Q2 2023 Townsquare Media Inc Earnings Call
Good morning, and welcome to town square.
Second quarter, 'twenty, China fee conference call.
As a reminder, today's call is being liquidity 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 followed the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
That I would like to introduce the first speaker for today's call Claire <unk> executive.
Vice President.
Thank you operator, and good morning to everyone and thank you for joining us today for town square, our second quarter financial update with me on the call today are <unk> <unk>, our CEO and Stuart Rosenstein, our CFO and executive Vice President.
Please note that during this call we may make statements that provide information other than historical information, including statements relating to the company's future expectations plans and prospects.
These statements are considered forward looking statements under the Safe Harbor provision the private Securities Litigation Reform Act of 1995 and are 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, but are subject to certain risks and uncertainties, including those that are detailed in the company's annual report on Form 10-K filed with the SEC. We may also discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted operating income, which we may refer to as profit in our remarks.
Such non-GAAP financial measures should be used in conjunction with all the information contained in our quarterly yearend at current reports available on our website I would also encourage all participants to go to our corporate web site and download our investor presentation as bill referenced some of those slides during our discussion. This morning at this time I would like to turn the call over to Bill Wilson.
Thank you Claire and thank you all for joining US. This morning, we are very pleased to share our second quarter results with you today.
In a challenging national advertising macro environment, our performance through the first half of this year has helped how square to separate.
And differentiate us from others in local media and in particular broadcast radio.
Our year to date performance highlights the strength of our digital advertising platform and solutions.
And validates our digital first local media strategy with a focus exclusively on local markets outside of the top 50.
I'm glad to share with you. This morning that town squares second quarter net revenue and adjusted EBITDA delivered on our previously issued guidance.
Our digital growth engine drove our second quarter results growing plus 4% year over year fueled by plus 11% year over year growth in digital advertising revenue.
In the first six months of 2023, we derived approximately 52% of total net revenue from digital solutions.
We have seen even stronger growth and profitability with second quarter digital profit, increasing plus 15% year over year due to impressive plus 30% year over year profit growth in digital advertising.
I'll say that again.
In the second quarter, our digital advertising segments revenue increased plus 11%.
And our digital advertising profit increase plus 30% delivery.
Delivering a 35% profit margin.
Town squares digital platform continues to set us apart from local media peers.
Our digital advertising profit growth and margin expansion has resulted in 60% of our total company's adjusted operating income now coming from our differentiated digital solutions.
And as highlighted on slide 11, with 52% of our total revenue being digital revenue in the first half of 2023.
We are more than two times the industry average.
As anticipated <unk>.
Quarter revenue for town square interactive.
Our subscription and digital marketing solutions offering outlined on slide 13.
Declined negative 7% year over year.
As I previously shared with you 2023 is a reset year a town square interactive.
Town square interactive target clients generally the smallest of the smbs with less than 20 employees and less than $5 million in annual revenue have struggled with inflationary and wage pressures labor shortages at higher interest rates.
According to Goldman Sachs 10000, small business voice survey reported in May a vast majority 77% of small business owners say they are concerned about their ability to access capital.
Only one year ago.
77% of Smbs, Conversely said they were confident in their ability to access capital.
The Wall Street Journal recently reported that smaller companies are accounting for an increasing share of layoffs for.
For example companies with fewer than 250 employees accounted for over 80% of all lay offs and discharges in March of 2023.
All of these factors have contributed to elevated churn rates, among our clients subscriber base and moderately slower sales velocity.
In addition, and as we previously discussed we also face issues related to employee turnover at our customers customer service operations at town Square interactive.
Due to a return to work mandate.
This is largely been addressed but did contribute to an increase in client attrition year to date.
If we were to look for the silver lining.
This growth challenge the first that's how square interactive his face presented us with an opportunity to step back and truly examine our operations attack ourselves and evaluate all processes and procedures.
Since the start of the year and continuing currently we have made a number of important changes to optimize and improve our customer service platform.
For example, we restructured our customer service teams. So it is now a pull model versus a one to one model.
And we implemented an interactive voice response system as the initial point of contact on our customer inbound call.
This has led to a meaningful increase in call answer rates.
Enhanced visibility to customer requests and concerns and.
An improved response times.
We believe this new customer service model will be very beneficial to our clients.
And thus client retention in the long term and importantly allow us to scale more efficiently going forward.
However, as I noted on our last earnings call in May These changes will contribute to a muted financial performance for town square interactive in 2023.
And thus we view 2023 is a reset year for town square interactive with growth returning in 2024.
