Q4 2020 Townsquare Media Inc Earnings Call
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Good morning, and welcome to town squares and year end 2020 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 the first speaker for today's call Claire <unk> Executive Vice President.
Thank you operator, and good morning, everyone. Thank you for joining us today from town squares fourth quarter and year end financial update with me on the call today I L. F N, 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 path.
These statements are considered forward looking statements under the Safe Harbor provision private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from this day.
These statements reflect the company's beliefs based on current conditions, but are subject to certain risks and uncertainties, including those that are detailed in the company's annual report on form 10-K for the year ended December 31, 2020 filed with the SEC.
You May also discuss certain non-GAAP financial measures, including adjusted EBITDA adjusted net income from adjusted operating income, which we may refer to less profit not remarks.
Non-GAAP financial measures should be used in conjunction with all the information contained in our quarterly yearend and current reports available on our website.
I would also encourage all participants to go to our corporate website at Www Dot town square media Dot com and download our investor presentation as bill referenced some of those slides during our discussion this morning.
This time I would like to turn the call over to Bill Wilson.
Thank you Claire and thank you all for joining US this morning 20.
2020 was an incredibly challenging and turbulent year, but it was also an extremely rewarding year over the past 12 months I've continually thank the entire town square team for their hard work best effort and dedication.
Our team worked tirelessly and with great passion throughout the pandemic to help our company by helping local advertisers and businesses as well as by keeping our local communities inform and entertain at a time when both needed. It. The most we would not be reporting our strong finish to the year without the amazing and inspiring effort of our <unk>.
Town square team across the country.
As we said internally throughout 2020, we strived to perform the best when it mattered the most.
Performed the best for our own team members, our clients our communities and our partners.
I'm proud to say that our fourth quarter financial results reflect that performance as they exceeded our goals and expectations and as we look at 'twenty 'twenty. One we believe that we will continue to see strong improvement and strong results in our business.
My goal for Q4 as outlined on our Q3 earnings call was to cut our revenue declines by half from negative 15% in Q3 to negative seven 5% in Q4.
I am very proud that we outperformed this goal, reducing our net revenue year over year decline to just negative 3.2% in the fourth quarter.
It is also important to note that we experienced sequential net revenue improvement on.
On an ex political basis in each month of Q4 as compared to the prior year as our business continued to rebound each month, better and principally because we outperformed fourth quarter revenue expectations and carefully manage the expenses, we delivered year over year growth of plus eight point from.
For per Se in fourth quarter adjusted EBITDA, let.
Let me say that again.
In the face of all the challenges of the pandemic during Q4 as Covid cases, and deaths were rising the town square team was able to increase adjusted EBITDA by plus 8.4% over fourth quarter of 2000 $19 million to $27 million, which also represented a plus 54%.
[noise] increase from Q3 2020, adjusted EBITDA clear.
Clearly our business rebounded quite nicely and consistently starting in Q2 and continuing through Q4, I mean I'm glad to report that the strong rebound is currently continuing into Q1 2021.
Just as important if not more important than our 'twenty 'twenty financial results was the acceleration of town squares transformation into a premier local media and digital marketing solutions company.
Although we are very proud of our roots in DNA and local radio and we are proud to call. It radio not audio we became a digital first company and 2020.
Which was reflected in our digital revenue and digital profit growth in 2020.
Later in the call Sue will highlight the new capital structure that we put in place at the beginning of this year.
But it was very eye opening to me during our bond offering process was the lack of clear understanding of our digital strategy, our digital assets and our consistent year over year digital revenue and profit growth ever since we became a public company.
To that end, we have updated our investor presentation to better reflect and communicate the vision of our town square transformation and our digital first orientation and I wanted to share a few highlights from that presentation with you. This morning.
As you will see on the opening slide of the presentation. We have updated our company description to more accurately reflect town square it now reads.
Town Square is a community focused digital media digital marketing solutions and radio company focused outside the top 50 markets in the United States.
Our assets include town square interactive digital marketing services subscription business, providing websites search engine optimization, social platforms and online reputation management for Smbs.
Town square ignite our per.
Proprietary digital programmatic advertising technology with an in house demand and data management platform.
And town square media, our portfolio of 322, local terrestrial radio stations with corresponding local news and entertainment websites and apps along with a network of National music brands.
As you are aware, we have three financial segments advertising town square interactive and live events and I thought it would be helpful. If I quickly walk you through slide five of our investor deck as it breaks down the key operating components behind those three segments.
Our advertising segment is composed of digital advertising and broadcast advertising.
Given digital advertising is growing faster plus 5% in Q4, 'twenty 'twenty versus Q4, 2019, I will start there.
Our digital advertising is made up of primarily two solutions. The first is ignite which is our digital programmatic technology platform.
The second is apt, which is monetizing our owned and operated digital brands.
On the far left column on slide five you will see the revenue specifics for ignite, which in 'twenty 'twenty was $53 million in digital advertising revenue, an increase of plus 11% versus 2019.
As we have previously stated.
This solution has a normalized profit margin of approximately 30%.
We believe our success with town square ignite is multifaceted.
