms of digital.
Dreaming the gap as even wider Iheart has a five times audience lead over the number two commercial broadcast radio company.
I heard also remains at the forefront of the audio revolution through our tremendous growth and leadership in the fast growing podcast space, where we are the number one commercial podcast publisher more than two times the size of the next largest commercial podcast or in terms of downloads and according to pod track no. Other commercial radio broadcast company is even the top.
10 podcast publishers.
We're also the fastest growing major podcast publisher as measured by unique monthly podcast audience growth and our content spans all the major genres like radio podcasting provides companion chip to the listener through intimate relationships developed with our pie cast house, it's not surprising that advertisers are seeing real impact from a medium.
That is driven by the power of its host and host read outs that linkage between radio and podcasting is a major part of our dramatic growth in podcasting as we use the powerbar huge reach radio platform to promote and create demand for our podcast. This unique synergistic relationship illustrates the complimentary interplay between podcasting enter.
Traditional radio and as a key driver of our growing podcast margins, which are already accretive to our overall business. We're also differentiated in terms of our unparalleled social media reach with approximately 250 million fans and followers on social media, we have the most social media reach among competing audio brands and our 20.
2000 live events, including our eight tent pole about had the highest awareness among live music events, giving us yet another avenue for advertisers and fans to come into the Iheart ecosystem. Our live events in sponsorships business continues to grow throughout the year, including in the fourth quarter driven by the success of temple events.
The Iheartradio jingle ball tour were 12 million fans tuned into watching listen and the Iheartradio Fiesta Latina, which generated 5.7 billion social media impressions, that's nearly doubled the number of social media impressions of Billboards Latin Music Awards.
Radios unparalleled reach an engagement in contrast, the declines that AD supported TV is beginning to drive is shifting of media mix from other sectors toward audio and as the leading audio company in the U.S., we've benefited and we'll continue to benefit from that trend.
As Richard I've said before our number one priority is to drive value for our shareholders. We feel good about the results that we've delivered in the first three quarters since our emergence from bankruptcy and we're starting to see some of our efforts reflected in the attention we're getting from the Investor community.
And while the results we posted in 2019 give us a solid platform to build from in 2020, we sell a plenty of room for growth ahead of US one of the tools that we have at our disposal to help drive shareholder value as proactive and opportunistic management of our capital structure. Since August we completed three debt financing transactions through.
User interest expense and to continue to maximize our free cash flow.
For IR 2019 was defined by focused execution against our strategic priorities of maintaining by far the largest audience and audio and improving our monetization of it I first and foremost modernizing our sales approach using analytics and attribution developing and beginning to use consumer data in the same way did that.
Digital Giants of pioneered.
That has allowed us to begin to tap into the TV and digital advertising pools and grow new revenue opportunities through digital hi, casting and sponsorships and we made great progress against these initiatives in the fourth quarter, where we delivered strong results even against our most challenging political comp quarter.
Our reported basis, our fourth quarter revenue was flat driven by year over year comparisons to the prior year quarter when over half of our political revenue from 2018 was recognized excluding the impact of political revenue total company revenue grew 4.3% and was driven by growth across every single one of our business lines.
This growth was underpinned by the stability of our traditional business lines and the continued growth in digital including podcasting, which was up 33.6% year over year.
Adjusted EBITDA declined slightly by 0.6% in the quarter on reported basis due primarily to the decline in the political revenue, which is our highest margin revenue stream as well as because of revenue mix. We also continued to generate significant free cash flow of approximately 176 million in the fourth quarter bring our end of your key.
Cash balance the 400 point, Threemillion, which was slightly above the high end of our guidance.
Rich will discuss our financial performance in our 2020 guidance and detailed with a focus on the expected impact a political revenue given that this is a presidential election year as well as other factors that will impact us in 2020.
First I'd like to address one of the most important initiatives, which I hardest undertaken since our emergence from bankruptcy. We are modernizing IR to take advantage of the significant investments we've made a new technologies to build a modern infrastructure that provides a better quality newer products and delivers new cost efficiencies this modernization as a.
Central to being a major player in today's digitally focused media world. It sets us apart from the traditional media players and it builds upon the strong momentum of 2019 and abstract competitiveness, our effectiveness and our efficiency with our major constituencies to.
To be clear this represents an important element for building shareholder value as well as overall competitiveness of our company today and in the future.
Our decision to invest in modernization is at its core a re imagining what a true multi platform media company looks like today, including using technology and a high to improve the quality of the decisions, we make and the experience we provide for consumers, enabling us to be better and more robust partners for advertisers and providing unique research.
This is to help our employees be as efficient and as effective as possible helping them reach their full potential. We believe this is essential to our future importantly, our investments and modernization are expected to deliver meaningful cost savings of approximately 100 million on a run rate basis by second half of 2021.