Although revenue at town square interactive declined negative 7% in the second quarter through careful expense management and thoughtful investment. We are very pleased to share that we were able to maintain a very strong 28% profit margin in Q2.
Despite the short term pressure on town square interactive topline.
We expect to be down low double digits in the third quarter. We are still incredibly confident in the long term growth prospects of this business.
And as such continue to invest in its long term future.
The second task, where interactive office in Phoenix is now open.
And so far in 2023, we have grown that team by 28 employees given hiring opportunities have been very favorable.
And as a result, we have nearly 50 people working for us in Phoenix today.
With an addressable market of nearly 9 million target customers as outlined on slide 14.
Our superior product offering.
Customer service team and model built for future growth and.
And a significant market opportunity.
I am very confident that town square interactive is geared for long term profitable growth and success.
2023 will be a reset year for us at town square interactive, we expect to return to topline growth and bottom line growth in 2024.
Our digital advertising solutions segment ignite as outlined on slide 12, and once and was once again, our largest growth driver with second quarter revenue, increasing plus 11% year over year.
Our impressive growth in this segment is due to our differentiated digital solutions, which are often the best and most sophisticated digital advertising products and solutions available in our size markets.
As well as our focus on local advertisers.
From our perspective, it appears that the current slowdown in digital advertising industry. Overall is primarily limited to national digital advertising and therefore, we have been minimally impacted as demonstrated by our industry, leading performance and strong double digit revenue growth for the first half of 2023.
We expect this performance to continue as Q3 digital advertising revenue is currently pacing up high single digits.
Once again.
Second quarter digital advertising profit growth significantly outpaced revenue growth and was up 30% year over year with second quarter profit margins expanding to 35%.
We are experiencing we are experiencing growth in both our programmatic digital advertising solutions as well as our owned and operated digital advertising solutions supported by our growing online audience.
Which once again increase plus 15% year over year to 82 million average unique visitors per month in the first six months of the year.
And we also had higher engagement from our digital audience.
Our focus on markets outside of the top 50 cities in the United States is a significant differentiator not only for our digital advertising business.
But also our broadcast advertising business.
Because we are not large top 50 markets, we faced significantly less competition from large media players large broadcasters digital marketing solutions players and digital programmatic providers.
And the majority of our advertising over 90% is local advertising, which historically is less volatile the national advertising, particularly during an economic downturn.
For example, national broadcast advertising revenue continues to be extremely weak for us in the second quarter with national advertising revenue down 21% compared to prior year.
No doubt that hurts, but that decline doesn't hurt us as much as others because national broadcast advertising now only accounts for approximately 7% of our total company revenue.
In contrast, our local broadcast advertising performed much better in Q2 and year to date.
Due to this dynamic our second quarter total broader broadcast advertising revenue declined negative 6% year over year or negative, 4% ex political and we expect local broadcast advertising as you continue to meaningfully outperform national in the back half of the year.
The bottom line is this.
Operating in small to mid size markets and avoiding top 50 markets helps.
Helping to insulate town square from the National advertising downturn that has had a greater impact on other companies in the local media space.
Most of our business comes directly from local clients not from agencies, giving us much greater control of the outcome.
Combine that dynamic with the fact that more than 50% of our revenue and profits are generated by our differentiated digital platform.
And you can see why we continue to outperform our competition in the local media space.
One very important characteristic of our business model that we like to highlight as often as possible.
Is our significant cash flow generation.
In the first six months of 2023, we have generated $31 million of cash flow from operations.
Ending the second quarter with $50 million of cash on hand, which is up 7 million from year end and this is even after repurchasing $13 million of our bonds on the open market at a price below par.
And executing $16 million of share repurchases, and making a $19 million interest payment.
We repurchased and retired $1 5 million of Madison Square Gardens class C shares in June .
Nearly half of their interest in town square at $9 70 says rep.
Representing an eight 5% discount to the pre announcements share price.
This share buyback was immediately accretive to our existing shareholders and we were able to use cash on hand to satisfy the $50 million purchase price.
In addition, we repurchased approximately 90000 shares in the open market during the second quarter.
I'm also glad to share that our board of directors also approved our next dividend of <unk> 18, and three quarter cents per share payable on November 1st.
Which equates to 75 per share on an annual basis, which today would be over a 6% yield.
We remain very confident with our current capitalization and strength of our balance sheet.
With $50 million of cash on hand at quarter end, our fixed interest rate of six 875%.
No maturities until 2026, and net leverage of 436 times at the end of the second quarter.
And we are pleased that we can deliver attractive current cash returns for our equity shareholders.