Net one strong differentiator for US is that we have our own solution the entire AD tech and offering is in house, we own and control the customer relationship from end to end from creating the right messaging creative.
To the activation and optimization of the client campaigns to the detailed in depth client reporting.
Which leads to a better customer experience and higher client retention rates.
Town square ignite is in essence, a client's full service digital agency.
Moving one column over to Ams.
Which is digital advertising our owned and operated network of digital brands made up of over 340 websites and 350 mobile apps.
Which together delivered a highly engaged audience of 58 million unique visitors on a monthly basis in 2020.
And all time record set during the pandemic.
In 2020, the digital advertising revenue generated by AMT was $39 million.
Combined ignite and amps generated $92 million in digital advertising revenue in 2020.
The remaining component of our advertising segment is our 322 local radio stations, which in 'twenty 'twenty generated 185 million and ex political broadcast revenue.
As we detailed throughout 'twenty 'twenty broadcast revenue ex political declined as much as 51% in April 'twenty, 'twenty and was down negative 46% per Q2 overall compared to 2019 day.
That improved in Q3 to negative, 29% and improved again in Q4 to negative 19%.
According to metrics published by Miller Kaplan in 'twenty, 'twenty, we outperformed the industry and local radio spot sales by 180 basis points and total spot sales by 120 basis points in our markets that they measure and track. Additionally, we also outperformed the industry in total.
Revenue in the market survey by Miller Kaplan.
Which includes both total spot revenue and total digital revenue.
Thus as it relates to our advertising segment I Trust. It is clear that we have an at scale and quickly growing digital advertising component and a mature strong broadcast advertising component.
I expect post Covid that our broadcast advertising revenue will return to 2019 levels, while digital advertising revenue will accelerate its current growth rate.
And to back up that belief I am very pleased to share that our expectation in Q1 is that year over year digital advertising revenue growth will accelerate from plus 5% in Q4, 'twenty 'twenty to plus 10% in Q1 2021.
It is also worth pointing out that in Q1, 'twenty 'twenty digital advertising revenue was over 3 million higher than Q1 2019.
As it relates to broadcast advertising ex political our current expectation is that our negative 19% decline in Q4, 'twenty 'twenty will improve to negative 13% in Q1 2021.
In total our advertising segment continued the path of sequential improvement to close out 2020.
<unk> revenue declines from negative 38% year over year in Q2 to negative 17% in Q3 and negative 4% in Q4, our improvement was broad based across the segment sequential improvement on nearly every revenue line.
The third component of our digital solutions is our digital monthly subscription business town Square Interactive town square interactive was built to be recession resistant subscription business and in 'twenty 'twenty. It delivered on that promise growing revenue profit and subscribers throughout the pandemic a truly impressive accomplishment town square interactive provides an.
Porton and valuable resource for small business owners, which translated to strong financial results for town square.
In 'twenty 'twenty town square interactive net revenue increased plus 14% and profit increase plus 10% over prior year in the fourth quarter.
T. S is net revenue growth accelerated to plus 16% and profit growth accelerated to plus 24% each as compared to the prior year.
Town square interactive generated strong profit margins throughout the year with Twenty-twenty margins of 30% translating to $21.1 million of profit for town square Interactive we added approximately 3750 net subscribers in 2020 setting an all time record and now we have added $800.
50, or more net subscribers per quarter for 11 consecutive quarters.
We ended the year with approximately 22750 subscribers at.
At the end of 'twenty 'twenty, approximately 57% of our subscribers are outside of our local market footprint.
We are able to accomplish this because we have an approximately 200 person inside sales team based within T. S ice headquarters in Charlotte, which houses a total team of Tsi personnel of approximately 600 people what an amazing team, we believe that town square interactive is still incredibly.
Incredibly underpenetrated within our local market footprint, and importantly, as well as within our additional local markets of similar size and demographics.
Town square interactive addressable market is significant.
If you would turn to slide 10 of our Investor presentation, I would like to take the opportunity to walk you through it.
There are a little over 28 million businesses nationwide given that we focus on markets outside the top 50 cities that eliminates over $16 5 million businesses, which gets us to 11.5 million businesses. We then put a few additional important filters on the Smbs, we target per town square interactive the.
First filter is businesses with 20 or fewer employees. The second filter is companies with annual revenue of $5 million or less. We then exclude certain types of businesses. We have determined over the years are not ideal fit for our solutions, which include real estate agents banks and other types of businesses.
And lastly, we include only privately independently owned businesses.
After applying all of those filters that equates to over 8.8 million target customers for town square interactive.
At a 300 dollar per month, our pool that equates to an estimated $32 billion total addressable market for town square interactive incredible in fact, we are planning on adding a second location for town square interactive in the Western U S. In order to capture this opportunity.
Our original time line for opening this location in 'twenty 'twenty was sidelined when the pandemic hit but we plan to open. This location once the pandemic is fully in Americas, rearview mirror with our existing subscriber base current sales momentum and significant market opportunity I am confident in reaffirming our expectation.
Debt town square interactive will achieve $100 million in annual net revenue at roughly a 30% profit margin within two to three years.
The next slide I will turn your attention to is arguably the most important one slide number seven which clearly demonstrates town squares transformation into a digital first company in 2020.
