Q4 2020 iHeartMedia Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the I Heart media Keith for 'twenty 'twenty earnings call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question on during the session you will need to price.
Star one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now I'd like to hand, the conference over to your speaker today, Mike Mcginnis Deputy CFO and head of Investor Relations. Thank you. Please go ahead Sir.
Good afternoon, everyone and thank you for taking the time to join us for our fourth quarter 2020 earnings call.
Joining me for today's discussion are Bob Pittman, our chairman and CEO and rich Bressler, our president and COO and CFO at the conclusion of our prepared remarks management will take your questions. Please note that in addition to our press release, we have an investor presentation that you can use to follow along with our remarks.
Before we begin let me quickly cover the Safe Harbor statement on slide two during this call we will make forward looking statements, including the current and expected the impact of COVID-19 on the company's liquidity financial position and results of operations.
These estimates are based on current expectations and assumptions and are subject to risks and uncertainties actual results could materially differ from these expectations and assumptions and these risks and uncertainties are discussed in more detail in our filings with the S. E C.
During this call we will refer to certain non-GAAP financial measures reconciliations between our GAAP and non-GAAP financial measures can be found on our earnings release or in the investor presentation available on our website and now I'll turn the call over to Bob Thanks, Mike and good afternoon, everyone. Thank you for joining our fourth.
The quarter 'twenty 'twenty earnings conference call before I begin I'd like to once again acknowledge our employees around the country for their fortitude and commitment during the COVID-19 pandemic I also want to thank our employees in Texas, who faced incredible hardship during the winter storms, which severely impacted the state over the past two weeks even in the midst of this.
Crisis, they continued to serve their communities and each other with the commitment that's been inspiring we also want to acknowledge the passing of Premier networks Rush Limbaugh Rush was the talk radio pioneer who reinvigorated the medium and brought it to levels previously unseen in this country our thoughts are with his family.
For I heart the year 'twenty 'twenty was defined by adaptation innovation and intense focus like every AD supported business. We were hit hard by the pandemic. We responded quickly to the downturn and use this to speed our adoption of new technologies and best practices, making lasting changes to our company's operating <unk>.
Structure, despite the major slowdown in advertising revenue our ability to innovate shown through this year as we work quickly to develop new products and services and providing guidance and insights to help our advertising partners connect with their customers and tailor their messages for the unique moment, which in turn helped us mitigate some of.
Of the advertising downturn and also kept our fast growing digital businesses, including podcast Ing on track I want to mention a few headlines before we get into the fourth quarter results. One we saw a big revenue drop in Q2 of 2020, and we recognize that we still have of ways to go. However, we're pleased with the <unk>.
Progress of our revenue and adjusted EBITDA recovery. Since then both of which improved substantially compared to the second and third quarters. We feel are result of validate the value of our multi platform product and revenue strategy. Our unique scale the cost discipline, we exercised in 'twenty 'twenty and the investments we have made in our new <unk>.
Growth areas like Podcasting AD Tech and the continued expansion of broadcast radio on digital devices to today, we announced two new reportable segments. The I Heart media Multiplatform group and the IHOP Media Digital audio group and we have also announced the senior management structure that.
Will reflect this realignment. This reflects how we view the company's operations and will provide improved visibility into the underlying performances results and margin profiles of each distinct business, which we hope will help the investment community better understand the scale stability and free cash flow.
Characteristics of the multi platform business and the strong growth and profitability of our digital audio business, which includes our podcast business. The number one podcast publisher in the U S. According the pod track looking at results through this new lands in Q4 of the digital audio business produced 175 million of revenue.
And 60 million of adjusted EBITDA, which is the 35% margin. We're excited about the unique prospects for each segment and look forward to speaking with you in depth about their futures the.
Three last week, we announced the pending acquisition of Triton digital which will establish us as the only company able to provide a complete AD tech solution for all forms of audio on demand broadcast radio digital streaming radio and podcasting. It also provides unique solutions for hosting and infrastructure.
Monetization and measurement, we are now uniquely positioned to benefit from the continued shift of the broadcast and digital advertising marketplaces toward data infused electronic platforms. Additionally, this creates the opportunity for us to expand beyond our traditional U S operations and establish new growth markets internationally.
Wally through AD Tech I'll speak to this more in a moment for it remains challenging to predict the exact pace of recovery in 'twenty and 'twenty one as so much is predicated on the Covid vaccine rollout. However, based on everything we know today, we expect to be back to 2019 performance by the end of the year.
