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Live Nation Entertainment Inc (NYSE:LYV)
Q4 2019 Earnings Call
Feb 27, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone. My name is Pillari and I will be your conference facilitator for today. At this time I would like to welcome everyone to Live Nation Entertainment's Fourth Quarter and Full Year 2019 Conference Call. [Operator Instructions] Before we begin Live Nation has asked me to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ including statements related to the company's anticipated financial performance business prospects new developments and similar matters.

Please refer to Live Nation's SEC filings including the risk factors and cautionary statements included in the company's most recent filings on Forms 10-K 10-Q and 8-K for a description of risks and uncertainties that can impact the actual results. Live Nation will also refer to some non-GAAP measures on this call. In accordance with the SEC Regulation G Live Nation has provided a full reconciliation to the most comparable GAAP measures in their earnings release. The release reconciliation and other financial or statistical information to be discussed on this call can be found under the Financial Information section on Live Nation's website at investors.livenationentertainment.com.

It is now my pleasure to turn the conference over to Michael Rapino President and Chief Executive Officer of Live Nation Entertainment. Please go ahead sir.

Michael Rapino -- Chief Executive Officer and President

Good afternoon and welcome to our fourth quarter and full year 2019 conference call. In 2019 Live Nation delivered its ninth consecutive year of growth with revenue up 7% and AOI up 14%. Starting with the core of our business. Our concert fan count was up five million to 98 million globally driving AOI growth in all of our divisions: concerts sponsorship and ticketing demonstrating the effectiveness of our flywheel business model. In our concert segment fans continue to find the live experience from club shows to arenas to festivals a top entertainment choice and the best way to celebrate their favorite artists and share the experience with other fans. In the U.S. over the past five years consumer spend on live entertainment has grown 7% annually providing strong structural tailwinds to drive increased demand for concerts globally. With these demand dynamics in 2019 we delivered growth in concerts revenue of 8% and AOI of 7%. This growth was broad-based across our portfolio with international fan count up 11% while in North America arenas festivals theaters and clubs contributed to our growth. Globally festivals theaters and club attendance were up double digits highlighting the strength of our global footprint and the value of a diversified portfolio of markets genres and building types that have enabled our consistent growth over the past several years. And across all of the artists we work with we invested well over $6 billion to promote 40000 shows in 42 countries with Live Nation by far the largest financial supporter of artists in music. Average ticket prices for our amphitheater and arena shows are up double digits since 2017 while sales of dynamically priced Platinum tickets are up 66% for the year across 3000 shows as artists want more of the best seats in the house sold at face value at the onsale. Even with these increases concerts remain a great deal for fans relative to other live experiences.

Our average ticket price for a concert at any one of our amphitheaters was $46 in 2019 relative to a $75 NBA game over $100 for an NFL game. Once at the show average per fan spending grew as well. At our amphitheaters spending grew by $2.50 to over $29 per head as we improved our product offering reduced friction with shorter lines and improved VIP hospitality offerings. The hospitality focus also grew on-site spending at our festivals theaters and clubs the result of a better experience for our fans across our operated venues. We added 38 new venues in 2019 including six new festivals and 18 new theaters and clubs. As we have gotten better at on-site hospitality over the past several years this opens up more opportunity for us to operate more buildings where we make more money per fan which accelerates the on-site monetization part of our flywheel. The strength of our business is continuing with concert tickets sold through mid-February for 2020 shows up 10% to 38 million and a pipeline of 4700 confirmed arena stadium and amphitheater shows up 30% from the same time last year. All venue types have strong show count growth led by North America stadium and arena concerts. In our high-margin sponsorship business we grew revenue by 17% and AOI by 16% in 2019. Venue sponsorship was a key driver in the year up double digits globally with broad growth across amphitheaters festivals theaters and clubs. Festivals had a particularly strong year.

