Q3 2019 Earnings Call
Good morning, and welcome to Townsquares third quarter 2019 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 listen only mode. A brief question and answer session will follow the formal.
Sensation, if anyone should require operator assistance during the conference. Please press.
Star Zero on your telephone keypad with that I'd like to introduce the first speaker of today's call Claire Yenicay Executive Vice President Ma'am you May proceed.
Thank you operator, and good morning, everyone. Thank you for joining us today for Townsquares third quarter financial update with me on the call today, our Bill Wilson, our CEO and Stuart Rosenstein, our CFO and executive Vice President Please.
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 prospects.
These statements are considered forward looking statements under the safe Harbor provision at a private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from those protection.
These statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed in the company's annual report on Form 10-K filed with the FCC. We incorporate these I reference for this call.
You May also discuss certain non-GAAP financial measures, including adjusted EBITDA adjusted EBITDA, excluding political adjusted operating income and make certain pro forma adjustments.
Such non-GAAP financial measures should be used in conjunction with all the information contained in the quarterly and year end reports available on our website.
We do not provide reconciliations on forward looking statements due to the end ability to estimate certain components. The forward looking statements that are not available without unreasonable effort.
That's fine I would like to turn the call over to build up and.
Thank you Claire and thank you all for joining us this morning.
We're pleased to share another quarter of strong financial results with you today. It's a confirmed that we remain on track to having a break out 2019.
Let me start by first sharing with you that both net revenue and adjusted EBITDA exceeded the guidance that we laid out on our previous earnings call.
In the third quarter Townsquares net revenue increased a very strong plus 7.9% ex political over the prior year, plus 6.2%, including political and our adjusted EBITDA increased an impressive plus 12.9% ex political and plus 6.7%, including political over the prior year.
Yeah.
Just like in Q1 in Q2 this quarter strong revenue and EBITDA growth was driven by the consistent strength of our advertising and Townsquare interactive segments.
It is also worth noting that we ended the third quarter with 4.7 times net leverage our lowest net leverage ever and we continue to make reducing our net debt a priority. We believe tell square strong Q3 and year to date results demonstrate that our local first strategy combined with our talented teams execution.
It's accelerating our transformation from being a leading traditional radio broadcaster to being a premier local media and entertainment company, probably focused on markets outside of the top 50 cities in the U.S.
As I've shared previously we're very confident that our marketing and advertising solutions, our differentiated from our competition or markets are very effective and powerful to help local clients achieve their goals and grow their business and as a result enable us to aspire to be not only the number one radio broadcaster, but also the number one local media company in the markets we choose.
The operating.
Given the strength of our Q3 performance as well as our outlook for Q4, I'm very pleased to share that we're once again, raising our full year adjusted EBITDA guidance and narrowing our full year revenue guidance to the high end of the previous guidance range.
Steve will provide further details on our guidance in a moment. The headline is that we're raising our 2019 adjusted EBITDA range by $4 million to now be between 102 million and $104 million. As a reminder, this is up from the initial 2019 guidance, we issued at the start of the year.
94 million to $98 million I thought it would be helpful to provide a few tangible examples and data points that reinforce the transformation of town square in 2019, and our belief that we have a very differentiated portfolio of advertising and marketing solutions for local clients first and perhaps most exciting.
He is our expectation that total digital revenue will reach $150 million in 2019, a growth rate of approximately 25% year over year seconds in our markets that are measured by Miller Kaplan Townsquares third quarter local spot broadcast radio revenue increased plus.
4.7% compared to the third quarter of 2018, while the industry overall was flat. According to Miller Kaplan. Additionally, townsquares total spot revenue increased plus 4.4% compared to the industry being slightly down at negative 0.5%, thus demonstrating that we are output.
Forming the industry in both local radio spot and total spot sales in these markets in the third quarter. We also outperformed the industry in total revenue, which includes both total spot and total digital revenue a big part of what drives our industry, leading broadcast performance is the strength of our brands and strong rate.
Its position.