We continue to see significant pent up consumer demand across the country and we expect that that vaccine rollout and the easing of restrictions on businesses and consumers will set the stage for a rapid economic bounce back and we believe that radio advertising will benefit materially from this and with that I'll turn to how the <unk>.
Business performed in the quarter before rich gets into the specifics of our financials. We delivered strong results in the fourth quarter. Despite the continued headwinds of the COVID-19 pandemic reported revenues were down 9% year over year, continuing our quarterly sequential improvement from down 22% year over year in Q3.
And down 47% year over year in Q2, our Q4 revenues were up 26% when compared to Q3, excluding political Q4 revenue was down 17% year over year importantly in the recently closed month of January revenues were down 15% and when adjusted for the lack of live event.
We're down approximately 12% continuing to show the sequential improvement we've seen since April our broadcast revenues were down 19% in Q4 or down 26%. Excluding political broadcast revenues have continued to recover as the macroeconomic environment improves and the broadcast stations continue to lead the industry.
We're also pleased to see that even as consumer broadcast radio usage and the car has been returning to more normal pre COVID-19 levels. The UC job I heart radio on digital devices in the home has stayed up and we continue to benefit from this increased usage of in home digital devices.
Within the broadcast line is our data infused smart audio product, which was down only 5% in queue for smart audio our broadcast programmatic platform allows for informed digital like planning against targeted audiences with the benefit of broadcast scale and impact and has been a focal point of our strategic.
Estimates this year was our best year on record for political revenue as we generated $168 million in 'twenty 'twenty, an increase of 81% over the last presidential cycle in 2016, while the political spend by geography was uneven our results demonstrate the value of our broad distribution mark.
Our networks business continued to be negatively impacted by COVID-19, but we see signs of improvement there as well as our premier business was down only five per cent compared to prior year, although we either postponed or canceled all of our in person events. Following the COVID-19 outbreak.
We were able to mitigate some of the lost sponsorship and events revenue by launching our virtual events business some of which we plan to keep as an ongoing part of our events lineup instead of both profitable and drive high engagement across all our social media and other relevant platforms. Our digital revenues have continued their accelerated growth trajectory.
The increasing 53% year over year, which includes our fast growing podcast business, whose Q4 revenue grew 100% year over year importantly, excluding the impact of podcasting digital grew 42% year over year, demonstrating the importance of our broad digital offerings that are in high demand.
Man, despite the economic downturn.
We also successfully achieved our previously announced in year 'twenty 'twenty savings of $250 million comprised of approximately $50 million for modernization initiatives announced pre COVID-19, and approximately 200 million from savings initiatives executed in response to COVID-19, our modernization initiatives remain on.
Track to achieve $100 billion run rate by mid 'twenty, 'twenty, one and in 'twenty and 'twenty. One we expect the replicate the majority of the 200 million level of savings.
And the fourth quarter, we generated adjusted EBITDA of 266 million down just 13% from last year and generated free cash flow of 53 million highlighting the impressive free cash flow characteristics of our business.
Rich will go into more detail on our Q4 results in a moment, but first I'd like to highlight two significant announcements beginning of Q1 'twenty 'twenty. One we're establishing three reportable segments. The IHOP media Multiplatform group and the IHOP Media Digital audio group. In addition to our existing audio of media services segment.
I Heart media is the number one audio company in America by reach and the creation of these two new segments will enable us to strengthen the mission and tightened the focus of each group accelerate our ability to deliver industry, leading products and services to our listeners and advertising partners across all platforms.
And accelerate our transformation into a nimble and digitally focused company. Additionally, this new disclosure will provide improved visibility into the underlying performances results and margin profiles of each distinct business, which we hope will help the investment community better understand the size and <unk>.
Growth of our digital audio business as well as the scale stability and strong free cash flow characteristics of our multiplatform business.
The IHOP media Multiplatform group includes our markets group with its 860 radio stations in 160 markets, our national sales organization, our events business, our networks business and our V. I N Black information network business. The IHOP Multiplatform group reaches more people every month.
On than any other audio or media company in America with its broadcast radio stations alone. Additionally, we're the number one radio group an audience of more markets in the second and third largest radio companies combined. According the Nielsen we have the number one audience of 99 markets in the 18 to 49 demographic at.
And we are also ranked number one in 30 of Nielsen's top 50 metros.
The I Heart media Multiplatform group represents almost 75% I heart Media's revenue and remains the foundation business than it's been at the heart of the Companys success. It has the unique assets and unparalleled scale and now with sophisticated data and analytics to offer any advertising client any product anywhere at any time.
