Q2 2021 Townsquare Media Inc Earnings Call
Greetings and welcome to the town square of media second quarter 2021 earnings call. At this time all participants are in a listen only mode. A 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.
Please note this conference is being recorded.
I'll now turn the conference over to your host click Anarchy may begin.
Thank you and good morning coffee line. Thank you for joining us today for town square second quite of financial update with me on the call today are telegraphing, our CEO and Stuart Rosenstein, our CFO and executive Vice President.
Please note that guidance call. We may make statements that provide information other than historical information, including statements relating to the company's future expectations plans and prospects.
These statements are considered forward looking statements under the safe Harbor provision of the prime.
But securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from the team.
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 from form 10-K for the year ended December 31st 2020 half of the S. E C.
We may also discuss certain non-GAAP financial measures, including adjusted EBITDA adjusted net income and adjusted operating income, which we may refer to as profit in RMR.
Such non-GAAP financial measures should be used in conjunction with all the information contained in the 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 Belo reference some of those slides during our discussion of this money.
At this time I would like to turn the call over to Bill Wilson.
Good morning, everyone.
Thank you all for joining us this morning, as we update you on our incredible financial results and our progress through the first half of 'twenty 'twenty 1.
I wanted to start today's call by providing you with our latest outlook for the full year because it is something the town square. It team is very proud of.
And then I will discuss the specifically our Q2 results.
Becoming a digital first company with a heightened focus on local has propelled our company for the past 12 months.
Allowing us to recover even faster than we initially expected.
We now expect 2021 net revenue to increase to at least $410 million.
Which is $15 million higher than we originally forecasted just last quarter.
And it is 95 per cent of 'twenty of 19th revenue.
And incredibly we expect 2021 adjusted EBITDA to fully recover to at least 100 of $2 million, which would equal 20 of 19th pro forma adjusted EBITDA of 100 of $2 million.
And as $12 million above what we originally forecasted just last quarter.
Now let me walk you through how we will recover fully to 2019 profit levels.
Our financial recovery accelerated in the second quarter of 2021.
And I'm proud to announce that our second quarter financial results exceeded our goals and expectations and in many cases exceeded levels. We achieved in the pre COVID-19 second quarter of 2019.
Once again, we exceeded our previously issued guidance range for both Q2 net revenue in Q2 adjusted EBITDA I'd.
I'd like to draw your attention to slide 6 of our Investor presentation, where we outlined second quarter performance.
On our last earnings call, we provided key data points to help set expectations for Q2.
And I am thrilled to share with you that we over delivered and beat on every single 1.
To start.
Given our revenue recovery and expense management.
Particularly corporate expense reductions, we are very proud to announce that in the second quarter, we generated the highest adjusted EBITDA of any quarter in our entire company's history let.
Let me say that again, just 1 year after the start of the pandemic. We are back on track our flywheel continues to pick up momentum and we are setting all time high adjusted EBIT of records.
Q2's, adjusted EBITDA of $33 million is greater than 2019 of our previous EBITDA of high watermark.
And when excluding live events Q2, adjusted EBITDA exceeded 2019, adjusted EBIT by plus 5%.
Helping drive that strong profit performance I'm also very proud to share that we set another all time company record with the most net subscriber adds in town square interactive history, adding approximately 1350 net subscribers in Q2.
As a result.
Town Square Interactive Q2, net subscription revenue grew plus 20% over Q2.2020 and is now approximately 20% of our total company's revenue on a year to date basis.
Let me reiterate that approximately 20% of our total revenue.
Nearly 1 quarter of our total adjusted EBITDA is attributable to a monthly recurring subscription business a true differentiator for town square.
Continuing with our strong revenue performance Q2, net revenue grew plus 45 per se when compared to 2020, achieving 95% of 2019 second quarter net revenue.
That's a very good outcome, yet when you exclude live events revenue, which remain limited in the second quarter. We made of near full revenue recovery with Q2, 2021 net revenue, reaching 99 point for percent of 2019 net revenue.
In my view, an incredible result.
Broadcast revenue continued to show sequential improvement in Q2 in.
In Q2, 2021 broadcast revenue was up plus 54% from a year ago, what in Q2, 'twenty 'twenty broadcast was down negative 45%.
As a digital first company the primary driver of our recovery to 2019 revenue levels has been our digital business.
In total our second quarter digital revenue exceeded 2020th digital revenue by plus 36% with.
With digital advertising revenue, plus 50% and town square interactive revenue plus 20%.
As I mentioned earlier, our success can be credited to our digital strategy.
Although we are very proud of our routes and DNA and local radio.
And we are proud to call of local radio.
Town Square became a digital first company in 2020.
So what does being a digital first company actually mean.
It means acknowledging both internally and externally that digital is our growth engine today and in the future of.
