Earnings Call Transcript - IHRT Q4 2020

Michael McGuinness, Deputy CFO and Head of Investor Relations

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, 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 2. During this call, we will make forward-looking statements, including the current and expected 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 SEC. During this call, we will refer to certain non-GAAP financial measures. Reconciliations between our GAAP and non-GAAP financial measures can be found in our earnings release or in the investor presentation available on our website. And now I'll turn the call over to Bob.

Robert Pittman, Chairman and CEO

Thanks, Mike, and good afternoon, everyone. Thank you for joining our fourth quarter 2020 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 2 weeks. Even in the midst of this crisis, they continued to serve their communities and each other with a commitment that's been inspiring. We also want to acknowledge the passing of Premiere Networks' Rush Limbaugh. Rush was a talk radio pioneer, who reinvigorated the medium and brought it to levels previously unseen in this country. Our thoughts are with his family. For iHeart, the year 2020 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 used this to speed our adoption of new technologies and best practices, making lasting changes to our company's operating structure. Despite the major slowdown in advertising revenue, our ability to innovate shone through this year as we worked quickly to develop new products and services and provided 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 the advertising downturn and also kept our fast-growing digital businesses, including podcasting, 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 recognized that we still have a ways to go. However, we're pleased with the progress of our revenue and adjusted EBITDA recovery since then, both of which improved substantially compared to the second and third quarters. We feel our results validate the value of our multiplatform product and revenue strategy, our unique scale, the cost discipline we exercised in 2020 and the investments we have made in our new growth areas, like podcasting, ad tech, and the continued expansion of broadcast radio on digital devices. Two, today, we announced two new reportable segments. The iHeartMedia Multiplatform Group and the iHeartMedia 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 multiplatform business and the strong growth and profitability of our digital audio business, which includes our podcast business, the #1 podcast publisher in the U.S. according to Podtrac. Looking at results through this new lens, in Q4, the digital audio business produced $175 million of revenue and $60 million of adjusted EBITDA, which is a 35% margin. We're excited about the unique prospects for each segment, and look forward to speaking with you in-depth about their futures. 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 through ad tech. I'll speak to this more in a moment. Four, it remains challenging to predict the exact pace of recovery in 2021 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 the 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 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 events, were 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 our broadcast stations continued to lead the industry. We're also pleased to see that even as consumer broadcast radio usage in the car has been returning to more normal pre-COVID levels, the usage of iHeartRadio on digital devices in the home has stayed up, and we continued to benefit from this increased usage of in-home digital devices. Within the Broadcast line is our data-infused SmartAudio product, which was down only 5% in Q4. SmartAudio, 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 investments. This year was our best year on record for political revenue as we generated $168 million in 2020, 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 of markets. Our Networks business continued to be negatively impacted by COVID-19, but we see signs of improvement there as well, as our Premiere business was down only 5% compared to the 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 as they're both profitable and drive high engagement across all our social media and other relevant platforms. Our Digital revenues have continued their accelerated growth trajectory, 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 despite the economic downturn. We also successfully achieved our previously announced in-year 2020 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 million run rate by mid-2021. And in 2021, we expect to replicate the majority of the $200 million level of savings. In 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 in Q1 2021, we're establishing three reportable segments: the iHeartMedia Multiplatform Group and the iHeartMedia Digital Audio Group in addition to our existing Audio & Media Services segment. iHeartMedia is the #1 audio company in America by reach, and the creation of these two new segments will enable us to strengthen the mission and tighten 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 growth of our digital audio business as well as the scale, stability, and strong free cash flow characteristics of our multiplatform business. The iHeartMedia 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 BIN: Black Information Network business. The iHeart Multiplatform Group reaches more people every month than any other audio or media company in America with its broadcast radio stations alone. Additionally, we're the #1 radio group in audience in more markets than the second and third largest radio companies combined. According to Nielsen, we have the #1 audience in 99 markets in the 18 to 49 demographic. And we are also ranked #1 in 30 of Nielsen's top 50 metros. The iHeartMedia Multiplatform Group represents almost 75% of iHeartMedia's revenue and remains the foundation business that has been at the heart of the company's success. It has unique assets, 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 iHeartRadio brand to the iHeartRadio app, and our 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 is President of our National Sales, Marketing & Partnerships Group, will become the Group's Chief Revenue Officer. Their prior leadership positions give both Greg and Tim a deep understanding of the intricacies of the Multiplatform Group and strong relationships with the leadership of the Digital Audio Group. The iHeartMedia Digital Audio Group includes podcasting, where we're the #1 podcast publisher in downloads, unique listeners, revenue, and earnings. It also includes the iHeartRadio digital service, the industry's #1 digital radio service. Our websites and newsletters have a monthly audience of over 125 million unique monthly users according to 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 that COVID-19 has posed. As of Q4, they encompass almost 20% of our consolidated revenues, and 23% 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. Conal Byrne, who is previously the President of our iHeart Podcast business and came to iHeart through our acquisition of Stuff Media, will be the CEO of the iHeartMedia Digital Audio Group. And Darren Davis, previously the President of iHeartRadio and the iHeartMedia Networks Group, will be the group's COO. Conal and Darren's combined breadth of experience and diverse skill sets position 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 to Triton Digital. This acquisition, combined with our Jelli, Radiojar, and Voxnest assets, will establish iHeartMedia 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 audio: on-demand, broadcast radio, digital streaming radio, and podcasting. Owning the advertising technology enables iHeart 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 is a global advertising technology SaaS platform for audio streaming, podcasting, and measurement analytics that enables publishers to optimally monetize their audiences. Triton's business focuses on advertising infrastructure and measurement and includes a content delivery system that distributes digital audio streams and podcasts to listeners, the technology to dynamically insert ads into podcasts and streaming audio, a programmatic marketplace for audio, a 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 iHeartMedia has made, like the previously mentioned Voxnest, Radiojar, and Jelli, 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 these services creates a one-of-a-kind cross-platform advertising solution that spans 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 will continue to do so. Now with the understanding that iHeart is 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 podcasts globally, and we're even translating some into other languages, which expands the market for our podcast business. With Triton as the final piece of the puzzle, we also 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 a new revenue stream over time for our ad tech products. Rich and I and the rest of the iHeart 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 iHeart's recovery through 2021 and beyond. Throughout this downturn, we've listened hard and have learned important lessons on how to operate more efficiently. We have already begun to put those learnings into practice, and they will continue to shape how we operate this business. And again, I want to acknowledge our people. Despite all the hardships they endured this year, their steadfast commitment to our culture of innovation continues to lay the foundation for the future of our company.

