Townsquare Media - Q4 2022

Transcript

Operator (participant)

Good morning. Welcome to Townsquare Media's Fourth Quarter 2022 Conference Call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. With that, I would like to introduce to you the first speaker for today's call, Claire Yenicay, Executive Vice President. Please go ahead.

Claire Yenicay (EVP)

Thank you, operator. Good morning to everyone. Thank you for joining us today for Townsquare's fourth quarter and year-end financial update. With me on the call today are Bill Wilson, our CEO, and Stuart Rosenstein, our CFO and Executive Vice President. Please note that during this call, we may make statements that provide information other than historical information, including statements relating to the company's future expectations, plans, and prospects. These statements are considered forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties, including those that are detailed in the company's annual report on Form 10-K and 10-K/A filed with the SEC.

We may also discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, and adjusted operating income, which we may refer to as profit in our remarks. Such non-GAAP financial measures should be used in conjunction with all the information contained in the quarterly, year-end, and current reports available on our website. I would also encourage all participants to go to our corporate website and download our investor presentation as Bill will reference some of those slides during our discussion this morning. In addition, our annual shareholder letter is now available on our website. At this time, I would like to turn the call over to Bill Wilson.

Bill Wilson (CEO)

Thank you, Claire. Thank you all for joining us this morning. As I look back on 2022, I am very pleased with our results that our digital-first local media strategy delivered despite a progressively challenging economic landscape. We reached new highs and set new records in 2022. However, it wasn't due to a favorable economy or an economic rebound. Starting with the war in Ukraine, then the dramatic rise in gas prices and inflation, together with the persistent impact of COVID-19, the year grew increasingly turbulent, and we entered an environment of ongoing macroeconomic uncertainty. Our success has been the result of the Townsquare team focusing on what we do best, creating high quality, local original content for our audiences, and delivering creative and cost-effective marketing solutions for our local clients with strong return on investment. It paid off.

In 2022, we set new records, reaching all-time high financial metrics and setting new digital audience records as well. In 2022, our net revenue increased +11% year-over-year, reaching an all-time high of $463 million. Impressively and importantly, adjusted EBITDA also reached an all-time high of $113.7 million, growing +8% year-over-year. Unlike most other media companies in a political year, political ad spend did not drive a majority of our growth. Excluding political revenue, net revenue, and Adjusted EBITDA increased over the prior year by a solid +10% and +5% respectively. That was largely driven by the strength of our digital offerings. 2022 was a significant inflection point for our company.

It marked the first year where radio no longer compromised the majority of our revenue and profit, further separating Townsquare from our local media peers and placing a spotlight on our world-class team and our unique and differentiated strategy, assets, platforms, and solutions. As highlighted on slide 11, with 50% digital revenue, we are 2.5x the industry average. We clearly are no longer a broadcast radio company. Therefore, we do not believe we should be continued to be valued as a broadcast radio company as we are today. We believe that because of our differentiated and unique position as a digital-first local media company focused exclusively on markets outside the top 50 cities, we are in a position to weather economic downturns when they occur better than most, and our record-setting 2022 results demonstrate that.

Approximately 50% of our company's total net revenue and 50% of our total adjusted operating income now come from our digital solutions. Historically, for Townsquare and for the advertising industry at large, digital advertising outperforms other forms of advertising during an economic downturn. For example, following the shutdown of businesses across the country due to the COVID-19 pandemic in 2020, Townsquare's digital advertising revenue rebounded quickly, returning to growth by the fourth quarter of 2020. Digital advertising across the United States increased +14.3% year-over-year in 2020, according to S&P Global Market Intelligence. While other forms of traditional advertising, including outdoor, cinema, print, radio, and television declined. As outlined on slide six of our investor presentation, our digital revenue comes from two distinct segments, Townsquare Ignite, our digital advertising solutions, and Townsquare Interactive, our subscription digital marketing solutions.

Townsquare Interactive, our subscription digital marketing solutions offering, which is outlined on slide 13, has been a meaningful growth driver and a key component of our full suite of marketing solutions. In 2022, Townsquare Interactive contributed nearly 20% of our company's total net revenue and adjusted operating income, which is especially relevant in a downturn scenario as it represents a non-advertising based recurring revenue stream. In 2022, Townsquare Interactive net revenue increased +11% to $90 million and profit increased +7% to $26 million.