It means that our first priority for internal investment will be towards fueling our digital platforms in terms of personnel product development and physical expansion.
The first means ensuring that our content online is as engaging relevant and local as our content on air.
And it means that when our account executives bring our world class advertising solutions, both digital and broadcast to local smbs to help them grow their business.
They are also taking the opportunity to educate them on how important it is that they have a strong digital presence and online storefront and how town square has the tools and solutions to accomplish that.
Digital first also means that digital revenue will represent the majority of our company's revenue in the near future.
And we have 2 digital solutions that will get us there.
First our digital advertising solutions, which today includes houseware ignite and town square amped.
And second town square interactive, our digital marketing subscription solutions business.
In total digital revenue from these 2 revenue streams totaled $180 million over the 12 months ending June 32021.
Contributing 47% of our total net revenue in the first half of 'twenty 'twenty 1.
As you can see on slide 9.
Digital has been the primary source of our growth over the past several years.
Only 4 years ago digital revenue was under $100 million and contributed just 25 per cent of our total net revenue.
Fast forward for years later on a trailing 12 month basis, we generated $180 million in digital revenue an increase of over $80 million of digital revenue from 2017 levels.
Going forward, we anticipate strong double digit growth across our digital platform as we grow from an expected $190 million of digital revenue in full year 'twenty 'twenty 1.
So over $250 million of digital revenue in 3 years.
Town Square interactive is a big driver of that growth, we expect it to grow from $76 million of revenue on a trailing 12 month basis today.
2 over $100 million of annual revenue within 2 to 3 years.
Since we launched the town square interactive in 2012.
Its revenue has grown double digits versus the prior year, each and every quarter, even during the worst of the pandemic.
And since reaching profitability in 2014 profit also has grown each and every quarter, reaching $23 million on a trailing 12 month basis as of June 30th with of 31% profit margin.
As I have noted on previous calls.
If your word of value town square interactive on a standalone basis, 1 comparable company to look at would be Wix, which currently trades at 16 times trailing revenue multiple if you applied a similar multiple or even of discounted multiple to town square interactive the.
That would suggest the evaluation north of where town square as a whole trades today.
Town Square interactive is an important and valuable resource for small business owners, providing mobile enabled website development and hosting services E. Commerce solutions search engine organic traffic and online directory optimization services online reputation monitoring social media management.
Appointment scheduling services email marketing services website re targeting and much much more on a monthly recurring basis.
Over the past 13 quarters, we have added at least 850 net subscribers each quarter to our subscriber base.
As I highlighted earlier on the call. We are very proud that in Q2, we set an all time record with the most net subscriber adds in our history, adding approximately 1350 net subscribers.
As of June 30th we now provide digital marketing solutions on a monthly subscription basis to approximately 24950 small and medium sized local businesses across the U S.
Including but importantly, not limited to the markets in which we operate radio stations.
Roughly 57% of our current subscription client base resides outside of our radio markets today.
At the risk of being repetitive as I've shared this on the last couple of earnings calls I'd like to once again walk you through the vast size of town square interactive addressable market.
Town Square interactive is still incredibly incredibly underpenetrated within our local market footprint.
And importantly, within additional local markets of similar size and demographics.
If you would turn to slide 12 of our Investor presentation, you will see that 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 about 11.5 million businesses.
We then put a few additional and very important filters on the Smbs, we target for 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 that are not the ideal fit for our solutions, including real estate agents banks and other types of businesses and lastly, we include only private independently.
Owned businesses.
After applying all of those filters.
That equates to over 8.8 million target customers for town square interactive.
Had a $300 per month <unk> that equates to an estimated $32 billion total addressable market for town square interactive.
Of which we are only capturing a small fraction today the.
There was incredible incredible incredible upside.
We are planning to add a second tower square interactive location in the western United States to capture this opportunity most likely in the first half of 'twenty 'twenty 2.
In fact, given the success we had during the pandemic working virtually we have already started hiring dozens of team members for our west coast location and those employees are now working for us remotely.
Ultimately, we believe the West Coast House Square interactive location will be close in size to our Charlotte location, which as you may recall is currently staffed with over 600 employees.
Throughout the pandemic town square interacted delivered revenue profit and subscriber growth and that growth has accelerated does far in 2020.1.
Second quarter net revenue increased plus 20% year over year as we added a record amount of subscribers.
Second quarter profit increased plus 18% year over year with profit margins of 30%.
In Q3, we expect to add at least 850 net subscribers for the 14th consecutive quarter and most likely will add over 1000 net adds with revenue up approximately plus 15% year over year in Q3.
As a reminder, in 2020, we added approximately 3750 net subscribers and in 2020, 1 we expect to add over 4000 net subscribers.
With our second location coming online in the first half of 2022, we expect that our net subscriber additions will accelerate in 2022.2023 and beyond.