Across both local and national and on all audio platforms something only we are capable of doing the multiplatform group has also enabled us to create new digital and podcast products and businesses on a regular and sustained basis using our unique promotional power everything from the IHOP radio brand.
The I heart radio App, and a robust industry, leading podcast network. It's why we can do things no one else can.
Greg Ashlock, who was previously the president of our markets group will become the group's CEO and Tim Castelli, who was president of our National sales marketing and partnerships group will become the group's chief revenue officer. Their prior leadership positions give both Greg in terms of deep understanding of the intricacies of the multiplatform group.
And strong relationships with the leadership of the digital audio group. The IHOP media Digital audio group includes podcasting, where we're the number one podcast publisher and downloads unique listeners revenue and earnings. It also includes the IHOP radio digital service the industry's number one digital radio service our websites of newsletters with.
Their monthly audience of over 125 million unique monthly users. According the Omniture, our digital services and programs for both national and local partners and our digital AD Tech companies as we've talked about on these calls before our digital businesses have continued their excellent track record of growth across all products.
Despite the headwinds the COVID-19 has posed and as of Q4, the encompass almost 20% of our consolidated revenues and 23 per cent of our consolidated earnings. We expect they will continue to increase as a proportion of our consolidated business in the future and as a result, we believe that our digital audio.
Business is now significant enough to begin the important phase of operating and reporting as a distinct segment Connell Byrne, who was previously the president of our IHOP podcast business and came to IHOP through the acquisition of stuff media will be the CEO of the IHOP media digital audio group and Darren Davis.
Previously president of IHOP radio and the IHOP media networks group will be the group's C O O Connell and Darren combined breadth of experience and diverse skill sets position of the digital audio group for continued growth and expansion rich will speak to the financial implications of this new structure during his remarks.
Now, let me come the Triton digital this acquisition combined with our jelly radio jar of Vocs nest assets, well established I heart media as the only company with a total audio advertising technology and data solution, providing both supply side and demand side services for all forms of order.
<unk> on demand broadcast radio digital streaming radio and podcasting owning the advertising technology enables high heart to lead the development and growth of the programmatic audio marketplace and ensures that we will be in control of the sale and yield of all our audio impressions Triton this of global.
Using technology SaaS platform for audio streaming podcast thing and measurement analytics that enables publishers to optimally monetize their audiences triton's business focuses on advertising infrastructure and measurement and includes the delivery system that distributes digital audio streams of podcasts to listeners the <unk>.
Technology to dynamically insert ads on the podcast and streaming audio of programmatic marketplace for audio streaming content delivery network CDN and measurement products for both streaming and podcast. It's important to note that triton's assets are complementary to the other AD tech acquisitions I heart.
He has made like the previously mentioned Vocs Nast radio jar, and jelly and increases our ability to grow our podcast and streaming revenues and expand the margin for those businesses and for our advertising customers. The combination of the services creates a one of a kind of cross platform advertising solution that is.
Fans all of audio with data targeting and attribution measurement solutions. It's also important to note that Triton currently provides services to the entirety of the audio industry and we'll continue to do so now with the understanding who of the I heart as its owner broadcast radio will remain a priority into the future.
Although we don't intend to buy radio stations outside the U S. We will continue to distribute our podcast globally and we're even translating some of the other languages, which expands the market for our podcast business with Triton is the final piece of the puzzle. We also will see a meaningful opportunity to provide our complete audio AD tech platform.
Worldwide, our scale in the U S and the sophistication of the U S AD market gives us the foundation to create and maintain the leading audio AD Tech platform. We think the global market is a robust new opportunity for us and allows us to build of new revenue stream over time for our AD Tech products rich and I on the rest of the.
<unk> management team are excited about the new opportunities across the audio advertising and data analytics sectors and using our unique scale and one of a kind platforms. We continue to innovate and develop new products and services for our consumers and for our advertising partners that will drive I heart recovery through 2021.
And beyond throughout this downturn, we've listened hard and of learned important lessons on how to operate more efficiently. We have already begun to put those learnings in the practice and they will continue to reshape how we operate this business and again I want to acknowledge our people. Despite all of the hardships they endured this year their steadfast.
Cash commitment to our culture of innovation continues to lay the foundation for the future of our company rich. Thanks, Bob we continue to see improving trends and the macroeconomic environment and our financial results continue there in the year sequential improvement on total revenues remained down year over year and as Bob mentioned.
Earlier, we recognize there so more hard work can be done in order to return to normalcy in terms of our fourth quarter results. If you turn to slide 10 of our investor deck on.
