Q4 2021 Townsquare Media Inc Earnings Call
Good morning, and welcome to the town squares. Your year end 2021 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 your first speaker for today's call Claire <unk> Executive Vice President.
Thank you operator, and good morning to everyone.
Thank you for joining us today for town squares here in 2020 , one financial update thank you.
On the call today are bill Bock.
Yeah, Hey, 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 prospects.
These statements are considered forward looking statements under the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Subject to risks and uncertainties that could cause actual results to differ materially from these statements.
These statements reflect the company's beliefs based on current conditions.
Certain risks and uncertainties, including those that are detailed in the company's annual report on Form 10-K filed with the SEC.
You May also discuss certain non-GAAP financial measures, including adjusted EBITDA adjusted net income and adjusted operating income, which we may refer to as a profit in our search.
Such 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 Dotcom and <unk>.
Deloitte, our investor presentation as bill referenced some of those slides during our discussion this morning.
In addition, we also issued our annual shareholder letter today also available on our website, which we encourage you all to read at this time I would like to turn the call over to Bill Wilson.
Good morning, and thank you for joining us I'm proud to share some very important updates with you. Today. This morning, there are five key things that I'd like you to know.
One our strong conclusion to 2021 .
To our great start to this year and our 2022 full year guidance.
Three our new financial reporting segments, which provide more detail on our strong digital businesses.
For that our board of directors has approved up to a $50 million stock buyback program.
And five that we have fully transformed to a digital first local media company.
And that's how square is the only local media company focused principally on markets outside the top 50 cities in the United States.
As we sit here in March 2022 I can truly say that town square has come a long way from where we began in 2010 as a pure radio broadcaster.
If you would join me in turning to slide number five you will see that the transformation. We have executed is pretty remarkable.
We started in 2010 was 60 local radio stations less than 1 million unique visitors to our websites no social or video platform to speak of and.
Nearly all of our revenue and all of our profit came from terrestrial radio spot sales.
Fast forward to today.
We now own a portfolio of over 340, local and National News and entertainment websites and mobile apps that generate over 60 million unique visitors on average per month.
Our social platforms have over 40 million followers.
And our Youtube platform has over 3.5 billion lifetime views.
We have organically built a subscription digital marketing solutions business then.
<unk> now supports approximately 26800 subscribers.
We have also organically built a digital programmatic advertising platform.
That has access to more than 250 billion impressions per day.
We have created a data management platform with rich and valuable first party data.
For 15 million user profiles.
And our 60 radio stations have grown to 322 local radio stations.
Today, nearly 50% of our revenue and 50% of our profit comes from our digital solutions that did not exist a mere decade ago.
You don't have to look closely to see that we are no longer the radio broadcaster of 2010.
And that we have fully transformed to a digital first local media company.
However, many investors continue to perceive us as a radio company.
And while it is true that we have many market leading local radio stations.
Radio is only a component of our business.
We view local radio as an extremely valuable asset with significant and attractive cash flow properties unparalleled consumer reach and an important and trusted local connection to our audience and thus a component of our multi platform diverse local media business.
But radio is not our primary growth driver nor has it been for some time.
Our growth engine has been digital.
And it will be digital for a long time.
And as our company has evolved so has our reporting structure.
So you can see on slide seven mm.
I'm very pleased to share that we have re segmented our business to provide much more greater clarity and information on our digital businesses to our existing and prospective investors.
Importantly, this reset mentation will highlight the profit characteristics of our digital platform.
Which is essentially equal to our broadcast platform.
Each with profit margins of approximately 30%.
It is our hope and our expectation that given this new more detailed information town.
Town square will begin to get credit for being a digital first local media company.
And we will be afforded a sum of the parts valuation that gives credit to our digital assets.
Credit which to date we.
We have not yet received.
Before I share our 2021 results with you.
I do want to highlight an important fact.
Town square is the only local media company of scale.
Focused principally on markets outside of the top 50 in the United States.
Not just the only radio company the only local media company upscale focused principally on markets outside the top 50.
This is a vital differentiator for our company.
And our team.
Translating directly into our strong financial results.
As outlined on slide eight.
These markets outside the top 50 offer a more competitive competitive landscape.
With very limited focus from larger media players digital marketing solutions providers and digital programmatic providers.
These markets are all too often start of high quality local content.
And many of our markets. We are one of the very few creators and suppliers of local news and information.
As traditional news outlets like local television stations in local newspapers have shrunk shut down or never even existed.
Since 2000 and for approximately 2000 newspapers have closed in the United States a.
A majority in our size markets.
Frequently town square has filled that void by producing local original content at scale and today. We are one of the largest publishers of local content in the United States.
In our digital audience has grown tremendously.
This in turn provides us with an incredibly valuable first party data that we not only used for advertising on our owned and operated brands but.
But we also leveraged for our digital programmatic solutions.
Being a publisher at scale provides a meaningful competitive advantage.
So our digital programmatic solution.