And now I'd like to turn the call over to Sue who will go through our results in even more detail and as well as provide you our third quarter guidance.
Take it away.
Thank you Bill and good morning, everyone. It's great to speak to you today. We are pleased to report that our second quarter results met our guidance supported by strong growth in local advertising revenue and in particular digital advertising revenue. We're also very pleased that we continue to deliver strong shareholder returns executing an accretive share buyback.
And announcing our next dividend SEC.
Second quarter net revenue was roughly flat at $121 $2 million down 6% year over year and up 3% year over year, excluding political which was within our guidance of 121 million to $122 million second.
Second quarter adjusted EBITDA as forecasted declined 11, 6% year over year to $28 6 million just above the midpoint of our guidance range of $28 million to $29 million.
Second quarter broadcast advertising net revenue decreased exactly in line with our expectations and what we shared with you on our last call with a decline of five 8% year over year and four 1% excluding political.
Second quarter broadcast profit margins were approximately 27% a significant and material improvement from first quarter profit margin.
As we expected and noted on our last call National broadcast revenue declines were significant in the second quarter with revenue down as compared to the prior year by 21%.
Looking at current pacing national continues to be very weak in Q3 down approximately 18%.
As Bill noted while this hurts the impact is limited given that national was only 7% of our total company net revenue.
Local broadcast has proven to be much more resilient as has historically been the case in the second quarter local broadcast growth was able to partially offset the national broadcast declines.
We expect a similar outcome in the third quarter with local broadcast meaningfully outperforming national broadcast.
As Bill shared on our last earnings call 2023 is a reset year for town square interactive our subscription digital marketing solutions segment, as we expect topline and Bottomline growth to return in 2024.
In the second quarter net revenue decreased seven 5% as compared to the prior year and profit decreased nine 9% year over year.
Margins were strong at approximately 28% in the second quarter as we have shared previously we expect margins at town square interactive to be suppressed in the second half of this year as we continue to invest for future growth given our confidence in our long term growth prospects and while we ramp up the newly opened Phoenix location.
Town square ignite our digital advertising segment was again the largest driver of growth for the company with net revenue, increasing 10, 6% year over year in the second quarter.
Our digital advertising profit growth has outpaced revenue growth, increasing 29, 6% year over year in the second quarter.
This segment's profit margin expanded to 35% in Q2 as compared to 30% in the prior year period.
We expect our digital advertising segment will continue to be the biggest driver of our revenue and profit growth in 2023 and beyond.
Our other category, which is comprised of live events activity generated $5 $1 million of revenue in the second quarter, an increase of seven 3% year over year and profit of approximately $500000 decrease of approximately $400000 year over year in the first six months of the year other revenue increase.
23, 1% year over year to $7 million and other profit increased two 2% to $1 million at a 14% profit margin. This increase was due to hosting more events in the first half of 2023 cents in 2022.
In the second quarter of 2023, we had noncash impairment charges of $26 2 million of which $16 $6 million were related to our FCC licenses.
As I covered on previous calls given the way. These noncash impairments are mathematically determined we expect the value of our FCC licenses to continue to be written down regularly overtime.
The second quarter impairment was caused by rising interest rates, which caused the discount rate in our calculations to increase by approximately 130 basis points from Q1. This.
This write down of decade old purchase price calculations has no bearing on our cash position, our operating revenue operating expenses, our profitability or the company's future prospects. There are nothing more than the noncash accounting charges affecting only the historically booked purchase price allocation made when we.
Bought our radio station assets, roughly a decade or more ago.
Our second quarter net income declined $7 $6 million to a net loss of $2 $7 million or <unk> 19 per share. This decline was largely due in part to these noncash impairment charges.
As bill highlighted and I would again like to emphasize we consistently have strong cash flow generation, we generated $31 million of cash flow from operations in the first half of 2023 up 37% year over year and ended the quarter with $49 $6 million of cash.
At the end of the second quarter, our net leverage was 436 times and excluding the MSG share buyback, which was a great transaction and immediately accretive to all shareholders net leverage would have declined to 4.23 times, which would have been the lowest net leverage in our company's history.
In addition to the MSG share repurchase we also bought back approximately 90000 shares in the open market during the second quarter in total we paid an average of $9 79 per share.
These repurchases in the second quarter.
We repurchased approximately $1 million of bonds at prices below par during the second quarter, bringing our year to date total bond repurchases.
<unk> dollars $9 million as always our number one priority is to invest in our local business to organic internal investments that support our revenue and profit growth, particularly in our digital growth engine.
