With just one month left to go in fourth quarter, Townsquare Media says it continues to see strong month-over-month revenue growth and is on track to cut its rate of decline in half for the quarter compared to Q3. “We’ve seen a solid rate of sequential improvement month over month in October and November as well for Q4 as well as pacings in December,” CEO Bill Wilson told the Bank of America Merrill Lynch 2020 Leveraged Finance Virtual Conference on Monday.
After taking a 35% hit in Q2, revenues declined by a less severe 15% in Q3. Wilson told conference attendees he’s optimistic the company can cut that decline to about 7% in Q4. Ad revenues in both its broadcast and digital sectors continue to turn around – with and without political.
Wilson said he’s “feeling quite good about Q4 and the rebound” and the company has “a solid opportunity” this quarter return to its Q4 2019 EBITDA levels (earnings before interest, taxes, depreciation and amortization, a measure of cash flow).
Townsquare Interactive: ‘Very Predictable Business’
Townsquare generates an outsized portion of its revenue from digital, thanks to its subscription-based Townsquare Interactive (TI) digital agency, which is its largest digital revenue contributor. TI is on track to generate over $70 million in revenue this year from 22,000 customers at a 30% profit margin. The company expects to hit $100 million in 2-3 years. “This is a very predictable business for us,” Wilson explained. “Every year for the last four years we’ve grown topline revenue by roughly $10 million and we’ve therefore added $3 million in bottom-line every year.”
With a “vast” addressable market of 8 million local business prospects identified as potential TI customers, Townsquare is considering doubling the number of ad seller it employs, which would reduce the division’s profit margin from 30% to 22%. Once the pandemic subsides, it plans to open a second TI location in the western U.S., after putting those plans on hold when the virus broke out in the spring.
Programmatic ad sales division Townsquare Ignite is it second biggest digital revenue producer, followed by its owned and operated websites and online streams. Podcasting hasn’t been a huge priority for Townsquare – most of its efforts in the arena are focused on local digital audio content from its station air talent. “Similar to our broadcast strategy, it is hyper-local,” Wilson explained. “We are really focused on the 67 local markets that we serve, particularly with newspapers being decimated and stepping away from filling that local news source.” The CEO said its podcasts are “complementary to our broadcast business” and represent “a very small piece of our digital strategy.”
To mitigate the economic impact of the pandemic, Townsquare in April excised $1.7 million in monthly costs, including $1.2 million from trimming about 6% of its fulltime workforce, which Wilson said was mainly from corporate and support roles. Of that $1.2 million, Wilson said “maybe one third would come back” in the form of hiring new digital staffers. Some $3 million in capital expenditure reductions are likely to be permanent.
Refinance On The Horizon
Turning to its balance sheet, Wilson said Townsquare has “zero liquidity concerns” and is growing cash during the pandemic. He expects the company will end the year with $85 million in cash and $50 million undrawn on a revolving line of credit. With a term loan coming due in 2021 and bonds maturing in 2023, Townsquare looks to refinance about $400 million of its existing $545 million in total debt at the end of 2021.
With 44% of revenues coming from digital, Wilson said his job over the next 18 months is to better tell that story to investors, who he believes have under-valued the company’s stock. “We feel strongly that there is a tremendous hidden gem and hidden value in Townsquare Interactive,” Wilson said. “It’s our job to continue to execute and, just as importantly, make our company more understandable, have more people recognize that we’re proud of our broadcast roots and that broadcast is part of our DNA but we have completely pivoted to be a digital company and our growth and margin profile is all about digital while we manage the broadcast business, which is a cash cow and incredibly advantageous in our size markets where we reach one in two adults on average via our radio stations.”
Asked if Townsquare Interactive’s value could be better unlocked by separating it from the rest of the company, Wilson said, “It really is one ecosystem.”