I do wanna make you aware that in 2023, we expect to see more mild performance in this business as we navigate the challenges that are smaller, and as a reminder, as noted on slide 14, we target clients with less than $5 million in annual revenue, that our local customers are currently facing, including high inflation, labor shortages, higher wages, higher interest rates, et cetera. Additionally, we are very pleased to share that this month, we officially opened the second Townsquare Interactive office in Phoenix. We will be expanding our ranks in the Phoenix office, and as I shared previously, we do not expect the Phoenix location to generate a meaningful lift in subscriber and revenue growth until 2024. Over time, we expect the Phoenix location to scale to the size of our Charlotte location, which today houses well over 600 employees.

For reference, it took approximately one decade to reach that scale in our original Charlotte location. With 30,650 subscribers at the end of 2022, an addressable market of nearly 9 million target customers as outlined on slide 14, superior product offering and huge market opportunity, I am very confident that Townsquare Interactive is geared for long-term, profitable growth and success. Our digital advertising solutions segment outlined on slide 12 grew substantially in 2022, driven by favorable industry dynamics and by our ability to provide a differentiated full suite of in-house digital advertising solutions to our local and regional clients. We provide precision customer targeting solutions to our clients, giving them the ability to reach a high percentage of their online audience across desktop, mobile, connected TV, email, paid search, and social media platforms, utilizing display, video, and native executions.

As a publisher with more than 400 local news and entertainment websites, 390 mobile apps, and 10 leading national music and entertainment websites, we also have the unique ability to collect and analyze first-party data, leading to detailed and unique insights about consumer behaviors, audience interest, and purchase intent. These insights drive real results for our clients and give us a strategic advantage over our local competition. In 2022, we set new audience records with more than 70 million monthly unique visitors on average to our portfolio of owned and operated websites, a +17% year-over-year increase to our 2021 audience levels.

We believe our digital audience growth will continue, further amplifying the attractiveness of our offerings as we fill the expanding void of local information available in our communities due to the dwindling availability of local news sources in small and mid-sized markets, both online and on air. As a publisher with our own first-party data, our position also defends us from industry turmoil that has emerged from the discussion of eliminating third-party cookies, as we do not exclusively rely on third-party data like many of our competitors. In 2022, Townsquare's digital advertising net revenue was again the fastest growing segment of our company and increased +20% year-over-year to $140 million, and digital advertising profit increased +16% year-over-year to $43 million.

S&P Global Market Intelligence latest forecast project that digital advertising in the United States will increase at a +8.5% CAGR through 2027 as it grows from 65% of all advertising spend in 2022 to nearly 75% of all advertising spend in 2027. We are confident that these favorable industry trends, together with our in-house full suite of marketing solutions, investment in our original content strategy, and our first-party data advantage, will continue to drive strong digital advertising growth during that same period. To reinforce that point, even with the current challenging macroeconomic conditions, in Q1, our digital advertising is performing very well and pacing up low double digits.

I am proud to report that in total, our digital revenue grew a very strong +16% year-over-year to $231 million, and importantly, generated $69 million of profit, representing a 30% profit margin, a margin much higher than most local media competitors. We are also reaffirming our expectation that our digital revenue will grow to a minimum of $275 million by 2024. We believe Townsquare's ability to drive profitable, sustainable digital growth is a key differentiator for our company. Digital is and will continue to be our growth engine, and we will continue to aggressively invest in our digital business to fuel further profitable growth. At 50% of our revenue and profit in 2022, we expect that digital will be the majority of our revenue and profit by year-end 2023.

Importantly, our digital profit characteristics are essentially equal to those of our broadcast platform. Digital was the primary reason we were able to recover so quickly from the COVID-19 recession and not only return to 2019 levels, but also quickly surpass those levels as well. We expect our digital revenue will help to mitigate significant national broadcast negative advertising trends that we faced in 2022 and that have worsened in Q1 and help to insulate our financial results. Our flywheel has gained compounding momentum because of the powerful combination of digital plus radio plus live events, and it continues to blaze forward. Yet, we are very aware that our audience does not differentiate between digital and traditional media or website and social.

Rather, consumers live in one world and engage with our brands holistically with no distinction between the over-the-air brand and the website brand, the listening brand, the app brand, or engaging with the brand on social platforms. One only needs to look at how consumers and audiences went about their daily lives just 5 years ago as compared to today. Overall, consumers spend less time today consuming traditional media, including television, cable, newspaper, radio, et cetera, and more time consuming digital media, including streaming services like Netflix, Disney+, OTT, Spotify, YouTube, or social media like Facebook, TikTok, Instagram, and other digital platforms from Amazon to Uber Eats.