Richard Bressler, President, COO, and CFO

Thanks, Bob. We continue to see improving trends in the macroeconomic environment, and our financial results continue their in-year sequential improvement. Our total revenues remained down year-over-year. And as Bob mentioned earlier, we recognized there is still more hard work to 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 a reported basis, our consolidated revenues decreased by 9% over the prior year period. Excluding the impact of political spending, our 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 initiatives. SG&A expenses decreased 7%, driven primarily by lower employee compensation expenses, sales commissions, travel and entertainment expenses, utilities and maintenance fees, and trade and border 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 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. Our fourth quarter GAAP operating income was $113 million compared to $165 million in 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. These declines were driven by lower revenue and represent significant improvements over both 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. In 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 podcasting revenue which increased 100% year-over-year. Audio & Media Services revenue increased by 50% on a reported basis, driven by Katz Radio and Katz TV, which benefited from strong political spend. Sponsorship and events revenue decreased by $37 million or 52% compared to the prior year period, primarily as a result of the postponement and cancellation of our in-person events, again, partially mitigated by the success of our virtual events. Turning back to our consolidated results, I'm looking at the items 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 a cash balance of $721 million. Our net debt of $5.3 billion is down approximately $100 million from $5.4 billion at the same time in 2019. Even with the COVID-19 downturn, we are pleased that we are able to reduce our net debt. Importantly, we generated $53 million of free cash flow in the fourth quarter, a 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 terms of our debt structure include no material maintenance covenants and there are no material debt maturities prior to 2026. I also want to confirm that we delivered the expected $250 million of modernization and post-COVID cost savings initiatives that we announced earlier in the year. As we have said previously, we expect our modernization initiatives to achieve $100 million of annual run rate savings by mid-2021. We remain on track to achieve those savings. As Bob mentioned, while the components will 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. These savings include continued optimization of our real estate footprint; the adoption of technology solutions that will drive increased efficiency and effectiveness in our operations; the centralization of resources into centers of excellence; significant reductions in T&E, consulting fees, discretionary spend, and employee hiring; and continued modernization of our organization. The pandemic forced us to transform the way we do business more rapidly 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 with capital expenditures of $85 million, squarely in the middle of our post-COVID guidance range of $75 million 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 pertain to us result in our ability to deduct 100% of our 2020 interest expense as well as a portion of interest from prior years that was disallowed, and the deferral and potential avoidance due to certain credits 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 warrants into our Class A common stock, the company substantially expanded its liquidity with 111 million shares of Class A common stock currently tradable, an 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 22, 2021, which represents 76% of the company's fully diluted shares and excludes the value of approximately 29 million outstanding Class B shares and approximately 6 million outstanding warrants, which both carry a 1:1 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 iHeartMedia MultiPlatform Group, the iHeartMedia Digital Audio Group, and the Audio & Media Services segment. We believe this will accelerate our ability to deliver industry-leading products and services to our listeners and 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 multiplatform business. On Slide 5 of our investor presentation, we have provided Q4 and full year 2020 summary financials reflecting these new segments. For the fourth quarter, our Digital Audio Group's revenue grew 53%, adjusted EBITDA growth of 75%, and had EBITDA margins of 35%. Our Multiplatform Group saw year-over-year declines in both revenue and adjusted EBITDA in Q4. However, it's important to note margins improved throughout the year with full year EBITDA margins of 22% and Q4 EBITDA margins of 31%, indicating the speed with which economic and advertising recovery is reflected in the group's financial 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 1, 2018. 