Some of the key operational changes that are being made as part of these initiatives will be a new organizational structure for our markets group that maximizes the performance of each of our markets using our one of the kind scale a multiple platforms our leadership in audio in technology, and finally, our expertise and extensive experience in consumers a monetization data and artificial.
We'll intelligence. We've also created centers of excellence, which will consolidate functional areas of expertise and specific locations to deliver the best possible products and services for the entire company assuring consistent and high quality across every single market in which we operate these centers of excellence were made possible by the half a billion dollar.
Last month, we made in technology and building out our core infrastructure and it allows us to provide services from anywhere in the company for the benefit of anywhere else and the company, meaning the distance is no longer a barrier.
Recently announced digital services and digital Innovation Center Nashville is our most recent example of a center of excellence.
If you'll remember as we were coming out of bankruptcy. We explained the we have modernization efforts ahead of us to improve efficiency and quality.
We believe that reallocating capital toward our modernization initiatives is a prudent decision that will improve our quality enable the creation of new products and services improve the experience of our employees increase our margins drive growth and create value for all of our shareholders. We couldn't be more excited about where iheart stands today, and we're well positioned to dry.
For a company forward by continuing to be thought leaders innovators and operational pioneers and the audio space. We appreciate that we have a leading position and unparalleled reach across multiple platforms and the audio world and we intend to utilize those advantages.
Last before I hand, it over to rich to discuss the financials I wanted to touch upon a topic that's been in the news the Corona virus since we operate in the U.S. our exposure to it is limited to this market and although we continue to monitor it we've not seen an impact on our business and with that I'd like to turn it over to rich to discuss our financial performance rich. Thanks, Bob Good afternoon.
Everyone as Bob said, we're pleased with our strong financial performance in the fourth quarter and for the full year, which reflects the stability in our traditional radio business and profitable growth in our digital and sponsorship revenue streams.
Let's turn to our fourth quarter results starting on slide eight of our invested there.
On a reported basis revenue was flat year over year, and adjusted EBITDA declined slightly by 0.6%.
Comparisons to the prior year quarter were impacted by political revenue the majority of which was recognized in the fourth quarter of 2018.
Excluding the impact of political our revenue grew by 4.3%. It was driven by growth across all our revenue streams direct operating expenses increased 15% driven by a noncash onetime charge related to music license fees and costs related to our growing podcasting and other digital revenues the noncash music license be charge.
It was approximately 31 million the vast majority of which is related to prior years on a run rate basis. The impact of this increase in fees is not material as.
<unk> expenses decreased 1.3% driven primarily by lower commissions as a result of our revenue mix and lower bad debt expense.
Decreases as gene expenses was partially offset by higher third party digital bed to fees driven by the increased digital revenues.
Corporate expenses decreased 1.3 million during the quarter as result of lower employee benefits, partially offset by share based compensation expense, which increased 5.8 million as result of our new equity compensation plan.
Operating income decreased by 36.5% due primarily to high depreciation amortization expense as a result, a fresh start accounting and the aforementioned impact of the one time non cash updated estimate the music license fee expenses.
Turning to slide 10, you will see a breakdown of the performance of each of our revenue streams in the fourth quarter.
On a reported basis broadcast revenue declined 2.7% the impact of political revenue while networks increased by 2.2%.
During the impact of political revenue broadcast revenue grew by 8.8%.
Together with networks. These represent our traditional radio businesses, which remained stable and grew at around 1%, excluding the impact of political revenue.
Digital revenue growth remains robust at 33.6% year over year and was primarily driven by podcasting as well as other digital revenue.
Sponsorships grew by 5.3% driven by growth in revenue related to our live events.
On a reported basis, what do you and media services declined 19.9% year over year due to the impact of political revenue a cat and in particular, the political revenue declined to catch TV, which was more pronounced relative to radio.
Excluding political revenue audio media services increased by 4.5% year over year.
Turning back to Arkansas. They results on slide 15, and looking at the items worldwide interest expense increased 95.1 million compared to the prior year quarter as result of the interest incurred on our new debt issued upon our immersion from chapter 11, as you may recall interest expense recorded on our pre petition that well.
We weren't bankruptcy was zero, we generated robust operating cash flow of 205.4 million and robust free cash flow of 175.7 million, which was lower than the prior year driven primarily by the fact that during the bankruptcy period, we only paid cash interest of 1.2 million the fourth quarter.
2018.
Operating a free cash flow generated during the quarter result in a cash balance of 400 point Threemillion at December 30, Onest 2019, slightly exceeding the high end of our guidance of $375 million to $400 million.