We plan to continue to invest on a digital product technology sales content and support teams specifically in our town square interactive and town square at night businesses in order to maintain a strong competitive advantage in the markets. We operate in outside the top 50 cities.
As Bill mentioned earlier, our board has approved a dividend payable on November <unk> to shareholders of record as of October 2nd.
The dividend of <unk>, 18, and three quarter cents per share, which equates to <unk> 75 per share.
The annualized basis.
<unk> is an annual payment of approximately $12 million based on a reduced share count and a dividend yield of over 6% based on our current share price. We believe our strong cash flow characteristics will allow us to continue to invest in our business to support the new dividend and give us flexibility to pursue debt and share repurchases.
In the open market.
Wed like to remind you that any benefit or provision for income taxes on the face of our income statement is for.
GAAP financial statement purposes only.
We maintain significant tax attributes, including more than $100 million of federal and state 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 the year of approximately 2026.
Now turning to our third quarter outlook, we expect third quarter net revenue to be between $115 million and $117 million.
We expect our third quarter, adjusted EBITDA to be between $27 million and $28 million.
For the full year, we are again reaffirming our expectation that revenue will be between $450 million and $470 million. We're also reaffirming our expectation that 2023, adjusted EBITDA will be between $100 million and $110 million.
That I will now turn the call back over to Bill.
Thank you Stuart and thank you to everyone who joined US. This morning, we greatly appreciate it.
I want to close todays call by highlighting just a few of our successes in Q2 and year to date.
Our differentiated digital advertising platform has proven its strength and resiliency delivering double digit revenue and profit growth so far in 2023.
Our mature cash cow broadcast advertising platform continues to generate solid profit.
Contributing to our strong cash generation through the first half of the year.
Our net leverage remains below prior year levels.
And we have efficiently repurchase both debt and equity this year, while maintaining our high yielding dividend delivering attractive current returns to our shareholders.
Our performance this year has reinforced our confidence in our digital first local media strategy, our deliberate focus on markets outside of the top 50, and the long term profitable growth potential of our digital platform.
As always we wouldn't have the confidence in our long term success without the town square team's effort.
Passion and commitment that is directly driving our growth and innovation each day.
I could not be more appreciative of our team and their tremendous work.
And again.
Thanks to each of you for taking the time to be updated on town squares Q2 results. This morning, we greatly appreciate it.
Now operator at this time, please open the line for any and all questions.
Thank you, Sir ladies and gentlemen, we will now begin the question and answer session.
Do you have a question. Please press star followed by the number one on your Touchtone phone.
Again that star followed by the number one if you would like to invite your request. Please press star followed by the number too.
Your first question comes from the line of Michael Kaplinsky from Noble capital markets. Please go ahead.
Thank you and good morning, everyone.
With 35% margins in your digital advertising segment are pretty impressive, but I was just wondering what.
Our sustainable margins for that segment.
Good morning, Michael Thank you for taking the time this morning.
They are strong and they've increased quite nicely along with our revenue growth in the quarter as well as our pacing for the back half of the year.
We've always said we'd operate this business around.
Around 30% profit margin and Thats, where I would expect it to be for the rest of the year. It could be in the low thirties part of the reason we are able to have such a significant profit margins in our digital advertising business is the fact that we have a huge add scale digital audience as I noted on the call and all time.
Hi in digital audience of 84 million average unique visitors on a monthly basis. So as we've talked about on previous calls.
Power of having owned and operated in combination with our programmatic platforms Zack.
It is really I call it unparalleled, particularly in our size markets that have that first party data that digital audience size, and then combine that with being integrated with literally every exchange out there. So we see for all intensive purposes, all inventory on the Internet. So we can highly target our customers.
And their target customers and deliver this business in terms of a huge ROI. So the fact that we've got this full funnel, we see competition in the digital advertising space no doubt about it.
What we don't see is somebody who has the full scale solutions the full funnel in combination with having their own audience at scale. So I think for the rest of the year will be in the low <unk> low to mid 30 profit percent I'd call. It low <unk> and I think for the next few years will be at right around that 30%, we're highly focused on in <unk>.
Greasing, our investment as Stu just mentioned.
Pretty much running out as fast as we can in terms of.
Hiring and training.
So try to be conservative, we usually have say high <unk>, but I think it will probably be in the low <unk> for the foreseeable future.
Thanks, Brian turning to town square interactive how many subscribers you have in Q2 versus Q1 and you indicated in the last quarter call that you gave some temporary price breaks to your town square interactive customers.
Those that extended.