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 our canceled live events in January, revenue was down approximately 12% year-over-year. Our podcasting business continued strong performance with January up 126% compared to the prior year. Despite the second COVID spike and the winter storms, we expect revenue to be down 11% to 13% year-over-year in the first quarter of 2021. Excluding 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. But 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 to NOL carryforward that we'll utilize to offset taxable income. Interest expense will be approximately $335 million to $345 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 return to normal levels in 2022. Over the past few months, we have made steady progress in our recovery, benefiting from our strict cost discipline from the resiliency of our high-growth areas and from the gradual improvements to the macroeconomic environment. We know that there is 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 the decisions we have made this past year, culminating in 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 in the advertising ecosystem. Buoyed by the innovation and diligence we have exercised 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 a resumption of our deleveraging activities, which slowed during the pandemic. And again, we'd like to thank our employees who remained committed to serving our listeners, our communities, and our business partners through 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.

Jessica Ehrlich, Analyst

I have a couple of questions. First, regarding Triton. You are very optimistic about the acquisition and the company's potential. Can you explain how Triton will enhance your growth rate and when we can expect to see the benefits?

Robert Pittman, Chairman and CEO

Go ahead, Jessica. I'm sorry. I'll let you do your second question or your second point.

Jessica Ehrlich, Analyst

Could you share any numbers or insights on how long it will take for us to see the benefits of this new suite of products?

Robert Pittman, Chairman and CEO

I think you can separate this into two parts. First, Triton adds to the company's financial structure by itself. Second, it completes our ad tech stack. If we believe the audio business will follow the same path as the rest of advertising, then this tech stack becomes essential. Additionally, it's under our control rather than someone else's, and it's managed by someone focused on unifying all audio aspects. In advertising, agencies and clients want to plan media in a cohesive way rather than in silos. The significance of the ad tech is that it enables us to integrate SmartAudio data-driven buying into broadcast radio, making it resemble digital buying. Coupled with our digital products, it creates a comprehensive solution. We've previously acquired Jelli, which has been crucial in bringing our capabilities together to sell broadcast like digital. With Triton's strong position in the digital space, merging the two allows us to provide that unified solution. The core question is whether radio can reshape itself to appear more like digital advertising to advertisers. If it can, it opens up the possibility to expand beyond the traditional $15 billion to $17 billion radio advertising market into the nearly $100 billion digital advertising market, which is vital for us. Unifying our Digital and Broadcast efforts aligns with current advertising trends and positions us at the forefront.

Richard Bressler, President, COO, and CFO

Jess, it's Rich. I just want to emphasize what Bob mentioned earlier. We achieved a 53% growth in the numbers we reported today for the fourth quarter. We're also distinguishing the digital segments we discussed, including podcasting. We anticipate that among our three divisions, this will be the fastest-growing one, while our multiplatform division will continue to see growth as well. Additionally, I'd like to highlight something regarding Triton. My reference to the $53 million in revenue underscores that we didn't just suddenly discover Triton and become a digital player. Rather, it enhances our capability, enabling us to monetize and measure the effectiveness of our advertising for ourselves and our clients. As Bob pointed out, the investor deck includes several pages detailing our digital strategy that began years ago, including aspects like SmartAudio, data-driven buying, and Jelli. You'll also see mentions of unified social approaches and our acquisitions of Radiojar and Voxnest in podcasting. This gives us the capacity to provide a complete range of Digital and Broadcast solutions to advertisers and measure their effectiveness. Importantly, our size and scale mean we can control our own future and offer these solutions to the entire audio industry. Overall, this strategy enhances our future growth rates, as we have been preparing for this and now have greater control over our technological capabilities. As Bob noted, this solidifies our position to compete for a larger share of advertising dollars.