The abundance of consumer choice available today drives home the importance of reinforcing every touch point we have with our audience, creating more touch points as new platforms emerge and having a full suite of marketing solutions to leverage them. Before I turn it over to Stu to go over our results in more detail, I would also like to announce that given the performance of our business and our strong free cash flow generation, our board of directors has approved a dividend of $0.1875 per share payable on May first, which equates to $0.75 per share on an annual basis, which today would be a yield of approximately 10%. In our view, the consistent strong free cash flow characteristics of our business, which we believe has not been reflected in our stock price to date, can clearly support this dividend.

As Stu will detail later, we will be providing what we believe is conservative guidance for this year based on current macro conditions. Even with a conservative outlook, we will still generate strong cash flow that can support this dividend, as well as our ability to continue to invest in our digital growth engine, as well as potentially repurchase debt in the open market. We are confident with our current capitalization and the strength of our balance sheet with $43 million of cash on hand at year-end, a fixed interest rate of 6.875%, and no maturities until 2026, and net leverage of 4.29x at year-end 2022, and we are pleased that we can generate attractive current cash returns for our equity shareholders. Now over to you, Stu.

Stuart Rosenstein (CFO and EVP)

Thank you, Bill. Good morning, everyone. It's great to speak to you today. Before turning to our Q4 operating results, let me begin by making a note on our FCC licenses and non-cash impairments. As I covered on previous calls, given the way these non-cash impairments are determined, we expect the value of our FCC licenses to continue to be written down over time. In 2022, as a result of rising interest rates, the assumptions that we used to evaluate our FCC licenses for impairment were negatively impacted. As a result, we took a non-cash impairment charge to our FCC licenses of $10.6 million in the fourth quarter and $26.1 million for the full year.

This write down of decade-old purchase price calculations has no bearing on our cash position, operating revenue, operating expenses, our profitability, or our future prospects. They're nothing more than non-cash accounting charges affecting only the purchase price allocations made when we bought our radio station assets roughly a decade or more ago. Our non-cash impairment charges caused our 2022 net income to decrease by $4.4 million year-over-year to $14.4 million. More importantly, let me now turn to our Q4 and full-year operating results, and then we will discuss our outlook for 2023. We're pleased to report that we finished the year with strong growth, driving us to all-time record high revenue and all-time record high adjusted EBITDA levels in 2022.

Fourth quarter net revenue increased 8.8% over the prior year period to an all-time Q4 high of $120.3 million, which was within our fourth quarter guidance of $116 million-$122 million. In 2022, we reached an all-time high net revenue of $463.1 million, representing 10.8% year-over-year growth. As we discussed on our last earnings call, our fourth quarter strength wasn't due to political, as our markets didn't align well with political races in 2022. Excluding political revenue, fourth quarter net revenue increased 6.8% year-over-year, and full year net revenue increased 9.9% year-over-year.

Fourth quarter adjusted EBITDA increased 11% year-over-year to a Q4 record high of $28.4 million, achieving our guidance range of $27.7 million-$30.7 million. For the year, adjusted EBITDA increased 8.2% year-over-year to an all-time high of $113.7 million. Townsquare Interactive, our subscription digital marketing solution segment, steadily grew net revenue, profit and net subscribers in 2022. In the fourth quarter, net revenue increased 4.4% as compared to the prior year, supported by the addition of approximately 800 net subscribers, and profit increased 6.4% year-over-year.

In 2022, Townsquare Interactive's net revenue increased 10.5% year-over-year to $90.4 million, and profit increased 7% year-over-year to $26.1 million at a 29% profit margin. Townsquare Ignite, our digital advertising segment, was the largest driver of growth in the fourth quarter and full year periods, with net revenue increasing 16.9% year-over-year in the fourth quarter and 20.2% year-over-year for the full year. Digital advertising profit increased 28.9% in Q4 and 15.7% for the full year. We expect our digital advertising segment will continue to be the biggest driver of our revenue and profit growth in 2023 and beyond.

Broadcast advertising net revenue increased approximately 4% year-over-year in the fourth quarter and the full year periods, and increased 0.4% and 2.2% respectively excluding political revenue. Broadcast profit margins were approximately 31% in 2022. We anticipate our broadcast advertising segment will face the most significant headwinds in 2023 as digital historically performs better during a downturn than traditional broadcast advertising. National broadcast revenue declines continue to accelerate and we have not seen a meaningful recovery to our auto spending in our small markets, both of which will weigh heavily on 2023 broadcasting results. Our other category, which is comprised of live events activity, generated $1.6 million of revenue in the fourth quarter and had a small profit of $62,000.