Since 2017, we have consistently grown our weekly cume or weekly total audience from 11.9 million to 12.4 million people, while maintaining strong time spent listening at six hours in 30 minutes. Despite the fact that the industry. Overall is experiencing minor time spent listening declines are so.
Stronger ratings position allows us to drive higher market share, which is supported by our gains and Miller Kaplan and has also allowed us to increase rates with our air more average minute rate up 2% through September of this year, our strong brands and talented teams also continue to drive very strong web traffic by creating approximately 30.
Thousand pieces of original and compelling content each and every month in September we had our largest digital audience in over five years with nearly 20 million unique visitors across our local digital website portfolio and over 40 million unique visitors across our local and national digital portfolio and while we have some.
Lastly, transformed our broadcast brands to also be digital brands. We're now in the process of doing just the opposite this month, we will launch a radio show for double XL. The number one hip hop website that will be syndicated nationwide by compas media.
Sounds square, we thread data into our sales process, which provides a strong backbone for our campaigns and client relationships, we were able to give clients. The why behind a partnership with town square and support creative messaging and tactics using our first party data initiative data squared data squared is our data management platform.
Through which we collect first party data from our owned and operated portfolio of web sites and apps and analyze this audience, which leads the insights about their behaviors interest in purchase intent.
Our sellers across the country or then able to use this data for prospecting to generate sales materials and to support campaign proposals. This combined with our live and local on air talent and strong ratings position is helping to improve our local broadcast performance.
It is also worth noting that our local broadcast revenue as being bolstered by our partnership with analytic al which allows for broadcast measurement and quantitative attribution made and post campaign.
I realize example of the impact and usage of data town square can be illustrated in our Portsmouth, New Hampshire market.
We developed a research deck for the roofing category customized to this local market utilizing first and third party data, which helped us leverage a new business deal with the local roofer, including our radio and ignite products. We've been tracking this campaign and its performance and our using the data not only to prove to the client that this campaign is working but also.
More importantly to help determine where we're getting the best return and optimize the dollars being spent another exciting development I'd like to highlight showcases our ability to use our technology to build solutions for our sales teams.
As you know that human I spend a lot of time each year visiting each one of our 67 local markets and engaging with our local teams similar to how the idea for Townsquare Interactive was born in a 2011 town Hall meeting in St Cloud, Minnesota, We developed and recently launched and innovative sales apps as a result of one of our account executive.
Is it a town hall meeting requesting a sales to that could be used during client meetings.
As a result are extremely talented technology and engineering team designed blueprint.
Blueprint is a mobile app that allows our sales teams to conduct a client needs assessment show product demos put together a campaign with scheduling in pricing and actually execute the contract all in real time on their phone or tablet.
These unique insights and sales tools are not generally available from our local media competition and this truly sets our account executives apart in our markets further establishing townsquare as a thought leader in solution provider not just the media vendor.
Our first party data initiative, our live in local on air talent, our strong ratings and sales tools and our ability to provide broadcast measurement and quantitative attribution through our partnership with analytic I'll have been instrumental to improving our local broadcast performance.
It is apparent to us that great local on air talent with strong creative combined with valuable data and attribution tools deliver results.
As I've outlined in detail at our previous earnings calls the primary revenue growth driver in our advertising segment is and we expect will continue to be our townsquare ignite digital solution, which remains the fastest growing local clients solution across our company, we expect that Townsquare ignite, which as a reminder is our propane.
Terry in House digital programmatic business will approach 50 million of revenue in 2019 at 100 million of revenue within two to four years, we're very confident in this business and we believe we have a distinct competitive advantage because our solution where the entire Ed second offering as in house, and we own and control the customer relationship.
End to end from activation and optimization of client campaigns to the detailed in depth client reporting leads to a better customer experience and higher client retention rates in total our third quarter advertising net revenue, which includes revenue from our broadcast and digital advertising products and solutions increased the plus seven.
0.3% ex political and increase plus 5.2%, including political our third quarter advertising adjusted operating income, which I referred to as profit on this call increased by plus 3.1% with strong profit margins of approximately 33% a significant contributor to our strong performance in 2019.