The continued momentum that we saw our fourth quarter results translated into strong full year results that you can see on slide nine.
On a full year basis reported revenue grew 2% year over year and 4.2% exclude the impact of political revenue. The primary drivers of growth, we're digital networks, which grew by 32.25, 0.6% respectively.
Podcasting was the primary driver of our digital revenue growth while growth in our networks business was driven by both our total traffic of weather network and our Premier network.
Broadcast revenue declined by 1.4% on reported basis, a group, 0.3%, excluding the impact of political revenue.
What are your media services declined 10.4% on reported basis and increased 3.2% exclude the impact of political revenue.
Sponsorship revenue increased by 4.4% year over year.
Full year basis, all of our revenue streams grew year over year, excluding the impact of political revenue.
Operating income decreased 26.6% due primarily to higher depreciation and amortization expense as a result of fresh start accounting higher noncash impairment charges share based compensation expense and the impact of music license fee expenses related to prior years.
Adjusted EBITDA for the full year grew year over year by 2.5% to slightly over $1 billion with margins increasing from 27.2% from 27% despite comparisons to a political year and spending party on bankruptcy.
Importantly, our strong full year result, enable us to achieve our guidance across all key metrics, giving us great momentum going into 2020 on slide seven you can see the progress we have made to reposition our capital structure. Since May 2019, when we emerged from chapter 11, our net debt was over 5.7.
$1 billion and our leverage was at 5.8 times one of the most important levers that we haven't driving shareholder value is aggressive opportunistic management of our balance sheet and then just nine months. We have successfully completed three debt transactions that have reduced our weighted average cost of debt 7.1% to six.
Percent, resulting in run rate annualized interest expense savings are approximately $40 million compared to be expected annualized cash interest payments based on the turns of our term loan facility upon emergence from bankruptcy.
During that same timeframe, we've reduced our leverage from 5.8 to 5.4 times, who are strong free cash flow generation.
As of December 30, Onest 2019, our net debt was approximately $5.4 billion and we are confident in our ability to further reduce leverage by the end of this year.
Which brings us to our outlook for 2020, if you turn to slide four you will see a summary of our guards against key metrics.
In terms of our consolidated revenue, we expect to deliver growth in the mid single digits.
This will be driven by a robust political AD environment that is underpinned by growth in our traditional radio business as well as continued growth digital businesses driven by podcast.
This strong revenue growth, particularly the impact from political which is our highest margin business in combination with the operating leverage. We're seeing is digital grows is expected to drive adjusted EBITDA growth in the high single digit range, Oh, you're projecting adjusted EBITDA margins in the 28% to 29% range.
Given the benefits of our modernization initiatives, we feel highly confident in our ability to deliver against that expectation.
In 2020, we remain focused on drug free cash flow to Delever, our balance sheet Sunday key variables that impact is our modernization investments, becoming a full cash taxpayer and the interest expense savings there'll be discussed earlier.
And this is in 2020 will be between $155 million to $175 million, which will be weighted to the back half studies.
We expected year over year increase of approximately $40 million to $50 million is primarily related to the modernization efforts with respect to optimizing our real estate footprint.
This increase in capital expenditures together with the cash restructuring charges of approximately 45 to 55 million. We will occur in 2020 will total approximately 85 to 105 million and will deliver approximately 100 million an annual run rate cost savings by the second half of 2021.
We expect to achieve approximately 50% of our annual run rate cost savings during 2020, which will be partially offset by some incremental operating expenses in our first full year out of bankruptcy.
The incremental investments.
Related to our modernization initiatives nonrecurring in nature and the efficiencies. They will create will drive significant return on investment enhancing our long term and sustainable growth along with margin improvement. We expect the majority of our investments to fall in 2020.
For the full year 2020, we expect to generate free cash flow of 300, the $330 million, excluding the impact of investments from our modernization initiatives. Our free cash flow forecast was approximately $100 million higher employing a normalized range of $400 million to $430 million.
In terms of our leverage we expect to be well into the force by the end of 2020 on track to reach our eventual goal of four times.
Lastly, we know that liquidity in our stock isn't important issue for our investors I would like to give a quick status update about the petition for declaratory ruling that we filed regarding foreign ownership at the FCC.
As you May know our current equity structure consist of our listed class a common stock and also class B common stock and special warrants and was designed to comply with the statutory prohibition on broadcast companies, having foreign ownership above 25%.
The FCC petition for declaratory ruling was filed to simplify this capital structure and enhanced liquidity of our class a common stock by facilitating the conversion of the special warrants we cleared a key hurdles in the process Tuesday, when the FCC issued a notice seeking public comment on the petition.