As I noted earlier, our digital advertising revenue in Q2 grew plus 50% over suppressed levels of Q2.2020, and thus it is worth noting digital advertising revenue was up plus 23 per cent compared to Q2.2019.
As I outlined on slide 5 our digital advertising revenue is driven by town square ignite and town square and <unk>.
Town square ignite our digital programmatic technology platform had an outstanding quarter, helping to drive that plus 50% digital advertising growth.
This is Greg Knight combines first and third party audience data to hyper target audiences for our local and regional advertisers providing them the ability to reach their target customer with the right message at the right time.
Ignite has been a significant source of growth for town square growing from less than $10 million of revenue in 2016 to more than $53 million of revenue in 2020.
Our success with town square of ignite is multifaceted, yet 1 strong differentiator for us just like the house greater active.
Is that we own the entire ignite solution all of the AD Tech and the offering is in house, we own and control of the customer relationship for end to end from creating the right message and creative to the activation of an optimist optimization of the client campaigns to the detailed in depth client reporting which leads to a better customer experience.
And therefore higher client retention rates and our view of.
The town square ignite is in essence of clients full service digital agency.
We are confident that ignite will be our fastest growing revenue stream in 2021 and likely in the years to come as revenue grows from $59 million on a trailing 12 month basis today.
$100 million within 2 to 3 years at roughly at 30% profit margin.
The other key component of our Q2 digital advertising revenue growth of plus 50% is town square amped, which generated $45 million of revenue on a trailing 12 month basis as of June 30th.
Town Square Amp is a digital advertising at our owned and operated network of digital brands made.
Made up of over 340 websites and 350 mobile apps, which together delivered a highly engaged audience of 59 million unique visitors on a monthly basis in the first half of 'twenty 'twenty 1.
During the pandemic, our digital platforms experienced all time record audience levels as our local communities turned to our local brands to stay informed and be entertained.
As the pandemic subsides and life starts to return to normal we are successfully retain this audience by continuing to provide localized relevant content curated for of our audience.
In fact, our honor Djs, who are also digital content creators and importantly, local social influencers create over 30000 pieces of local content, each and every month, making town square and 1 of the largest producers of local content in the United States.
Across the board our digital offerings performed very very well during the pandemic and in the first half of 2021 driving our strong top line and profit recovery as I mentioned earlier broadcast continues to improve sequentially, but from a steeper decline as broadcast advertising on our 322 local radio stations.
<unk> was the most impacted during the pandemic.
In Q2, 2021 broadcast revenue was up plus 54% from a year ago. When in Q2, 'twenty 'twenty broadcast revenue was down negative 45% we.
We expect that our broadcast revenue will continue to rebound from 2000, twenty's suppressed levels supported by stable rates.
Record new business activity defined as advertisers, who have not advertised with us in the previous 13 months and growing optimism among our existing advertising base.
We also expect some tailwind from certain advertising categories that have yet to recover including live event related advertising auto advertising, which has been negatively impacted by the industry's ongoing chip shortages and Canadian businesses, which impacts our markets in Maine in Buffalo, where the border remained closed.
For further demonstrate our broadcast recovery I'll turn your attention to metrics published by Miller Kaplan, which are included on slide 7.
In Q2, 2021 town square outperformed the industry and local radio spot sales by 11 percentage points.
And total spot sales by 9 percentage points in our markets that Miller Kaplan measures.
Additionally town square also outperformed the industry in total revenue, which includes both total spot revenue and total digital revenue.
These Miller Kaplan results demonstrate that town square is outperforming its peers not only in digital but also in broadcast.
Roughly half of our revenue is digital but we are also growing local market share in radio.
1 doesn't have to come at the expense of the other the.
The opposite is true in fact, the better we do digitally the better we do in our core local business because of the digital solutions, we provide the local smbs encourage them to trust us with their broadcast marketing budgets as well.
We hosted a handful of live events in the second quarter generating $1.2 million of revenue and $500000 of profit of 42% profit margin.
So far we are seeing strong consumer demand for the limited number of events that we have operated and of certain events, where even setting all time records.
On our last earnings call, we highlighted the Red dirt Barbecue festival in Tyler, Texas that set an all time revenue and all the time profit record in early May.
In late July just a few weeks ago, we hosted the taste of Fort Collins with.
Which sold out both days for the first time ever.
And therefore set an all time revenue and profit record as well.
We will continue to ramp up our live events scheduled for the back half of 'twenty 'twenty 1.
But we will not return to normal schedule of of live events until 2022.
For Q3, we are expecting to generate approximately $3 million of live events net revenue at roughly a 20% profit margin.
So let me take a moment to recap before I hand, the call over to Stu.
We outperformed our expectations for the second quarter on both net revenue and nonprofit.
Driven by incredible performances across our digital platform, which contributes approximately 47 per cent of our total net revenue.