On a reported basis, our consolidated revenues decreased by 9% of the prior year period, excluding the impact of political spending of revenues declined 17%.
Direct operating expenses decreased 8%, driven primarily by lower variable costs due to low revenues, including music license fees event related expenses and programming services and lower employee compensation, resulting from cost reduction issues S.
SG&A expenses decreased 7% driven primarily by lower employee compensation expenses sales commissions and travel and entertainment expenses utilities of maintenance fees and trade and barter expenses. These expense reductions were primarily a result of the cost savings initiatives. We implemented in response to COVID-19, the decrease in SG&A.
G&A was primarily offset by higher bad debt expense corporate expenses decreased 14% during the fourth quarter compared to the prior year, driven by lower travel and entertainment expenses professional fees and lower employee compensation, including variable incentive expenses and employee benefits, resulting from expense reduction initiatives on.
Fourth quarter GAAP operating income was $113 million compared to $165 million on the prior year quarter, and our fourth quarter. Adjusted EBITDA was $266 million down just 13% from $306 million in the prior year fourth quarter the.
These declines were driven by low revenue and represent significant improvements over of both of our third quarter operating income and adjusted EBITDA results.
Turning to slide 12, I'll provide additional color on the performance of our revenue streams.
At our broadcast business revenue declined by 19% on a reported basis, while networks declined by 16% year over year, our digital revenue grew 53%, including continued growth in podcast revenue, which increased 100 per site year over year audio on media services revenue increased by 50 bps.
On a reported basis driven by catch radio on catch TV, which benefited from strong political spin.
Sponsorship and events revenue decreased by $37 million of 52% compared to the prior year period, primarily as result of the postponement or cancellation of our in person events again, partially mitigated by the success of our virtual debt.
Turning back to our consolidated results and I'm looking at the young as below the line interest expense decreased $10 million compared to the same period in 2019, as we continue to optimize our balance sheet and reduce our cost of capital on slide 15, There's a summary of our debt at quarter end, we had approximately $5 $3 billion of net debt outstanding.
Which includes the cash balance of $721 million or net debt of $5 3 billion is down approximately 100 million for $5 4 billion at the same time in 2019, even with the COVID-19 downturn. We are pleased that we were able to reduce our net debt importantly, we generated 53 million of free cash flow in the fourth.
Order of continuation of our sequential improvement after generating $14 million of free cash flow in the third quarter of 2020 and negative free cash flow of $7 million in the second quarter of 2020 as a reminder, the turns of our debt structure, including no material of maintenance covenants and there are no material of debt maturities prior to 2000.
26, I also want to confirm that we delivered the expected $250 million of modernization and post COVID-19 cost savings initiatives that we announced earlier in the year as we have said previously we expect our modernization initiatives to achieve of $100 million of annual run rate savings by mid 2021, where you.
We made on track to achieve those savings as Bob mentioned, while the components for change we intend to make the majority of the $200 million of COVID-19 savings permanent and we have developed long term structural expense savings within our cost structure of these savings include continued optimization of our real estate footprint the adoption of technology.
<unk> solutions that will drive increased efficiency and effectiveness of our operations the centralization of resources into centers of excellence.
Difficult reductions in G&A consulting fees of discretionary spend on employee hiring and continued modernization of our organization the.
The pandemic force us to transform the way, we do business more broadly than we could have imagined and we continue to benefit from our ability to quickly adapt to these changes the actions we have taken leave us well positioned for margin expansion as advertising activity continues to recover we ended the year of capital expenditures of 85 million square.
Clearly in the middle of our post Covid guidance range of 75 to 95 million and we benefited from minimal cash taxes in 2020 due to the cares Act.
As a reminder, the provisions of the act that pertained to US we talked on our ability to deduct 100 per cent of our 2020 interest expense as well as of a portion of interest for prior years that was disallowed and the deferral and potential avoidance due to certain credit we may qualify for of 2020 payroll tax payments.
We also want to update you on the positive impact of the company's recent FCC foreign ownership petition on the creation of additional liquidity of our class a common stock after the conversion of most of our special warms into our class a common stock the cash.
Company substantially expanded its liquidity with 111 million shares of class a common stock currently tradable and increase of 72% from the pre existing class a share count the total market value of the company's outstanding class a shares was $1.6 billion based on the closing price as of.
February twice that in 2021, which represents 76% of the company fully diluted shares at <unk> foods the value of approximately 29 million outstanding class B shares and approximately 6 million outstanding warrants, which both carry of one to one conversion provision.