These competitive dynamics combined with our investment in World class technology and infrastructure to create best of breed products and services have contributed to our strong financial performance.
I'm proud to announce that our year end financial results exceeded our expectations.
And also set company records.
Please turn to slide 18, which highlights at our 2021 net revenue increased a very strong plus 13% year over year to $418 million.
And more importantly is 99, 8% of 2019 net revenue excluding live events.
As a result, we exceeded and beat our previously issued revenue guidance.
2021 adjusted EBITDA of $105.1 million increased plus 69% year over year.
And exceeded and beat our previously issued guidance and was an all time company record.
Importantly, an impressively 2021 adjusted EBITDA of $105 million was also 3% higher than 2019 EBITDA.
Town Square is one of a few select companies with radio assets that has returned to 2019 adjusted EBITDA levels.
We first achieve back in Q4 of 2020 and in each and every quarter of 2021 .
That is yet just another reason why we should not be valued as a radio company.
In 2021 our total digital revenue increased plus 19%.
To $199 million.
We're 48% of our total company net revenue.
And our total digital profit increased plus 29% to $61 million.
That equates to a profit margin of 31%.
Which as you can see on slide seven.
Is approximately equal to our 2021 broadcast advertising profit margin.
I'm excited to share with you that we are raising our outlook for future growth of our digital business.
If you turn to slide nine you'll.
You'll see a clear argument for why being a digital first local media company is the obvious path.
In 2021 radio advertising was less than 10% of all advertising spend in the United States. According to industry research, while digital advertising contributed over 50% and.
And by 2025 digital advertising is expected to make up close to 75% of all advertising dollars in the United States.
Similarly, digital revenue will represent the majority of our company's revenue in the very near future.
We had previously forecasted that we would reach $250 million of digital revenue by 'twenty 'twenty four.
But we now believe we will easily eclipse that goal in 'twenty 'twenty. Four we are confident that our digital business will grow to $275 million from $199 million in 2020 one.
Representing an annual growth rate in the double digits.
Our new subscription digital marketing solutions segment is the same as our previous town square Interactive segment.
Town Square interactive presented on slide number 13 had a record setting year.
Adding the most net subscribers in our history with approximately 4050 net subscriber additions in 2021.
Since we are since we organically developed and launched town square interactive in 2012.
Its revenue has grown double digits versus the prior year, each and every quarter, even during the worst of Covid 'twenty 'twenty.
And since reaching profitability in 2014 profit has grown each and every quarter as well.
In 2021 town square interactive net revenue increased plus 16% year over year to approximately $82 million and profit also increased plus 16% year over year to $24 million, a 30% profit margin.
This business is a significant differentiator versus other local media companies because it is a monthly recurring subscription based model.
What's most exciting about our town square interactive business at that is that there is still so much upside to capture.
On our previous calls I walked you through the addressable market for town square Interactive, which is outlined again on slide number 14.
I won't go into the details again, but it is worth noting that the total addressable market is $32 billion.
Which translates to just under 9 million customers to.
The takeaway is we are just getting started with approximately 26800 subscribers at the end of 2021 .
And with increasing net adds each year.
We are still only capturing a small fraction of the addressable market today.
As part of our growth plans for town square Interactive we plan to open a second town square interactive location in the Western United States in Q2 2022.
We're actually final in the final stages of negotiating a lease currently.
This gives us a number of benefits.
It will allow us to better serve our west coast clients with sales and service operating the same time zone, but most importantly, it will greatly expand our talent pool.
One of our company's biggest investments every year is in our sales and service personnel, so being able to tap into west coast employment market will be very very beneficial.
We're often asked about the expenses associated with opening the second location and they are largely limited to additional personnel and the new lease.
However, we are very well versed in profitability scaling of town square interactive as we have already done with our existing operations in Charlotte starting from scratch and building to more than 650 employees 26800 subscribers and $82 million of revenue, while maintaining strong profitable margins.
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Our new digital advertising segment marketing externally as town square ignite as presented on slide 15.
This segment includes our owned and operated digital properties, our proprietary digital programmatic advertising platform.
And our in house demand in data management platform collecting valuable first party data.
We have experienced very strong growth in this segment supported both by general industry trends and our investment in digital personnel and product development, plus our commitment to creating original local content.
For example, we believe one key to our success is that we have made significant investments on organically building our own digital platforms, including our in house content management system and our in house programmatic solution, which leads to better customer experiences and therefore higher client.
Retention rates in.
In addition, the investment in our original content strategy has contributed to a larger and more engaged online audience that is spending more time consuming content on our websites and mobile apps and a stable radio audience. Both total number of listeners and importantly time spent listening.
In 2021 our online audience grew to an all time high of 60 million unique visitors per month, driven by local relevant content created by our local Djs who are also digital content creators.
And our truly the original social Influencers.
Our investment in our digital products and personnel have translated into strong financial results in 2021 digital advertising revenue increased plus 20% to $117 million and digital advertising profit increased plus 40% to $37 million eight.