Town Square interactive a major component of our digital revenue added an all time high plus 1000, and 350 net subscribers in the quarter.
The South square interact is recurring subscription revenue is now approximately 20% of our total company revenue and nearly 25% of our total company EBITDA.
We delivered an all time high adjusted EBITDA of $33 million, which was above Q2, 2019 by plus 5% excluding live events.
Our improvement in adjusted EBITDA contributed a significant decline in our total and net leverage which are now 5.8 times and 5.5 times respectively.
We continue to see improvement of our broadcast business and our live events business is starting to pick up pace bid.
Because of our strong performance and our positive outlook, we have significantly raised our full year 2021 guidance, indicating net revenue that is close to 2019 levels and.
And adjusted EBITDA of that achieves 2019 levels.
With that brief recap of I'll turn the call over now to Stu who's going to discuss our financial results is much much greater detail Stu take it away.
Thank you Bill and good morning, everyone. What a difference a year makes all the 1 year ago, we reported financial results that will materially depressed due to the pandemic.
Fast forward to today, and we're quoting much improved second quarter financial results that exceeded our expectations driven by strong year over year revenue growth and careful expense management in total second quarter net revenue increased 44, 9% over the prior year period to $107.3 million.
Exceeding our previously issued revenue guidance range of $101 million to $104 million.
Second quarter, adjusted EBITDA increased $28.2 million to 30.3 million exceeding our previously issued EBITDA guidance range of $28 million to $29 million and setting an all time company record.
Although these year over year growth trends of important we believe the most relevant measure of our performance is to compare them to the pre Covid 2019 results.
Q2, 2021, net revenue declined 5.1% compared to the second quarter of 2019, and Q2.2021, adjusted EBITDA exceeded Q2's 2019, the adjusted EBITDA bite, 0.6%. However, it is important to note that live event.
<unk> generated $6.3 million of revenue and $1.6 million of profit in the second quarter of 2019 versus only $1.2 million of revenue and $500000 of profit in the second quarter of this year.
Excluding live events net revenue declined only <unk>, 6% as compared to 2019, and adjusted EBITDA increased 4 and a half per cent compared to 2019.
Town Square interactive delivered second quarter net revenue growth of 19.7% as compared to the prior year in the first 6 months of 2021 town square interactive net revenue increased $17.4 per cent as compared to the prior year.
This revenue growth was supported by an all time record number of subscribers in net added in Q2 with the addition of approximately 1350 net subscribers towns.
Town square into active second quarter profit increased 18.5% as compared to the prior year and on a year to date basis profit increased 24, 1% as compared to 2020.
<unk> interactive second quarter and year to date profit margin was 30% and 31% respectively.
Based on the subscriber count of 24950 subscribers and of monthly our pool of $300 town square interact as run rate revenue is now $90 million as of June 30th.
In the second quarter advertising net revenue increased 54% over the prior year net revenue from our digital advertising solutions composed of town square ignite and an increased approximately 55% in the second quarter as compared to the prior year period.
Broadcast advertising net revenue showed significant improvement over the Covid depressed 2020 levels, increasing 54, 2% as compared to Q2 of 2020.
For the first 6 months of the year advertising net revenue increased 18, 2% compared to 2020.
Second quarter advertising direct operating expenses increased only 8% over the prior year or $4.2 million, leading to significant margin expansion in our advertising segment as a result of our high operating leverage.
Second quarter advertising profit increased by $24.6 million from 2020 levels with strong margins of 33, 9%.
Second quarter marked the first time in over a year that we had any meaningful live events activity.
In Q2, we hosted 11 live events significantly less than Q2, 2000, 1916 events, but a solid start.
We are carefully evaluating the live event the opportunities in each of our markets and will gradually ramp up live events for the remainder of 2021 with plans to return to a more normalized schedule in 2022.
The 11 event that we hosted in Q2 range from music censored events, such as the Red dirt barbecue of music Festival in Tyler, Texas to.
To non music events, such as the home and Garden show in Cheyenne, Wyoming, and Idaho as the largest yard sale in Boise.
In total second quarter of live events revenue was $1.2 million and profit was $500000 of 42% profit margin.
As Bill noted earlier I do want to spotlight debt, our second quarter of corporate expenses declined of very meaningful to point $1 million or 28% and year to date corporate expenses declined $4.4 million with 31.3% each as compared to the prior year.
The decline in corporate expense is primarily due to a decline in professional fees for.
For the full year, we currently anticipate corporate expense will decline by approximately $6 million.
Second quarter interest expense increased $1.9 million or 24, 3% as compared to the prior year and was up $3.9 million or 24, 6% for the first 6 months of the year.
This was due primarily to the issuance of a $550 million 6.8, 75% secured bond in January of this year, which entirely replaced our previously outstanding debt.
