Hello . I am the high-yield cable and media analyst here at Bank of America. We're very pleased to have with us from Townsquare Media, Bill Wilson, CEO, and Stu Rosenstein, CFO. Thank you very much for joining us today.
Good morning. Good to be here.
Great. Thank you. So just to start off on the advertising side, you know, has there been any shifts in conversations with local and national advertisers post-election and any insights into 2025 that you can share?
Yeah, so we heard a lot of hesitancy going into the election. Obviously, I'm sure you've heard that from many in advertising, a lot of clients waiting to see what's going to happen, also how quickly the determination of what was going to come out would take place, so we're very pleased, and it was our expectation that once the election happened and it happened quickly with a result, we've seen people starting to place, particularly for December and into Q1, local and national.
When we reported our Q3 earnings just around a month ago, we had shared that our national broadcast advertising was down over 20%, and that's moderated down to still double-digit decline, but not near the - 20%, and we've seen a nice uptick in local as well, placing for Q1, so definitely moderated since the election, which was our expectation. Very happy to see that. And then, for Q1, our pacing is improving for national as well as local. So, feeling going good into next year. And the results we've seen in the last four weeks and what we're pacing now in December are right in line with the guidance we gave on our last call for broadcast advertising.
Great. And, you know, are there any particular categories that you can call out in terms of maybe, you know, better than expected four weeks ago? And just what are some of the larger categories that are, you know, key drivers on, you know, both the national and local side?
Yeah, so the good thing for us is our broadcast business is really driven by local. You know, national broadcast advertising is less than 10% of the company's revenue, so it's about 7%, and that's been coming down quite consistently. You know, our view is that national is in a secular decline. We don't expect that to return to growth. That may plateau over time, and local is, in our view, a traditional cash cow. We view our broadcast business as a traditional cash cow. We'll moderate the expense base with the revenue. In terms of our five-year plan, we expect broadcast to be a slow decline with national performing worse than local, but all baked in down a couple points.
Some people have a different view, and if they end up being right, that would be wonderful. But in terms of categories, you know, things like auto, commercial real estate, retail, entertainment, all of those are probably the primary larger categories, but really not a significant change in terms of certain categories driving growth versus others declining. Our view is the industry is generally in a secular decline across all categories.
Great, and then, you know, as you did mention, Bill, that national is in a secular decline, so how do you think about that business, you know, and especially within the context of Townsquare overall, let's say two, three, five years out?
Yeah. So we, again, we view broadcast as, call it a - 2% - 4% CAGR ex-political. And we've been moderating the expense base so that our broadcast business is still, I think, in the trailing 12-month 26% profit margin, which is better than iHeart, much better than Audacy, Cumulus, Beasley, so forth, the other publicly traded companies. So we've been able to do a great job of moderating the expense base along with the revenue. And that's what we expect to see going forward and manage it that way. Our growth driver is digital, which I know we'll talk about in a few minutes. And we don't think we'd have the success we've had in our digital advertising and digital marketing solutions without the connection of radio.
You know, I think one of the key differentiators from just a pure radio perspective is Townsquare is the only local media company, not just broadcast, that is focused on markets outside the top 50, so when you think about our average population is about 300,000 people, and these cities where 74 markets have been decimated from a local news and information standpoint, I'm sure everybody's familiar with the decline of the newspaper. There's many markets that used to deliver newspaper printed seven days a week, even five years ago, who don't even have a printed paper anymore, so we've come in to fill that void from an online perspective as well as an on-air perspective, so our time spent listening in cume has been tremendously stable over the last several years, where I think the industry at large has great cume, but the time spent listening has been decreasing. So again, I think there's potentially plateauing in that business, but from a strategic planning standpoint, we look at it as a slow decline. We'll moderate the expenses, and our growth will be in digital.
On political, you know, obviously a little bit lower than expectations. You know, can you just discuss some of the puts and takes there? Was it rates dependent? Was it dollar shifting to other mediums? You know, your expectations also on a go forward?