In closing Bob and I are pleased with the progress that I has made in 2019, we have delivered against all financial targets and made significant improvements to our capital structure, while positioning the company for its next stage of growth through our investments and modernization. These investments will enable us to continue to leverage technology.
To provide quality and effectiveness and drive efficiencies in our business to capitalize on the opportunities in the audio sector.
In 2020, our number one priority is to create value for our shareholders execution against our financial target and capitalizing on the momentum now we're building our business. We thank you for joining our call today I would like to open it up the culinary.
As a reminder, ask a question you'll need to press star one on your telephone to withdraw your question press the pound or Heskey. Please standby when we compare the kuni roster.
Your first question comes from Jeff Jessica.
From Bank of America Merrill Lynch. Please go ahead.
Hi, I'm couple of things on the podcasting, which is such a big driver digital growth.
Could you talk about your build versus buy strategy and how do you think you're monetizing that business now he is as efficient as you can day.
Hey, Josh it's rich thanks for the question just before.
We jump in anti well, we why do Bob and I right upfront I apologize to everybody for starting to call. A couple of minutes late apologize for the materials not being available earlier.
It was a technical glitch.
But you know, we respect and understand the importance of getting everyone. The materials earlier and again, we apologize for that and just got think as it relates to the podcast business. As you know we had a podcasts business at Iheart and we purchased.
Stuff media, which is how stuff works and stuff you should know and that that array of podcast and acquired the management team is at with that as well and that became Iheart podcast network.
When we acquired it I think we had roughly a little over 5 million monthly users. They have a little less than added up I think it was about 11 million today, we have more than doubled that so the growth on top of that has been tremendous that's not only come from growth up users of existing podcast, but we've done.
Well up a lot of new IP, and we are constantly adding new IP to it.
And as we monetize it again, we are profitable.
We have a margin which is accretive to the company margin.
And.
We have there are two vectors of growth for us in that one is the podcasting pie is growing I think most estimates for 2020 or about double 2019.
So we see that and we also think the second vector is we think we increase our share of that as well and I think we're on track to do that.
Hey, Jason torture, the only two things I'd add to that when Bob talked about are accretive margin. It's interesting when you listen to what you know just other players out there were there broadcasters are the people new audio space talked about aspirationally getting to be profitable podcasting and it's not a material number yet to our overall billion dollars plus EBITDA.
Number but it is growing it is getting more significant and there is accretive to margins. The second data point, which is strategic you look at the recent acquisitions that are out there.
You know in recently Spotify is got about $600 million of acquisitions since they started and you try and get a fix on from a valuation standpoint, the marketplace seems to be about $6. A download there about if you look at the numbers that Bob just spoke all most recent downloads. According to pod track third party download service, it's about a hub.
Britain I'm, sorry third party service that measures are podcasting are similar to Nielsen for those of you that are not familiar with it we had about 177 million downloads, which would put our valuation you don't well over a billion 2 billion three just where the podcasting business alone. So that's just a data point.
About the value that we're creating for our shareholders.
That's very helpful. Thank you for saying that about the numbers not being out because it was a little bit difficult just two quick follow ups.
Do you guys spoke pretty quickly about the restructuring and the cost savings can you to go through the key areas of savings and it's all costs I mean, no benefit on the revenue side is there and then.
Last thing for me is the timing of the liquidity events, but just such a big deal how long does it take to get through the process. The public commentary it and when you can actually see get benefit.
Sure. So let me start with the first question just on the cost savings.
The cost savings, which we talked about and again just to reiterate what we said in his script and for the benefit just because we didn't have.
The press release out there, we expect to get about $100 million on run rate by the second half of 2021, we expect in year to achieve about $50 million with that and just to kind of set it up from a number standpoint, I think about it that we're going to spend about a $100 million from total between.
Excuse me you know things why.
Efficiencies, taking advantage of AI technology, some things in real estate and things like you'd obviously expect you know along the lines of severance agreement.
There were also can have about $50 million and capital expenditures. So we'll get spending $100 million in total the bulk of that savings is going to be within 2020 and within the guidance. We gave you and then we said and then we get about a one year payback by the time do you get to the middle of 2021, So I think a pretty good.
Kind of overall return and and I think again I don't want to lose the main point of it. The main point of it is where modernizing accompany that did business. Another way because it's been around so long to catch up to the way business is done today, it's how our employees work and behind it is pretty simple that you know.
Tasker are better done by machine to its easier it frees our people up to do what they do best which is thinking analysis contact with other people.
And it provides great efficiency allows us to move faster.
To be more responsive. It also allows us to make better decision, making we have about it I'll give you. An example, we have about 3500 data endpoints of information each week on music selection, there's no human brain that can absorb all that but artificial intelligence cat and we've developed that over the past.