32% profit margin.
Importantly, the success of our digital platform does not come at the expense of our broadcast platform.
The opposite is actually true.
The better we do digitally the better we do in our local broadcast business.
Because the digital solutions, we provide to local smbs encourages them to trust us with their broadcast marketing budget as well.
You can see that clearly in our Miller Kaplan local broadcast advertising result on slide number 19, as we continue to gain market share in local radio advertising.
In 2020 , one we outperformed the industry and local radio spot sales by nine one percentage points and total spot sales by four two percentage points in our markets at Miller Kaplan measures.
Additionally, last year town square also outperformed the industry in total revenue, which includes both total spot revenue and total digital revenue by 5.1 percentage points.
In 2021 our broadcast advertising revenue increased year over year by plus 7% and more importantly, plus 14% excluding political revenue.
In our broadcast advertising profit increase plus 64% year over year as 2021 margins recovered to 31%.
Our digital solutions benefit of our radio solutions, and our radio platform and reach Supercharge, our digital solutions and the long term, we view radio as an extremely valuable asset with significant cash flow properties unparalleled reach and an important local connection to our audience.
But it is a mature cash cow business and our growth will continue to be driven primarily by our digital platform and solutions for local businesses.
I also wanted to point out that we generated $61 million of cash from operations in 2021, which.
Which we apply to significantly accretive share repurchase and refinancing of our debt with.
With the remainder of our cash held on our balance sheet.
We ended the year with 4.7 times net leverage a significant year over year improvement up 2.7 times.
And we continue to make reducing net debt a priority in fact, Stu will update you on a potentially advantageous refinancing opportunity that will be available to us shortly and February 20th twenty-three.
Our success is 100% tied to the effort.
Hard work and passion of our incredible town square team.
Who has fully embraced our transformation to a digital first local media company and whose super serve their local communities and their local businesses each and every day.
In fact, it started the year, we launched an employee stock purchase plan. So that every employee has the opportunity to have a stake in our company success.
In addition, I'm pleased to share that as of as of January 1st 2022, we have reinstated the 401 company match, which was paused in 2020 in response to the pandemic.
Now I'll turn the call over to Sue who will break down our strong results at our outlook for 2022 in much greater detail for everyone Stu take it away.
Thank you Bill and good morning, everyone as a cofounder of town square and our executive Vice President and Chief Financial Officer, I'm, So incredibly proud to share the company's financial results with you. This morning as Bill noted over the past decade, we have successfully transformed the traditional heritage local broadcast business into robust.
And strong digital first local media company I have to say it is so incredibly gratifying to see our initial vision come to fruition and yet we know we are really just getting started.
Covid clearly presented some challenges to our business in 2020, but it also served to accelerate our transformation into a digital first local media company and I am So proud that we set an all time company record high for adjusted EBITDA in 2021.
More importantly, however is where we're going over the next decade and to that point, we're excited to each segment, our financials to provide even more granularity and clarity on our digital business.
We ended the year with strong fourth quarter financial results that exceeded our original expectations driven by strong performances across our segments.
In total fourth quarter net revenue increased 1.9% over the prior year period to $110.6 million and increased 9.8%, excluding political revenue a more relevant comparison.
<unk> 2021 net revenue increased 12.6% over the prior year, and plus 16.6%, excluding political to $418 million, beating our guidance of $415 million.
Fourth quarter, adjusted EBITDA declined five 4% year over year to $25 $6 million due to the impact of not having the high margin political revenue in 2021, excluding.
The impact of political revenue and its associated 85% margin adjusted EBITDA increased 26, 3% versus the prior year 2021, adjusted EBITDA increased 69, 2% to $105 1 million, which exceeded our guidance of $104 million to $105 million and set an all time.
Company record and as Bill mentioned, our 2021 adjusted EBITDA exceeded 2019, EBITDA by approximately 3%.
We believe our new segmentation properly reflects our current business and strategic focus and has the benefit of providing investors with greater clarity to the growth and profitability of our digital business and the stability of our broadcast business.
Our subscription digital marketing solution segment town square interactive delivered another strong quarter with strong net revenue profit and net subscriber growth in 2020 , one net revenue increased 16.2% as compared to the prior year.
This revenue growth was supported by an all time high net subscriber additions of approximately 4050 in 2021. This compares to approximately 3750 net subscriber adds in 2020.
Town Square interactive 2021 profit increased 15.7% as compared to 2000 $20 million to $24.4 million.
Town Square interactive <unk> 2021 profit margin was approximately 30% in line with 'twenty 'twenty profit margins.
In the year 2021 digital advertising net revenue increased 20.5% as compared to the prior year digital advertising profit, which is being broken out for the first time in our history increased 40% year over year to $36 $9 million in 2021.
Importantly, our digital advertising margins are roughly equal to our broadcast advertising margins, which were 31, 6% in 2021.