Even during a pandemic and the resulting recession, we have been able to grow our profitable digital revenue from $99 million in 2000 $17 million to $162 million in 2020.
Pre pandemic, our digital revenue was growing plus 27% in 2019.
And although I am very proud of our plus 6% digital growth last year during a pandemic I am confident post pandemic, we will again return to strong double digit revenue growth.
With $162 million of profitable digital revenue in 2020 that translated to 44% of our total revenue coming from digital even in a political year.
On slide seven in addition to noting the consistent year in and year outgrowth of our digital revenue. Since 2016, you can also see a comparison to other broadcasters who have already reported their 2020 results no. Other company listed is above 20% and town squares at 44%.
And important to note our digital growth is 100% organic as we have built all of our digital solutions in house with one of our greatest assets, which is our product and engineering team truly world class.
It is just a matter of time before our digital revenue will be over 50% of our total revenue.
Yet we believe that will just be a pitstop to 60%, 70% 80 per cent et cetera, given the continued digital revenue growth a town square.
The last slide from our Investor presentation, I will highlight is slide number six.
Which spotlights the net revenue ex political ex live event recovery by quarter in 2020, along with our digital growth and importantly, our year over year profit growth in Q4 2020.
As you can see starting on the top row net revenue ex political ex live events was negative 31% in Q2 negative 16% in Q3 and negative 9% in Q4 compared to the prior year periods, given our current outlook I expect in Q1, 2021 we will reduce that further to negative 2% to nag.
At a 3% year over year.
We believe town square is on the verge of a full revenue recovery.
In the Middle Row, you will see our digital revenue results town square interactive revenue was plus 14% in 'twenty 'twenty versus 2019, and currently we are expecting plus 15% in Q1 2021.
Town Square ignite revenue was plus 11% in 'twenty 'twenty versus 2019, and our current expectation is that improves in Q1, 2021 to plus 12%.
And taken all together our digital revenue grew plus 6% in 2020 to comprise 44% of our total company revenue and our current expectation is to double that and have plus 12% growth in digital revenue in Q1, 2021.
On the bottom row, we have outlined adjusted EBIT for each quarter of 2020 with the highlight being plus 8% growth in Q4, 'twenty 'twenty over Q4 2019.
That is the result of town square team is most proud of adjusted.
Adjusted EBITDA growth of plus 8% during the depths of the pandemic.
As you can also see on slide number six we are expecting adjusted EBITDA growth in Q1, 2021.
Of plus 16% to plus 22% growth over Q1, 2020, and also profit growth over Q1 2019.
Thanks for allowing me to go through a few of the slides in our Investor presentation I do highly encourage all current and potential investors to review the presentation in full detail on their own and of course. Please reach out to me. If you have any questions before I hand, the call over to Stu.
I'd like to outline our strong position as we begin 2021.
We materially narrowed our year over year revenue declines throughout 2020 from negative 35% in Q2 to negative 3%. In Q4. We also returned to adjusted EBITDA growth of plus 8% in Q4 and.
And we enhanced our operating leverage through careful expense and cash management that allowed us to generate positive cash flow from operations in 2020.
At the end of the year, we also addressed our balance sheet, which sue will discuss in much greater detail shortly replacing our debt with a single tranche of 6.8, 75% paper that does not mature until 'twenty 'twenty six.
And finally, and importantly, we were able to address the large equity overhang that oaktree capitals majority ownership of town square presented on.
On March 9th 'twenty, 'twenty, one, we repurchased 100% of oak trees outstanding shares and warrants in town square for $6 40 per security.
As you are all very well aware oaktree has been a longtime investor of the company and this transaction represents a natural conclusion to their investment.
We previously announced in January that we would repurchase a minimum of 10 million shares and I'm very very pleased we instead repurchased and retired all 12.6 million shares and warrants of Oaktree, representing 26% more than we previously committed to buying this.
This resolves the significant overhang of Oaktree is long dated investment, which we have often heard from current and prospective investors is an impediment to investing and building a position in town square.
Based on current share counts the transaction is accretive on a free cash flow per share and adjusted earnings per share basis in excess of 70%.
At 10 million shares the repurchase would have been accretive by approximately 50%.
The aggregate purchase price of the share repurchase was $80 million and was funded with cash on hand.
Following the repurchase the company has 16.1 million shares outstanding inclusive of common stock and warrants.
Since we announced the share buyback on January 25th we have seen town square stock price increased by 34% through March 12th a 65% premium to the buyback price.
Evidence the market support of this transaction and more importantly town squares future with that I'll turn the call over to Stu who's going to discuss our financial results in much much greater detail takeaways too.
Thank you Bill and good morning, everyone. We ended the year with strong fourth quarter financial results that exceeded our original expectations driven by continued improvement in our advertising and town square interactive segments as well as a record amount of political revenue.
Total fourth quarter net revenue decreased only three 2% over the prior year period to $108 $5 million or 13, 8% improvement from Q3 of 2000 Twenty's net revenue.
2020 annual net revenue declined 13.9% versus the prior year to $371 $3 million.
Political revenue, which was a record setting $9.3 million in the fourth quarter and $16 million in 2020 exceeded 2000, Sixteen's presidential year political revenue by 78%.