Couple of years and are beginning to use more and more of artificial intelligence to make decisions, but it frees those people up who were doing a lot of wrote work involved with that to do the other side of their job and programming, which is to make our stations as creative as they can be tie into the community more promotions imaging.
Et cetera, so it's a it's a big picture thing that has some very good financial outcomes as well, but the reason we're doing it is we're taking the company into the future and we're playing catch up on it and by the way last thinking that will go to your last question on the FCC and liquidity it doesn't make it more contemporary place you know just.
Great working volume from employees and also acknowledging that these were very hard decisions that we had to make and we're very thoughtful about it.
Just in terms of thinking just you know when you asked about the FCC and you talked about liquidity and Weve and we've talked about that you and I before I would think about 2020 as being an important year is key catalysts for the company to improve liquidity and it's really twofold. One is what we talked about the opening remarks with respect to be up Ses.
C.
Thats, a 30 day and again, let me just say about a front, we're doing what the government and I think all of you that no Bob and I over the years dealing with the government across core processors, we never predict Tom on the outcome, but you have to start would step one this was an important first step.
And clearing that hurdle chose now on for public comment, which I think it's about a 30 day.
Period of time, then you go to a second piece, which is what they call looking at your team Telecom, which is a representative the executive branch of the government without going too much into the details in the sausage, making oh, we suspect that will be a multi month period of time also but it's really good that we got through disparity Tom and number of people.
Vast nurses after the last few months the second piece of liquidity milestones in 2020 is what we talked about I'm also upfront is hitting the milestones for our leverage ratios.
We continue to be on track. The ended 2019, we put our guidance of 375 to 400 reactor at 400.3, which we're very proud of what we slightly exceeded that guidance I will get well into the force.
As we go through towards the second half of 2020, and we've talked about a target ratio for and we're totally on track to hit that.
As we get to the middle through the second after 2021, so feel very good about taking the steps to create liquidity in the stock, which we know is critically important.
Thank you.
Your next question comes from Steven Cahall with Wells Fargo. Please go ahead.
Thanks, maybe first Bob I was wondering with the mid single digit revenue guide since 2020 could you give us a sense of what you think core broadcast radio revenue growth is gonna be within that and kind of tied into that I'm wondering how many of your top advertising clients are now buying both terrestrial and digital and especially maybe how many of those.
Buying both terrestrial along with podcast AD inventory and I've got a follow up for rich.
Sure Let me, let me hit the second part of that and I'll, let rich at the first part I think in terms of.
The advertisers buying multi platform. So we're seeing more and more of it I would say that.
Most of the digital advertisers are probably also buying broadcast the numbers would tell you most of the broadcast advertise or not necessarily buying a digital but that's a growth area for us, but what's interesting about podcasting and digital is we've had a number of advertisers who come to us for that who Didnt think there.
Wanted to buy broadcast radio and have wound up buying it as well and we've also had people comment even on our events as just an event advertiser and have moved back end to broadcast advertising and as we've talked before having these multi platforms not only great for touching the consumer and more spot, but it and giving we advertise.
There are more opportunities to touch the consumer in more places, but it's also a way to bring advertisers and who thought they weren't interested in broadcast radio.
And broadcast radio for US has this huge reach reach 91% of Americans every month.
And makes us the leading media company in terms of reach in America. So we've got this powerful asset if we bring people and we can prove the power of it.
And then just going.
And picking up and just go back to first part of question. Joe. If you think about the component pieces that drive our mid single digit revenue up on a consolidated basis you look at our would you think about like as our traditional radio business our broadcasting on network business.
Together will grow like let's say low to mid single digit.
Broadcasters, even see some benefit from political as we all know, but just as reminder to all of US you know, it's one pool of inventory. So the biggest benefit on on political is that it really kind of young tightens the inventory builds up the man.
Digital which the last three quarters now the reported this one has been over 30% revenue growth, we're thinking about digital as we did to be cut into the mid twentys or I'm, sorry over twentys just to be clear over 20 is driven by podcasting and digital products sponsorship should continue kind of in the mid single digit revenue growth.
Okay, and audio and media services should grow in the low to mid teens, driven by the political revenue impact and as a reminder, audio media services, which yes. The obviously the biggest part of that is cat also benefited greatly on the political side from the TV revenue piece, which will get disproportionately benefit.
Compared to radio in the political year.
And if memory serves me correctly, that's pretty much all organic for digital and 20 is that correct. So thats more than 20% essentially organic.
Yeah, I would yes, the bulk of that is organic the biggest resettled organic yes.
Great and then just talked about 100 for so I think I would say, 100% sorry, I was I think it'll be a 100%.
Okay great.
And then just on free cash flow, so you're going to do low three hundreds this year.