With the addition of Rock and Rio to our portfolio of marquee festivals sponsorship in this segment was up over 50%. Our top strategic sponsors have also been a key driver of our sponsorship segment with 88 sponsors collectively spending approximately $400 million to reach our fans and revenue from this group up 19% in the year. In 2019 we broadened our brand partnership base by leveraging our Power of Live research with particular success in the lifestyle space working with brands including Revlon Vans and Clinique as we demonstrated the importance of their products to concertgoers. All this reinforces the power of our platform of 98 million fans and the priority of brands to reach fans during the live experience. With over 70% of budgeted sponsorship net revenue for the year committed and despite 2020 being an off year for Rock in Rio in Brazil we are confident we will deliver continued growth in our sponsorship segment this year. Ticketmaster further built its leadership position in ticketing in 2019 growing AOI by 11%. Most of our growth came through reduced customer acquisition costs across both primary and secondary ticketing and from secondary ticketing volume notably the NFL and other sporting events. Our international ticketing business drove our growth in fee-bearing tickets and GTV led by our strong international concert ticket sales. We now provide services in 31 countries and in 2019 delivered 115 million tickets internationally with tremendous opportunity for continued growth on a global basis particularly in the 15 markets where we promote concerts and don't yet have a substantial ticketing operation. Ticketmaster's recent entry into both the Taiwan and Singapore markets highlights this international expansion opportunity leveraging our leading concert positions in these markets and now growing our ticketing presence to seven countries in Asia as we continue to build our flywheel across more of these markets.

In North America our top priority in 2019 was deploying Presence our secure ticketing digital product which we see as key in differentiating Ticketmaster and providing venues teams and artists with the information and tools to maximize the fan relationships. Presence was deployed in over 700 venues by the end of 2019 including over 90% of major sports and Live Nation buildings operating 50000 events for over 120 million fans more than half of whom used digital ticketings for entry. We see our deployment in 2020 further accelerating and we are planning to have Presence in over 1300 venues by the end of the year with over 200 million fans attending events at these buildings. At that point we will cover 100% of major sports and Live Nation buildings and 90% of all fans in North American Ticketmaster venues making Ticketmaster by far the global leader in digital ticketing. Artist-driven initiatives such as ticketing Pearl Jam's entire tour with SafeTix enabling their strategy of getting tickets into the hands of their greatest fans is one demonstration of how digital ticketing is serving content more effectively. At the same time we continue to scale our global ticketing marketplace with the fourth quarter being our second highest fee-bearing GTV quarter ever selling over 60 million fee-bearing tickets and delivering over $5 billion in fee-bearing GTV. Ticketmaster continues to lead the ticketing industry both operationally and in digital ticketing. Looking at 2020 I'm confident in Ticketmaster's ability to extend that leadership position globally as we add more customers ticket more events and expand our digital ticketing platform. In summary 2019 was another strong year for Live Nation building our global concert business and driving growth in our high-margin venue sponsorship and ticketing business. Looking at 2020 our double-digit fan and show count growth so far this year against the backdrop of very high artist activity across all venue types and markets sets up our flywheel to deliver another year of strong global growth.

With this I will turn the call over to Joe to take you through additional details.

Joe Berchtold -- President

Thanks Michael. Looking at our business segments first concerts. As Michael indicated fan attendance grew 5% to 98 million fans demonstrating the strength of our global portfolio and with this demand growth highlighting the strong fundamentals underlying our business. Geographically international had a strong year with growth in stadiums festivals and theaters and clubs driving 11% fan growth. Theaters and clubs globally led fan growth for the year with 20% growth to nearly 30 million fans. Festivals also had a strong year with seven new festivals including Rock in Rio helping deliver 13% fan growth globally. Our fan attendance is up from 47 million in 2010 closing out the decade by more than doubling our fan base a key milestone that demonstrates the consistent and resilient growth at the core of our flywheel creating significant scale over time. Looking specifically at the fourth quarter.