In total our annual interest expense increased by approximately $9 million due to the higher interest rates. However from a cash outflow perspective, the increase in annual interest expense is almost entirely offset by last year's elimination of the dividend, which totaled <unk> <unk>.
$8.4 million per year.
For the second quarter net income increased $36.9 million to $10.1 million or 50 cents per diluted share as compared to a net loss of $26.8 million or a net loss of $1.46 per diluted share in the second quarter.
Of 2020.
We'd like to remind you that any benefit or provision for income taxes included on the face of the income statement.
Is for GAAP financial statement purposes, only we maintain significant tax attributes, including $168 million federal NOL carryforwards, and other substantial tax shields related to the tax amortization of our intangible assets we.
We continue to believe that we would not be of material cash taxpayer until approximately the year 2026.
And the first 6 months of 2021, we generated positive cash flow from operations of approximately $31.2 million and $19.5 million increase from the prior year period.
We also used approximately $80 million during the first quarter to repurchase 100% of oak trees capital equity interest in town square and a significantly accretive transaction we occurred.
The approximately $14 million of fees associated with the issuance of our senior notes.
We continue to carefully manage our capital expenditures, which declined 42% year over year to $4.8 million in the first 6 months of 2021.
In total we ended the quarter with approximately $25 million of cash on the balance sheet of 5 million dollar of improvement from the end of Q1 with.
With total debt of $550 million and the trailing 12 month adjusted EBITDA of $94.9 million, our total and net leverage has declined to 5.8 times and 5.5 times, respectively, which is a material improvement over Q1's total and net leverage of 8.2 times.
7.9 times.
Given our strong cash generation abilities, we are confident operating the business at these cash levels going forward, our capital allocation priorities will be to invest in our local business to organic internal investments and to reduce our net leverage with the medium term net leverage goal in the low 4 times.
Turning to a third quarter outlook, we expect third quarter net revenue to increase approximately 11% to 14% to be between $106 million and $109 million.
As compared to the third quarter of 2019, which we believe is of more relevant comparison. This represents a decline of 3% to 6 per cent.
We expect third quarter adjusted EBITDA to increase approximately 55 per cent to 61% to be between $27.2 million and $28.2 million, which means when compared to 2019 represents a decline of 3% on the low end to flat.
On the Hyatt.
As Bill noted earlier, our goal is to again achieve 2019 EBITDA levels in Q3, which would mark the fourth consecutive quarter of achieving 2019 levels of profit.
For all of 2021, we expect net revenue to reach and possibly exceed $410 million, which represents 95% of 2019 revenue.
And we expect adjusted EBITDA to each of $102 million, which would equal 2019 pro forma adjusted EBITDA.
Excluding live events, which we believe is of more relevant comparison 2021 net revenue will achieve 98% of 2019 as revenue and exceed 2019 adjusted EBITDA by 2%.
With that I will now turn the call back over to Bill.
Thanks to well done and thank you to everyone who dialed in this morning.
As always I'd like to thank our town square team, who are the engine behind our strong year to date performance and who will be instrumental to town squares future success.
I am incredibly optimistic about the housewares future.
And very proud that in 2020..1 we are on the path to achieving 2019th of adjusted EBITDA level of $102 million.
And we are on the verge of of full revenue recovery.
As a digital first company the growth of our digital revenue and digital profit has accelerated and is continually propelling us board each and every day.
And I'd like to reiterate that we expect that our total digital net revenue will increase the 200 of $50 million within 3 years as.
As we say internally how high is high.
And with that operator, please open the call for any questions.
At this time, we will be conducting a question and answer session. If you'd like to ask the question. Please press star 1 on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
For historic too if you ranked to reboot of your question from the queue.
Participants using speaker equipment, it may be necessary to pick up of your handset before pressing the star keys.
1 for me please while we poll for questions.
Our first question is from Michael <unk>.
Ski with noble capital markets. Please proceed with your question.
Thank you and first of all congratulations on a strong recovery of the great quarter.
Just a couple of questions.
You mentioned that the 57 per cent of town square interactive subscribers were derived from outside your radio markets can you talk about the percentage of subscribers that were added in the last quarter and what percentage they came from outside of your markets.
Okay. Michael Thank you very much I hope you well good to hear from you again.
In the quarter. It was consistent so I think on the last earnings call in the probably the year and as well we were at 57% outside of our local markets. So the good news for US is our in market continues to scale quite nicely and our out of market continues to scale quite nicely as well so that percentage.
Was consistent in the quarter as it was to the prior quarter and obviously extremely satisfied with hitting an all time high of 1350 net subscribers added in the quarter and just.
Increasing our confidence in the business not that it could be much higher than it was before but obviously, adding the second location I think as I noted in our interview a couple of weeks back we're looking to accelerate the investment in there, particularly in the back half of this year and then going into our West coast operation in 2022, but that's.
