Q1 2024 Earnings Summary
- Townsquare Interactive returned to subscriber growth in March, ahead of expectations, with month-over-month revenue growth continuing in April, indicating a strong recovery and growth trajectory for the company's digital marketing solutions business.
- The company's pivot to a SaaS business model by adding a business management platform—including CRM, invoicing, and payment solutions integrated with QuickBooks—has broadened their target market, increased sales velocity, and is expected to significantly contribute to growth over the next 3–5 years, with profit margins remaining in the mid-to-high 20% range.
- Townsquare is actively buying back stock at undervalued prices, increasing dividends, and deleveraging, reflecting strong cash flow generation and commitment to building shareholder value; management believes the stock is significantly undervalued, with intrinsic value estimated at over $25 per share compared to the current price of around $12.50.
- Declining Revenues and Profits: In the first quarter, net revenue declined 3.4% year-over-year to $99.6 million. Excluding political revenue, net revenue declined 4.2%. Adjusted EBITDA declined 9.9% year-over-year to $17.5 million. Townsquare Interactive's net revenue decreased 15.3%, and profit decreased 9.7% year-over-year , indicating significant weakness in their digital marketing solutions segment.
- Weakness in National Digital Advertising: National digital advertising revenue declined 29% in the first quarter , and is expected to decline over 30% in the second quarter. The company attributes this decline to significant changes in algorithms for Google and social media referrals, which have negatively impacted their national audience. Continued declines in national digital advertising could adversely affect overall digital revenue growth.
- High Leverage and Refinancing Risk: The company's net leverage was 4.56x at the end of the first quarter, increasing to 4.7x pro forma after the April 1 share repurchase from MSG. They have notes due in February 2026 that will need to be refinanced. Although management expresses confidence in their ability to refinance, the high leverage ratio may pose a risk if market conditions become unfavorable.
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Townsquare Interactive Growth
Q: When will TSI return to quarterly revenue growth?
A: Management expects Townsquare Interactive to achieve quarter-over-quarter revenue growth potentially in Q2, as they are seeing month-over-month revenue growth now. Year-over-year revenue growth is anticipated in Q1 2025, since they need time to recover from previous subscriber losses. They are confident in the business's return to growth, bolstered by increased sales velocity in both Phoenix and Charlotte and a reduction in churn, though it remains above historical levels. The introduction of a business management platform offering SaaS services like CRM, invoicing, and payment integration is attracting new clients, including those migrating from competitors. Management believes this pivot to SaaS will make the service stickier and reduce churn further. -
Broadcast Business Outlook
Q: How is the broadcast business performing and what is the outlook?
A: The broadcast segment declined by just 1% in Q1, a significant improvement over previous quarters. National advertising remained a drag, down 9%, but better than the 20% decline last year. Management notes that national advertising is stabilizing and expects improvement in Q2. They attribute their resilience to focusing on markets outside the top 50 and continuing to invest in local content, which is leading to market share gains. The sentiment among advertisers is improving, and they anticipate a potential tailwind as interest rates and inflation decrease. -
Capital Allocation and M&A
Q: What are the plans for capital allocation and potential M&A?
A: The company is focused on deleveraging and highlights their strong cash flow from operations. They have been buying back stock and paying dividends, having recently increased the dividend. Management is considering future M&A opportunities in the radio space but plans to pursue these after completing their refinancing. They express satisfaction with the previous acquisition of Cherry Creek, noting significant profit growth and digital revenue expansion in that business. -
SaaS Services and Profitability
Q: What are the new SaaS services, and how do they impact profitability?
A: Townsquare Interactive has expanded its offerings to include a business management platform with services such as CRM, invoicing, payment processing, and integration with QuickBooks. This pivot to SaaS allows them to target businesses that already have strong websites but need management tools. The profitability of these new services is roughly in line with their traditional offerings, maintaining margins in the mid-to-high 20% range. Management is encouraged by the early results and believes these services will help reduce churn and broaden their market. -
Radio Business Risks
Q: Are there concerns about erosion in the radio business due to technology changes?
A: While acknowledging the potential for greater erosion in radio over the next five years due to technological advancements in cars and shifting demographics, management believes they are well-positioned. They note that more people listen to AM/FM radio today than ten years ago, and it's now the #1 reach medium. Their time spent listening remains stable because they focus on markets outside the top 50 and continue to invest in local content, filling news deserts. Additionally, they see opportunities in digital streaming, with over 15% of listeners accessing broadcasts via streams, apps, and connected devices. The company is prepared for industry changes due to the growth of their digital platforms and diversification.