As Bob mentioned, we announced today starting the first quarter of 2021, we will begin reporting our financials, reflecting three reportable segments. The IHOP media Multiplatform group, the I Heart media digital audio group and the audio and media services segment.
We believe this will accelerate our ability to deliver industry, leading products and services total listeners advertising partners across all our platforms and provide improved visibility into the underlying performances results and margin profiles of each distinct business, which we hope will help the investment community better understand the size and growth.
Of our digital audio business and the scale stability and free cash flow characteristics of the multi platform business on slide five of our Investor presentation. We have provided Q4 and full year 2020 summary financials, reflecting these in the segments for the fourth quarter of digital audio groups revenue grew 53 per.
Adjusted EBITDA growth of 75 per cent and had EBITDA margins of 35% on.
Multiplatform group for year over year declines of both revenue and adjusted EBITDA. In Q4. However, it's important to note margin to improve throughout the year with full year EBITDA margins of 22% in Q4, EBIT margins of 31%, indicating the speed with which the economic and advertising recovery as reflected in the group's finance.
The results as you can see both groups have strong operating leverage for reference. We have also provided three years of certain annual financial results in the earnings release, assuming the segment change was made as of January one 2018 as.
As we look ahead to 2021 I want to provide you with the following our January revenues were down just under 15% compared to the prior years and adjusting for a cancelled why prevention January revenue was down approximately 12% year over year.
Our podcast the business continued strong performance with January up of 126% compared the prior year. Despite.
Despite the second Covid spike in the winter storms, we expect revenue to be down 11% to 13% year over year on the first quarter of 2021 ex political that would equate to a decline of approximately 9% to 11% year over year.
As Bob says it remains challenging to predict the exact pace of recovery in 2021 as so much is predicated on the vaccine rollout.
The based on everything we know today, we expect to be back to 2019 performance by the end of the year.
A few things on free cash flow for 2021.
First we will not be a cash taxpayer due of NOL carryforwards that we'll utilize to offset taxable income interest.
Interest expense will be approximately 335, declaring of $45 million and in terms of capex due to the significant real estate reductions we are working on to drive meaningful savings. Our capex in 2021 will be $165 million to $185 million and then returned to normal levels in 2000.
22.
Over the past few months, we have made steady progress on our recovery benefiting for our strict cost discipline from the resiliency of our high CRO of areas and from the gradual improvement to the macro economic environment. We know that there are still real work ahead of us, but we're proud of the way our company and most importantly, our people navigated.
Through the challenging environment, we believe decisions. We have made this past year, culminating the pending acquisition of Triton digital and the establishment of our two new reporting segments leave us well positioned to take advantage of any improvements of the advertising ecosystem.
Buoyed by the innovation and diligence we of exercise this past year, we look forward to continuing our business recovery with the expectation of returning to 2019 EBITDA levels by the end of 2021, and the resumption of our deleveraging activities, which slow during the pandemic.
And again, we'd like to thank our employees, who remain committed to serving our listeners our communities and our business partners. During this challenging time.
We appreciate you joining our fourth quarter earnings call and now we will turn it over to the operator to take your questions. Thank you.
At this time, if you have a question. Please press star one on your telephone keypad.
And your first question comes from Jessica average with Bank of America.
Oh, Thank you I have a couple of questions on it.
First is on Triton you guys of Super bullish on the acquisition of the potential.
For the company can you quantify how this.
I had the Triton.
Surely accelerate your growth rate.
Another of course.
Pete.
Jeff I'm, sorry of trips I'll, let you for your second question or second point.
Yes.
Just if you could quantify or anything you can hit that numbers on it.
Maybe put another way you know how long will it take us to see who will take you to see the benefit of this new go to market suite of products.
Thank you Jessica.
Jessica I think I'd break it into two pieces. One is I think we think triton's financially is additive to the to the company's financial structure on its own two it completes the AD Tech stack and I think if we are believe that the audio business is going in the direction of everything else is go on an advertiser.
That that that tech stack becomes critically important.
And it.
The third it's in our hands not in somebody else's hands and incident hands up someone that is looking for how we unify all of the aspects of audio and if you look at advertising the agencies and clients are all trying to look at planning media on a unified basis not on inside.
The lows and what's been very important about the AD Tech. It is allows us to put that smart audio data infused buying into broadcast radio so it looks like digital buying and.
Then add it to our digital products. So you come up with sort of one solution. We have jelly, which you know of previous acquisition, we've made which is been pulling this together and pulling of the our capabilities together to sell broadcast like digital Triton will the tremendous.
Our hold in the.
Digital world, putting the two together allows us to have that unified solution. So when you say how much I think the question is can radio.