In the full year period, other revenue increased $4.7 million, or 124% to $8.4 million due to hosting more events in 2022 than we did last year. Correspondingly, other profit increased $706,000, or 693% to $808,000 at a 10% profit margin. We generated $18.1 million of positive cash flow from operations in the fourth quarter of 2022, and $50.2 million for the year. Ended the year with $43.4 million of cash. We generated $11 million of less cash from operations in 2022 than we did in the prior year, primarily due to the timing of our interest payments.

In 2021, we only paid $29 million of interest payments due to the timing of our refinancing, as compared to $39 million in 2022. Prior to interest payments, we generated positive cash flow from operations of $89 million, in line with the prior year period. We ended the year with the lowest net leverage in our company's history, reducing net leverage from 4.75x at year-end 2021 to 4.29x at the end of this year. In 2022, we used our cash to repurchase approximately $19 million of our bonds at or below par, and $18 million on the accretive acquisition of Cherry Creek.

As always, our number one priority is to invest in our local business through organic internal investments that support our revenue and profit growth, particularly our digital growth engine. We plan to continue to invest in our digital product technology, sales, content, and support teams, specifically Townsquare Interactive, including at the second Phoenix location and Townsquare Ignite businesses in order to maintain our competitive advantage to markets outside the top 50 cities. As Bill mentioned earlier, our board has approved a dividend payable on May 1st to shareholders of record as of March 27th. The dividend has been set at 18 and three quarters cents per share, which would equate to $0.75 per share on an annualized basis. Based on our current shares outstanding and our current stock price, that would imply an annual payment of approximately $13 million and a dividend yield of approximately 10%.

We believe our strong cash flow characteristics will allow us to continue to invest in our business, support our new dividend, and allow us flexibility to repurchase bonds in the open market opportunistically, even during a downturn. We'd like to remind you that any benefit or provision for income taxes included on the face of the income statement is for GAAP financial statement purposes only. We maintain significant tax attributes, including more than $100 million of federal NOL carryforwards and other substantial tax shields related to the tax amortization of our intangible assets. We continue to believe that we will not be a material cash taxpayer until the year approximately 2026. Turning to our first quarter and 2023 full year outlook.

We expect first quarter net revenue to be between $100 million and $102 million. We anticipate that first quarter digital revenue growth will largely be offset by steep national broadcast revenue declines, leading to a flat to a +2% year-over-year total net revenue growth. We expect first quarter adjusted EBITDA to be between $17.5 million and $18.5 million. For the full year, we currently expect that our revenue will be between $450 million and $470 million. This represents a year-over-year growth rate of +1.5% or +2.7% excluding political at the high end of the range, and a -2.8% or 1.7% excluding political at the low end of the range.

We expect that our 2023 adjusted EBITDA will be between $100 million and $110 million. With that, I will now turn the call back over to Bill.

Bill Wilson (CEO)

Thank you, Stu, thank you to everyone who joined us this morning. We greatly appreciate it. Since our 2010 inception, we have worked diligently to transform our company from a traditional broadcast radio company into a digital-first local media company. With 50% of our revenue and 50% of our profits now coming from digital sources, we certainly have come a long way, but our work is not done. In a rapidly changing landscape for consumers and local businesses, and as advertisers become even more selective during periods of economic hardship, it has never been more important for us to accelerate our transformation and to create Townsquare's future. The ability to continue what we are great at, attack and fix what we are not great at, and to continually iterate to innovate by creating products and solutions that our audience and clients value.

That is what Townsquare is all about, continually evolving and transforming. In closing, I want to highlight a few key takeaways. One, 2022 revenue and EBITDA were both well above 2019 levels, with and without political. Two, both net revenue and adjusted EBITDA represented the highest revenue and the highest adjusted EBITDA that Townsquare has ever achieved with these assets. Three, approximately 50% of our company's total net revenue and 50% of our total adjusted operating income now come from our digital solutions. Four, we've reached the lowest net leverage ever in our history at 4.29x. Five, we generate over $50 million of operating cash flow in 2022. Six, given our confidence in the long-term growth and success of Townsquare, we are initiating a dividend that will generate current cash returns for our shareholders.

Our agenda and focus for 2023 remains consistent with the goals we set for our company several years ago. In 2023, we want to continue to be best in class in entertaining and informing our audiences and communities across all platforms while super serving our clients with world-class marketing and advertising solutions to grow their businesses. Although we are currently navigating a challenging macroeconomic landscape, we believe that our business model and strategy position us to weather this economic environment better than most. We will continue to grow and support our local teams during these periods of macroeconomic challenges so that we can continue to be a resource to our local clients and audiences and be well positioned to capture accelerated growth when economic tailwinds return. As we always do, we are going to create our own opportunities. We are not waiting for them to show up or present themselves.