In total digital revenue composed of our subscription digital marketing solution segment, and our digital advertising segment increased year over year by 18, 7% in the full year.
At $199 million for 2021 digital represented 48% of our total net revenue.
We are well on our way to our goal of generating $275 million of digital revenue in 2024.
In 2021 broadcast advertising net revenue increased 6.6% versus the prior year and 13.9% excluding political revenue.
For reference in 2021, we generated $3.5 million of political revenue as compared to $16 million in 2000, Twenty's record setting political year in.
In 2021 broadcast advertising profit improved materially increasing 63, 6% to $67.5 million. This is due to our continued revenue recovery as well as the decline in 2021 broadcast advertising expenses of eight 1% year over year.
2021 broadcast advertising profit margins of 31.4% exceeded both 2020 and 'twenty 19th profit margins, we not only fully recovered our broadcast margins of 2019, but expanded upon them as well.
In addition to our three reporting segments, which we just walk through the remainder of our business, which is live events as reported in the other category in 'twenty 'twenty. One the other category had revenue of $4 $5 million, which was an 80% increase from 2020 levels, but still only 26% of too.
And in 19 as revenue.
We had other profit of $801000, which was an increase of 234% over 2020 levels, but still significantly below 2019 levels.
However, our live events, where operated a collective profit margin of approximately 18%.
As a reminder, live events were not a material part of our business nor a growth vehicle for our company, but rather act as a profitable marketing arm of the company, providing another way for us to connect with our audience and communities and allowing advertisers to do the same.
In a normal operating year live events revenue and profit is less than 5% of our total company revenue and profits. This is why we now reported in the other category.
We are proud of our work in reducing corporate expenses, which in 2020 , one declined 8.7% year over year, which is 14% below 2019 levels. The decline in corporate expenses, primarily due to a decline in professional fees fourth.
Fourth quarter interest expense increased $2.4 million with 36% in 2021 interest expense increased $8 $4 million or 26, 8% as compared to the prior year. This was due to the issuance of our $550 million $6, 875% secured bonds.
In January of 2021, which entirely replaced our previously outstanding debt.
2021, net income increased $99 $3 million to $18 $8 million or 79 cents per diluted share as compared to a loss of $86 million or a loss of $4.46 per diluted share in 2020.
We'd like to remind you that any benefit or provision for income taxes included in the face of the income statement is for GAAP financial statement purposes only.
We maintained significant tax attributes, including $172 million of federal NOL 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 2021, we generated positive cash flow from operations of approximately $61 million, a very strong $30 million increase from the prior year. We also used approximately $80 million during the first quarter to repurchase 100% of Oaktree capitals equity interest in town square and a significantly.
A transaction and we incurred approximately $14 million of fees associated with the issuance of our senior notes.
We continue to carefully manage our capital expenditures, which declined 17% year over year to $12.4 million in total we generated $19 million of cash in the fourth quarter, ending the year with $55 million on the balance sheet.
Although this represents a $33 million decline from our December 31, 2020 cash balance of $83 million. If you adjust for the accretive oaktree buyback in the fees paid in or I think in the refinancing we would have generated approximately $63 million.
With total debt of $550 million in 2021, adjusted EBITDA of $105 $1 million or net leverage has declined to 475 times.
Very significant and meaningful step down from the net leverage of 7.45 times one year ago.
We are focused on continuing to reduce our net leverage with a target of four times, which we believe is readily achievable by the end of this year.
As Bill mentioned in February of next year, we will have the ability to refinance our 550 million dollar 6.8, 75% senior secured notes when the two year no call period expires if market conditions permit we believe it will be possible to replace our outstanding senior secured notes.
With a term loan facility. We believe this capital structure will greatly benefit our shareholders as it could result in a materially lower annual interest rate and afford us the ability to prepay the loan at any time.
Aside from reducing net leverage through May successfully execute a refinancing next year, our capital allocation priorities for 2022 will be to invest in our local businesses to organic internal investment <unk> compelling and prudent acquisitions that support our revenue and profit growth.
Any potential acquisitions, we would consider would complement our existing business and we'd likely be bite size, so as not to interfere with our deleveraging plans, which is our primary balance sheet objectives.
In addition, we're pleased to announce that our board has approved a stock repurchase plan, which authorizes the company to repurchase up to $50 million of stock over the next three years. We believe that it is prudent to have a stock repurchase plan in place. So that we can advantageously via stock when it's trading below value, which we sincerely believe it is trading today.
However, any amount that we spend on a stock repurchase would have to be balanced with a goal of deleveraging as our first priority. After internal investments is to set ourselves up for a successful refinancing next year, which involves hitting our four times net leverage target.
Turning to our first quarter outlook, we expect first quarter net revenue to increase to be between $97.5 million and $99.5 million, which is a 10% to 12% increase over prior year, and importantly above 2019 levels by 4% to 6%.
We expect first quarter adjusted EBITDA to be between 21, and $22 million a year over year increase of 4% to 9%.