Excluding political revenue fourth quarter net revenue declined 10, 2% and full year revenue declined 17% as compared to the prior year periods.
In the fourth quarter town square interactive subscription business continued to improve as tsi fourth quarter subscription revenue increased 16, 3% over the prior year up from 14, 5% in Q3.
In 2020, Tsi subscription revenue increased 14, 4% over the prior year to $70 $4 million.
In addition, 10 square interactive continues to deliver profit growth with 2020 profit increasing 10.1% versus the prior year to $21 $1 million, which corresponds to a 30% profit March <unk>.
Importantly, and impressively town square interactive grew net revenue and subscribers in each and every month of 2020, demonstrating its resilience and we believe its importance to smbs.
In the fourth quarter advertising net revenue declined four 5% with 12.9% excluding political revenue as compared to the prior year period.
This representing a meaningful improvement from Q3's year over year decline of 17, 2% and 21, 4% excluding political.
Our digital advertising solutions net revenue increased approximately 5% in the fourth quarter as compared to the prior year period and achieved growth in the full year period as well.
The net revenue growth of our digital advertising solutions was led by town square at night, which was up 11% for the full year.
Broadcast advertising net revenue improved materially in the fourth quarter from the third quarter narrowing declines from down 45% in the second quarter to down 23% in the third quarter and only down 7% in the fourth quarter.
Each as compared to the prior year periods exclude.
Excluding political we saw the same trends in broadcast advertising from negative 46% in the second quarter to down nearly 29% net third quarter and down 19% in the fourth quarter.
Once again live events net revenue declined nearly 100% versus the prior year in the fourth quarter as we are still not hosting live events due to the pandemic.
Fortunately, we pruned and right sized our live events portfolio in 2018 in 2019 to align with Bill's local first strategy, resulting in a largely variable cost basis there.
Therefore, our live events Q4 direct operating expenses decreased approximately 93% versus the prior year period, and a loss was minimal for the quarter totaling approximately $123000.
For the year live events net revenue declined 86% to $2 $5 million almost entirely generated in the first quarter pre pandemic and live events direct operating expenses declined 84 per cent compared to the prior year period, resulting in a positive adjusted operating income of $240000.
Nearly a 10% profit margin.
In total fourth quarter direct operating expenses decreased 4.5 per cent compared to the fourth quarter of the prior year.
This was driven by live events expense decreases as well as 5% decrease in advertising direct operating expenses, partially offset by an increase in town square interactive direct operating expenses of 13%.
The full year had similar trends with total direct operating expenses declining 6% year over year, driven by the declines in advertising and live events expenses that were partially offset by growth in tsi expenses.
Declines in advertising direct operating expenses were driven by our cost reduction efforts enacted earlier this year due to the pandemic and reduction of the variable expenses such as sales commissions.
Perhaps the most important number that we reported today is adjusted EBITDA.
Due to our improved revenue performance and careful expense management.
Adjusted EBITDA returned to year will be a growth in the fourth quarter, increasing eight 4% to $27 million. This is a 54, 4% improvement from Q3 2020, adjusted EBITDA of $17 $5 million.
In 2000.
And in 'twenty, adjusted EBITDA declined 39 points tweet per cent to $62 $1 million, but.
Ultimately was positive in each quarter of 2020.
Due to the prepayment that we made in the first half of the year to our term loans and.
And the repurchase of a portion of our bonds as well as low LIBOR rates interest expense for the fourth quarter declined approximately six 2% or $500000 compared to the prior year period, and seven 2% or $2 $4 million in the full year period.
For the fourth quarter net income from continuing operations was $4 $5 million or <unk> 15 cents per diluted share as compared to net loss from continuing operations of $78 $2 million or $4.28 per diluted share in the fourth quarter of 2019.
But 2020 net loss from continuing operations was $86 million or $4.46 per.
Per diluted share net.
Net loss was driven by approximately $107 million of noncash impairment charges to our intangible assets and specifically our FCC licenses, primarily due to the impact of the COVID-19 pandemic.
I'd like to telegraph that we expect the value of these FCC licenses to continue to be reduced over the coming years. This is a result of the fact that we no longer include 100% of our revenue streams when supporting the value of our FCC intangible assets.
We no longer include the digital revenue and profit of town square Interactive and town square ignite our largest digital revenue streams.
These digital revenue streams continue to outpace our radio spot sales. This formulaic trend will continue.
This write down of the decades old purchase price calculations has no bearing on our cash position.
Operating revenues operating expenses, our profitability or our future prospects.
Theres nothing more than a noncash accounting charges affecting only to purchase price allocations made when we bought a radio station assets back into 2010 to 2013 periods.
Adjusted net income per share, which adjusts for nonrecurring items and as detailed in our earnings release was 28 cents per share in 2020.
We'd like to remind you that the provision for income taxes included on the face of our income statement is for GAAP financial statement purposes only.
We maintained significant tax attributes, including $168 million of federal net operating loss 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 approximately the year 2026.
In 2020, we generated positive cash flow from continued operations of approximately $31 $9 million and $64 million prior to interest payments demonstrating town squares strong cash flow generation ability and a careful expense management during the pandemic.