We create opportunities and overcome challenges. It's the Townsquare way. The Townsquare team's effort, passion, and commitment to transformation is directly driving our growth and innovation. I couldn't be more thankful. Operator, at this time, please open the lines for any and all questions.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Michael Kupinski with Noble Capital Markets. Please proceed.

Michael Kupinski (Director of Research and Senior Research Analyst)

Thank you. Thanks for taking my questions. Congratulations on your digital transition, by the way. A couple questions. Can you break down your thoughts on digital pacings in the first quarter between Ignite and your subscription business?

Bill Wilson (CEO)

Yes. Good morning, Michael. Good to hear from you. Appreciate the questions, as always. In terms of the guide, obviously, that Stu provided for revenue, which was in essence flat to +2%, the breakdown for that in terms of digital will be, we expect our Townsquare Interactive revenue to be flat in Q1. As you saw in Q4, that was about +4%. Just as I described in the pre remarks that I already provided, that we target customers with less than $5 million in revenue, and we've been transparent about that for quite some time in our investor deck. Clearly, those smaller customers are battling higher inflation, higher wages. We're definitely seeing a little more mild performance than normal in Townsquare Interactive.

We anticipate that for Q1 and probably the first half of the year. Ignite, as I noted, continues to just

Be extremely powerful for our company. The differentiation of our being an owned and operated publisher at scale with first-party data, and then our programmatic stack that we've outlined historically on these calls, is truly differentiated and continues to be the fastest-growing part of our company and will be for the foreseeable future. In Q1, Townsquare Ignite is up double digits. It's in that 12%-14% range. I think we'll end up 12%-13% right now. In Q4, as Stu noted, we were up 17%. Townsquare Ignite continues to do quite well. Although you didn't ask about broadcast, while we're just talking about guidance, you know, we noted that national broadcast is almost down 30%, 30, in Q1, so it's material. It's down almost...

it's actually over $3 million just in the quarter versus prior year quarter. While local broadcast is flat. Total broadcast overall will be down mid-single digits. TSI flat, Ignite up low double digits.

Michael Kupinski (Director of Research and Senior Research Analyst)

Bill, a number of radio peers has kind of stepped up digital investments targeting similar customers than your Interactive business. Are you seeing more competition in that space, or is it just simply the market environment?

Bill Wilson (CEO)

It's the market environment, and quite honestly, I think there's some things we can do better as well. You know, we're continually challenge ourselves to perform better. I think there's some things we're doing in that business, based on what we've experienced over the last six months that I think will also help us in the long run. In our view, there's always been competition there. You know, we've also shared quite transparently that the majority of customers that we get through Townsquare Interactive, they all have a web presence already. They're already working with somebody, or they're doing self-serve, or they're using Facebook. Our return on investment, as we've outlined on these calls, is significantly valued by these customers.

I think it's just the macroeconomic environment and everything I just described in terms of the increased expense base. As we brought people back to the office over the past year, Charlotte is our largest location, so we had some return to work, some people who didn't wanna return to work, so we had some, I'd say, changeover there, and we're working through some of those issues as we go through 2023. I expect that, as I said, the revenue to be flat for the first half of the year. From a competitive set, nothing's really changed there at all. Our offering is great ROI and highly differentiated, having everything in-house. As you noted, many other people in either radio or local media are moving to the space.

Very few, if not any, are actually doing it with all the technology in-house. As we've shared before, that is a clear differentiator, and that's also why we can operate Townsquare Interactive. You know, historically, I think we ended the year around 28%, 29% margin. We're really excited about the Phoenix location. We're about 30 people in building. I think we have another six-eight joining us between now and the end of the month. We've talked about bringing our margins down in TSI, Townsquare Interactive, into the mid-20s this year because all of the investment in Phoenix in terms of the personnel, the incremental rent, we won't see the return of increased revenue and increased subscribers till 2024. Obviously, our confidence is extremely high, and that's why we're opening the second location.

As we've outlined in the investor deck, and Michael, you're very well aware, the total addressable market here is $32 billion, and we feel like we're just getting started.

Michael Kupinski (Director of Research and Senior Research Analyst)

Yeah. On your broadcast side, national, what is it, 12%, 14% of your total revenues on broadcasting?