Yeah. And I think TV did pretty much where they thought. Our expectation on a full year basis was $16 million, which would have matched our best year in 2020. We came in just short of that at $13 million. So still the second best year ever in the company's history, but not what we were hoping for. Obviously, a $3 million variance there. We thought we'd get a lot more dollars in Michigan because it was a swing state, but we were really only in Michigan. That was the only major swing state in terms of battleground. And there was obviously no primary where previously in 2020 got a lot of money from Bloomberg and others early on that didn't happen. So didn't meet our expectations by about $3 million. It's a high profit margin, almost, you know, 90%.
That's a decline of about $3 million in our EBITDA that we were expecting. And that's we lowered our guidance on the Q3 call, our narrative from 100 to 101 as a result. But again, still the second best. So I don't think it's in a situation where we're not going to get those dollars in 2026 and 2028. I just think it's also where you situate in terms of the battlegrounds.
Got it. Great. And then moving on to interactive, obviously the digital marketing solutions business. You know, for Q4, you're actually looking at or expecting revenue growth in that quarter. You know, can you discuss some of the key drivers, whether that be the SaaS, you know, management platform, you know, basically what is driving some of that growth?
Yeah. Really, really proud of the Townsquare Interactive team. It's a division of the company that we built organically over a decade ago, and we were growing top-line revenue about $10 million, profit about $2.5 million-$3 million a year. Hit a speed bump as a return to work and high inflation, focused on small businesses with less than 20 employees, less than $5 million in revenue. So definitely had a couple of challenges over the last, I'd say, six or seven quarters. And as you just noted, thankfully we returned to subscriber growth and sequential revenue growth month over month and quarter over quarter back in March. And now for Q4, it'll be the first time we're returning to year-over-year revenue growth, which is a nice place to be going into 2025. As you noted, we launched a business management platform.
So in addition to building people's websites, hosting those websites, driving search engine optimization, organic search traffic, reputation management, all the things we've been doing for a while, we've built a CRM for clients. We've built accounts payable and invoicing for clients, and that's been doing extremely well. So not only having a great web presence and driving new audiences to the website and therefore new customers to the business, but now helping them manage their business more effectively as a SaaS business has been a real nice uptick for our business going into 2025. So when we think about 2025, we expect to see not only continued revenue growth, but given the investment that we've continued to pour into that division, we'll return to profit growth, which we haven't had for, in essence, since 2022.
Great. And I think, you know, right now there's about 24,000 subscribers in interactive. You've discussed the TAM being around 9 million. So how do you think about, you know, how far you can extend that subscriber base? You know, for example, what's the target, let's say maybe by 2025, 2026? What is the timing and pace of that expansion and how much of that can you capture?
Yeah. And we just opened a second location. Our primary location is in Charlotte, which is about 400 people that we opened about a decade ago. We opened the second location about a year ago in Phoenix. That's growing quite nicely. And then we think about 2025, we're really focused, number one and number two, on profit. So that's our primary driver. Just since we didn't have that profit growth in 2023 and 2024, the team is laser-focused on profit growth and then revenue growth and then subscriber growth in that order. So when we think about next year, I would say we're looking at $1 million-$2 million of profit growth. Again, we had lost some profits over time, so it would be nice to return to that. And that would translate to about $5 million-$6 million of top-line growth. We operate that business at a very healthy margin, and then I think when you think past 2025, going into 2026, we'll go back to where we were historically, if not greater than that, which would be $10 million top-line revenue and $3 million profit growth every year.
Great, and the margin in that segment's about 28%. So do you see that as a normalized level on a go forward basis?
Yeah. The great news for us, even in some of the challenging times in terms of revenue growth, we've operated that consistently at a 28% margin, and that is our expectation for next year and ongoing to continue. We moderate our investment in terms of personnel and technology to maintain that. Even in 2020, during the COVID year, we operated it at a 28% margin in that zone, so that is our expectation and our plan.
Great, and then moving on to Ignite, which is your digital ad segment, you know, how is that segment, you know, differentiated from similar offerings from competitors? And, you know, similar to Interactive, what are the growth drivers there?