In 2020, Capex declined $4 $7 million with 24 per cent compared to the prior year.
We ended the year with $83 $2 million of cash on our balance sheet, a reduction of less than $2 million from the year ended 2019.
This despite reducing long term debt by $14 $7 million.
Aching $4 $2 million of payments to our dividends prior to eliminating the quarterly dividend and also making a $28 5 million dollar interest payments throughout the year.
On January 6th we completed our previously announced $550 million senior secured notes offering.
The proceeds of which we used to repay our outstanding term loans and our six 5% senior notes and near entirety.
The offering was very well received and was significantly oversubscribed. This allowed us to exceed our original pricing expectations there.
The new notes, which mature on February one 2026 bear an interest rate of six 875% and are currently trading well above par.
Last week, we completed our buyback of Oaktree stock of town square at $6.40 per share.
As Bill previously mentioned, we completed the repurchase of 100% of their ownership interest in our company.
Following the transaction, we had approximately $27.5 million of cash on hand, which we anticipate will continue to grow throughout the year.
Given our strong cash generation abilities, we are confident operating the business at these cash levels.
Moving forward, our capital allocation priorities will be to invest on our local business to organic internal investments and to reduce our net leverage with the medium term net leverage goal in the low four times.
Prior to the pandemic, we were well on our path to achieving our net leverage goal.
Although achievement of that goal has been delayed is still a primary focus we are confident in our ability to achieve it given our assets strong cash generation characteristics.
We will continue to evaluate local media acquisitions as and when they arise, but we will have a very hard high bar in order to transact.
As a reminder, our M&A create our M&A criteria target local media assets that captured the number one or number two radio revenue share in the market.
That are located these have to be located in healthy.
Stable markets that are outside of the top 50 markets. They have to have lower economic volatility and some stabilizing institutions, such as universities military bases or state capitals and.
In addition, we would only acquire local media properties that we believe will fuel our local growth and allow us to deploy our digital playbook.
As a reminder, in Q1 2020, we had $2 $4 million of live events net revenue and $1.3 million of political revenue.
We expect first quarter adjusted EBITDA to be between 18, and $19 million, which is an approximately 16% to 22% improving over the first quarter of 2020 and represents growth will be 2019, adjusted EBITDA ex live events.
And with that I will now turn the call back over to Bill.
Thank you Sue and thank you to everyone, who dialed in this morning I.
I am very very proud of the results we delivered in 2020 in the face of unprecedented challenges and the solid foundation, we have built together as a town square team.
As we have stated on earlier calls our goal. During this pandemic has been to balance cost reductions with the opportunity for long term growth, we want to be the best positioned to emerge from this downturn more quickly and more efficiently than our competitors and we believe that this strategy together with our diversified and differentiated in house.
Rytary product offering ensures that we will be.
Our agenda and focus has not changed since I became the CEO in October 2017.
We want to continue to be the best in class and entertaining and informing our audiences and communities, while super serving local businesses with world class marketing and advertising solutions to help them grow their businesses.
Our goal is to be the best and largest local media company serving markets outside the top 50 in the U S.
To maximize our potential we want to continue to work and collaborate on being the easiest company to work with from an external perspective, treating clients and partners like friends and.
And the best to work for from an internal perspective.
Our DNA is local radio and let me just say is I get this question a lot from investors, particularly over the past year for our own company and our listeners and our communities it's not audio.
It is truly local companionship, providing local information local entertainment and local personalities and that is why we love it and that is why we call it local radio.
But although our DNA and roots are in local radio and we still love and embrace local radio in 2020, we became a digital first company and our revenue growth in digital revenue and digital profit during a pandemic and resulting recession demonstrated that fact.
Our town square team performed the best when it mattered the most.
Our team kept moving forward continually through 2020.
Even though at times it does not always feel like it better.
But as we shortly close out Q1 and move into Q2 'twenty 'twenty. One we believe our flywheel is clearly moving forward and gaining greater momentum each month and each quarter.
Clearly, great and meaningful progress in the last 30 days. In addition, our government again has passed extensive 2021 stimulus measures for working class Americans as well as Smbs I.
I believe the combination of government stimulus and a readily available vaccine will propel our economy to great strength in 2021 and 'twenty 'twenty, two which will also support growth in our own town square business as we continue to execute our local first strategy in 2021, we remain confident about the future of town.
Fair and our revenue and profit growth prospects.
And we hope that you share in our enthusiasm as I shared earlier in Q1, 2021 we expect to be on the verge of a full revenue recovery back to 2019 levels. As a reminder, I hope and expect to be only a percentage point or two from Q1 2019 revenue levels ex live events.
Therefore, as you hear us discuss our business recovery 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.
And that is what the town square team is 100% focused on returning to 2019 levels.
And once 2019 levels are accomplished then continually growing from there.
In the words of Drake one of the biggest artists in the world we.
We will see what's about to happen next so stay tuned be.
Be well and as we say internally stay town square strong and with that operator. Please open the call for any questions.
Thank you at this time, we'll 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 will indicate your line is in the question queue you.