Then you indicated that time square interactive revenue is pacing down low double digits. If you can kind of give us some flavor of what.
Happening in terms of the number of customers.
In Q3.
Yes definitely thank you Michael So as I've said previously on the last couple of calls.
2023 is definitely a reset year for town square Interactive I think we've tried to provide as much color.
On these calls in terms of the challenges for small Smbs, which are we've always stated in our investor deck for the last few years, that's who our target customers people with less than 20 employees less than $5 million in annual revenue and these companies are clearly struggling to pay their bills. They are increasing in terms of businesses closing, we see we have credit card out.
File for all these customers so we actually see credit card declines.
We see that increasing quite significantly in Q2 versus even end of last year.
As it relates to your specific question, Yes, we had 27400 clients approximately at the end of the quarter.
As we look ahead as I said.
We expect low double digit declines in Q3 and that probably would continue to kick in in Q4 and as we've stated before we're quite confident that we will return to growth topline and bottom line in 2024.
We did as we noted on the call have strong profit margins.
And the business improving from Q1 to Q2.
That said we are so confident in this business and we couldn't be more confident we hired 28 additional team members in Phoenix year to date very favourable hiring conditions for us in this new location, which has been great.
Okay.
And that's really where we're at in terms of.
We have a very highly differentiated product offering which house square interactive, particularly in our size markets roughly 60% of our client base today is outside of our markets roughly 40% of our in our markets and we're really taking this.
Macro environment, that's challenging these smaller businesses and as I shared on the last call in May and again this morning.
Treating it as a blessing in disguise as it relates to taking the opportunity to take a step back to challenge an attack ourselves and say what can we be doing better and I think we've outlined it a couple of times today as well as back in May in terms of changing our customer service model from our pools model to us from it wasn't one to one model to a pull model that's dramatically increase.
<unk>.
Answer rates as well as other customer concerns are handled more quickly we have a survey that people do it anytime they call details for interactive, we see customer satisfaction increasing.
From where we are today from where we were a year ago. So we know we're doing all the right things. We know we have the right strategy, we have the right products and solutions and we have an incredible team and culture, but we're battling in this environment, where these small smbs are definitely struggling to pay their bills. Your other question was around discounting we had done that.
And we continue to do that but I would say at a much smaller scale. The difference now versus say 2020, or even 2021 with the COVID-19 struggles that these businesses space is back then in 2020 in 2021, there was such an enormous amount of support from the government with the PPE and other subsidies.
We're getting money coming in but today that doesn't exist obviously in with high inflation higher labor costs higher interest rates. These smaller smbs are clearly struggling. So we are definitely still discounting, but at a much much lower scale and I think thats reflective in our current pacing in the low double digits, but still we will continue to invest heavily.
And this business.
Not only in the back half of this year, but as I said going into 'twenty four we know that we'll return to topline and bottom line growth in 2024.
And my final question is just the tone or the advertising environment in Nashville, as you say.
It was in Q3, which appears to be moderating a little bit from what you saw in Q2 I was just wondering why are we starting to see some light at the end of the tunnel.
Aside from Q3 your guidance.
So just kind of give us a sense of the tone of the advertising environment.
Yes, so to your point on National.
For us that tells where it was down 28% in Q1 down 21% in Q2 and as I shared on the call.
We're currently pacing down negative 18.
Local has been relatively flat, which has been obviously, what we focus on and control as I noted.
I don't see it getting better as I sit here today on August night, I don't see it getting worse by any means but I don't see it getting better you know one of the things we didn't state on the call, but we could have Miller Kaplan data for a number of our markets not all of our markets, but for a good sub sample that gives us a good sense of things. So when you look at the <unk>.
Art markets that are rated by Miller Kaplan in Q2 total spot broadcast revenue, we were down four 8%, which is pretty much in line with what our whole company wise as we just disclose the industry was down.
Negative $8 six and total spots. So we were down four eight the industry was down negative eight six yet in total revenue for these Miller Kaplan markets. We were up two eight and the industry was down two six so going back to your point.
Broadcast I believe we treat it as a traditional cash cow, we're going to moderate our expenses based on the revenue performance. We truly believe that local will clearly outperformed national and smaller markets outside the top 50 will significantly outperform outperform markets in the top 50.
And as we just demonstrated were able to manage our margins as Sue said in Q1, our broadcast margins were 19% this quarter. They were 27% and we plan to on a full year basis keep that in the high 20, So I don't see that.
Current broadcast advertising market getting better I don't see getting worse based on our guide you can you can imply that we're seeing in essence Q3 generally the same as Q2 in terms of broadcast overall, so Michael I'm happy for any follow up but hopefully that gives you a sense of where broadcast is auto for us continues to be.