While attendance and show count were up our AOI was lower heavily driven by an increase in advertising expense related to 2020 shows and increased fixed expense associated with continuing to build our flywheel and operate more venues. Without this higher-than-projected advertising expense from putting more 2020 shows on sale in 2019 concerts AOI for the year would have been up double digits. Moving on to sponsorship. In 2019 we again delivered double-digit AOI growth up 16% for the year. International drove over 70% of this growth with the addition of Rock in Rio helping drive both international and festival sponsorship growth. For the fourth quarter revenue was up 25% and AOI was up 26% with growth helped by the second weekend of Rock in Rio Brazil. Our pipeline for 2020 is in good shape demonstrating the strength of our concerts flywheel and driving all parts of the business. And we expect to continue growing our sponsorship AOI despite not having Rock in Rio Brazil this year. Finally Ticketmaster. Global GTV was flat in the quarter matching 2018's record fourth quarter while fee-bearing GTV was down 2%. North America fee-bearing GTV was flat for the quarter while international was down 8% reflecting the geographic shift in 2020 stadiums versus last year. This volume was up relative to our expectations for the quarter reflecting both a timing shift and an even stronger 2020 pipeline of concerts than was previously projected. For the fourth quarter Ticketmaster AOI was up 23% due to a 9% increase in secondary GTV reduced customer acquisition costs and the benefit from comping against last year's costs related to a third-party data breach.

These same factors then drove our margin improvement for the quarter. Looking at 2020 we expect a strong concert slate will drive Ticketmaster's GTV including a strong Q1 when we'll have most of our stadium and arena onsales. A few more points. The coronavirus has had a lot of press lately so I wanted to give some context for us. First as it relates to China and Asia shows generally show cancellations have been minimal given our activity levels in China with 17 shows totaling approximately 75000 fans. Looking over the next three months our Asia activity is limited with 70 shows and 200000 fans in the region. Second as it relates to Italy we have 30 shows booked over the next three months with approximately 125000 fans. Collectively this accounts for less than 0.5% of our 100 million-plus fans we expect to attend our shows this year. More broadly while we expect that there will be further areas of breakout over the next few months one of our strengths is that we are highly diversified geographically. Thus far we have seen no pullback in fan demand or ticket buying outside of the specifically affected areas. And overall our attendance is weighted toward the latter part of this year with over 70% of our attendance expected from June through the end of the year. Finally on the OCESA acquisition we continue to make progress working with the regulators in Mexico on their review. And at this point we expect the acquisition to close sometime in the second quarter.

With that I will turn the call over to Kathy to go through more on our financial results.

Kathy Willard -- Chief Financial Officer

Thanks Joe and good afternoon everyone. Our key highlights for the fourth quarter of 2019 are revenue increased by 11% to $2.9 billion. AOI was $81 million up 18%. As of December 31 our deferred revenue related to future shows was up 10% to $1.2 billion compared to $1.1 billion last year. Concerts was the primary driver of revenue growth as it increased 12% for more fans and shows. Sponsorship revenue was up 25% as we benefited from the second weekend of Rock in Rio Brazil. And ticketing revenue grew 2% as a result of higher secondary ticket volume. AOI was up 18% driven by growth in sponsorship due to the four days of Rock in Rio an improved resale volume and lower operating costs in ticketing. Concerts AOI declined from higher advertising expense for 2020 shows and increased headcount and rent primarily related to additional venues. As we've noted before we recognize all show-related advertising for future shows at the end of the year so the higher volume of onsales for 2020 shows increases our year-end expenses. Operating loss for the quarter was $83 million compared to a loss of $90 million in the prior year as a result of the higher AOI. Net loss for the quarter was $160 million compared to a net loss of $148 million in the prior year driven mainly by higher interest taxes and noncontrolling interest expense.

For full year 2019 revenue was $11.5 billion a 7% increase over 2018. AOI was $943 million up 14%. And free cash flow adjusted was $499 million up 4% over last year representing 53% of AOI due to the timing of distributions to NCI partners. Revenue growth was primarily driven by concerts which was up 8% as we saw attendance growth across North America arenas international stadiums and festivals and theaters and clubs globally. Sponsorship revenue was also strong with 17% growth driven by Rock in Rio high demand for our venue on-site sponsorship programs and growth in the number of our strategic sponsors and related spend. All of our segments contributed to our AOI growth. Concerts AOI was up 7% as we grew our fan base and number of shows across arenas theaters and clubs and festivals along with improved fan on-site spend at our amphitheaters festivals and theaters and clubs. Sponsorship AOI grew by 16%. And ticketing our largest AOI contributor grew 11% from higher revenue and lower operating costs. Operating income was $325 million up 19% over last year driven by the increase in AOI. Our net income for the full year was $70 million compared to $60 million in 2018 due to our improved operating results. Net loss per share was $0.02 after $75 million in accretion of redeemable noncontrolling interests. For 2019 we saw a 2% FX impact on both revenue and AOI. Turning to our balance sheet. As of December 31 we had total cash of $2.5 billion including $838 million in ticketing client cash and $936 million in net concert event-related cash leaving free cash of $697 million. Net cash provided by operating activities was $470 million compared to $942 million last year due to the timing of payables and ticket sales versus the prior year. Free cash flow adjusted was $499 million compared to $481 million last year. Our total capital expenditures were $316 million 52% of which was spent on revenue-generating items.