If I'm just thinking about 21 already I know you lose some political maybe like 70 million, but then you've got all these modernization benefits and I'm guessing the cost to achieve step down so I'm, assuming you're going to we should kind of think about like a forehand offer free cash flow other things being equal in 2021 and beyond and all that's going to go to debt.
Let me now.
Yeah, Let me say, so we're not giving any guidance for 2021, we've given you know in overall leverage direction. If you think about 2021, but I'm just just kinda back to take the opportunity for first principles. This is a great free cash flow business.
I would say is we don't see any of those dynamics changing.
Capital expenditures low working capital overall.
Great fixed cost base that drops yelp things like on broadcast in network 80, 80, plus percent incremental margins to the business our digital incremental 50 plus percent margins excuse me you know overall to the business we've articulated.
The profitability in the growth in podcasting, we're going to continue to aggressively manage the balance sheet like you've seen us steel in the last nine months. So we don't see that financial characteristics changing at all without giving you an exact number.
Thanks, a lot.
Your next question comes from Sebastiano Petty with JP Morgan. Please go ahead.
Just circling back to the podcasting.
Questions earlier from Jessica.
How do you think you could perhaps get better appreciation from that from the street just given some of the revenue and perhaps download multiples that you cited earlier.
Maybe more disclosure and.
In line with that can you, maybe give us a direction or some sort of color on how we should be thinking about podcasting as a percentage of overall revenue for the digital.
Well, let's take maybe so if the question lets it made the second part first which I think might be helpful.
So Bob talked about the categories before so.
We don't as you know and goes to your question, we don't break it out shuttling for think I would think about it this way the overall podcasting us revenue pie in the United States. This year.
Ultimately getting all third party does ranges, but they're probably four to 420 $430 million. There's range is out there for next year that go from you know I think $850 million. So I think pricewaterhouse as to like a billion dollars that forest as out there. So.
You look at the overall piece of the pause out that that's the pool that we're playing and and then as Bob mentioned, there's really two vectors in terms of how we're going to grow our advertising. While revenue. One is we were just going to increase easy one in the overall share of the advertising dollars route that are out there for the pod ERP overall growth that I've just articulated.
And to because particularly the historical nature of podcasting, it's historically been more of a deal our business direct response advertising business.
As as its become much more mainstream from a consumer habit and everything we know what's happening listening habit.
More mainstream advertisers are coming in you know people at Procter and Gamble, which we've talked about which was our biggest advertised the last year.
And other.
T mobile is a now and so we're going to continue to take a bigger and bigger share of that part of the total us dollars advertising pie where today. If you look at the broadcast radio broadcast advertising pie, we're getting 20 year north of 20%, we're not getting our fair share yield on podcasting, but yet we continue to increase heavier not will accelerate.
So think about again the pools of money two vectors overall pool going up and we continue to increase our.
Fair share and on the disclosure.
Let me just that I think also on the on the podcast you need to think a little bit too about the unique structure, we have for podcasting because we have this incredible megaphone called broadcast radio the reaches 91% of Americans. We can promote these podcast.
Maybe $100 million, a free advertising year cost us nothing because its unsold inventory.
But to replicate it if you were a third party you'd have to spend $100 million.
So that gives us one cost advantage. The second is in terms of production remember we're in the audio production business. So this is an incremental cost we don't have to go set up all these production cost.
That other companies do that are in the third party business or that's there are only line of business and we also have shared IP across our platforms as well and because we have such a big foot print and radio and such a big content creation. There I suspect there is no when it comes close to us in terms of content create.
And.
And radio and were able to take that and put it into the podcast pipeline as well you also get to a certain point a flywheel effect that once we are this big and have this kind of leadership you look at the kind of lead we have over the second largest commercial podcaster.
You began to see that people, who want to do a pie guest what do they want more than anything else to have a successful podcast, if they're taking a share of revenue.
As a pay Matt.
The more revenue can generate the more money they can make add who stands the chance to generating the most revenue logic would tell you. If we would so again, we're beginning to feel that flywheel effect of people coming to us we get first look.
We get to put these together and as we have success. The people we have success with want to do more with us and we've seen that kind of expansion we saw.
Jake Brennan, who brought us disgrace land and headed on another platform before he came to Iheart.
I had something like a couple of hundred thousand downloads a month he put it all my heart and what to.
Over 2 million downloads, a month and of course from that we've now come out with yet another podcast from Jake and there will be more coming so that gives us an advantage on the cost side and the creation side.
And the marketing and advertising and you think about margins why do we have such great margins when others are talking about hopefully getting to profitability. I think those are some of the driving reasons as Wallace demonetization issues that rich talked about and focused on your last question in terms of disclosure very fair question.