<unk> significantly down it's down 35% in Q2 versus 2019 down 3% from 2022 Q3 for US continues to pay us down in auto and we've heard larger markets bigger.
Television and broadcast companies have noted that autos coming back for them and I think that's because there's more inventory in the larger markets, but that's still a.
A headwind and at some point as inventory makes it to our size markets. We know it'll be a tailwind, but it really is the same environment today as we were seeing three months ago Michael.
You seem to be managing this environment very well.
All I have thank you.
Thank you Michael appreciate it have a great day.
Thank you.
Our next question comes from the line of Jim Goss from Barrington Research. Please go ahead.
Thank you and good morning.
Have a couple of questions.
First I was interested in the comments you made about.
Employee turnover and churn and your reaction Bay I think you were cool.
Cooling and is it pulling model versus one on one.
Relationships.
As well as maybe dealing.
Dealing with probably a paring some of the people who didn't want to come back full time to the office. So I'm wondering a couple of things first a have you had.
Any customer reaction to the good or bad about the tooling rather than a one on one relationship.
Maybe this is less important than the very smallest markets, but maybe it's better to have the pooling.
Some of our comments about that and also.
I think in the past you talked about.
Maybe earning their stripes in terms of the best employees, having more flexibility in working away from the assets on occasion.
Are you also creating incentives to hit certain marks and then they get that greater greater flexibility as long as they maintain that productivity.
Maybe talk about that ratio a little bit if you could.
Yes, Jim Good morning. Thank you for taking the time this morning, I'll answer those questions and throw it back to you. If you have any other so.
But let me hit the customer reaction first.
So there are clearly some customers of our 27400 <unk> who.
Preferred the one to one model.
I would call it 80% like the pull model and we're seeing the benefits of the pull model with things as <unk>.
<unk> rates and turn times on requests for things like for.
Changes or website edits and things like that but truth be told 20% really like knowing that they had an individual to talk to and now it's a pooled model and they won't necessarily speak to that individual.
So that was a tradeoff we made we felt like the one to one model was the best way to get from our beginning at zero customers to over 27000 customers today, but as we evaluated this for US to go from 27000 customers to 50000 to 100000 customers. We really felt it was best for the customer.
In the long run to have this pool model and but that said there is a subset of our client base that preferred the one to one model and that probably contributed and definitely did contribute to some of the decline in revenue in Q2 and as we're seeing in Q3, but we're very confident that that's the right model moving forward.
We are doing and many other things in the customer service platform.
Based on AI and other improvements that we can make as I said earlier.
Instituted a IV our interactive voice line coming in which has been highly efficient and rated well by our customer base, but to your specific question. There was a subset of clients that definitely preferred to one to one model and they.
They don't have that now as it relates to your second question in terms of employees returning to work.
In my view, our task for interactive team is second to none in the world class. They are passionate about helping small businesses achieve their goals they get great pride in seeing the businesses that we work with grow and increase their revenue increase their employee count and that is incredibly proud and satisfying to us. So.
To your point, we have allowed our best employees, who are 10 years to still be in a hybrid environment and then to your second point somebody who maybe is new to the company.
They generate performance at hit certain key performance indicators and they develop tenure call. It over 18 months. They then are able to.
Also be in a hybrid model. So that has worked quite well and as you noted we have incentives and things along there and that's why we have an incredible culture at <unk> interactive and quite honestly I believe that town square overall.
But that definitely impacted our performance year to date and I think it is impacting US now because we did lose some some employees because they didn't want to return back to the office.
And that was disrupted particularly in a one to one model because if you were used to talking to Bob here, Susie and Bobby and Susie didn't want to return to work and they were not.
The highest performing employees.
That causes disruption and again, that's why we look at for Tsi.
2023, being a reset year with returned to topline and bottom line growth of 24, but I'll turn it back to you I think.
I covered your two questions in terms of customer reaction as well as employee base at town square interactive.
No no. This is covered a lot of it very well.
Thank you.
The guidance, we provided in terms of.
Revenue and profitability for the third quarter and the year.
Thinking of these in terms of your suggested gain and 24 after this reset year.
During two it seems like the third quarter is still softer, but the fourth quarter is beginning that acceleration on some of the gains in 'twenty for us.
Am I reading this correctly.
The sort of the cadence of the.
To reset will sort of work through mostly in the current quarter end.
<unk> will begin towards the end of the year to hit those full year guidance numbers and what are the dynamics in considerations is it.