You May press star two if you'd 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, one moment, please while we poll for questions.
Your first question comes from the line of Michael Pinsky with Noble capital markets. Please proceed with your question.
<unk>.
Yes first of all congratulations on your solid quarter it was.
Really good anyway, you may have.
Already mentioned this but what was political in Q4 and then since we're on that subject to political number.
A number of broadcasters have indicated that they felt that given the races that were likely to see particularly in the Senate and gubernatorial races. In 2022 that they expect political to be above 2020 levels and I was wondering if you had any preliminary thoughts from that as well.
Thank you Michael It's Bill hope, you're well in Q4, our political revenue was $9 3 million.
For the full year that was $16 million, which was by far and away our largest year ever as you may recall on average in a political year, we do about $10 million in revenue I think we did $9 million in 2019 roughly.
And in the off political year, we expect $2 million to $3 million. So we do not expect anywhere near 2020 levels in 2021, and 2021, we expect again $2 million to $3 million for context, our expectation in Q1 for political is a few hundred thousand dollars call. It $400000 in Q1, so definitely quite differ.
That knows who own assets may be in Georgia, and some of those other critical states that you mentioned.
Gotcha.
Discounts in your interactive business in the midst of the pandemic are you back at full fare as of Q4 and if so how much of the Q4 revenues came from price increases and then if you can give us a little flavor on Q1 revenue estimates I know that you're saying, 15% plus growth in <unk>.
Does that include the prospect of adding another 100 850 subs were more in the quarter I'm. Just wondering if you can give us some flavor on that sure.
Sure. Thank you Michael Yeah town square interactive I couldn't be more pleased with that team's performance throughout the pandemic as we've said.
Every quarter posted revenue and profit gains year over year as you just alluded to on our Q3 earnings call. We highlighted that in the particularly in the depths of the pandemic April.
May June some of the markets that we're in we're hit later in the summer we provided discounts the town square interactive customers. We believe that was the right thing to do for some of them are it was in essence, a couple of months free for others. It was taking it down substantially.
The great thing is 86% of those who we gave discounts to remained in business and then continued back.
At their regular rate post debt discount so that increase of 16% in Q4 that you'd noted for town square interactive was the return to full pricing.
For the year, we were up 14% at $70 million in revenue $21 million in profit. So really pleased that as you know Michael pretty much every year for the last five years. We've added 10 million top line approximately in 3 million bottom line to town square active so as we go into Q1 to your question about what we expect in terms of net adds we expect.
850 net adds in Q1 as we had in Q4 is obviously a little less days with with February and some holidays. In Q1. So that's why are we expected to be and that would equate to a increase of 15% in revenue year over year for town square Interactive and then as we noted at the end of the call in terms of total revenue net revenue.
New X live events ex political we're expecting and worked focused on a full revenue recovery in Q1 of 'twenty. One we're expecting to be down just a couple of percentage points off of 'twenty.
And our real goal moving forward and when we talk in future calls coming up for Q1, we're gonna be comping ourselves at least internally and externally against 2019. So net revenue ex live events, we're hoping to be also a couple of percentage points off of 2019 levels in Q1s and Telcel interactive is definitely a part of that.
As is our total digital offering.
Terrific. One final question in terms of white events. What are you planning in terms of 2021 are you kind of making plans now to kind of ramp that back up in the second half of this year or what what are your thoughts on live events.
Yes, we're obviously very cautiously optimistic as I noted earlier on the call. The rapid change in terms of the vaccine distribution in the last 30 days from from what we are seeing ourselves, but also from what we're hearing from our communities and our clients has really changed the mindset.
Which is great for our overall business in terms of optimism with now 100, I think it's 107 million vaccines distributed as of yesterday, certain states, including Connecticut in Mississippi and others are now starting to say as of April 5th Mississippi already I know, Connecticut. This morning announced April 5th.
Any adult will be able to get vaccinated. So no restrictions for different classes, which I think you'll continue to see those states move to that so as it relates to live events interesting we have actually applied from some permits.
During the pandemic with the expectation that we'd get the permit but then delay the actual event date and we actually got approval for a events in Texas in May which right now we would be planning that would be our first live events of any size, we'd obviously practice the appropriate.
<unk> protocols.
But that would be our first we're expecting a little bit in Q2 very few literally a handful and then my expectation to your point is the back half of the year doesn't return to normal but in 2019, we did 16 million in revenue, maybe we get to 5 million per the year type of thing and then returned to full <unk>.
In 2022 for live events, you've probably seen some companies like a live nation and others are already announced outdoor shows. This summer. So we're definitely cautiously optimistic the numbers I just provided you could definitely improve as we head into the back half of the year.
Great and congratulations again I'll, let others ask questions. Thank you. Thank.
Thank you Michael appreciate it would be well.
Your next question comes from the line of Jim Goss with Barrington Research. Please proceed with your question.
Thanks much.
Do you plan any changes in your financial strategies. Following the Oaktree exit from in particular does does this provide any greater opportunity to achieve those debt dramatic decrease in your overall leverage that you're targeting.
Yes, I mean.
So good to hear from you Jim Thanks for asking the question I'll turn it to do in a minute, but as you know we were very focused and continue to be focused on delevering and we've made much progress from.