Why we outlined that total addressable market for town Square Act of 32 billion in the investor deck, but couldn't be more pleased with the performance and really excited where we're going.
The amazing that you added 13 over 1300 subscribers can you talk a little bit about.
Are you seeing any increased churn or noticing any difference in the the amount of churn for the subscribers.
Yeah, we continue to have really the lowest churn we've ever had in the business.
You know 1 of the benefits we talked about I think on prior earnings calls is the pandemic really put a spotlight on the importance of the strong digital presence for Smbs. So our net adds is a combination of the increase of sales velocity as well as lower churn and we expect that to continue.
And continue to invest in you know 1 of the benefits. We have as you know as we are of very unique customer service platform and strategy, where each business has a customer success manager as opposed to a general customer support phone number or email. So it's really 1 to 1 digital consulting and just incredibly per.
Our debt all of our digital growth is organic or all of the results. We're providing here are pro forma and also organic no built in the house and as I noted in the prepared remarks. The fact that we have this technology team. That's built these technology products and platforms. We think is the true differentiator in general and particularly what more of.
<unk> focused outside the top 50 markets. We are quite pleased with the very attractive competitive landscape and then you factor in the level of sophistication, we have from a technology solutions standpoint, and then obviously I believe we have of world class team across the board of town square.
Gotcha, and how long do you think it'll take for ramp up of the employees to the level that you have in Charlotte in your second office.
I expect the same level of growth out on the West coast operation as we.
We had in Charlotte.
As a reminder, we literally started with 3 employees in 2012, and we're north of 600 now so.
So I expect us to add anywhere from 60 to 80 employees once we're up and running on an annualized basis to the west coast operations, while also continuing to add in Charlotte as well.
As I noted in the prepared remarks, we've already hired dozens of people for the West coast operation. During the last 12 months I think 1 of the things. We consciously stayed the then I think Steve said this well when he said what the difference a year makes us a year ago, we were sharing that our strategy was to cut corporate expenses and other.
Other expenses that were more variable in nature of like the 401, K and other things for the time being and really hold onto our team at the local level and at our town square interactive offices, so that as the pandemic subsided whenever that happens we would be in the best competitive advantage to take advantage of that so throughout the pandemic in the last 18 months, we've been hiring.
Pretty aggressively and that will continue to happen over the back half of this year and then going back to your original question I expect over the course of the we're adding 60 to 80 people will be at 600 people call. It an 8 to 10 years out there.
Gotcha and just 1 question for Sue you know in terms of capital allocation you mentioned that.
You know that you're going to your plans are to kind of increase Inc.
Government spend a little bit can you just talk a little bit about the prospect of share repurchases. You know are there any covenants that restrict you from doing that and then also what is the nature of the capital spend debt that you're anticipating for them internally.
Thanks, Mike So as Bill had mentioned and we've said consistently going forward as our first priority is going to be investing in our businesses specifically our digital businesses. Secondly, we're going to use that money excess free cash flow to delever.
We really don't have any plans today no.
The formal plans to buy back equity.
If the stock.
The reaction of way, where it's our best use of money at the time the board will think about it and obviously, we're aware of it and we'll watch it but our first priority uses is to invest in our digital businesses.
Got you. Thanks, so much I appreciate it.
Thank you Michael.
And our next question is from the Jim Goss with Barrington Research. Please proceed with your question.
Okay.
Good morning, Bill still unclear.
I would like to.
Can you kind of a couple of other questions to what Michael.
Michael the pursuing in terms of.
The town square Interactive I was wondering what the.
Run rate you would expect.
Once the Western office is open.
And where is the line drawn geographically in terms of what the Charlotte offices people can be pursuing versus the newer areas.
And.
What is the difference in the sales approach for <unk>.
Salespeople dealing in owned radio markets versus non owned is there any difference at all.
As of the separate enough business that the that really doesn't have a great impact.
Thank you Jim all great question, So I think I captured them, all but obviously feel free to follow up on any so in terms of the run rate once our operation on the West coast is fully operational so.
As I noted on the on the call on the prepared remarks that we expect the open the office in the first half of 2022, and then continue to scale from there and hiring so as you know we've consistently for few years now added a minimum of 850 net ads my expectation once we are fully operational.
Was that what that baseline will increase quite substantially I would say by at least 50% in terms of our net add base line. So call that 250 <unk> hundred net adds once we're fully operational and I expect that to be probably in the next 12 to 18 months in terms of being fully operational on that in terms.
The geography of.
It's really more so we're going to have a full service office. So all disciplines will be hired on the west coast operation just like in Charlotte. So that includes our salespeople that includes customer support customer service people that includes technology people that includes design people that includes copywriters search engine optimization.
Everything in essence, what we call our specialists.
The specialists the niche areas. So partially what will happen is from a customer service standpoint.