For 2020 two's full year, we expect net revenue to be between $460 million and $475 million, representing a year over year increase of positive 10% to positive 14% and again this is above 2019 levels by 7% to 10%.
We expect adjusted EBITDA to be between $115 million and $120 million for the full year. This is a year over year increase of 9% to 14%.
We're extremely proud that we are back on track and lifting our company to new Heights, and with that I will now turn the call back over to Bill Bill.
Thank you Stu is always great job outlining our strong financial performance.
And thank you to everyone, who dialed in this morning, we greatly appreciate it.
As a quick recap, we outperformed our net revenue and adjusted EBITDA expectations in 2021 .
And we set company records on many fronts, including the highest ever adjusted EBITDA. The most town square interactive net subscriber adds and an all time high digital audience.
Our digital platform now more evident to investors due to our new segment reporting increased plus 19% to $199 million of revenue contributing 48% of our company's total net revenue and 47% of our total profit.
And our digital revenue is on track to grow to $275 million in three short years.
Significantly our 2021 adjusted EBITDA exceeded 2019 levels by plus 3%.
And going forward, our revenue will be above 2019 levels as well.
Our net leverage is now well below five times and based on our current guidance, we will be at four times by year's end.
With an opportunity to refinance within 12 months that could lead to meaningful cash interest savings.
As always I'd like to thank and give all the credit of our strong performance to our town square team across the country, who fully embraced our mission and were instrumental in our transformation from a traditional broadcast operator.
To the digital first local media company that we are today.
As we say internally how high is high.
And with that operator, please open the call for any questions.
Thank you we will now be conducting a question and answer session. If you would 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.
May press Star two if you would 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 your questions.
Okay.
Our first questions come from the line of Michael Kaplinsky with Noble capital markets. Please proceed with your questions.
Good morning, and first of all congratulations on your results and also thank you for your increased transparency on your enhanced segment reporting.
Couple of questions you gave a lot of information so I'm sorry, if I missed this you gave the number of subscribers for town square interactive at 26800 in the full year net adds of 4050, what was the net subscriber adds in the last quarter I suppose I could go back and do the math, but what do you have that number.
Yes, It was roughly 850 <unk> Michael Good morning, It's bill good to hear your voice and that is consistent and in essence. If you look at what we've done in Q4 in 2018 1920.
That is roughly what we've done as well in those last.
Four years in Q4, so the $8 50 and that as we noted on the call set an all time record of 4050 net subscribers for the year, which we're very pleased at 16% year over year over year growth $82 million in revenue $24 million in profit and as stew said, we feel like we're just getting started and we're opening that.
Second location in Q2.
That's terrific a number of media companies, including some newspapers appear to be investing in their digital solutions and some smaller markets are you seeing any increased competition in some of your markets or has the competitive landscape largely remained unchanged.
The competitive landscape in our size markets has remained unchanged. There's always been competition theres been other local media companies, particularly on the TV side as well as the legacy print size as well as digital agencies and that remains but we're not seeing increased competition and you know as we said our goal at the end of the day.
As to be the number one local media company serving markets outside the top 50, and we feel with our national scale and in House solutions.
We are best positioned to be the number one local media company with digital leading the way.
So there is there is competition, but there always been competition I think one of the clear Differentiators for US is all of our solutions are in house right. So everything from town square interactive the codebase all of the tools and technology, we built out from the ground up and if you look at our <unk>.
Side of our digital advertising it is such a competitive advantage, we talked about it on previous earnings call, but I think we're going to do a a more deliberate job of describing it moving forward because the first party data allows us to have such tremendous consumer insights on our audience that we not only apply to our.
Programmatic platform, but we also apply those insights when we're selling broadcast so it's really benefiting us all the way around so when we talk about other competitors it.
Very different because a lot of those competitors.
There are not publishers. So they don't have first party data or if they are published or the content, they're not at the scale that we are as you know Michael from our digital platforms, we reach 70% of the adult population in our size markets. So there's no one who comes close to that so it allows us really an outsized competitive advantage in that space.
That's terrific.
Obviously your guidance for the year is better than what I was looking for and I was just wondering if you can maybe you can flush out a little bit of what.
That guidance has in particular political advertising I'm, assuming that you're kind of keeping that $9 million to $10 million range and if you can just kind of talk a little bit about maybe the revenue trajectory for your broadcast business excluding political.
Sure so yeah.
You are spot on in terms of the guidance that Stu outline there it is about $10 million in political so you're right on the money there.
As Stu said our guide on revenue for the year is for $60 million of 475, which is plus 10% to plus 14%. So a real nice clip up with our profit of $1 15 to $1 20 anywhere from 99 four times, the 14% growth. So we feel really good about our guidance.
As you noted I think it's probably significantly higher than what than what people expected.
Given we ended the year at 105, one in profit so as it relates to other assumptions are outside of the political we continue to see broadcast performed well you could see what it did in.
2021 versus 'twenty, we broke that out now in the financials, you see that growing ex political plus 14%.