He is our subscription based digital marketing and solutions Division Townsquare Interactive I am pleased to share with you that Townsquare interactive added approximately 850 net subscribers in the third quarter ending the quarter with approximately 18150 monthly subscribers.
This drove third quarter net revenue to increase approximately plus 26% and profit to increase a very strong plus 37% over the prior year.
Sounds great interactive operate at nearly a 32% profit margin in the third quarter and we anticipate that these margins will remain relatively stable going forward at approximately 30% as we balance investment and growth as you will note, we're well on track to surpass our initial goal of 3000 net adds in 2019, we're confident that we will come.
Thank you to deliver strong growth that townsquare interactive due to our high quality product offering growing salesforce greater productivity per seller and our focus on client retention.
Based on our current subscriber base and monthly average revenue per subscriber Townsquare interactive is run rate annual revenue was 65 million as of the end of Q3, and we are on pace to achieve our projection of 100 million of revenue within two to four years for Townsquare Interactive we continue to have great success, selling townsquare interactive outside of our local.
Market footprint with approximately half of our current subscribers not residing within our 67 local radio markets at the same time, we believe that we are still underpenetrated within our local market footprint as well as within our local markets a similar size and demographics to illustrate the runway we have in our local markets on average we estimate there are a proxy.
Only 7500, Smbs and each one of our markets and thus across our 67 markets that totals over 500000 Smbs. Yeah. We only have 18150 townsquare interactive subscribers today of which only about half were roughly 9000 are in our local markets outside of our local radio markets, we asked them.
Made our marker Townsquare interactive is well over 5 million Smbs. Therefore, we believed that our future runway for Townsquare interactive is significant in our local radio markets as well as unlike size markets across the United States.
Turning to our live event business as we discussed earlier this year after carefully evaluating our asset portfolio. We determined we would benefit from fine tuning our portfolio. It's a focus on live events that are core to our local markets and meaningful to our communities and have healthy margins, although our live events net revenue declined approximately 27%.
Third quarter, we were able to keep profit relatively stable.
I believe it is worth noting that our portfolio of strong broadcast brands great local on air talent local live events in our in house digital solutions and platforms provide local businesses a trusted media partner, who provides a world class customer service, while achieving their goals.
As a result at the eco system, we have created clients who in the past may have bought only broadcast from US are only digital from US now look to town square for comprehensive solutions and does the large majority of our clients partner with us for integrated cross platform campaigns.
I'm still very proud of our talented townsquare team and the focus and passion in which they are executing our local first strategy because of their commitment 2019 is turning out to be a transformative year for town square as we continue to outperform our local competitors from a broadcast perspective, while at the same time driving very strong digital solution.
This growth, enabling digital overall to grow quickly as a percentage of overall company revenue and profit revenue from our digital advertising and marketing solutions contributes more than one third of our total company revenue putting us on track in 2019 to deliver the strongest EBITDA growth for nonpolitical year in Townsquares history.
With that I'll turn the call over to Stu, who is going to discuss our strong financial results in much greater detail. Thank you Bill and good morning, everyone. As a reminder, over the past two years, we have completed several divestitures and discontinued certain portions of a live events business as we reoriented our business to a local media platform.
There was also these live event businesses have been reclassified to discontinued operations for the current and historical periods and these results can be found in our quarterly filings on Form 10-Q .
All of the financial results, we will discuss today are related to continuing operations.
Please refer to tables included in our earnings release, which provide GAAP results and pro forma results as well as our non-GAAP performance measures.
For the quarter ended September Thirtyth 2019, net revenue increased 6.2% to $112.6 million as compared to the third quarter of 2018.
As Bill noted earlier this exceeded our previously issued guidance range of 109 million to $111 million.
Excluding political revenue, which declined approximately $1.7 million as compared to the prior year total net revenue increased 7.9%.
Townsquare interactive net revenue increased 26% in the third quarter and direct operating expenses increased 21.5% translating to an adjusted operating income increase of 36.8% compared to the third quarter of the prior year.
Townsquare interactive third quarter operating margins expanded to 31.5% as compared to 29% in the prior year period.
Advertising net revenue increased 5.2% in the third quarter as compared to the third quarter of last year.