From the Midwest to the West Coast that office will ramp up and of handle those customers that are located they are so that that time change that we've been really time shifting for Charlotte. So theres more coverage, we won't have to do that as much from a sales perspective as we outlined in the investor deck I think it's on slide.
11, given the addressable market of.
Almost 9 million target town square interactive customers, obviously, we're going to continue to focus outside the top 50 markets. That's an incredible important differentiation for us we're going to continue to focus on companies with 20 or less employees less than $5 million of revenue that gets us to just under 9 million target ideal customers for town square interactive.
The fact that we're sitting at under 25000 subs.
Subscribers at the end of Q2 shows the vast addressable market. So in terms of geography for sales they won't be limited, it's such greenfield that both offices will be calling around the United States.
It won't be limited to how they do that the third part of your question, which is very astute is we have of world class insight sales team, who are calling outside of our markets and that's what's driving that 50% of the subscriber base of 57 per cent of the subscriber base that we noted.
In our markets.
The continued to see an increase in sales as well that's driving the partially the the record that we set in Q2.
The way it works there is if a local sales person wants to bring a long a specialist they are allowed to do so I think it's really important point and you touched on this our local sales people in our local markets.
Bring all solutions to bear so they go into a client they do of client needs assessment and they have everything.
Available for them to sell to help the business grow and reach their goals.
So that includes town square interactive that concludes Taos, Greg Knight and Amped all of our digital advertising, obviously all of our broadcast solutions leveraging town square analytics and attribution of our data squared platform live events. So that's 1 of the reason that I mentioned this in my prepared remarks, we believe the reason, we're taking local spot share.
And total spot share as measured by Miller Kaplan in that we outlined.
On slide 7 of the Investor deck.
As Gordon morale is set of if you guys are familiar with Gordon Brown, He says more and more smbs why do you use less and less.
The provider's solution providers because of its overwhelming for that amount of how many people are calling on their business. Each day. So right now they prefer to use to providers. So the advantage. We have is we can provide them such a broad selection of solutions to help them grow their business from digital to broadcast of live events the OTT across the board.
And we think that's a real differentiator for our company.
That's partially why we came out of of 2000, Twenty's, stating, we're a digital first company and that's where our our growth is driven but the fact that we go to market with all of these solutions and our view is even a bigger differentiation in the end markets outside the top 50, we really believe we're being national sophisticated scale to the small town America, it's a business.
Is that really benefit from it so Jim I'll turn it back to you I think I answered your 3 parts, but happy to expand on that or anything else you'd like.
I think he did on those but you also segue to the end of the other thing I wanted to ask about <unk>.
And that is in terms of the trends and the mix of AD spot utilization.
Just going a little further end of that can you talk about.
Or characterize it in terms of say.
Spots are sold as ads versus spots of our promos or.
So really discounted spots that have the capability of generating additional revenue.
And the like type may perhaps tie that into the listener mix by the time of day.
And how does the digital sales.
Sales might impact them.
The capability I assume you don't change the AD spot load over the course of the day.
Just selling it differently and maybe you can characterize how you can.
You know get more out of the AD spots available.
No. It's definitely a great great great question, Jim and it couldn't be more proud of the local town square of content contributors and they're producing content, obviously for broadcast online for our own websites and apps for our social platforms for our video platforms and the fact that were alive and local and continuing to invest in local radio I.
Believe it is another piece of the core differentiator of why we're taking local spot share and taking total spot share. So goating, you're going to your specific questions in terms of spots of the large majority of 90 plus percent are purchased spots versus promo spots, we do utilize promotional spots for our own products like counts for interactive.
Like town square ignite like town square broadcast we do utilize our own Mega forward 1 of the core assets at unique Differentiators for us as an average or a M. F. M broadcast reached 50% 1 and 2 adults in the markets that we operate in so what an incredible megaphone.
To reach not only.
People living in the community, but clearly people living in the community who are business owners and small business owners. So we do use those spots to advertise what we can do to help local businesses, but over 90% of what the spots run our paid spots from local advertisers.
You then asked about the listener mix.
And the spot loads, so the spot loads of R. R.
Our consistent throughout the day.
The our digital streams, which continue to increase in number of people listening to them as well as time spent listening we do run less spots on our streams in our streams of access through obviously, the laptops desktops mobile phones mobile apps smart speakers any connected device.
Even connected televisions.
And what I'm really proud of is even if you are listening trends you know as I. Just noted we reach 1 into adults on our a M F N broadcast.
That's been incredibly consistent for the last several years in terms of our overall reach I think everybody on this call's knows that the radio overtook TV in terms of becoming the number 1 reach medium. So in our view there is no better medium of no better cost effective ROI for top of the funnel marketing brand awareness the radio.
So our listening in terms of reach is stable number of people listening on a weekly basis.
