When it comes to quarterly earnings releases, there are two vitally important statistics investors generally consider first and foremost, ahead of the highlights typically shared by a C-Suite executive on a call to review the results with analysts.
One is the revenue. The other is Earnings Per Share. For Townsquare Media, Q4 2022 quarterly revenue surpassed analysts’ forecasts. In fact, Townsquare points out, “record results” were seen, thanks largely to the company’s transformation into a “Digital First Local Media Company.”
Townsquare’s EPS even beat the Zacks Consensus Estimate, giving investors a reason to cheer. But, perhaps the bigger news is the resumption of a quarterly dividend for stockholders.
The good Q4 report, combined with the big dividend announcement, sent TSQ soaring on a day iHeartMedia and Audacy each saw concerning drops on Wall Street for their respective shares.
With a consensus estimate for revenue of $117.83 million, Townsquare net revenue increased to $120.28 million, from $110.58 million.
Given the ongoing macroeconomic uncertainty, that’s perhaps a testament to Townsquare’s ability to bring strong ROI to its clients across its asset portfolio, and through its digital advertising solutions.
And, CEO Bill Wilson said on the earnings call, Radio in 2022 no longer comprised the greatest revenue-driving segment — with 50% of Townsquare’s revenue coming from digital, the “differentiated and unique position” that the company is in brings it greater abilities to weather economic downturns when they arise.
Indeed, the digital revenue component is on average 2.5-times greater than that of audio content creation and distribution companies such as iHeartMedia and Audacy Corp.; those companies focus on podcasting, audio streaming and digital growth in a notably different way than Townsquare, with its focus on digital advertising in markets as small as Oneonta, N.Y. a key distinction for the publicly traded company.
Townsquare’s net income in Q4 of $3.93 million ($0.20 per diluted share), up from $1.93 million ($0.07). That said, adjusted net income surged to $11.57 million ($0.66 per diluted share) from $3.1 million ($0.16), beating the Zacks Consensus Estimate of $0.52 per share.
Adjusted EBITDA less interest, capital expenditures and taxes increased to $25.19 million from $21.02 million.
A $10.6 million non-cash impairment charge was taken on its FCC licenses in Q4. This was downplayed by EVP/CFO Stu Rosenstein, who explained that it is this non-cash charge that impacted net income.
Investors were highly pleased with the results, with TSQ soaring by 16.25% to $8.44. Volume was 147,311 shares.
In contrast, Audacy Corp., which releases what is expected to be a less-than-favorable Q4 and full-year 2022 report on March 15, saw its shares fall to just $0.1550. Also at a particularly low valuation, in fact lowest since its July 19 debut as “IHRT” on the Nasdaq, is iHeartMedia stock. At the Closing Bell, IHRT was valued at $5.26 (down 6.7%).
With nary a word about Radio from Wilson within the first 10 minutes of Townsquare’s earnings call on Wednesday, Broadcast Advertising nevertheless remains a key component and major revenue driver for the company. While digital is the growth engine, as Wilson sees it, and the majority of profit generation for Townsquare by the end of 2023, Radio’s 4% year-over-year revenue growth in Q4 2022 to $59.35 million, From $57.1 million, cannot be ignored.
By comparison, while Digital Advertising revenue rose by 16.9% in Q4 ’22, it climbed to $37 million, from $31.66 million.
Subscription Digital Marketing Solutions improved by 4.4% to $22.38 million, from $21.45 million.
Meanwhile, Townsquare’s expenses were up in Q4 across all three categories. Factor in the impairment charge, and operating income slid by 56%, to $8.38 million from $18.87 million in the final three months of 2022.
On a full-year 2022 basis, net revenue climbed by 10.8% to $463.08 million while direct operating expenses were up 12.7%, to $324.9 million. Net income for FY 2022 dropped by 23.4% to $14.39 million, from $18.78 million.
ECONOMIC TAILWINDS AHEAD?
With some high-profile radio station owners lamenting continued “headwinds” with respect to income opportunities, citing economic uncertainties, Townsquare expects its Q1 2023 net revenue to be statistically flat, or up by just under 2% ($100 million — $102 million). With smaller customers with less than $5 million in annual revenue dealing with inflation, this has had an impact on the digital revenue projections for Townsquare, Wilson said in answering a Q4 earnings call query from Michael Kupinski of Noble Capital Markets in Boca Raton, Fla.
Adjusted EBITDA is expected to be between $17.5 million and $18.5 million.
For the full year 2023, net revenue is expected to be between approximately $450 million and $470 million (-2.8% to +1.5% as compared to the prior year), and Adjusted EBITDA is expected to be between approximately $100 million and $110 million.
Wilson opened his prepared comments on Townsquare’s Q4 earnings call by addressing ” a progressively challenging economic landscape” and how the digital revenue drivers for the company will largely squelch any slowdown at the Radio segment, highlighted by radio stations in Albany and Buffalo, N.Y.; Fort Collins, Colo.; and El Paso, Tex.; in addition to other markets below No. 50 in rank.
Consistent research shows sub-No. 50 markets are stronger performers for the radio industry than those within the top 50 due to local digital media encroachment from “big tech” companies, and other players.
DIVIDEND RESUMES
The last time Townsquare Media went ex-dividend was on April 1, 2020. Now, three years after COVID-19 wreaked havoc on U.S. financial markets and perhaps bringing “long COVID” to Radio, Townsquare’s Board of Directors approved the initiation of a quarterly cash dividend of $0.1875 per share.
That’s huge news for TSQ shareholders.
In June 2020 Townsquare went from a 7 1/2-cent quarterly dividend to none, with no visibility on when one will return.
The hefty dividend, perhaps making up for previous quarters, will be payable on May 1 to shareholders of record as of the close of business on March 27.
“The Board’s decision to approve a dividend reflects confidence in our current capitalization, the strength of our balance sheet, and our free cash flow generation,” Wilson said. The quarterly cash dividend of $0.1875 per share translates to $0.75 per share on an annual basis.
Compared to other companies, Townsquare Media is a lightly traded stock, with average volume of 23,116 shares. In pre-market trading on Thursday (3/9), TSQ was up 4% to $7.55. For the most part, this pricing has been relatively unchanged since the start of December 2022 and is down from $13.05 on a 52-week chart. That price was seen one year ago, and analysts consider TSQ to be undervalued. The 1-year target estimate on TSQ is $18.67; Townsquare’s shares have yet to surpass $16 in value.
NET LEVERAGE DOWN, POLITICAL DOLLARS UP
- Townsquare Media reduced its net leverage to 4.29x at the end of 2022 from 4.75x at the end of 2021.
- Political revenue in Q4 was $3.99 million, compared to $1.72 million a year earlier. For FY 2022, political revenue totaled $7.52 million.
- “In time, I believe the local ownership caps will be lifted, and I believe it is the right thing to do.” — Bill Wilson in response to Jim Goss of Barrington Research on how Townsquare Media views the current media ownership rules. Townsquare is one of nine signatories on ex parte comments pertaining to the 2022 Quadrennial Review of the FCC’s media ownership rules, in which deregulation was recommended.
- MSD Capital LP is the largest institutional investor in Townsquare Media, with 11.72% interest. American Century Companies is second, with 6.77% equity interest.