Bill Wilson (CEO)

It's actually under specifically to broadcast, it's about 6%. It is a small part, but it is down 30%. I mean, 30% is a dramatic drop. As I said, it's over $3 million. Sports betting is a big piece of that. You may recall, if you reflect back on Q1 of 2022, actually national in Q1 of 2022 was up 19%. It actually then decelerated through the year to, you know, low single-digit decline in Q2 and then mid-teen declines in Q3 and Q4. It just really fell off dramatically in Q1 of this year. A lot of that is sports betting. Sports betting in 2022 was quite strong.

As you may recall, a lot of states legalized it, including New York, so we saw a big influx of sports betting dollars in Q1 that bled over into Q2. In Q1, currently in 2023, sports betting is down almost $2 million year-over-year. Of the $3 million+ in national declines, sports betting is obviously making up almost 2/3 of that. We think that settles out over the year, and I think that's why when you look at our full year guide, you know, our revenue on the full year side is really ex political, down a couple points or up a few points. We think national will, as we get into the comps in the back of the happy new year, be less of a headwind.

local continues to perform, much better, and as I shared in Q1, is flat.

Michael Kupinski (Director of Research and Senior Research Analyst)

Yeah. Traditionally, your radio stations seem to be pretty stable relative to your larger market radio peers. It seems like, in general, they tend to perform better in past economic headwinds. I was just wondering if outside of the sports betting, are you still, you know, seeing the similar, you know, kind of performance relative to economic scenarios that we've had in the past?

Bill Wilson (CEO)

Yes, very much so. To your point, that's why we are very disciplined. From day one at Townsquare in 2010, our strategy to be the number one local media provider in markets outside the top 50. We've obviously had tremendous opportunities to move into the top 50, we believe it is a completely different business outside the top 50 markets, not only for radio, where the companionship, and as I've described on prior calls, there has been such a lack and a deceleration of news and information. It's quite sad in terms of the media landscape in these markets as it relates to newspapers cutting back. We've seen TV stations exit these markets. We quite honestly feel like we're serving a mission for these communities to provide news and information.

As we've shared in the past. That's why on average, in our size markets, we reach 50, half of the adult population through one of our AM and FMs. When you factor in our digital audience, which is significant, we reach seven in 10 adults in the 74 markets that we operate in. It is such a different business. It is such a different landscape for consumer choice as well as from competitive set in these smaller markets. That's why we have said, "Hey, let's focus on digital as our growth engine." Right? To, you know, today we're 50% digital revenue and profits. As we move forward, that will continue to grow because as you've seen, our digital growth is gonna be double digits for quite some time.

The competitive set there and the ability to bring these very sophisticated digital marketing solutions with Townsquare Interactive and digital advertising solutions with Ignite is quite differentiated. Most importantly for the clients, our mission is to help them grow, and our products do that. The fact that we can use radio, which is number one reach medium, but yet only 6% of all ad spend, but then factor in digital advertising and digital marketing solutions, which today is 65. 65% of every dollar spent today goes to digital. As I shared on my remarks, that's moving to 75%. In essence, $0.75 on every dollar by 2027. Clearly, to be strong in digital is incredibly powerful and differentiated.

To your original point, in smaller markets, we're bringing a level of sophistication and technology and platforms that we believe is second to none.

Michael Kupinski (Director of Research and Senior Research Analyst)

If I may squeeze in just one more, on your interactive business. Are there any particular in categories, you know, that are being, you know, affected at this point? In the past, I believe that you've actually offered, discounts, I know, through the COVID situation that we had. Are you currently giving discounts or are you maintaining your pricing there, in your interactive business?

Bill Wilson (CEO)

Yeah. No, great questions, Michael. Thank you. I appreciate all the commentary. As it relates to categories, no. What I would share is what we're seeing is smaller businesses. Businesses with a smaller revenue base, businesses with more challenging economics. Maybe their wages are increasing based on the area or if they're restaurants and their cost of eggs and food is increasing. Things like that nature we're definitely seeing. Yes, we are working with our customers, as we did during COVID because again, you know, Townsquare's mission is to help these businesses grow. If they're in business and we can help them by giving them some discounts, we are definitely doing that.

That worked quite well during 2020. We went back to full pricing for those clients that we did offer discounts in 2021. You saw that revenue growth come back quite nicely in 2021. That is what I expect here as well. We're gonna work with our clients and serve them and help them along this challenging time. When these conditions lift for them, I don't know when that will be, if that's in the back half of this year or 2024, we will then return them to full pricing. We definitely think that's the right thing to do. We're proud to do it. It clearly will impact our short-term results.