2017 to 2019, we ended I believe 2019 in roughly the mid fours in terms of net leverage and our goal was to be in the low fours and we were progressing steadily there and quite honestly, we're very confident we would have achieved that this year, obviously the pandemic set us back from a EBIT perspective really happy with.
With our new capital structure, and the debt tranche of bonds that we talked about on the call and fully expect and are focused on delevering again back to the mid fours and then down from there obviously, that's going to take some time, where it's going to happen primarily through EBITDA growth.
Right.
As we just alluded to with Q4 EBITDA growth in 2020, we're quite pleased with that with plus 8% growth with them. We obviously just.
Indicated our expectation for Q1, 'twenty, one EBITDA growth, which was quite strong as well over 20, Stu anything else you would add as it relates to leverage and the capital structure.
No. That's really covers it all the one thing I would like to mention is that.
Are we are cutting out a dividend permanently basically offsets the small increase that we have in our new capital structure. So from a.
Duction of leverage standpoint, we.
We're not really facing an increase in interest expense.
Maybe just follow on with what you just said Stu with the dividend.
Is there any likelihood that it could be restored or do you think once you've gotten to this point, maybe that's a lower priority.
Until now we don't think groups to.
That's a good question, Jim We don't believe management is not in favor and we don't think that we will bring the dividend back.
For a company of our size, we think deleveraging and increasing.
Our internal businesses and growing our digital businesses is much more important and much more valuable to the equity in this company.
Okay and.
Secondly, Bill I think we talked maybe a year or two ago as ignite was.
That's becoming more prominent that it got such good reception that perhaps you could even extend into other markets either.
As a sale of technology licensing technology are acting as an agent for other.
Uh huh.
Markets, where you didn't compete.
Are you have you gone forward in that at all.
Great question, Jim Yes, so for those who may not be as familiar with the town square transformation. We originally were selling town square interactive our subscription business only within our markets. After a few years of success in our markets. We took our website and reputation and everything around sales corner active outside of our markets and having it.
Built an inside sales team that is world class and Charlotte are roughly 200 sellers, who had been selling town square interactive subscription services digital marketing solutions for in essence, the last five years.
As you just noted Jim we had shared publicly that during the pandemic, we started to test selling ignite, which is digital programmatic advertising outside of our local market footprint up until the pandemic, we were only selling ignite through our world class local sales team and our 67 local markets but.
Given the success and particularly in markets outside the top 50, we saw.
A significant competitive advantage with our ignite the fact that it's all in house.
The amount of.
Inventory, we see across the internet or opportunity to optimize that opt in to the opportunity to actually come up with the right message for the client and then build to creative as I noted on this call. We in essence became a full service digital agency. This year and so we did start selling ignite through a test of our Charlotte based <unk>.
<unk> sales team and.
And I couldnt be more pleased with the early test results. It is early so I just want to be cautious that it is in essence, a team that started with two people in the first half of the year, we built at Schuh eight people in the second half of the year.
And we think that just as we had success with town square interactive being sold outside of our local market footprint.
We're confident we'll be able to do the same with ignite and we would expect in 2021 that could approach $5 million in revenue for ignite outside of our markets.
And then from there.
We would start to really.
Scale this with our larger team and a.
Also put in place selling ignite in our second town square location as we build that out west at the end of the year, So really quite amazing opportunity for us on a dual front in terms of digital advertising and ignite as well as continuing our towns.
<unk> interactive, which I obviously on this call went to great lengths to outline the market opportunity of $8 8 million smbs that fit our target profile. So back to your question, Jim Yes, ignite being sold outside our markets. We are and have started in the last eight months doing that and expect to accelerate debt through 'twenty, one and 'twenty.
You too.
Okay and final question.
Do you have the agri.
Aggregate EBITDA margin target you are hoping to achieve and sort of an unrelated basis could you discuss the process of phasing in some of the necessary costs and expenses that you may have been cutting back during the pandemic.
Sure I'll, let stew step in but you know a lot of.
As a reminder.
We determined in conjunction with the board when the pandemic really hit full throttle back in March and April we made the conscious decision.
To make some cuts.
But they were very I'd say small compared to what others may have done as you may recall, we laid off.
Roughly 6% of our borrower fulltime work force, which was about 150 people, which were primarily corporate related and support world. So you'll see our corporate expense coming down in Q1 21 and throughout 'twenty one.
As Stu said, we're going to continue to invest in we didn't cut in our really core advertising in town square interactive areas, because we wanted to be well situated for growth and I think that's one of the reasons quite honestly, we're outperforming so well and on the verge of a full revenue recovery, because we were able to not make those cuts in <unk> b.
Well situated for the rebound, but Stu do you want to talk about what what expenses remain out and what you expect coming in as we move forward.
Yeah. So.
Jim as you recall, we mentioned overall, we probably approximately cut about $30 million of Opex and non epic cash out of the business on an annual basis.
And we cut about 10%, we fired about 10% of our full time employee base.
We've started adding them back to our digital businesses and our broadcast business, where it makes sense a lot of the types of a lot of the types of cost savings, we hope to bring back like the.