Turn itself into in the in the eyes of the advertiser into digital like advertising. If it can it begins to play outside of the call. It what you want to $15 billion to $17 billion of radio advertising and begins to play in that nearly 100 billion dollar pool of digital App.
Advertising, which is so important to us and I think combining our digital and broadcast and unifying it together again follows the trend that's going on in the advertising world of puts us in the forefront of that.
Yes, the Twitch and the only thing I would add two of Bob just said I just want to go back right. So we grew the numbers, we just reported today.
The 3%.
In the fourth quarter on obviously, we're breaking out of the digital ones, we've talked about going forward, including podcasting and we clearly expect about true divisions, that's going to be the high grub. The three divisions inside of the high growth Division and then get wood.
But still the growth with the multiplatform division.
I'd also say just I want to take one step back just add one thing about Bob So on tried and it's not like all of the sudden the original high point for the $53 million on revenue that we kind of like some of the bond tried and then okay. You know where all of a sudden a digital player out there with that dogs is it really gives us the full capabilities as Bob said, the bulk of monetizing I wanted.
I don't think to measure for both ourselves and our clients.
The effectiveness of our advertising so Bob pointed out, but Bob mentioned this I think if you look at the Investor deck, we have three pretty good pages in there that talks about our digital strategy, which really started back a number of years ago. When we talk about <unk>.
<unk> audio data infused volume, Bob mentioned jelly and the role so you'll see you know things like unified in terms of social and our radio jar acquisition, along with box nurse.
From a podcast and standpoint, so now we've got the ability to really the not only have the whole suite of delivering both digital and broadcast solutions for the advertisers and be able to measure them, but back for the reason why it important to have size and scale, we now control our own destiny and also.
The offer these solutions to the entire audio industry. So.
I think if you look at the whole gamut.
It's not again like back to your first question has enhanced your growth rates going forward. We've been building to this for some future. It gives us more control about our growth.
Growth rates going forward, because we control of the tech side and as Bob just said it really cements our ability to play the bigger pool of dollars out and I would just add I don't want to the drag it out but I just want to add that also we see the advertising business for.
For audio going electronic more and more and it becomes very important to have that winning electronic platform and we think we.
This puts us having put all of these pieces together now and internally we've thought of Triton the sort of the final piece of that puzzle.
Puts us on a unique position to really create the winning AD tech platform for audio which not only has implications on the U S market, but as I mentioned it actually has the opportunity for us to begin to sell that AD tech platform outside the U S for other audio companies and buyers of audio to use.
Can I ask one other question just sort of a slightly different topic rich mentioned net January podcasts on revenue was up 126% I mean, that's it of Kelly groh of plus.
Rate of growth, especially in this environment.
Do you think that's sustainable for the balance of 'twenty, one and what are the margin implications for this business as you continue to scale and now go garbled.
Well I don't want to give guidance because we haven't done that but I will point out that we grew 100% in Q4 that I think you're really seeing our podcast business really standing alone in terms of we sort of broken out and you've seen other people report their podcast numbers you'd see what they are I've not seen anything that looks like this.
And and I think we feel confident that we have a flywheel going of how we build podcast, how we monetize podcast.
Again, having the AD tech with it as well allows us to seamlessly put it together with other audio sources the.
To find audiences the.
Vox nest acquisition on the Triton acquisition are very important to us to begin to monetize the long tail of the pie guests. In addition of these big major podcast it that you've heard about coming from us. So we continue to be very excited about it and one of the reasons for creating the new segment is that we know we have.
Have a very strong growth business that was somewhat hidden and I think what you're beginning to see here of the first signs of when you can see it what kind of growth business that is and we're very excited about it.
I'm just wondering because you raised I think somewhere in the questions you put out of the raise margins I think again I'll. Just mentioned this briefly and then everyone. I know you've just got all the information Coca NAFTA. If you go to page both five on the new segment reporting in the Investor deck and then if you look at the end of the earnings release, where we go back the 2018, but just look at the <unk>.
Moving margin.
The Q4 this year, we had the 35 per cent margin of the digital audio group I'm, sorry, Q4 of 2020 to be closed out of 35% margin digital audio groups of again one of the reason we broke it out it was thought of it.
Many of the reasons is the highlight at the Investor Group and also quite frankly, just the really highlight head on your question both in terms of podcasting and the profitability coupled with the growth rates that we just had and then the overall margin for digital I think of lot of our investor base are familiar more with the <unk>.