So for the year on broadcast in 2022 that will continue to grow off of 'twenty one's numbers, we're feeling really good about broadcast as we sit here today I'd say the only headwind we see currently.
And I really say two headwinds one is being auto which is really I think driven by the supply chain.
Challenges and then the other half is really entertainment food and retail, which I think is more tied to the coming out of the pandemic and seeing that so we see broadcast.
Increasing nicely off of 'twenty, one levels I would say on a on a Q1 basis, probably you know it's a little different because when you look at last year, you look at by quarter. The we obviously increased throughout the year every quarter.
In terms of our broadcast recovery. So in Q1, I think it will have a higher growth in broadcast versus Q1, 'twenty, one probably I'd say high single digits in Q1, but for the year I'd say broadcast ex political is going to be up in the mid single digits. We expect GSI, we obviously had a tremendous tsi year in 'twenty two.
'twenty one.
Growing 16%, but also growing $12 million in top line revenue at a 30% margin. So we expect to.
Replicate that in this coming year and grow in the mid teens, probably 15%, 16% for tsi and our digital advertising we've outlined it in the slide in terms of the industry I think on our investor deck I think it's at about 18% and we think for the full year.
We will match that if not beat that from a digital advertising standpoint, we don't expect live events to recover.
Fully obviously.
Time will tell when that happens, but we will have a nice uptick I would say probably in the zone of $10 million in live events in 2022, and we did about $4 4 million last year, So Michael happy to dive into any other guidance questions, but hopefully that gives you a good framework of how we're making up that topline revenue of plus 10 to plus 14.
<unk>.
That's terrific and I just have one final question in your and you're in the past you gave us.
Guidance, he thought that ignite to do $100 million also thought that town square interactive could do $100 million. So your past guidance, which like $200 million in digital so I'm looking at your 2024 guidance I'm trying to reconcile your 275 million forecast recognizing that you put in there your O&M digital business. So.
But just kind of like can you kind of frame for me what your thoughts are in terms of your digital guidance relative to the past guidance, you've given it with ignite and town square interactive.
100%.
As we noted on the call and you. Just noted previously we had said that we would do $250 million in digital revenue in three years, and we've upped that materially to 275. This morning, just based on our our strong performance.
Last year, but also where we're sitting today and we feel quite honestly, we're at a peak performance, we really use the pandemic. We wanted a few companies as you know Michael where we made a deliberate choice to be well positioned for the recovery, which meant we didn't take a material cutbacks in personnel and you'll have to thank the board of director.
As for their support so we took the time to really accelerate our transformation what I mean by that is we doubled down on trading and coaching and deliberate practice and really put the work in knowing the money may I've been there in 2020, but when everything open back up we were going to be the best positioned company in particularly.
As we outlined in the investor deck with digital advertising today being 50% of all local advertising radio being 6% of all local advertising and digital growing to 75% by 2025 for us to capture the outsized growth would be the number one local media company focused on markets outside the top 50, we knew we had to be the number one digital provider. So.
To your point about Tsi and ignite at $100 million, we're going to in essence blow past both of those expectations. That's why we wanted to roll that up as part of the $2 75, you could see we ended GSI it sounds more interactive and $82 million. So by the end of next year on an annualized basis, we will be at $100 million.
In revenue, we wont, we wont achieve 101 million next year, but on an annualized basis I believe we will be there, so which would mean that will clearly crushed that in 2023 and ignite again is our fastest growing revenue stream. Obviously digital programmatic is the fastest growing digital advertising in United States.
Rates things like connected television and social are just exploding we've doubled down on video creation. So we can do great creative for our clients for connected Tvs and things like Instagram video and Tic Toc video. So we're really benefiting from that so that 100 million for tsi and ignite somewhat becomes irrelevant because we would achieve those.
Milestones much earlier than we anticipated so Michael happy that if that hopefully that answers your question, but if it doesn't have to take a follow up.
Perfect. Thanks for the color Bill and congratulations again.
I appreciate it very much.
Thank you our next questions come from the line of Jim Goss with Barrington Research. Please proceed with your question.
Okay. Thank you and good morning.
Yeah.
The numbers have been outlining in terms of our.
AD sales recovery I'm wondering if you feel in the core area you sort of reached the equilibrium from the whatever downdraft you might have had from COVID-19 .
Now it's more of a.
Not not as much recovery growth, but a true true growth from the levels. You think you can sustain in terms of the political.
Dollars.
<unk> mentioned it.
In response to Mike's question.
Do you think you punch above your weight effectively because of the.
Your local Influencer strategy does that sort of give you the sort of the opportunity in radio that say gray television has in its local markets and television.
Good morning, Jim. Thank you for the question so.
Yes, you are correct.
Since our core has recovered I would say the one piece that has not fully recovered is auto.
Auto is definitely still down and I don't expect that to be fully recovered. This calendar year I think that's probably more likely sometime in 2023.