Maybe Rick.
Major recession concerns fading or interest rates hikes flattening or.
What what's going into your confidence in making those sort of projections.
Yes. Thank you Jim Yes, so to your point reaffirming our full year guide and as Steve outlined our Q3 guide in terms of net revenue.
Pretty close to in line to where we were this quarter down negative two to negative for ex political at $1 15 million to $117 million and the components of that.
For Q3, our digital advertising pacing up strong high single digits tier tsi pacing low double digits and then broadcast as we said national is pacing down 18%.
And probably in broadcast overall expected to be down about I call. It a couple of points.
In Q3 versus Q2.
As it relates specifically to your question, yes, clearly I believe the environment at least from a macroeconomic standpoint.
The number of what I would call experts predicting a recession have clearly.
Receded from our last call in May to now, but obviously interest rates have increased quite a bit from them. In the question. Everybody has now is is it higher for longer because when we were talking in may. Many we're projecting that interest rates would actually start to be cut in Q4, and I think that expectation has come down so our guide bakes in all of them.
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The one the one thing, particularly for GSI, so going back to you pointed out to you that I am not expecting a material improvement in Q4 for Tsi I expect a material improvement and I'm confident we will have one in 2024 with topline growth and bottom line growth returning the one thing we've actually heard from our client base in this sector because you know me.
Any of them have we target of less than 20 employees, but many have less than half a dozen employees and some of these are entrepreneurial type of business is a sole proprietors and as Youre, probably aware Jim I think it was last month, if not over the last few weeks.
The student loan program, which has been forgiven since 2020 is now back and people will start to it and they need to make student loan repayments in October .
And that is definitely a concern for these smbs, who already facing a higher inflation rd facing higher wage costs.
This higher interest rate if they want to access capital. So there's a lot of negatives for these tsi target customers and now adding in student.
Repayments, which is going to affect a clearly a subset of our business I don't want to we're not expecting Q4, therefore too.
See a material improvement from Q3, but our guide takes that all into account.
We take a step back and again, we couldnt be more confident in the long term prospects of towns for interactive we're going to manage our broadcast business as a traditional cash cow business as we had been doing and I think quite successfully and I think the fact that were outside of the top 50 markets I think by this point over the last decade, we've demonstrated we're outperforming others in the broadcast space and hopefully Mike.
Comments about Miller Kaplan to Michael demonstrate that and that's been consistent year in and year out and then obviously our growth engine today and quite honestly has been for the last three years at this point been ignite and the fact that we've got our owned and operated huge add scale audience combined with first party data and a sophisticated programmatic stack and our size.
Markets I cannot stress often enough.
How differentiated that is for us and how confident we are in long term growth in that and Tsi will return to long term growth no doubt about it but our.
Our expectation for Q4 is roughly in line with Q3, but that's baked into our full year guide as well as our Q3 guide so Jim I'll turn it back to you I hope that answered the question.
It did just one last little Nit I guess I know like live events at this stage or just sort of a one off type situation you were a little better than the third quarter or second quarter, rather than we were looking for other than not far off from last year.
What happened in that.
In that category.
Yes, we had so thank you as you know like retreat.
Live events was a significant part of the company.
A while back when I was fortunate enough to move into this role. We obviously took a strategic step back and said is this a business that we wanted to be in and we in essence for all intensive purposes exited the live event business and now we treat it as a marketing arm that's profitable for the company and we only do live events in our and our.
In our markets that we operated and we're quite pleased with the performance, but again as it relates to the overall financial contribution to the company and it's not significant as it relates to the contribution to our audiences and our clients, it's quite significant and that's why we continue to do it and we love it.
In terms of your question Q2 live event revenue I believe was just over $5 million in the quarter, which was up about 7% versus prior year, our profit was suppressed because cut.
A couple of events in Q2 are very large music oriented events one of our largest events in the company is in one of our largest markets Buffalo as you know we have the number one country station number one station in the market as well.
Your wire kw BLK wanted to and they put on a large music festival and as Youre probably aware.
With live events doing so well post COVID-19 artist are commanding a higher fee. Therefore, theres more expense going into that so our profit for live events in Q2.
Was.
Suppressed as a result of that but again, it's not material to the company and we've always said we're going to operate this live event business at roughly mid teens margin and I believe in Q2.
I think we were.
I think slightly below that maybe 12% it depends if you called 12% mid teens or low teens I would call it low teens, but that's what we're seeing in live events and for Q3 our expectation.
Again, as an uptick in revenue versus prior year.