Matching of the 401k employee contribution match.
So of the approximately $30 million of cash out the door savings permanently will probably keep between $15 million to $20 million of that so almost two thirds of it.
We'll probably from a gross answering your question on the gross profit margins.
As you see in Q4.
Our EBITDA margin is 20, almost 24, 9% almost hit back to 25 per cent and we're gonna comp as Bill had mentioned ourselves with it.
Planned to be back into the.
The low to mid 20% gross profit margins on an EBITDA basis going forwards weighted comp ourselves too.
2019 levels.
Okay. Thank you very much appreciate it.
Thank you Jim.
Your next question comes from the line of Dennis Leibowitz with Act II Partners. Please proceed with your question.
With respect to the Oaktree deal I was wondering.
I saw that simultaneously.
Bill.
So the block of stock I don't know if it had been restricted and I'm wondering if you could.
Explain that and also what happens to the board seats.
Free cash.
I did not sell a block of stock.
I saw that listed on a Bloomberg terminal I know, we looked into that I believe had a corrected but just for the public record I did not sell any stock I can't remember.
The last time I sold nothing in 'twenty nothing in 'twenty, one just so that is definitely a.
Inaccurate data point, just I'm glad you asked so if anybody else's.
Seeing that that did not happen Stu do you want to.
Take the overall question.
Yes.
So from the from Oaktree, leaving.
There were a couple of ex Oaktree partners, who decided to remain on the board after they left the oaktree.
They've been very supportive very helpful Theyre going to keep their seats.
And as of this time you know.
The managing director that's still at Oaktree is the only actual employee its on the board.
He hasn't told us.
Super supportive he was been in this business since the since day, one he may decide to come off down the road, but he hasn't so there's been no predetermined.
No there's been no predetermined change in the board seat.
The next clarification.
Excellent. Thank you Dennis thanks for dialing in.
Okay.
Your next question is a follow up from Michael Kaplinsky with Noble capital markets. Please proceed with your question.
Thank you it's.
Stuart you mentioned the high bar in terms of radio acquisitions and the parameters that I was wondering if you could talk a little bit about the parameters that you might have for digital acquisitions. If you have an appetite there.
Sure Yeah yeah.
Deferred to bill the only thing I'd have to say is we're going to have a high bar to digital because we can always create it and develop it internally ourselves it much more economic.
Bases, but built this is ya.
Yeah, I think Michael Super Tuesday, I'm glad I'm glad you came back with a follow up the I believe as we talked about on prior calls we're going to be the natural acquirer.
Broadcast stations outside the top 50 markets and I believe that will happen post pandemic as recovery I still believe directly will happen I don't know if it'll happen based on the ruling that's sitting with the Supreme Court now, but based on what we see day in and day out in our local communities and in essence the news deserts.
Journalism really receding in us moving in to fill that void I do think will be an acquirer of local radio stations as I noted on this call. Although we became a digital first company in 2020, we love local radio.
As part of our DNA and we will continue and always will be part of local radio and serving our communities as it relates to your question for digital acquisitions as Sue said the great thing about our business on the digital sizes. In addition to the growth is 100% organic we've built all of these solutions.
Our owned and operated Amp that I took the time to walk through on this call at monetizing our own.
Audience that we have built from $1 million in 2000 $11 million to $58 million in 2020 to ignite our digital programmatic offering to challenge for interactive we literally have a world class product and development team, we actually added a dedicated slide in our investor deck to highlight that team thankfully many of them up to 40 plus.
People over half of them were with me at a O L and join me in 2010, when we came together to town square. So we had the benefit of working together for a long time, we've looked at acquisitions.
In the programmatic space.
Is it tuck into ignite we've also looked at acquisitions for town square interactive Theres, some companies that focus on certain verticals like spas or restaurants, or our doctors and things like that the multiple on those businesses had been literally 10 times over plus revenue So 10 times at <unk>.
Ma'am revenue and obviously.
We believe it would be best for us to can you shouldn't continue to grow organically, particularly given the strong organic growth rate and I think our hope and expectation is we continue to perform and execute and continue to.
Educate our investor base on our digital subscription business that our multiple goes up as a result of that you know I think at one point, we were sharing the wix comparable of 12 13 times revenue.
And with town square interactive $70 million of revenue ending last year that would be a $700 million market cap on a 10 X just for that part of our business and we're obviously valued well under that so it's a high high bar for our digital acquisition. We continue to see everything thanks declares great work, but I would not expect anything in the short term.
On that front, but I could see coming post pandemic acquisitions in local media radio stations outside the top 50 markets as we go into 'twenty, two and 'twenty three.
Great. Thanks for that color I appreciate it Youre welcome Michael Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back from Mr. Bill Wilson for closing remarks.
Thank you operator, and thank you, everyone, who dialed in today and most of all I want to thank our town square team for their passionate inspired and perseverance performance through over the last 12 months that put us in this position of a full revenue recovery moving forward post pandemic I would also remind all of our shareholders that we put our annual shareholding or on our website. So in addition.
To downloading our investor deck, which I encourage you to do I would encourage you to also read our annual shareholder letter, which is now available be safe be well and talk to you soon take care.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
[music].
Okay.