Yeah. Couldn't be more pleased. So our Ignite division is our digital advertising division of the company. It's been the fastest growing part of the company for the last five years, not only in terms of revenue growth, but also profit growth. It's one of the drivers of the reason that Townsquare has more revenue and profit in our digital businesses than our broadcast business. And in terms of the differentiations, to your question, it's really multifold. One is we're one of the largest publishers of original local content in the United States. So as I described earlier in the broadcast business, for online, we fill the void of a newspaper. So if anybody would go to one of our local websites, WJON and St. Cloud, you'd think you'd be at a newspaper. If you go to WGRD and Grand Rapids, you'd think you're seeing GQ online.
We've really amassed a significant at-scale audience that has allowed us to collect first-party data. We believe in our 74 markets, we have more information about demographic, psychographic interest about the communities than anybody else. That is a major differentiation for us as a publisher at scale. Then you factor in that in Ignite, our digital advertising segment, 60% of the revenue and 60% of the profit is programmatic. Programmatic, if you're familiar with that, it's the fastest part of digital advertising, the fastest part of advertising growth in the United States. It's, in essence, serving the right message at the right time across any connected device. The greatest drivers of that growth for us are streaming TV. Five years ago, we couldn't compete with cable TV or local TV.
Now we're creating television ads, serving television ads in front of Hulu, Netflix, Prime Video, obviously a significant opportunity for the company moving forward. So great opportunity in streaming video, social video in terms of reels on Instagram, TikTok, Facebook. So that is a huge growth driver for us and very differentiated. We're integrated with, in essence, every DSP. So Xandr, Simpli.fi, The Trade Desk, Madhive, literally dozens of DSPs. And then we have a technology stack that we've created to determine where's the best place to buy the inventory to serve it in terms of not only pricing, but at the right site with the right message. So it's very, very differentiated. There's a lot of competitors out there, be it television, print, digital agencies, but we think we have a highly differentiated offering. I think when you look at our results in that segment to date and what we expect moving forward, I think the results show that it's highly differentiated.
Great. And what is the opportunity from SummitMedia , for example, just discussed on the last call? And, you know, when could we expect that to flow through in the financials?
Yeah, so for those who aren't aware, we've been approached by others in the broadcast space, not only radio, but also television, as well as people in outdoor and print, to begin to white label our programmatic offering. So the first beginning of that was in Q1 of this year with a company who hasn't disclosed it publicly and we're under NDA, but they're in Nevada and they had one market. That has gone very well for them. It's gone very well for us. And then SummitMedia , who are nine markets, none of them overlap with Townsquare, came to us over the summer asking us to white label. And that has begun in terms of training, as well as some ad placement in Q4. We're extremely excited by the opportunity with Summit. Great operator in broadcast, but we're looking to diversify their revenue stream to grow in digital.
They looked at us as best in class and partnered with us. We expect next year that could be an incremental, call it $4 million of revenue to us. The model there is that we, in essence, charge them a wholesale rate and we do everything for them just like we do for our clients. We create the marketing message, do all the creative, not only serve the ads, do all the reporting, all of those things. And this, in essence, what Summit's in charge of is selling it to the client and meeting with the client. We think that could be a $50 million division if you're thinking three, four years out. We're already in discussions with some significant other broadcasters in the space who would like to see the success we've had in programmatic, as well as some smaller mom-and-pops.
For us, I think the minimum threshold would be roughly, you know, $500,000 a market for us to make sense initially to put the time and investment and energy towards it, but couldn't be more excited about where that's going. And I also think it speaks to us being highly differentiated in this offering or else why would they be choosing us versus others in the space?
Great. And then, you know, for your full year guidance, you know, you're looking at, you know, $448-$452 on the revenue side, $100-$101 million for adjusted EBITDA. You know, as we think about next year, you know, what are some of the elements of the business that you're focused on that will be clips and takes to the overall EBITDA for the full year?
Exactly. So when we're thinking about EBITDA next year, let's call it for round numbers $100 million this year. I just mentioned we did $13 million, roughly $13 million in political. Next year, we think we'll do roughly $3 million. We usually do about $3 million in our off-political year. So we'd be losing about $10 million of political revenue, call that $9 million in profit. So that $100 million, we go down to $91 million. As I just noted, we think our broadcast business conservatively probably loses a couple million in terms of EBITDA to be conservative. So you're talking about, you know, call it $90 million, $89 million. And then we think we get into that $97-$98 million range for next year because of growth in our digital advertising division, quite significant. That'll be by far the largest profit growth in 2025.
