RBR+TVBR Analysis
When the members of Townsquare Media‘s C-Suite look back on some of the company’s key achievements and pivot points, 2020 will certainly be recalled as the year of change.
Yes, radio is very much an integral — and important — revenue source for the company. That said, Townsquare became a digital first company in 2020. The result? It is among the first media companies to dare to compare the first three months of 2021 with that of Q1 2019.
That’s a good thing, as live events are already coming back while Townsquare Interactive is igniting, no pun intended, the entire company.
Speaking on Townsquare’s quarterly earnings call for analysts and investors, CEO Bill Wilson (pictured, top left) noted that “2021 is off to a strong start,” while also expressing how he feels “incredibly optimistic about where we are today and, most importantly, the future of Townsquare.”
It’s clear as to why Townsquare surpassed even its own predictions in Q1: Digital is delivering, and quickly. That’s exciting shareholders, as TSQ was up 8.8% to $11.25 as of 10:40am Eastern.
But, it is perhaps the comps to two years ago that are truly noteworthy.
“We are on the verge of a full financial recovery to pre-COVID levels, and one of the key drivers is our strong digital performance,” Wilson said. “Although we are very proud of our roots and DNA in local radio, and we are proud to call it local radio, Townsquare became a Digital First company in 2020.”
As it did so, Townsquare is achieving growth outside of the markets in which it owns radio stations. That is another distinction point likely gaining investor notice. As of today, Townsquare Interactive provides digital marketing opportunities to roughly 23,600 small and mid-sized local businesses across the U.S.
“While we were able to incubate this product in our local radio markets, we have also proven that we can very successfully provide our Townsquare Interactive solution outside of our radio markets, with now 57% of our current client base residing outside of our radio markets today,” Wilson said.
With SMBs fueling Townsquare Interactive, exclusion of certain types of businesses determined to not be “the ideal fit for our solutions” does limit participation. For instance, real estate agents and banks are given a polite thank you, but are declined.
“After applying all of those filters, that equates to over 8.8 million target customers for Townsquare Interactive,” Wilson said. “At a $300 per month ARPU, that equates to an estimated $32 billion total addressable market for Townsquare Interactive, of which we are only capturing a small fraction today. There is incredible, incredible upside.”
EVENT HORIZON
Live Events remains the only part of the Townsquare Media business that through Q1 2021 hasn’t had the opportunity to recover from the pandemic. However, starting in the second quarter, the company has started to schedule a handful of live events in markets that have loosened restrictions.
“For example, last week we hosted the Red Dirt BBQ Festival in Tyler, Tex.,” Wilson said. It was a “huge success,” setting an all-time profit record, he noted. This bodes well for upcoming live events. “For Q2, we are expecting to generate close to $1 million of Live Events net revenue, at a high 20% profit margin,” he noted.
With CFO Stu Rosenstein reviewing the Townsquare financials in depth, Wilson concluded his remarks by again noting that comps to two years ago will be offered across the remainder of the year. “As you hear us discuss our financial results moving forward, our primary focus will be to compare our 2021 results to 2019 levels, as any comparisons to 2020 pandemic depressed levels will be in our view somewhat irrelevant,” he said.
“As you hear us discuss our financial results moving forward, our primary focus will be to compare our 2021 results to 2019 levels, as any comparisons to 2020 pandemic depressed levels will be in our view somewhat irrelevant.” — Bill Wilson
In Q2, Rosenstein said, revenue is forecast to grow 36%-40% against pandemic-influenced comps, to between $101 million and $104 million. “As compared to the second quarter of 2019, which we believe is a more relevant comparison, this represents a decline of -8% to -11%,” Rosenstein said. “Excluding Live Events, we expect second quarter net revenue to be down only 4% to 6% as compared to 2019 levels, and Adjusted EBITDA to be down 3% on the low-end, but slightly above 2019 levels on the high-end.”
During a Q&A session that saw questions from two analysts: Michael Kupinski of NOBLE Capital Markets and Jim Goss of Barrington Research, Kupinski congratulated Townsquare on the quarterly results, with Kupinski asking Townsquare executives to repeat their second quarter guidance “because it sounds exceptional.”
And, if those numbers hold up, the fiscal 2021 outlook from Townsquare is “very conservative,” in Kupinski’s view.
Goss queried if Townsquare would consider a “start over” with regard to live events? Would the company review which ones it should go forwardwith, and those it may wish to not restart?
With “much pruning” of the live events business seen across 2017 and 2018 under previous leadership, Wilson replied, “At this point, we will see a continuation of a large majority, if not all, of the live events staged in 2019 again in 2022.”
A FINAL TWO QUESTIONS
It is Townsquare Media’s official policy to only take questions from analysts and investors on its quarterly earnings call. However, following the call the company accepted, and answered two questions submitted by RBR+TVBR to Wilson.
RBR+TVBR: Given all of the expenses and consumer viewing shifts to AVOD/SVOD/OTT, wouldn’t a model such as the one Townsquare has be the best one for long-term profitability and growth?
TOWNSQUARE MEDIA: Yes, we agree 100% and thus why we pivoted to become a “Digital First” Company in 2020. In Q1, Townsquare Interactive, our subscription business for digital marketing solutions, contributed 21% of our company’s total net revenue and 30% of our total Adjusted EBITDA. Our Q1 digital revenue made up nearly 49% of our entire revenue. As Bill noted this morning, trailing 12 month digital revenue is $167 million and we expect that to grow to $250 million over three years. You are on the same page as us in terms of what is best for long term profitability and growth.
RBR+TVBR: There wasn’t a lot of Radio discussion on the earnings call. What are the key markets/categories? Is the Hudson Valley seeing any growth given the New York City people moving up to the area, thus making Poughkeepsie more like the city given its in-DMA presence yet providing unique advertiser opportunities?
TOWNSQUARE MEDIA: Bill provided a good amount of information on local radio today, but clearly the focus was on our digital strategy. For Broadcast Radio we shared that our Q1 performance was -11% ex-political versus Q1 2020 (an improvement from Q4 2020’s -19% year-over-year).
We also provided broadcast data from Miller Kaplan for the markets they track which demonstrated we are outperforming the competitors specifically on Local Spot Radio as well as overall Total revenue.
Regarding the Hudson Valley, it is actually is performing quite well for us in broadcast as well as across the board, so your hypothesis seems to be spot on of seeing growth in our-size markets.
Townsquare Media’s Q1 2021 quarterly earnings of $0.17 per share beat the Zacks Consensus Estimate of $0.12 per share. Its Q1 ’21 revenue of $88.76 million came in ahead of the Zacks Consensus Estimate by 0.73%.