Our total net debt as of December 2019 after our refinancing in October was $3.3 billion with a weighted average cost of 4.2%. Our current expectations for 2020 include in concerts we expect most of the AOI growth to come in Q3 with some in Q2 and our seasonally quieter Q1 having a bit less activity than last year. In sponsorship while we expect growth for the year the Rock in Rio Brazil biennial festival will not occur in 2020. In ticketing we currently expect the strong concert slate to drive growth in GTV with higher onsale activity particularly in Q1. It is too early in the year for us to predict FX impact for 2020. We will provide guidance in future calls as the year develops. All of our guidance is currently in a constant currency to 2019. We expect our total capital expenditures to be approximately $375 million with the increase largely driven by revenue-generating expenditures. And we currently expect accretion of noncontrolling interests to be approximately $55 million for 2020 with about half that in the first quarter and the rest fairly evenly distributed across the remaining quarters. Thank you for joining us today.

Operator we will now open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] We'll take our first question from Brandon Ross with LightShed Partners.

Brandon A Ross -- LightShed Partners -- Analyst

Hi, guys, thanks for taking the question. May as well address the elephant in the room right off the bat with corona. And you gave us some really good color on Italy and Asia thanks for that. But I think investors want to understand the potential downside risk if there are broader show cancellations especially over the summer period. To the extent that an individual show is canceled can you help us understand what the financial impact would be? I know you guys buy many tours outright. I think you pay artists what $8 billion per year. Are you left holding the bag if shows are canceled? And then if there are regions that are affected by corona did you have the flexibility to reroute tours? And finally you gave really strong leading indicators for '20 obviously shaping up to be a big year without corona. If there is major corona impact would you anticipate that activity pushing out to '21? I think that covers most of it.

Joe Berchtold -- President

Sure Brandon. It's Joe. I'll get started. Michael can jump in. I think the first thing just to put it in the right context is to your latter point anything that is being talked about is generally being talked about just in terms of timing. It's not being talked about not doing the shows. As we've long discussed artists see the touring as the fundamental part of what they do and how they earn their living. So they're we're not talking to any artists that are saying they don't want to be touring at all. Exactly where can I go when? So it's just talking about timing. Absolutely as we look at very specific hotspots there is certainly flexibility to reroute as need be or to help them come back and hit that area later as opposed to when it was previously planned. In general we pay the artist when the show occurs. There's generally force majeure clauses. If for some reason a show were to be canceled we wouldn't have to pay the artist. But again we think that that's going to be pretty limited where we don't have some ability to either reroute or reschedule.

Michael Rapino -- Chief Executive Officer and President

And Brandon a little color on the cancel and the costs. So there would be no cost. We don't pay an artist until they play. If an artist says if we cancel a show next month in Milan we don't pay the artist. There's no cost incurred. And when the artist replays that show then we pay the artist. So these ones are actually the easier ones to manage. I mean the ones that you always have the more challenge is when the festival gets canceled on a Saturday afternoon when 60000 people are sitting there. That's when you have some marketing and some sunk costs where it may affect you. When you have a month two months anytime you cancel in advance there's actually no cost incurred yet. The artist isn't at the show the people aren't in the venue you haven't paid the cost. So this is the easiest economic challenge for us is to reroute and reschedule a show no cost to us. As Joe said the good news is on the supply demand the show is not going away; it's just moving to a different quarter. The artist will tour whether they have to jump off this quarter and go into fall or '21. We won't net lose the business. And the other demand part that we're just really impressed with because we always talk about the resilience of the concert fan is as of last night we had a sellout in Australia on a festival that went up. The business is real strong. The consumer still seems to be buying the tickets on a global basis. So supply demand will be there. We're going to take this cautiously as we watch the markets and we assume a hotspot will flare up and a show will be canceled here and there. But we're confident long term the show will happen the revenue will flow and the fan will show up. On a macro on a micro 2020 as I think Joe mentioned most of our business doesn't start until the middle of June onward. So the next few months we'll have some cancellations I assume here and there in some arenas and clubs. But the heart of our business happens in the summer. And we're optimistic we hope that it can be handled and the summer months bring us some relief and we'll business as usual. But right now we're being cautious. We're looking at all markets doing the right thing for the artist. We're playing along with the great demand of this industry.