Excluding political revenue advertising net revenue increased 7.3%.
The increase in advertising revenue was driven primarily by Townsquare ignite, which continues to be our fastest growing product.
Advertising direct operating expenses increased 6.3% in third quarter due to continued investment in our product and sales team for Townsquare ignite to support our revenue growth.
Adjusted operating income for this segment increased 3.1% in the third quarter compared to the same quarter of 2018.
Live events expenses declined in line with revenue, which kept live event adjusted operating income relatively stable on a year over year basis.
Third quarter, adjusted EBITDA increased 6.7% to $28.8 million compared to the third quarter 2018 exceeding our previously issued guidance range of $27 million to $28 million, excluding political adjusted EBITDA increased 12.9% over the prior.
Period.
We'd like to remind you that the provision for income taxes included on the face of the income statement is for GAAP financial statement purposes only.
We maintained significant tax attributes, including 189 million of federal and it will carry forwards and other substantial tax shields related to tax amortization of intangible assets.
We continue to believe that we will not be material cash taxpayer until approximately 2026.
As of September Thirtyth, a total debt balance was $560.5 million a total cash balance was $74.2 million and we had a revolver capacity of $50 million.
Our net leverage as of September Thirtyth was 4.7 times based on a trailing 12 month pro forma adjusted EBITDA of $103.1 million.
As Bill stated earlier, a third quarter net leverage has the lowest in the company's history.
We remain focused on reducing our net leverage over the course of next 12 to 24 months and believed that we have ample liquidity on hand to balance net leverage reduction with investments in attractive growth opportunities that meet our investment criteria.
Yesterday, the board approved our eighth quarterly dividend distribution, which will be payable on February 14, 2020 to shareholders of record as of December 27.
The declared dividend is 75 cents per share, which would equate to 30 cents per share on an annualized basis.
This represents a dividend yield of over 4% at our current share price.
Due to a outperformance to date and our expectations for the fourth quarter, we're going to once again raised guidance for the full year.
We now expect 2019 revenue to be between 428, and $430 million, which represents pro forma net revenue growth of approximately 4% over the prior year and 6% if you exclude political revenue.
As a reminder, we anticipate political revenue will be around $3 million to $5 million for the full year and $2.1 million in the fourth quarter.
Also as a reminder, in 2018, we had $10 million of political revenue 5.7 million of which fell in the fourth quarter.
We expect 2019, adjusted EBITDA to increase 6% to 8% to be between 102, and a $104 million, even with the loss of that high margin political revenue in 2019.
Our current adjusted EBITDA guidance is $6 million to $8 million above EBITDA guidance, we issued at the start of the year and $4 million above our most recently issued EBITDA guidance.
With that I'll now turn the call back over to Bill Thanks to and thank you everyone, who dialed in this morning.
I also want to take the opportunity to again, thank the amazing and talented townsquare team across the country for their hard work each and every day that is driving our strong results you matter.
We're very pleased with our performance in Q3 as well as year to date and our ability to once again raised guidance for the full year, we look forward to finishing the year on a high note as we are on track to delivering the strongest year over year adjusted EBITDA growth in a non political year in our company's history. We hope that you agree that townsquare is not a traditional ready.
Your broadcaster, but it has evolved to be a premier local media and digital marketing solutions company with a thriving digital business that has net revenue growth in excess of 20%. We are hyper focused on super serving our local clients and helping their businesses grow through our local first strategy while at the same time delivering results for our shareholders.
Yes.
As always please do not hesitate to call us to further discuss our business or ask any questions I look forward to speaking with our investors at every opportunity and with that we're now happy to open the call for questions. Operator will you. Please open the lines.
At this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone would indicate your line is in the question Q you May press star to if you'd like to remove your question from the Q.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Your first question comes from the line of Michael Kupinski with Noble financial. Please proceed with your question.
First of all congratulations on your impressive results.
I just wanted to kind of cross off a couple of things political in the third quarter was 635000 is that right that number.
Thank you Michael Good morning, Yes, that's correct.
Okay, and then if you just kind of going on your debt reduction, obviously, you're you're paying down debt pretty impressively here.