Of the platform group, which has got great financial characteristics very high free cash flow low capex on a relative basis low working capital, but we got on so many questions about digital I think there was this perception that you know just to be wells or is it really profitable how profitable is podcasting is it margin of <unk>.
<unk> is it really you know of.
Profitable without the podcast the business in there. So we've tried to do and we'll continue to give our investors all of these benchmarks out there and data points. As we go forward is to really break it out to show true real numbers not in theory.
Great. Thank you.
Your next question comes from Steven Cahall with Wells Fargo.
Thanks, maybe first I wanted to expand a little bit on the digital margin looks like in 'twenty and 'twenty. One you did about a 40% incremental margin.
I wanted to wait.
Stephen in 'twenty, we haven't talked about right.
I'm in the future.
Right.
After last week in Texas, we ought to be in the future.
Yeah. So you have that really strong 40% incremental margin on in 2020 is that kind of indicative of what this business can do on as it continues to grow and also just thinking how do you allocate content costs between the multi platform group and the digital group I know things like the breakfast club probably drive Rev.
The new of both so just wondering how you're thinking about that and kind of last one on this topic.
Are you doing things different from the management perspective, and the new businesses or is it kind of the way you've been doing things, but she wanted to showcase this to investors in a way, where it's a little easier for us to see low.
Let me start with the last one and then I'll, let rich talk about the financial aspects I think in terms of how we're managing it I think giving yet creating these management teams to manage the business and give it. This dedicated focus is going to be great for us.
Because I think they're going to.
Be able to look at the business.
And of very specific wait and look for every opportunity for growth within those segments as well as being able to work together what's interesting about this group is its a pretty well oiled management team here.
People have been around US we've worked together in.
In the case of our call.
Well, you probably know Houston, the newest member of the group head on.
<unk> has a very high profile and pod casting, but also has a broad digital background from his previous life of discovery, Darren Davis, who you may not know led the build out of the IHOP radio of digital services. He was behind the the.
The machine that turned us into such a strong social player. He is a longtime programmer.
And and led the effort of decade ago to begin the build out the technology to allow us to deliver our radio stations and talent for many geographic location, which has had big financial and quality impacts on the company. He also started our podcast business and then with Joe Robinson, our head of corporate development.
He led the acquisition of stuff media, which is how we brought that into us and brought cobble into the team Greg Ashlock had a has a background that sports and sponsorship, but like Darren has been with the company of while he's run our largest market I'll lay he spent of division president before he moved into the markets group head.
And he really in that markets group had really pushed us into multi platform for the markets group selling at all and building out.
Data and information capabilities as well that finally, Tim Castelli Castelli came to us a while back less than a decade ago, but but a while back from a O L on Google.
We built out our client focused marketing sales organization of worked closely with the Brian Kaminski, our chief data officer, and others and transforming us into a data and tech leader in audio advertising. So I think they all have a little different skill set but they're all comfortable working together and I think giving a.
Greg and Tim one specific mission and Connell and Darren another specific mission, but still getting them to work closely together I think puts us in a very unique position and because we all know each other so well and have a history of working together well I don't think we Miss a beat but instead, we accelerate.
Hey, Stephen just on your other two questions I think one was margin if I remember correctly in the other.
The one was on the other one was content.
The content of course, you know look on margins I'm, not really going to make any comments of anything specifically, yet about going forward, but youre getting on this shows highlights of the two well the the great business IHOP houses of capital because as we all know, which one stock of Tri heart and the two operating divisions, which as Bob articulated both of them.
Personnel in the practice are going to work closely together.
The continued to drive the value and hopefully it will even be more appreciated I think how undervalued.
Both of the audio segment of Diehard is by just showing you the individual pieces of the margins that are out there.
So let me just leave it of bad not predicting the future in terms of content cost.
You can rest assured we spent a lot of time.
Looking at the allocation of costs.
You assume that each of these segments has all of the direct cost of associated.
The associated with each of the segment and then in terms of variable cost. The other aspects just think about it simply love part of follows the revenue.
Rather the revenue goes on Bob mentioned, Greg and Tim and tunnel.
Darren on the rest of the gang and the rest of the team who do a great job selling rubber, obviously selling for us and I say sell it depending on the outward in the distribution of that Cal kind of find the core.
First of all of the revenue losses simple way to think of them.
Yeah. Thanks, and then maybe a last one for me just on free cash flow.
Conversion was down a little bit last year I'm guessing that's just operating leverage on your cash interest, but you've also made a couple of acquisitions recently, which makes me think he must feel pretty good about leverage and free cash flow generation of the business. So maybe just help put all that together for US. Thanks, Yeah, I would say all starting on the bubble on the anything you know auto.