Brandon A Ross -- LightShed Partners -- Analyst

Great. Thank you for the color.

Operator

Next we'll move to Ben Swinburne with Morgan Stanley.

Benjamin Daniel Swinburne -- Morgan Stanley -- Analyst

Hey, good afternoon. I wanted to ask if you could help us think about the leading indicators you gave in your press release and on the your opening comments particularly tickets sold up 10% for 2020 30% growth in confirmed shows. I don't think you gave specific guidance financially for 2020 which I understand but just wondering if you could help put those two numbers into context because they seem quite robust even relative to the growth you just delivered in 2019. And then secondly and I apologize for asking more virus macro-related stuff but I'm sure you understand why. On the sponsorship side can you just help us remind us how much of that business is sort of either annual multiyear relationships versus anything show-specific? Just so we can think about if one or two sizable shows are postponed if we should see that impact sponsorship as well.

Michael Rapino -- Chief Executive Officer and President

I'll do sponsorship and then I'll now sponsorship with most of our we always talk in our reports about our annual global strategic partners. So most of our contracts are over one to three years. They're longer term. They're not very the ones that matter are over multiple events mostly marketable markets multiple markets. So we don't have the beautiful part about our about this business which is dispersed over 30000 shows is we don't have one weekend one show one event that's the $20 million big event. It's really dispersed across the globe across different venues and genres which is the part that makes us a bit risk adverse. So we see no sponsorship risk at all. If a show canceled the sponsor would get the show later and we'll make up for the show. Again going back to our first point as long as we're going to deliver net over the next two years the same amount of shows the growth the tickets that we've kind of delivered for that sponsorship commitment then we see no pullback at all in the long-term sponsor. We talked about the yes we're headed for a record 2020. Business is strong and Joe will give you as what he can on how we'll you can model that.

Joe Berchtold -- President

Sure Ben. As you said we haven't tried to give you full year guidance for a couple of reasons. We don't generally try to do that in February; it's a bit early. And secondly with the uncertainty on the specific timing on the OCESA close it makes it just harder to give you what the overall year looks like. But we absolutely are taking a lot of confidence based on being so far up in terms of the 30% on the show count the 10% up on the fans. I think both of those are exactly leading indicators. They're not projections of where we're going to end up. But I think they're strong indicators that we'll have pretty good growth this year.

Benjamin Daniel Swinburne -- Morgan Stanley -- Analyst

Thank you

Operator

Next we'll move on to Khoa Ngo with Jefferies.

Khoa Duc Ngo -- Jefferies LLC Research -- Analyst

On OCESA is there anything that you can provide any specifics as to why it's still being held up within Mexican government? And then just second question is on a more broader level there was a big transaction that closed in mid-February with one of your competitors and the multiple seems pretty high. And so if we think about the embedded value in the enterprise if we apply that multiple just for your ticketing segment it seems like you can get the concerts and sponsorship pretty at a pretty attractive multiple. Can you just talk broadly of how you think about the value embedded in the broader enterprise?

Joe Berchtold -- President

So let me take the first one on OCESA. I think when we started this several months ago one of the things that we thought was that because OCESA had just gone through some reviews by the same government entity that they were very familiar with the business and it would be a fairly quick process. As it ended up this transaction got put with a different team in a different department. So we had to start a little bit more at the basics in terms of the industry. So we weren't able to shortcut it as much as we thought. There's nothing at this point based on most recent discussions to give us great concern. Just taking a bit longer. In terms of the transaction look our view is simply that we focus on building a great business at Ticketmaster and throughout all of our different pieces. It's up to you guys in the market to specifically value them. We're building this for long-term value for our shareholders up and down the flywheel and we expect that we'll be successful in doing that.