With the chip shortages in supply chains, but otherwise to your point from here on out it's really true growth from from you described at the core.
So we're feeling really good there and we have a lot of momentum on the advertising side and you're exactly spot on as it relates to why we quote unquote punch above our weight.
We have doubled down through the last two years hiring local content contributors, which which most people would describe as local Djs, which as you know we called the original social Influencers and having that on the ground connection we think is.
One of our core assets, it's one of the reasons that our time spent listening to our broadcast medium remained stable and that we continue to accelerate.
Accelerate and grow our online audience and engagement. So much. So you are spot on having that local social influencer allows us to do things with advertisers be it core advertisers or even as you noted the political side of things that otherwise couldn't be done without having that local connection and the investment in our local D.
J S.
Okay and you mentioned in your letter you published this morning that you don't want to be seen as a <unk>.
Radio company.
As of this digital transformation, but I'm wondering linear AD sales people out there who do they.
Really attempt to compete with us at the local newspaper publishers that have declined in.
<unk> presence as you pointed out or are there some other sort of things and in the digital area with the growth. We're achieving are you taking share or are you keeping up with them.
The fastest growing segment and that's really what's behind the digital growth projections you've outlined.
Yes, great questions I think there is a let me parse that and thank you for taking the time to read the shareholder letter I think.
Carriage of all of our investors prospective investors to do so.
So a couple of things you noted here.
The last piece is we're clearly taking share we're taking share.
From a pure broadcast perspective, we have that in our investor deck.
Measured by Miller Kaplan were gaining local spot share total share digital share of total revenue.
And in addition, there is so much digital dollars in the marketplace and so from the competitive set there it ranges from a local TV companies selling their connected TV product.
Primarily really digital agencies in town businesses that are doing self serve Google display network or Facebook advertising.
So it's pretty disparate and the great thing for US is as I noted in the prepared remarks, we truly are the only local media company at scale focused on markets outside the top 50, and I think that's such a competitive advantage for us I know some people think theres more dollars in larger markets, which is clear, but there's 10 $100 and a loss.
Your market with 100 competitors.
And $20 in a smaller market and five competitors I'd rather be in that smaller market, particularly when we believe we're the best competitor in those smaller markets.
So back to your question, we are clearly taking share from a digital perspective, we are clearly taking share from a broadcast perspective. The other thing I would just note from a town square interactive perspective, which is our arent no in essence, our SaaS subscription business is.
It's very little local competition most of the competition for town square interactive as we've outlined before on these calls is self support self serve platforms Theres really no feet on the street going in too.
Call on these clients with any local connection and we are really doing quite well with that business as a result, and the fact that we're charging $300 a month on the value proposition against that.
There's very very little competition against that there is a little bit more competition in the digital advertising space, but we bring national scale and sophistication to small town America. So we're able to.
To your point not only keep up with the advertising trends, but take share from others. So Jim I'll turn it back to you I don't know if I answered each part of your question. So if I didn't please let me know.
No no you did the lesson yet.
Ask you about is our live events I know that they have a diminished in importance.
<unk> recently.
At.
In terms of music events this might be the time to get our aggressive.
The talent doesn't make very much in terms of physical or stream media sales that they make their money and concerts and that is do you have an opportunity here that this might be a time when when you might step up your interest.
Even if it's temporary or see where that goes because I know like live nation and some of the other larger ones yes.
They have been on fire because of the sort of a return to <unk>.
In normalcy, if you will.
Thank God you are correct. There is definitely pent up demand the event that we are putting on for sale. We're seeing strong demand for our record demand for I was actually just in Nashville last week presenting at our country.
And music seminar in a meeting with artists and so forth then they they are eager to get back in front of their their fans and their audience base. So yes, but that said Jim I would still just particularly for our investors know that live events today and moving forward in a post pandemic world will still be a very.
Small part of our company sub 5% of our revenue and even less than our profit so.
As I noted when I was talking to Michael earlier, we expect about $10 million in live events revenue coming off of $4 4 million last year back in 2019 that was $16 million. So I think as we go into 2023.
We'll be back to those 2019 levels, but I would frame it for our investors that our live events Division will now be a profitable marketing arm for our brands that give our salespeople a really great solution for onsite activation for local clients. So that we we really focus on full funnel solution. So from the top of the funnel.
Top brand awareness, all the way down to conversion in live events activation fits in nicely in there and it's a differentiator because a lot of local media companies don't put the investment in there, but it will still be a small part but to your point I think the events. We do are going to be very well attended and have it very strong profit margins, but they will be.
A small part of our company moving forward.
Okay, well, thanks very much.
Thank you Jim.
Thank you we have time for one last question. Our next question is come from the line of Aman <unk> with B Riley. Please proceed with your questions.
Hey, gentlemen, congratulations on the strong quarter and full year results here.
My first question is how should we think about free cash flow generation headed into 2022, and then how do you balance your digital initiatives with deleveraging your balance sheet and then also share buybacks given that your stock is trading at like six to seven times EBITDA.