But then again, as I noted, we think we're going to grow our Townsquare Interactive, call it $1 million-$2 million next year after having that declined $5 million over 2023 and 2024. So that gets us into the 97-98 point. And then when you think further out, we see continued growth in Townsquare Interactive after next year. We think, as I said earlier, growing back to $3 million in profit ongoing and then growing from there. And then from a digital advertising perspective, quite honestly, the sky's the limit. We really, right now today, in our size markets, we have less than 15% market share of the revenue. So even without that market growing, we're already seeing a lot of share shifting from dollars being placed with others to us, but the market's growing high single digits to low double digits. So with the combination of differentiation and market share shift and growth and programmatic, we feel extremely well positioned for ongoing success to over time get our EBITDA up to 105, 110, 115 over the next three to five years.
Great. And then moving on to, you know, some free cash flow items, you know, from a tax perspective, you're not a material cash taxpayer, won't be until roughly 2006 when you basically use up all your NOLs and other tax shields. Is there any way to just gauge roughly, you know, what the tax level could be, you know, once the NOLs are?
So we have a normal effective corporate tax rate in 27%-28%. But it's not, it may be 27, may even be 28. We'll see what happens. But not necessarily over in 2026.
Great, and that timeline is still in place roughly through 2026. Great.
Yes.
And then in terms of CapEx, you know, can you just talk about some of the uses there and how should we think about maintenance CapEx levels?
Okay. So all in total CapEx, maintenance plus growth CapEx for computers and desks and furniture and also technology CapEx, we should think about it as $15 million a year going forward. This year, we accelerated that a little bit and it'll be probably $17 or $18 million because we put in a lot of new technology that will help us grow EBITDA. The other thing is that CapEx is a gross number. So there are times when we get, you know, if we lose a tower, an antenna in a storm, it's $2 million and we have to replace it. That's included in that $15 million CapEx, even though we've gotten insurance proceeds of $2 or $3 million. So it's really net less than $15 million. So you should think about cash flow CapEx or cash outflows CapEx, the $12-$13 million a year.
Great. And then what is the lowest cash and liquidity balance that you like to maintain?
I mean, we could run this business with $2 million, $3 million, but we'll always keep, you know, somewhere between $5 million and $8 million. You know, we've spent, we've paid down, well, we floated our existing bond back in 2021, it was $550 million. We've paid down $83 million of that debt in the last four years. Our level, we now have $467 million. We're going to refinance that, you know, early next year. And instead of taking a bond, because now four years ago when interest rates were zero, we thought interest rates had no place to go up. So let's lock in a fixed rate. Now we think interest rates will come down over the next four to seven years. So we're going to issue term notes, a bank loan.
For those of you who are interested, you know, we have been a perennial $100 million a year EBITDA business with $35 million-$45 million of free cash flow every single year. You know, we're thinking, we're being told we'll probably have a, we'll go out at SOFR plus 375 to 4. So it's a nice coupon, it's 8%. And you guys should think about this as a sleep at night loan. You should have absolutely no concerns. I mean, you could look at us for the last 10 years, you know, we've been, you know, a hair over, a hair under $100 million of EBITDA with $40 million-$45 million of free cash flow. So, you know, we're looking forward to locking that down because now for the last four years, we've had to go out into the marketplace and find people willing to part with our bonds.
And it hadn't been until this past year that they came down under par. So we bought a bunch, you know, at par a little bit over, but this past year we bought a bunch under par. So we'll be able to pay down debt, you know, monthly with a bank loan, as you know. It'll be a lot easier for us. So, you know, we'll go out at a $460 million bank loan. It'll be about 4.6 times levered to start. You know, with, we expect rates to come down. I mean, they're talking about a quarter point each quarter next year. So, you know, we expect to de-lever relatively quickly and we'll, our midterm goals are, you know, between under four to three and a half in the real near term.
Great. And is that something you still look to do before February 1st?
Yeah. We'll get this done in January.
Okay. Great, and then, you know, other capital allocation priorities, you know, obviously the balance sheet, very focused on that, but, you know, other priorities in terms of investment, which parts of the business, you know, any flexibility on the dividend, you know?