Talk about your targeted debt leverage.
Hi, Michael Thanks, Yes.
Targeting in the near term near to midterm in the low fours.
We hope to get.
The end of next year.
Gotcha, and then our their M&A opportunities at this time.
I guess Claire.
There's not that much in the M&A pipeline.
Okay, and then can you give us a sense on the revenue growth rate for ignite in the quarter. How did that segment performed relative to the previous quarter and does the company plan to breakout that segment in the future.
Hey, Michael Thank you as as we've talked about that's our fastest growing segment.
Of our business currently in terms of ignite and the digital growth it accelerated in terms of dollars and per se from a year over year basis in Q3 versus Q2, and we see that continue in Q4 as you know we don't break that out specifically today, but it's part of our advertising revenue, which in Q3 was up 7.3% ex political as I noted.
On the call.
We had a very strong broadcast quarter. That's why we shared the Miller Kaplan data, but ignite was the primary driver of that 7.3% growth and we expect that going forward. As you also know Michael we've stayed on the call again that we know and believe that division will be $100 million and we updated our forecast now it's a two to four years from now.
Gotcha, and then B the company has a very innovative.
Innovative approach to its web sites with content that targets its demos of its radio stations and creates a significant amount of original content that you mentioned on the call. So excluding ignite can you give us a sense of what your other digital businesses in the quarter.
And maybe even if you kind of exclude analytic how I'm just kind of interested in what your web sites contributed and then also you can just give us a sense what core advertising did excluding digital in the quarter.
Got it so I'll try to cover some of that but to your point.
Content strategy is specific to the platform. So we create specific content for our on air broadcast and then for our own websites as well as for our video network of social platforms that as I noted on the call in September and that actually continued in October but for September we at our largest online audience ever in the company's history with over 20 million local.
Unique visitors going to our local radio station websites. When you added our national sites like taste, the country and double XL and crush and Ultimate classic rock that number was $40 million, so monetizing that inventory as well as from streaming perspective, which we call our digital over though which is essence.
One of three buckets Theres T. ASI, there's ignite and that our owns it operated digital that make up our digital revenue, which I stated on the call. This year, we expect our digital revenue the 150 million in total for the year I would share with you. We don't break it out that's obviously part of our advertising segment, but that was high single digits growth in terms of monetizing our own.
Digital assets I'm not sure if I heard all your questions happy to.
Certainly as any others, yes, I can always take some of those out why.
Again, congratulations on the quarter those were my question. Thank you.
Thank you Mike appreciate very much.
As a reminder, if you like to ask a question. Please press star one on your telephone keypad.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
One moment, please all we pull for more questions.
Your next question comes from the line of Jim Goss with Barrington Research. Please proceed with your question.
Okay. Thanks, as you were talking about some of the successes with it.
Right and interactive it strikes me that interactive probably is more appropriate from the smaller markets.
We're dealing with whether you on them or not.
Ignite could actually be applicable to some.
Larger markets as well it would same I'm wondering if that auclair just said, there's not much available in the pipeline in terms of M&A.
But if what's your sites it includes something any markets larger than the ones you tend to if you.
If you do scan the markets for available M&A.
And how large market do you think this process would work.
As you know Jim I appreciate the comments the our focus is on markets top outside the top 50 markets in the U.S. and what we're looking at M&A and we also look at sales channel for tell square interactive outside of our local market footprint, we focus on markets outside the two top 50 based on our products. We are customer service we feel.
We are differentiated and those size markets and Thats, where were focused from an operational standpoint, as well as from an M&A standpoint.
Okay.
It does seem that with the sophisticated data capture that you're able to do makes me wonder if you might have greater appealed to some national advertisers radios traditionally more of a local revenue base, but it to the extent that.
You can contribute to national reach for national spot and some of those other areas do you find that to be a greater opportunity than it's been true in the past.
Yes, I think the short answer is yes, we find it at a greater opportunity as you know Jim are our national revenues is less than 10%. It's a very small part of our company, but to the point, you're making the fact that we have first party data and over the last four to five years built a data management platform to create those insights. We view is that with national campaigns that are national to.