We're constantly challenging ourselves and welcome all feedback on that.
Understanding and very much appreciate any more disclosure from everybody on this call standpoint.
Yes disclosure.
And that's why we gave the download numbers and we'll continue to challenge ourselves and just the only other side does as Bob talk about kind of the way we run the business the business being integrated in terms of the company competitive advantage. So we just we just need to think through all those points, but again everybody. We're not the experts on this all your feedback is welcome.
One quick follow up the pass you've talked about looking more at advertising effectiveness over cpms.
Revenue was strong in the quarter.
Anything you could perhaps give us in terms of what you're seeing on that front in terms of perhaps feedback from clients as well as.
Trends in the quarter. Thank you.
Yes, it's interesting I think when you look at developing revenue you have two issues are people trying it and as effective for them.
Our biggest problem and growth or ended our biggest constraint and growth is just getting more people to try it.
I would say we've had a nice stellar.
The results in terms of if they try it showing that it gets results. They expect I think you're also seeing with TV the decline in TV.
Audience.
Coupled with the fact that because there's a scarcity of TV inventory has basically push prices up.
That's a part of time radio and TV were about the same CPM today TV is probably three X. The CPM of radio maybe in this political year. It will go to Fourx.
And when you consider that up the TV audience. According to Nielsen about 40% as a light TV viewer radio fills and 90% of those light TV viewers.
Whereas online video only does 50% the facts are stacked on our side I think our biggest issue that we work against them and time will cure it but the biggest issue assist the inertia of habit. A there was a habit built for TV in an era in which TV had the big reach before the subscription services took a lot.
The scripted programming off of Advertiser supported TV.
And moved over to streaming services. So for US we are making and we're pleased with the progress we're making theres a lot more we can make and should make and again the facts are on our side and if I had a problem I'd, rather our problem being getting people to try it not the problem of delivering once they trial.
That's great. Thank you.
Your next question comes from Zacks Silver with B. Riley FBR. Please go ahead.
Okay, great. Thanks, you're going to question. The first one is just back to the.
2020 revenue guidance for mid single digit.
I just was curious as to whether that includes any contribution from some of the newer initiatives around.
The self service product that you guys have been developing and have recently rolled out and if not can you just give us an update on when when we should see a revenue contribution from that.
Yes, well, let me talk that jacket trips. Thanks for the question.
No there is really.
Self serve just to remind everybody we've just started to rollout.
Mostly in beta not fully rolled out it's rolled out in a handful limited markets out there you know what we know is that when you look out we have 60000 clients Facebook has eight six to 8 million client, sorry, Facebook and Google over half their revenue was self serve so we think we've identified the right opportunity.
But just to be clear and to managing set expectations I think your for Bob and I say this many many times before.
This rollout is going to be this is a consumer adopted technology can be slow within a b to b adopted technology and clearly the revenues going to be insignificant this year and it's not going to be material.
For for at least that number of years out there and we'll keep everybody. We'll keep everybody updated on it. So we're excited about it but the same point Tom realistically, Yes, you should be building anything to your models for for this year just to be quick.
Okay. Thanks, and then a.
Follow up well, we think about modernization initiatives are there any risk to go along with that and potentially diluting local brands and talent from some of the cost cutting.
On the flip side of that you're talking about how the modernize structure allows you to kind of move faster make things more streamlined.
We have a cost benefit number out there that you've given us, but how should we think about potentially some of the revenue benefits from from the more streamlined structure.
Yes, let me let me hit the first part of it is no. We don't think the quality goes down we think it goes up.
You know we've got to today and.
Had some great examples of it Ryan Seacrest actually does this morning show an ally from New York four days a week. After he gets off the air on TV. All his this team mates are in ally and he's in New York. They operate on a unified basis in the ratings are great. We've seen that time and time again that what we want to do a spec.
The best programming, we can into the marketplace and we've looked very carefully at our stations and where we have leadership positions and iconic personalities of we've not made changes there that's working fine where we think we could get better quality or we could get.
More leverage out of great talent, we have we've tried to find those opportunities.
And and I think we're encouraged by the results. We are seeing we did not just start this it's been going on for a while I think there other aspects of it to where we're getting a lot of leverage again, when you start thinking about selecting music on it on a weekly basis for all of our radio stations and building the music logs that is.
A lot of work and now that we have so much data one of the problems as absorbing the data so beginning to use AI to help us with that.
And I think improves the music quite a bit and the free our programmers up from having to do wrote work every day of music logs and getting automation to do some of that and technology freeze them up to do the other part which make a radio station, great, which is tying into the local community building and local content.
Making imaging the radio stations the promotions that work, they're working with the talent wherever the talent is again the wonderful thing about technology is just like long distance calls distance, it's no longer an issue and our business either and were able to project. The best talent we have.