But it's a very very small part of our company in a very defined number of events that had been heritage events in our markets for a long time to communities look forward to them the clients love them and it contributes to our full funnel marketing solutions, which help our broadcast business and help as we see what the Miller Kaplan results and help our <unk>.
Our digital advertising business, but I'll flip it back to you Jim in case anything else on live events or any other questions you may have.
No no that's it thanks very much failure time.
Thank you Jim I appreciate you dialing in and thank you everybody for dialing in and the operator any other questions.
Yes, I mean do you have another question from Ken <unk> from Wellington. Please go ahead.
Hi, good morning, and thanks for taking my questions.
First one I had was.
So with respect to Tsi is there anything notable within the customer trends if you split it out by end market versus out of market.
Hey, nice to have you on the call. This morning, Ken Thanks for asking the question no actually I think it was Michael who May have asked this question last time, we really don't see a difference in vertical in terms of type of business. We don't see a difference in market out of market in terms of our current performance, we don't see it in a geography.
It's really size of business and how you know how.
Much wherewithal do they have at this point in time to be able to battle, the inflationary expenses to see the higher labor costs and if they need capital at the highest interest rates, but there is no discernible difference between in market out of market or what I. Just described in terms of geography to geography or vertical.
Great. Thank you and also on Tsi, just recognizing that the expansion is probably starting up most of your teams bandwidth I'm just curious if theres any updates forthcoming on the product side, whether it's pursuing that CRM opportunity that you had alluded to.
Causing our.
Maybe just kind of re redesigning the aesthetics of the landing pages.
Great question, yes, it couldnt be more excited about the expansion in the office in Phoenix and that as I noted on the call has gone quite well from a culture standpoint, as well as from a hiring standpoint with roughly 50 employees. There, yes, I think I'm glad you've been listening to the calls come because I think we've highlighted in the past in our view and one of the greatest assets in the comps.
It's been our engineering and product development team, who have been with us the core of them with us from day, one in 2010, and we continue to add to them and I view them as incredibly gifted and they spend a lot of time with our customers.
As you know.
Quite a unique at times, just sitting down understanding there their businesses their struggles when they sit down with our with our salespeople as well to get a sense of both sides. So yes, we continually develop our town square interactive.
Solutions and that quite honestly the same development team also works on our digital advertising platform from an O&M standpoint, they built.
CMS and they built our programmatic stack for our programmatic offering as well.
But to your specific question about Tsi, yes, we continually and you can see and we will see improvements in things like the website designs and aesthetic.
As well as continued improvement in our central search engine optimization that is one of the one of our greatest values as we sit down with the customer and we say not only you are getting a great website.
For an average $300 a month and we're handling your social but youre also.
Driving new customers organically through search engines, so when somebody looking for a a plumber in Tyler, Texas or a lawyer in Buffalo.
Not necessarily having to pay for search engine marketing, we're getting highly ranked in those key words that people are searching on them and driving them to your website and you are converting them to customers. So you will see continued product solutions, either incremental product add ons, which we've been doing like email marketing.
Appointment bookings, which weren't part of the platform say four years ago as well as improving just the core products. We have in terms of aesthetics of design. So hopefully that answers your question, but I'll throw it back to you.
That's great. Thank you so much and last one for me and I. Appreciate your time and I'm. Just curious you know in a scenario in which TV political spend next year turns out to be a blowout.
Would you in your radio markets anticipate any kind of spillover core ad demand.
Definitely and we've seen that in past elections. So.
2022 was the off year for town square in terms of political revenue just based on where we we mapped out and we talked about that I think on our on our earnings call at the end of the year, but 2000 22020 was at all time high I think close to $16 million, if not 16 million and a lot of that was spillover from TV into radio that is a dynamic we saw.
See quite quite often if theres not that sell out on TV, we definitely don't get as much political but as that happens we do so a very astute question and we expect if <unk> does have a blow out in political in 2024, we will greatly benefit in 2024.
Great. Thank you so much for your time.
Thank you Ken I appreciate you asking the questions. This morning on the call operator any other cosby.
No. Sir there are no further questions at this time I would now like to turn the call back over to Mr. Wilson for any closing remarks.
Thank you operator I appreciate your help this morning. Thank you all for dialing in as I noted, we couldnt be more proud of the town square team and their passion and commitment and really driving I'd say outsized performance from others in the local media space and hopefully our results continue to demonstrate that being a digital first local media company in markets outside the top 50.
<unk> highly differentiated and we appreciate you taking the time this morning and look forward to our next call in three months everybody have a great day.
Thank you.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your line.
Okay.