Robert Pittman, Chairman and CEO

And I would just add, I don't want to drag it out. But I just want to add that also we see the advertising business for audio going electronic more and more. And it becomes very important to have that winning electronic platform. And we think this puts us, having put all these pieces together now. And internally, we thought of Triton as sort of the final piece of that puzzle, puts us in a unique position to really create the winning ad tech platform for audio, which not only has implications in 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.

Jessica Ehrlich, Analyst

Can I ask one other question, just sort of a slightly different topic? Rich mentioned that January podcasting revenue was up 126%. I mean that's a fairly robust rate of growth, especially in this environment. Do you think that's sustainable for the balance of '21? And what are the margin implications of this business as you continue to scale and now go global?

Robert Pittman, Chairman and CEO

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've sort of broken out. And you've seen other people report their podcast numbers, you see what they are. I've not seen anything that looks like this. 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 to find audiences. The Voxnest acquisition and the Triton acquisition are very important to us to begin to monetize the long tail of the podcast, in addition to these big major podcasts 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 segments is that we know we have a very strong growth business that was somewhat hidden. And I think what you're beginning to see here are the first signs of when you can see it, what kind of growth business that is. And we're very excited about it.

Richard Bressler, President, COO, and CFO

Jess, you mentioned margins in your questions, and I'd like to briefly address that. If you look at Page 5 of the investor deck, particularly the segment reporting, and then refer to the end of the earnings release where we revisit 2018, you can observe the improving margin. In Q4 of 2020, the Digital Audio Group achieved a 35% margin. One of the reasons we highlighted this is to inform our investors. Additionally, to address your question directly, we have seen significant growth rates and overall margins for Digital, particularly in podcasting profitability. Our Investor Days typically focus more on the Multiplatform Group, which has strong financial attributes like high free cash flow and low Capital Expenditures, but we've received many inquiries about the Digital segment. There has been a perception regarding its profitability, especially concerning podcasting. We aim to provide our investors with clear benchmarks and data points moving forward, presenting the information in real numbers rather than theoretical concepts.

Steven Cahall, Analyst

I wanted to provide some clarification on the Digital margin. In 2021, you achieved about a 40% incremental margin. Is that accurate?

Richard Bressler, President, COO, and CFO

Steven, in 2020, we haven't discussed that.

Steven Cahall, Analyst

Right. I'm in the future. After last week in Texas, we all want to be in the future. So you had that really strong 40% incremental margin in 2020. Is that kind of indicative of what this business can do as it continues to grow? And also just thinking, how do you allocate content costs between the Multiplatform Group and the Digital Group? I know things like The Breakfast Club probably drive revenue in both. So just wondering how you're thinking about that. And kind of last one on this topic. Are you doing things different from a management perspective in the new businesses? Or is it kind of the way you've been doing things, but you want to showcase this to investors in a way where it's a little easier for us to see?

Robert Pittman, Chairman and CEO

Let me start with the last point, and then I'll let Rich discuss the financial details. In terms of management, forming dedicated teams to focus on the business is beneficial because they'll be able to analyze their segments specifically and identify growth opportunities while collaborating effectively. This management team is experienced and has worked well together. Conal, our newest member, is well-known in podcasting and has a solid digital background from his time at Discovery. Darren Davis, who may not be familiar to everyone, was instrumental in developing iHeartRadio and our digital services, transforming us into a strong social player and enabling us to deliver content from any location, which improved our finances and quality. He also initiated our podcast business. Joe Robinson, leading Corporate Development, drove the acquisition of Stuff Media, which brought Conal onto our team. Greg Ashlock has a background in sports and sponsorship, and like Darren, has been with the company for some time, previously managing our largest market, L.A., and promoting a multiplatform approach for the Markets Group, enhancing our data and information capabilities. Lastly, Tim Castelli joined us from AOL and Google and developed our client-focused marketing sales organization, collaborating with Brian Kaminsky, our Chief Data Officer, to establish us as a leader in data and tech for audio advertising. Each team member has unique skills but works well together. Assigning specific missions to Greg and Tim, as well as to Conal and Darren, while ensuring close collaboration, places us in a unique position. Since we have a strong foundation of trust and history, I believe we will not only maintain our momentum but also accelerate our progress.