I hope and expect our investors and shareholders to look at what we did in 2020 and then look to 2021 where we posted our best record and profits coming off of that, only to be beaten this past year in 2022. Definitely with headwinds in these smaller businesses in TSI, you'll see muted performance. Add on the fact that we are working with them and providing discounts, that'll add to that well. We're quite confident as we look forward in the future and those clients get back to normal as inflation comes down. Whenever that does, we'll be in a great position again.

Michael Kupinski (Director of Research and Senior Research Analyst)

Great. Thanks, Bill.

Bill Wilson (CEO)

Thank you, Michael. Have a great day.

Operator (participant)

Our next question is from Jim Goss with Barrington Research. Please proceed.

Jim Goss (Managing Director and Senior Equity Research Analyst)

Thank you. Given all that you've laid out now and in recent past about your digital priorities, I was wondering if you might discuss the action you are apparently joining involving ownership caps with within your radio station group. You know, what are the objectives? Is it greater penetration in existing markets that you would like to adjust? Does the sort of instability at the head of the FCC with another nominee dropping out have any impact on your ability to get something like that through?

Bill Wilson (CEO)

Yes. No, great question, Jim, and great to hear from you this morning. For those who don't know, just disclosing in case anybody's not aware, I'm also the executive chair of the National Association of Broadcasters on the radio side. I'm quite involved in the NAB and some of the policies that they lobby on, including lifting the ownership caps. You know, our view personally for Townsquare, speaking not on the NAB's behalf, but on our company's behalf, is the ownership rules are antiquated, you know. They're decades old and you can have a Spotify, a Pandora, a YouTube, so forth and so on, have billions of offerings, yet we're restricted to a certain number of signals. I just feel it's rules based on another time in the past and not relevant now.

Particularly when you factor in what, as I, you know, described with Michael's question, I don't know how many people are in these smaller markets. You know, on average, our population is 300,000 people. It is really concerning to see print newspapers 10 years ago go from printing seven days a week to in many of our markets, there's no longer a printed paper. There's a online version with a paywall, the majority of that content is national, not local. The local content is, you know, crime, weather, and maybe a little sports. We really feel that lifting the ownership caps will allow us to super serve the communities even better.

To your, you know, sub point in there is, yes, we would look for more ownership and penetration in our existing markets first. Secondarily, we would also look at other markets outside the top 50, if the caps were lifted, I think it would be highly advantageous. We've demonstrated, and we're seeing this now with Cherry Creek, that we can go in, and we can really create a diversified media business by transforming a local radio company into a digital-first company. If ownership caps are lifted in the future, we would be pursuing that quite aggressively, and we think it would be the right thing to do. To your last point is, with Gigi withdrawing her nomination for the FCC, I do think it's gonna be a challenging time to get much done there.

I hope in time, and I think we've proven we're quite patient in general, that the ownership caps will be lifted because I think it's the right thing to do for consumers in these communities.

Jim Goss (Managing Director and Senior Equity Research Analyst)

Okay. With regard to TSI, you mentioned that there might be some issues with the return to work aspect in Charlotte. Is that also contributing to the slowdown in the revenue gain in addition to in that area? Is there some destabilization that happens when you have a changeover in personnel if you're pushing that rather than let them work at home?

Bill Wilson (CEO)

Correct. Yes. You know, again, in the spirit of transparency, we always like to share that, maybe overshare to some. Yes, we, through 2022, we had a return to work policy in Charlotte. It's our largest office with over 100 and 600 employees. It's also a population based on an average it's a, you know, mid-20s workforce. There's obviously exceptions to that, but the large majority of the mean is in their mid-20s. They were obviously working remote through COVID for quite some period of time, which is similar to other businesses across the U.S. We made the decision that we'd be returning back to work, and there were some exceptions to that, you know, for people who had tenure and high performers.

If you weren't tenured and a high performer, we in essence required you to come back to work. It could have been hybrid, meaning it may not have been five days in the office, it could be three, two, four, one, so forth. There was a subset of those people who opted out and looked for an opportunity with another company to be able to work remote. That did have some, you know, you asked if it was a destabilization. I would just say, it wasn't destabilizing, but it created some challenges for us in handing over. We've been, again, transparent in that our Townsquare Interactive model has been that a client has a customer service, customer success representative, and that's a one-to-one relationship.