We've always, well, historically we've increased our dividend 5% a year, assuming nothing radical changes. We hope to be able to continue to do that every year going forwards. The dividends are really good incentive for equity holders. You know, investments are $40 million-$45 million of free cash flow include investing in these businesses as we go along. We've invested tens of millions of dollars every year into our digital platform and our programmatic platform. So we'll continue to always do that.
Great. And are there any cost-saving opportunities as you look at the business, the business is shifting, you know, that you can take out next year and forward, you know, any?
So we constantly look at costs. If revenues decline faster than we expect in the broadcast business, there's a lot of levers you could pull and save a lot of money in the broadcast business. In our digital business, we're continuing to invest. We're not looking to cut costs there. I mean, we're in the very low percentage penetration rates of the total TAM market for the digital marketing services business. And programmatic is just such a great ROI for investors in these small markets. We are, you know, when you think about it, we're not really competing on a digital basis against anybody in our markets because we compete. The radio competitors are either small mom-and-pops and they have one or two stations or even two clusters. Their platform's not big enough to invest the tens of millions of dollars every year to build a digital business.
The large radio aggregators, you know, they never built a digital product because they were always going to face Facebook and Google, and it was just not, it was not an adversary that they thought they wanted to invest in and fight with, so you know, we're the 900-pound gorilla in digital in our marketplaces, so you know, we really like the space that we're in and we really like the position that we're in. I think over the next two years, you'll see us de-lever a lot with this bank loan and, you know, get a little help on inflation and we get a little help on interest rates and get a little help with the psychology of our customers in the marketplace. You know, it's been tough the last couple of years. They borrowed a lot when rates were zero.
They were in, I mean, I don't want to say anything bad, but they chose to take the lower variable rate and now the rates have gone up. It's hard for them. And with inflationary pricing in mid-America, I mean, most of us in this room live in big cities. I don't know if anyone's ever lived in a small city. But our customers are, you know, pretty much sole practitioners, you know, five to ten employees in a business at the most. And, you know, it's been tough for them over the last two years. And we've been steady. You know, we've helped them. They've relied on us. We actually, they think of us as partners. You know, they look to us to help them. We do their media buying. We do their creative, you know, because it's all included in the price and it's a real good deal for them. And we're helped, we're thankful of their loyalty and we like to help them because, you know, they're real working communities and these communities need to advertise. And it's been, it's a really good spot.
Stu, you touched on this briefly. You said, you know, getting leveraged down to four, maybe three and three quarters. Is that the right leverage profile for this business in your view?
I would turn that question out to the audience because personally, you know, I think we could manage this business at seven times leverage and it's fine. But when I say that, people cringe. Yeah, we'll get this down under four, you know, in the moderate time. I think we'll level off somewhere between three and three and a half.
Yeah, three, low threes.
Okay. And then obviously in a post-election environment, there's a focus on any, you know, regulatory changes. And do you have any views or, you know, optimism about, you know, loosening some of the ownership caps or, you know, M&A or, you know, obviously just, you know, duopolies or, you know, some limitation on markets? You know, I'd love your thoughts on that.
Yeah. I was the radio chair of the board at the NAB for a few years, just turned over recently. And my perspective is that the rules, the current regulations are completely outdated. There's obviously a lot of discussion around that. Now with Carr being nominated to head the FCC, my expectation is dereg is definitely going to happen. I've been saying that for years. It's just a matter of when it's going to happen. I think the longer it takes, you see more and more industries getting hurt by it in terms of newspapers, television with cord cutting, broadcast. And I think once that loosens up, we'll have a more competitive landscape to compete. And I think the opportunity for acquisitions will be there. Our last acquisition was Cherry Creek, and that was about two years ago now, about summer of 2022.
We said, hey, we're going to buy this. I think we bought at a multiple of around six times, but we're going to double the profit and the cash flow within three to five years. Two and a half years in, we're right on target. We'll probably double the cash flow within four years. So the opportunity to acquire other great operators who are great in broadcast but don't have the diversification of digital is clearly something that we've done well. You know, we bought 20 plus markets from Cumulus. We bought Connoisseur markets. We bought Cherry Creek. Each of those, as broadcast has declined, we've still grown EBITDA and profit based on our digital strategy.