Yes, I'll turn this over to Stewart to hit your first part on free cash flow and if theres anything that.
I will add at the end to your last question I will just do you want to take this one.
Sure Hi, Alan Thanks for the question. So you should think about our free cash flow is having about $55 million of fixed charges at year end.
<unk> 30, a capex of 12 and kind of working capital and cash franchise taxes of another five.
So you can just take our guidance for the year and subtract that that's our free cash flow generation.
Got it.
And then.
That's your digital business continues to grow how should we think about the company's longer term margin profile.
Yeah. So the good news for us and we've outlined this on the deck and then quite honestly. This is one of the reasons, we re segmented the business because having met with investors quite a bit over the last three years that having not done so prior.
It became apparent there was a misconception that our digital business, particularly our digital advertising business because it was part of our old advertising segment with broadcast was much lower margins than our broadcast business, but the reality is our our digital advertising business is.
Roughly the same margin as our broadcast business. So we've always said we're agnostic to.
What our salespeople sell we commission them the same we want our salespeople selling whatever works for the client and we are in.
A terminology announced like treat your clients like your friends, which means hey, any great salesperson can sell something great. Once twice three times, but it's got to work for the clients. So let's make sure we're putting things in front of our clients that are going to help them grow their business in each of their goals. So the good news for us is.
Our digital margins from an advertising standpoint, as well as from accounts grew interactive standpoint of roughly 30% and on slide seven of the Investor deck. If you get a chance to look at it later, you'll see in 2021, our broadcast advertising margins ex political was 35%. Our total digital margins are actually higher at 32.
9% and our digital advertising is actually higher so.
Completely counter to what most people would.
I would think so as we've outlined in I think it is clear to you digital advertising is the growth engine in the company. That's what's growing in the economy in general and our broadcast business, we're very proud of it but it's a mature cash cow business, we do treat it as one ecosystem. There is no way in my view, we would have the results that we have.
With our digital advertising if it wasn't for our assets in the broadcast side and as I talked to Jim about that local connection the local Djs. The fact that the reason we're able to hire so many djs even through the pandemic of 2020 in 2021 incremental D. J S.
Is because we monetize them in multiple ways historically, the only way we can monetize the D. J going back to 2010 was spot sales for broadcast now we continue to do that but now they create digital content and we do content advertising around that content. So when I hire D. J today, I know I'm getting a return in two.
Avenues of broadcast advertising and digital advertising, which a lot of other companies don't have that luxury so can't make that investment that weekend. So the way we look at it going forward is we're always going to do what's best for the customer and thankfully for us out as outlined on slide seven.
Profile of digital is actually stronger than the broadcast side.
Got it. Thank you Alex last question for me.
Yes.
Really nice to see that you're focused on deleveraging our balance sheet I guess you know what.
Net leverage ratio are you sort of comfortable with where you could be like okay. Yes, we could go out there and maybe you make it a larger acquisition.
I still you could add on but I would say right where once we hit this four times, which as Stuart said, we expect that to be at the end of the year I think that's where we're comfortable now, but I think as it relates to the second part of your question as it relates to when we would then look to do.
A large scale operation it would be.
We believe in.
We hope we'll be in a good position to refinance in a short time, which is February 'twenty 'twenty three so not that far off from now and we think it will be very advantageous to be able to do that at four times and then once we do that I think the the large scale acquisition opportunities open up quite nicely for us be that on the digital side or on the broadcast side, but.
Do anything that you would add or adjust to what I said.
No Bill that's perfect. The only thing I would add is we're never going to do an acquisition that has kind of jumped leverage up that high right, where we're always going to buy stuff with with cash flow.
Yeah fair enough, okay gradually isn't on the quarter gentlemen.
Appreciate it very much and nice to meet you I don't think we've had you asked the question on this call. So I appreciate that.
Yeah. This is getting up to speed with the story its very interesting, especially where the stock is trading at very very interesting.
Well, we agree that's why the board authorized a $50 million stock buyback. So we hope with the re segmentation and people really understand the strength of our digital business. How our company is differentiated in our size markets and our prospects and growth profile moving forward that people give us the benefit of a sum of the part valuation and I'm sure over time as we continue.
To execute they will so again, thank you for taking the court for asking the question.
Thanks.
Thank you we have reached the end of our question and answer session I would now like to turn the call back over to Bill Wilson for any closing comments.
Thank you so much everybody for dialing in this morning, I Hope you.
You took the opportunity if you haven't already to download the new investor deck.
As well as the shareholder letter and we look forward to regrouping and updating you on our Q1 results. The benefit of this is where we report in about a seven or eight weeks there will be regrouping then but just thank you for taking the time. This morning, we're incredibly proud of our results.
We're more excited about where we're going over the next three to five years and we really believe we have transformed into a digital first local media company and we're well positioned to be the number one local media company serving markets outside the top 50 in the U S B, well and talk to you soon.
Yeah.
This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.