Richard Bressler, President, COO, and CFO

Steven, and just on your other two questions, I think one was margin, if I remember correctly, and the other one was content cost. Look, on margins, I'm not really going to make any comments, anything specifically again about going forward. But you're going to this just highlights the two well, the great business iHeart has as a company because as we all know, it's one stock, it's iHeart. And the two operating divisions, which, as Bob articulated, both in personnel and in practice are going to work closely together to continue to drive the value. And hopefully, that we can be more appreciated, I think, how undervalued both the audio segment at iHeart is by just showing you the individual pieces and the margins that are out there. So let me just leave it at that, not predicting the future. In terms of content cost, you can rest assured we spent a lot of time working at the allocation of cost. You should assume that each of these segments has all of the direct costs associated with each of the segment. And then in terms of variable costs and other aspects, just think about it simply like kind of follows the revenue. Wherever the revenue goes, and Bob mentioned, Greg and Tim, and Conal and Darren and the rest of the gang and the rest of the team, who will do a great job selling. Obviously, selling for us. And I say selling, depending on the outlet and the distribution, that's how we kind of proceed.

Steven Cahall, Analyst

Yes. 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 you think you must feel pretty good about leverage and free cash flow generation of the business. So maybe just help put all that together for us.

Richard Bressler, President, COO, and CFO

I’ll begin by stating that this is a collaborative effort involving Mike and all our operating team members responsible for driving free cash flow. Even during this challenging year of COVID, we have remained free cash flow positive, ending the year with $53 million. I'm optimistic about our ability to return to the deleveraging path we were on before the pandemic. Additionally, the fundamentals of our businesses remain unchanged. They are strong financial entities generating free cash flow, characterized by low capital expenditures, high variable costs, and minimal working capital needs, which we've managed effectively in terms of interest rates and capital allocation. Regarding Triton, I want to emphasize its role within the larger context. Reflecting on our acquisition and capital allocation strategies, they have remained consistently applied. From our acquisition of Jelli to Stuff Works and including Triton, these investments collectively amount to $350 million over the years. While that’s a significant sum, it doesn't impact the overall capitalization, financial status, or cash flow of iHeart. Each acquisition contributes positively to our overall business foundation.

James Goss, Analyst

You have a mix of approximately two-thirds in the Multiplatform Audio Group and the remaining one-third. I'm curious about how you perceive that mix evolving in the coming years. Will those other two categories experience significant growth? Additionally, you mentioned margins; are those margins indicative of what you anticipate being able to sustain within the Multiplatform Audio Group, including its contemporary digital elements? I'm interested in understanding your reasoning behind this positioning and how you foresee the economics developing in this package scenario.

Robert Pittman, Chairman and CEO

Yes, we clearly consider podcasting to be a digital medium. Advertisers view it as digital, and it aligns with how they purchase advertising in the digital space. Podcasting does not rely on our broadcast radio stations as a major distribution channel, which reinforces our view that it fits squarely within the digital realm. From a business perspective, we recognize that digital is a significantly higher growth sector. As mentioned in our release, we anticipate that it will represent an increasing share of our overall revenue and earnings due to its superior growth rate, which is simply a matter of mathematics. Yes. We are our virtual events have been very successful. We took Jingle Ball this year and turned it into virtual Jingle Ball. We did the iHeartRadio Music Festival, again, as a virtual event. Both of them had very strong social and live stream following and even broadcasted on the CW TV network. The Podcast Awards this year in January were extraordinary. I actually thought it was some of the best TV we've done. It did not have a physical event. So we're going to keep some of them as virtual. We'll bring some back as live events. I think everyone in the live business would say nothing's going to happen until the summer at the earliest, but we're watching it closely. Okay. Well, thank you so much. Thanks for joining us, and thanks for your interest and attention. We appreciate it.

Richard Bressler, President, COO, and CFO

And thank you also. And Mike and the team and the gang, we'll be available for questions as any follow-ups are required. Thanks, everybody.

Michael McGuinness, Deputy CFO and Head of Investor Relations

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