Great, and Bill, you actually touched on one of my, you know, questions in that. Do you see Townsquare in a position of being an acquirer and/or possibly seller of assets, you know, kind of in a, you know, different regulatory environment?
Yeah, I think anything's possible. Clearly the record is showing we're clearly an acquirer. I don't think we've sold anything other than we did a swap a while back with Cumulus, but that's so. I think we'd be an acquirer in that state because of our diversification of Townsquare Interactive and Ignite. Having said that, you look at the Summit partnership. We don't have to deploy any capital and we get a lot of benefit in terms of not only revenue, but importantly, cash flow and profit. So it allows us to now continue our footprint of digital advertising with partners like Summit into nine markets that, as I said, next year could be $4 million. We think that doubles in two to three years just from a Summit perspective. As we talk to others, that could be a $50 million opportunity in 2027, 2028. And then we could use that cash as opposed to buying these partners. We could de-lever and that would be our number one focus to get down into that 3 to 3.5 zone.
Yeah. And what do you think are the biggest opportunities for, you know, kind of radio digital segments and for Townsquare in general over the next few years?
Yeah, I think it's exactly what we've been doing and continue to do, which is, as Stu just said, we're very well situated, diversified, have a great competitive moat in these markets outside the top 50 cities. Really, as Stu said, a partner to these local businesses with Townsquare Interactive being a great subscription-based business to help them run their business, drive incremental customers. And then the benefit, listen, broadcast is still a great business, great cash flow. You know, on average in our size markets with our AM/FMs, we own average six and another 74 markets. We reach one in two adults over AM/FM. So to go into a local business owner and say, if you advertise with us on air, you're going to reach one in two adults in this market.
If you do that and then also advertise on our local websites in your market, you're going to reach 70%-75% of the adults here, so we think there's nobody else who can say that or do that, so we think digital advertising growth is going to be significant as it has been. Townsquare Interactive returns to growth, and then broadcast will be a traditional cash cow business and we'll manage it as we see fit.
Great. And in our closing minute, I, you know, just love your thoughts on what do you think is most understood or underappreciated about radio, digital, Townsquare, the industry right now?
Yeah, I'll take. I think the most misunderstood issue about Townsquare is that people just think we're a radio business. We're not a radio business. We're a local media partner and we're in markets that are fully functional, economic, stabilized businesses. They're not boom bust markets. It's not, you know, they're not doing great when the oil is drilling. It's not doing great when real estate's high and bust when it's low. So we have, you know, real economies with real businesses that people live in and work in and they need to advertise. And whether times are good or bad, they always need to advertise. So we are a pretty stable. We're in stable economies. Our business is very stable. If you look at it for the last over a decade, you know, EBITDA has been over $100 million. Cash flow has been between $38 million and $42 million.
Even in a bad COVID year, we still beat cash. So if you're thinking of, if you're lenders, my last cheesy plug here is you should think about our bank deal as a really safe sleep at night loan, right? You're going to get a much higher coupon than we think you should get. You know, we think we're being tagged as a radio business. We think we should be SOFR plus two. We're a B+ B2 company, which, you know, because I think we're in the radio space. But, you know, this is an unusually good loan to make and we're happy to have anybody that has any questions about it come talk to us.
The last thing I'll just say is I think as our revenue has grown from a digital perspective, four or five years ago, it was 20%-25% of our business. Now it's 52% of our revenue, 52% of our profit. Fast forward probably two, three years, you're going to talk about 70%-75%, so I think that changes the whole complexity of the company. Right now we've got three divisions and broadcast still is the largest of the three divisions from a profit standpoint, and I think that is changing rapidly with the growth of our Ignite business and the return to growth of Interactive, so I think once you see that complexion of 70%-75% profit coming from digital and being sustainable every year and being able to manage the traditional broadcast business as a cash cow, I think people reevaluate the company and see it differently.
Great. Well, Bill, Stu, thank you so much for your time. It was a pleasure talking to you.
Thank you. Thank you. Thank you.
Thanks for being here.