Meaning if you call into Townsquare Interactive, arguably, you got the same person every time. When that person left, and more did during this time of disruption of return to work, it created more challenges for us. I feel quite confident as we sit here on March 9th, we've addressed those challenges. As with the subscription business, pretty much what happened more in the last six months dictates our current results versus what's happening today or over the next six months. Yes, return to work was definitely a challenge for us. We've addressed those challenges, and we're in a great place. We're up, just to be clear too, in case my comment made people think we lost a lot of people, we're net positive in terms of employees at Townsquare Interactive.

Our Phoenix location, again, just opening this month in March, we're coming about I think on roughly 30 people. I think I said earlier, we have 8 new hires joining us by the end of the month. Again, robust, aggressive investment in our digital operation based on the market opportunity and our performance to date.

Jim Goss (Managing Director and Senior Equity Research Analyst)

Okay. Maybe one last question. You were quite aggressive with the dividend increase of 10%+ yield being applied. Could you talk about the rationale behind going that far?

Bill Wilson (CEO)

My pleasure. The dividend clearly speaks to the fact that we have significant strong cash flow and have had that year in and year out. Even during the challenging time of 2020, we had positive operating cash flow. Yes, you are correct. At today's stock price, it is an aggressive yield, approximately 10%, if not slightly higher. As you know, Jim, you know, a year ago, our stock was $13. 15 months ago, we were in the 14, we were above 15 at one point. At a $15 stock price, that would be a 5% yield. Our expectation is that our stock price will get back to the level it was at just a year ago, and it'll grow from there.

But that obviously is not the case today. We've been focused up until this point on utilizing our free cash flow for our digital investment, and we will continue to do that, but also de-levering. We bought open bonds in the open market. We de-levered to the lowest leverage point in the company's history at 4.29x, as you know, at the end of 2022. Yet our stock price has not reflected de-levering. It has not reflected the record-setting revenue, record-setting profits in 2021 and then again in 2022. Our view is we wanna highlight the strong cash flow characteristics, and that's why we wanted to provide a reward to our shareholders.

Even with this performance from a profit and revenue standpoint, given this performance of transforming a local radio company to a digital-first local media company, our shareholders have not been rewarded and seen the appropriate, we believe, stock valuation. That is why we went with the $0.75 a year. My expectation is that although it's a 10%+ yield today, that will come down 'cause we will continue to execute, we will continue to drive our digital growth and our over time, we will be appropriately rewarded from a stock price valuation.

You know, I would also point out that we bought back 12.6 million shares from Oaktree, two years ago today, it was March 9, 2021, and at that time, our stock price was roughly, I believe, and Claire can correct me, or Stu, I believe it was just under $8, $7.90, I believe it was. Yet, after retiring 12.6 million shares, here we are below that point. It, we've obviously evaluated delevering, which we've done quite well. We've evaluated stock buybacks, which we have an authorization of a $50 million buyback that's still active. Yet neither one of those things have actually positively influenced our stock price. Given our stock, our shareholders have not yet been rewarded, we felt the most appropriate thing to do right now was a dividend.

We have strong cash flow, it allows us, as Stu said, it's only roughly about $13 million a year. It allows us to continue to do everything we wanna do from a digital investment standpoint. It allows us now to reward our current shareholders and hopefully future shareholders when they evaluate what a strong cash flow, high yielding dividend and digital company is doing. It also allows us, as Stu said, to opportunistically continue to delever and buy bonds in the open market.

We're quite pleased the board approved this and we look forward to our current shareholders receiving this dividend on May first, and we look forward to hopefully other people who are not shareholders today, having them look at this yield as well as our strong cash flow generation, and then factor that into a growing, robust digital company that's highly differentiated in markets outside the top 50. We're quite excited about the dividend and, pleased to share that with our shareholders.

Jim Goss (Managing Director and Senior Equity Research Analyst)

All right. Thanks. Thanks for the complete answers.

Bill Wilson (CEO)

Thank you, Jim, as always. Appreciate you asking the questions.

Operator (participant)

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Bill for closing comments.

Bill Wilson (CEO)

Thank you, operator. Thanks everybody for joining in today. We're quite pleased and proud to share the results of 2022. We feel that we are in a tremendously strong position to weather the current macroeconomic environment. I just wanna say thank you to the Townsquare team. I feel like the commitment, passion for not only driving the company forward in this transformation to a digital-first local media company, but their commitment to their communities and to our clients is second to none, and we are very, very proud of that. Hope everybody has a great day. Look forward to connecting with you. It should be a couple months from now to share our Q1 results and our Q2 pacing. Have a great day.

Operator (participant)

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.