To any location anywhere anytime we think thats a substantial advantage for us.
And one of the ways that as we've talked about this both in prepared remarks, and Bob and I haven't talked about now one of the ways I think when you think about.
All of these initial initiatives and the effect of from an operating standpoint, and as you think about building out all of everybody's models and projections I think the comfort level.
That should give you because of driving the drive deficiencies will driving into business and I talked a little bit went before about the efficiency of our business model economic model, even before we did these efficiencies and think about it that this these efficiencies just make us a more efficient company going forward with the one objective.
In terms of this audience, which is to drive our stock price out there and I think it's just give everybody a higher comfort level.
Achieving all of our guidance that we put out there I think it and onto I'll leave it to one point is rich and I spend a lot of our time, saying if we started this company today with these assets how would you build the operation of the company and I think you know technology has changed at substantial in past, Tony 10 years, 20 years and I suspect it will change.
In the next 10, and what's important for us to be a vigilant to be making the technology investments and understand what's going on and we're not above copying people. So if we see somebody else has a better idea of how to operate using technology, we want to adopt that as well we want to be continued to be looking in the windshield and not be obsessing with the rear view mirror.
Got it that's really helpful. Thank you guys.
Thank you.
As a reminder, if you'd like to ask a question. Please press Star then the number one on your telephone and your next question comes from Jim Goss with Barrington Research. Please go ahead.
Thanks to the extent that.
Companionship that radio offers usually often implies localism do you think as effect that some of these.
Technology initiatives get away from that in a way that would harm your audience levels or do you think that really doesn't matter to as many people as we might think.
Oh, I think it matters, a lot and companion chips very important and I think the number one goal, we have and and our talent is to get people, who really do feel like your friend on the radio.
And.
Our number one job of our programmers is to make sure the talent no matter, where we're using them from is integrated into the local community and talking about things that are relevant an interesting to the people. We have you know over the years taken some of our great talent Elvis Duran the breakfast club.
Bobby bones.
Ryan Seacrest and put them on multiple stations because we find that they can integrate themselves into the community and there the quality they provide.
Is the ratings enhancer and enhances that companionship relationship with the consumer.
So we continue to that we have a lot of other great talent in this company, whose names you may not recognized but are equally as empower fill in the communities that are in and our job is to continue to to look for that and continue to serve the community.
To the listeners it is local it will be local it it will continue to be local and that's probably the most important relationship the half.
Well a couple of other things today are you able to monetize your live events or are they entirely promotional in brand building.
No we do monetize them. They are very important in terms of being an opportunity for us to build out sponsorship relationships.
With our partners, we're able to tap into another pool of revenue, which is sort of the sponsorship revenue. They also wind up being very important to building social for not only us but for our partners as well on the old days of sponsorship people. It's that I had 12000 people came by my Booth.
Today. They go we had 100 million social impressions from that event for our product or for our products.
And so we and the advertisers use these events for that it's also as you say, it's also a great promotional vehicle for us, but yes. They are moneymakers, we do look for them to be that and we also look for as a way to bring in certain advertisers who have not been advertisers with our company.
Who we can attract through these big massive.
Well known events and and bring them into our our world. They see how we operate they see the benefits and we can get them excited about some of the other opportunities we can work with them on.
One of the interesting things, maybe just to build upon that as we always talk about multi platform and again for everybody on the phone we need to break down revenues with its broadcaster network or digital.
Or or event, but the end today thats. The reason so important and we are the only one broadcast radio television whatever that the multi platform approach to the marketplace. So we really don't care what platform people come in as Bob Just said, we talked about sponsorships, but that example could be used for any platform to come in and experienced the medium.
And then become major advertisers with us.
Okay, maybe lastly, political.
Have you given the scale of what's your political can be that this year and this contentious here and.
A lot of it I imagine as a does not involve displacement given the number of radio AD spots you have to fill but is there any displacement element and does it affect pricing at all.
No. It there is some displacement and it depends upon the radio station probably as to how much of that.
And we do see in political years that it puts a positive pressure on pricing.
The industry sees a lot a radio industry sees it some and we'll see some benefit so part of the political it does use displaced inventory, but overall it also put some nice positive pressure on on pricing. So we see the benefit in two ways.
Okay. Thanks much.
And.
Thank you.
No no further questions at this time ill turn the call back over to the presenters.
Well.
On behalf of the company, it's rich and Bob.
Karim we thank everybody, we apologize again for the glitch upfront we welcome not just these questions, but obviously the ongoing basis on any suggestions how we can continue to improve our communication with all of you. Thanks very much. Thanks.
This concludes today's conference call. Thank you joining you may now disconnect.
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