The one of the things and this is a team effort, where Mike and by the way in all of the other operating people roll in charge of drunk driving free cash flow.
Even during this year of Covid as I think we highlighted we're still free cash flow positive, leaving with the $53 million of end of year. So feel very good about that and feel very good about our ability as we go forward to get back on the deleveraging track that were on your prior to Covid out there.
The second thing I would say nothing has changed about these businesses fundamentally.
These fundamental businesses on a great financial generation of free cash flow.
And again, whether we put them in two segments of one segment. You know there are low capital expenditures high variable cap expenditures.
And you know of minimal working capital investments.
And I think we've done a really nice job in terms of in terms of the interest rates and capital allocation will continue and crowded and the third piece I would look at you know you mentioned Triton and again just to emphasize Triton and Bob said this in terms of the last significant piece.
Is it is a piece of the total picture, but again, if you go back and look at our acquisition philosophy on capital allocation philosophy I just wanted to come back for that because it's been very consistent whether it was the jelly acquisition that Bob and I, both mentioned or you talked about stuff works.
All of these acquisitions and by the way right down to the Triton debuted the all together.
Maybe in total the $350 million of cash in total over all of these years and again I'm not taking any of those a lot of money, but not significant to the overall all of capitalization financial position on and our cash on cash flow and each and every one of them and this is our filter makes the rest of.
For the IHOP base that much more valuable okay, and I think that's all key and I think triton's fits right into that and again I really would emphasize to everybody on the phone to go through those three of four pages or three pages in the investor deck, which has all of you know of shows you how we got to where we are today.
Day from the technology standpoint, and then we're all available to answer the questions or the after the call over the next coming weeks I would just add to enrich too that I think we look to each one of these acquisitions box nest Triton to pay for themselves as well as accelerate our strategy overall, which has important financial implications for the company.
We're pretty disciplined in acquisitions, and I think know pretty much what kind of impact we can.
Find both directly and indirectly before we take that step.
Yep. Thank you.
Your next question comes from Jim Goss with Barrington Research.
Thanks going back to your slide on page five.
This gives a mixture of roughly two thirds in the multi platform audio group.
<unk> revenue base, even though the depressed level.
And then the other other two having contributing the other third I'm wondering how you look at that mix developing over the next several years out of those other two categories current grow.
Quite a bit more and you talked about margins are those margins.
Representative of what you expect to be able to maintain.
And also then within the digital audio group when you put broadcasting there.
You can almost argue that it would take the justice will fit within the bunch of platform all of your groups since it's sort of the content play even though it has the digital aspects to it all so I'm just wondering how you decided to.
Position it and how you think those economics will evolve in the package from the area sorry, Yeah, I think that right.
I think we clearly think podcasting is digital.
And it is bought in digital of the advertisers look at it is digital.
It operates in terms of buying with.
With advertisers like digital.
So and it doesn't use our who doesn't isn't carried over our broadcast radio stations as a major distribution outlets. So I think we think if that's very clearly in digital and would be hard pressed to put it anywhere else.
And in.
And in terms of the the.
The business I think we can see you know we know that the digital business is of much higher growth business and I think we said in our release debt, we expect it to be a growing proportion overall overall revenue and earnings as a result of having a higher growth rate just math.
Okay and you also talked about the virtual events, taking the price of live events for.
For right now.
And maybe having them.
The part of it in the future.
When do you think you will get stacked for live events for your what's your gut feeling.
Do you think some of those virtual events.
And our reported basis windup in pad casting area sort of as an archived opportunity to perhaps create other economics.
We are without virtual events have been very successful we took jingle ball this year and turned it into a virtual jingle ball with the the IHOP Radio Music Festival again as a virtual event both of them had very strong social and live stream of following and the and even.
Broadcast on the on the CW of television network. The podcast awards. This year in January were extraordinary actually thought it was some of the best of TV. We've done it did not have of physical event.
So we're going to keep some of them as virtual will bring some back of live events I think everyone in the life business would say nothing's going to happen until the summer at the earliest but we're watching it closely.
Okay. Thanks.
Thanks, so much.
Thank you Jim.
At this time there are no further questions I will now hand, the call back to Bob Pittman for closing remarks.
Okay, well. Thank you so much thanks for joining us and thanks for your interest and attention.
And thank you also and Mike and the team of the gang will be available for questions if any.
The follow ups of required thanks, everybody. Thanks for all.
That concludes today's conference. Thank you for your participation you may now disconnect.