Same, but where we see I'd say outsize opportunity and differentiation is in these markets that we're operating in because quite honestly nobody has that level of data and insights that we're providing our clients as well as our sales teams.
To the extent that you've taken.
That's great interactive outside of markets, where you had in which have stations.
Do you think there's a potential to do the same with.
You know.
That's great night, and blueprint and analytical somebody other things you've been.
Doing to increase your sophistication.
Exactly I think we see that is a significant opportunity as we look at 2020 and beyond as we shared on the call and as you know Jim half of our Townsquare interactive sales are in our local radio markets and a half or outside of our market. So we kind of broke that down on this call. It I think we broke it down on our call earlier this year with over 18000 lumpy subscribe.
There is paying us on average over $300 a month.
We've got 9000 enter markets 9000 outside we look at the universe in our markets in terms of ideal customer. So we track that based on number of employees annual revenue certain verticals, our sweet spot in our markets is about 500000 Smbs as I. Just said were under 10000 and then if you look outside of our markets still looking.
Markets with less than a million to have population factoring in all the variables that we have we see a population of smbs of 5 million that again, we have less than 10000. So for Townsquare interactive that's why we're confident and currently want to $65 million annualized run rate, we know what would be at 100 million a in a few years, but that's really just the starting point.
We'll continue to grow from there to your specific question on ignite, we're actually starting to test selling that from our Charlotte based inside sales office I'd say, it's too early to share any specifics on this call, but I would say to your point, we know and we see early evidence that a this work outside our local market footprint.
And B to your earlier point, we could sell this and larger size markets. There is obviously more competition in the top 50, but we've seen some opportunity to sell it nonetheless in larger markets.
Okay. Thanks, one last question a political last year I think did you say 10 million for.
Funny 18 and.
I'm wondering what your expectations are for 2020, do you feel it would be more or less and the presidential year than.
Then a non presidential year.
Yeah. So in general we do 10 in three out off for years in terms of millions. So given that we're outperforming this year in political as Stuart outlined on the call our year to date numbers at our expectation for Q4 my expectation based on some of the things like we just talked about our our data square to first party data that it'll be a great.
Year for us in 2020 from a political perspective and won't be.
Prior presidential years in terms of revenue.
Alright, thanks very much.
Thank you Jim.
Your next question as a follow up from Michael Kupinski with Noble financial. Please proceed with your question.
Yeah, I'm, sorry for a couple of additional ones here.
Can you talk a little bit about the sequential monthly revenue growth in the quarter with the performance pretty even throughout the quarter.
Yes.
Yes, yes, I haven't we look at it quarter by quarter, we actually look at it more from an annualized basis, but no quarter and no month in particular in the quarter outperform or underperform, we had stable performance throughout and really what are the best quarters. We've had in quite some time from a broadcast perspective, we see that sequentially improving quarter over quarter.
Nothing from a monthly standpoint that stands out Michael.
It would seem that usually you have pretty favorable momentum going to the fourth quarter and with your political advertising guidance, which was actually a little higher than I expected for the fourth quarter.
It seems like you might be a little conservative with your guidance for Q4, I mean can you just kind of give me your talks about that because it your guidance for political seems a little stronger than I would've expected.
We feel great about Q4, I think as you've seen we per we obviously are providing guidance, we have 100% confidence and so if you want to call that conservative I'll leave that to you, but as as we continue to do throughout the quarters, we beat and raised our guidance or achieved throughout this year. So we're confident and we think we're setting the right XP.
Dictation and look forward to closing out the year with momentum and continue into 2020.
Gotcha. Thanks, that's all I have.
Thank you Michael.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Bill Wilson for closing remarks.
Thank you operator, I just want to thank everybody for dialing in this morning, and taking time to learn more about townsquare I'm very proud of our results I'm very proud incredibly proud of the townsquare team across the country. We're quite confident as we just talked about in our outlook for the rest of 19, and importantly, 220 and beyond and if you have any questions at all I encourage you to reach out and were available anytime to talk of.
Of our investors and I look forward to doing so so thank you everybody.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.