I think overall as you've heard me share in other forums I think part of the challenge for radio has been time spent listening and the fact that we're live and local on the fact that were in smaller markets I'm very proud to say our time spent listening is stable as well so the combination of of stable audience and stable listening trends has really.
Benefited us and allows us to continue to take local spots a.
Sure.
I think you asked about digital sales was that your last question.
I just wondered if the digital <unk>.
All of effort tied into filling those.
Parts in the <unk>.
At times of the day when it I would I would imagine that's the.
Claims you can apply C. P M and the tried to reach whatever audience. There is some sort of balance out but add mix yeah.
Yeah, No that's right and I'm glad you I'm glad you followed up on that because it is important to note.
And I think I shared this on the last couple of calls our average minute rate is incredibly stable as well so during the pandemic when our broadcast advertising declined I think I think I noted in the prepared remarks, it was negative 45% in Q2.2020.
We kept our average minute rate incredibly stable.
And so that was a conscious decision obviously some of our competitors as we know dropped right are our feeling was we wanted right integrity based on our market leading brands and therefore, our decline in the broadcast revenue was driven.
Entirely by number of clients as opposed to the average minute rate. So as the clients come back obviously, our revenue comes back and that's what we're seeing sequentially and feel good about it as it relates to the digital sales being leveraged for the local spots.
The great thing is that although we're a digital first company and proud of it local radio is incredibly important to us we believe.
That our digital success would not be what it is without our local radio brands. So we're proud of radial we love radio and we go out there with 1 of ecosystem, where digital first but the 2 go hand in hand, so we don't have a separate digital only sales team we have local world class account executives, bringing to bear all solution. So.
They are in fact in essence, leveraging quote unquote digital sales to drive local spot share of sales, but it's 1 holistic ecosystem and approach so hopefully that makes sense Jim.
It does maybe 1 last 1 all the taking a lot of time, but the.
That you're of the.
System of cultivated in terms of your D J's.
In honor of D. J's is digital content creators and local social Influencers I would imagine.
It's attractive to a number of the town.
Talented individuals' like that and I Wonder if you then.
Now how the how that works in terms of your attract.
The attraction to them on your compensation scheme can you.
Incentivize them in a way that the.
You know day when you win.
And is that a lot different than it might have been 5 years ago. When some of these opportunities Werent really there and does that also create a source of live events that'll be it just wouldn't astute question I'm always hesitant to share too much because I think it is quite differentiated but I will share. Some so you are exactly right. The fact debt.
Our Ani or D. J is our digital content contributors, though as well as on air contributors and truly local social influencers, it's been a great source of recruitment the.
Debt, we're hiring local radio talent to produce content over the air as well as a line, we've literally of higher dozens and dozens and dozens of local D. J is over the last 12 months and we continue to do so now.
Couldn't be more proud of our our local on air talent. They literally are the heart of the company and Super serving our communities and inspire me each day as it relates to compensation I don't want to provide too much secret sauce, but I would share is a digital first company over the last 12 months, we completely redid our compensation structure.
For our on Air talent that are also these digital content contributors and local social Influencers. In addition to changing how they're compensated so that they're no longer compensated by ratings, which which are the majority of the <unk>.
<unk> historically tied to ratings and other factors.
We dropped that the other thing we did is every single on air talent every single reporter every single digital content contributor has a bonus opportunity in this company. That's the first time ever in 2000 and asked them for the last 12 months, particularly in 2021.
A good number of people did not have that opportunity and based on our technology platform based on our solutions based on our ability to track our revenue across all platforms from broadcast of live events. The digital I think I've shared on this call the.
The <unk>.
Our technology team is world class and they build our products in house and they've been building.
CRM tool for us I shouldn't say tool, it's truly a platform that provides so much intelligence. So much data intelligence that allows us to operate our business more strategically more efficiently and with greater insights that going back to your original question the compensation structures not only completely changed for.
For R. R. G G as in digital contributors I'm proud to share of that literally every 1 of them now has the bonus opportunity where they did not be for it. So as you said as our company does continues to grow revenue and profit they get to of participate that in 2 of 1 to 1 basis, which I'm quite proud of.
Alright, thanks, and sorry for going too long.
I appreciate the questions you got me going Jim. Thank you so much.
Thank you.
And we have reached the end of the question and answer session I will now turn the call over to Bill Wilson for closing remarks.
Thank you so much I know the call went a little longer I appreciate the the questions couldnt be more proud of our town square team couldn't be more proud of all of our results that we share today are very much looking forward to deliver the results that we provided out of full year basis in terms of the guidance, increasing our net revenue guidance by $15 million since our last call increasing our per.
The guidance by $12 million, we clearly have a lot of confidence moving forward and look forward to closing out the back half of the year with continued momentum as we head into 2022. So the thank you all for dialing in and stay safe and stay well.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yes.
[music].