Khoa Duc Ngo -- Jefferies LLC Research -- Analyst

Thanks very much.

Operator

[Operator Instructions] We'll move next to Doug Arthur with Huber Research.

Douglas Middleton Arthur -- Huber Research Partners -- Analyst

Concern would be on the festival business in Europe if there was any kind of wider spread beyond Italy obviously. As you said most of that is in the summer so it's a ways off. But and I think five years ago the festival business in Europe was a big part of your package. I think it's less big today as a component given the growth in other markets. But I'm wondering if you could just sort of size sort of frame the size of that business for you if there was some kind of slowdown or less attendance or even cancellations outright of some of these large festivals over on the continent.

Joe Berchtold -- President

Yes. I think our total festival business would be in the low double-digit portion of our total fan base. And I think our largest single festival would probably be roughly 0.5% of our fan base. So we're across 100-and-change festivals. It's very diversified geographically diversified time-wise over multiple continents. So if there were to be a situation still as we get into July and August and you assume it's located geographically I would not expect that to be a broad impact in terms of our fan count.

Douglas Middleton Arthur -- Huber Research Partners -- Analyst

Okay. And then just one little detail question on the quarter. I kind of asked this question before but it looks like your event count in North America in the fourth quarter was very high year-over-year and relative to recent quarters. Is that just this continuation of massive growth in small clubs and theaters?

Joe Berchtold -- President

Yes theaters and clubs that's I think we called out specifically the volume and the growth in my portion on the number of theaters and clubs and the attendance there. So that is what drove most of it in Q4.

Douglas Middleton Arthur -- Huber Research Partners -- Analyst

And there's no acquisitions in there right in North America?

Michael Rapino -- Chief Executive Officer and President

None of substance. Maybe a club we leased in Philadelphia.

Joe Berchtold -- President

Yes.

Michael Rapino -- Chief Executive Officer and President

Not an acquisition of scale.

Joe Berchtold -- President

Yes.

Douglas Middleton Arthur -- Huber Research Partners -- Analyst

Okay, bye

Operator

And next we'll move on to Stephen Glagola with Cowen.

Stephen William Glagola -- Cowen and Company -- Analyst

Hey, good afternoon. Per the company's Investor Day presentation in November you guys highlighted a $60 million ticketing AOI opportunity from entering in new markets with the Live Nation promoter Presence. These markets primarily consisted of Latin America and Asian countries. Just wanted to ask in light of Ticketmaster's recent expansion into Asia in Taiwan and Singapore can you just discuss high level the economics of both the Latin America ticketing and Asia ticketing and how those markets may differ structurally from both the United States and Europe and any incremental challenges in those markets that you may be facing?

Michael Rapino -- Chief Executive Officer and President

They're well prepared. We're in Asia is less than 0.01% or nothing of our business right now. So it's not a strong business for us currently. I think I would have said in liberty that on a global basis we have a lot of opportunity left international and we look at we look all across the world from Latin America to South Africa to Asia. We think all of those markets India and et cetera are going to be long-term great markets for us that are where we have low market share and are starting to put some shows. So we're happy we got a flag in the ground in Singapore and Taiwan small little businesses. We hope to get more flags in the ground over time. And we think in three to five years from now we hope the Asian business is a big contributor to our overall business as well as Latin America. But those are emerging markets still very new lots of upside but not to date don't actually contribute much to the bottom line.

Stephen William Glagola -- Cowen and Company -- Analyst

Thank you.

Operator

That does conclude our question-and-answer session. At this time I'll turn the call back over to our speakers for any final or additional comments.

Michael Rapino -- Chief Executive Officer and President

Thank you.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Michael Rapino -- Chief Executive Officer and President

Joe Berchtold -- President

Kathy Willard -- Chief Financial Officer

Brandon A Ross -- LightShed Partners -- Analyst

Benjamin Daniel Swinburne -- Morgan Stanley -- Analyst

Khoa Duc Ngo -- Jefferies LLC Research -- Analyst

Douglas Middleton Arthur -- Huber Research Partners -- Analyst

Stephen William Glagola -- Cowen and Company -- Analyst

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