Thus far, the release of first quarter 2021 earnings reports from audio-focused media companies has yielded one not-so-surprising trend: digital growth is booming, while core advertising dollars are mired in a long, slow recovery from the depths of the COVID-19 pandemic.
For Entravision, digital is driving the company’s revenue. Now, Townsquare Media is on the verge of having digital become its biggest revenue generator.
Townsquare Interactive, the company’s digital marketing subscription business; Townsquare Ignite, the digital programming advertising platform; and Townsquare Amped, which handles digital advertising across Townsquare’s brands; enjoyed strong growth in Q1 2021.
And, to demonstrate how the digital components haven’t been upended by COVID-19, Townsquare Media CEO Bill Wilson made it a point to share that Townsquare Interactive, Ignite, and Amped’s first quarter net revenue exceeded Q1 2019 revenue levels by 34%, 45% and 15%, respectively.
This unrelenting digital revenue growth will put the three-year growth trend for the Townsquare arm at 49.7%, rising from $167 million to $250 million by 2024.
The strong digital growth — coupled with “strong expense management” — led Townsquare to achieve 30% adjusted EBITDA growth in Q1 ’21.
Adjusted is the key word for Wall Street and for TSQ shareholders, as the overall numbers are greatly impacted by a big Q1 2020 impairment charge.
BEHIND THE NUMBERS
With Townsquare surpassing its previously stated guidance, Wilson took pride in releasing Q1 2021 results that require one to understand one key financial fact: a $79.1 million impairment charge taken during the first three months of 2020, as the pandemic severely impacted nearly every publicly traded company with broadcast media assets.
This explains why Townsquare’s net loss shrunk to $6.11 million ($0.35 per share) from $59.58 million ($3.27) in Q1 ’21, while net revenue slipped to $88.76 million from $93.43 million.
Those numbers, however, don’t tell the Townsquare story, and one must consider the adjusted operating income by segment as a true starting point for the company, with a group of radio stations in markets ranging from Albany and Buffalo, N.Y. and El Paso to Tuscaloosa, Ala.; and Billings, Mont.
Advertising net revenue declined by 6.4%, to $69.76 million from $74.54 million, while Townsquare Interactive chugged ahead to $19 million from $16.53 million — a 15% gain year-over-year.
While net revenue was down, adjusted operating income for advertising went up. In fact, it improved by 9.2% to $18.36 million from $16.82 million. Townsquare Interactive’s adjusted operating income increased by 30.4%, to $5.93 million.
With live events practically wiped out, save $7,000 in Q1 revenue, total net revenue on an adjusted basis was off 5% to $88.76 million from $93.43 million. But, adjusted operating income rose by 10.7% to $24.23 million from $21.88 million.
Political revenue was just $439,000 in Q1 2021.
So, what’s the bottom line for Townsquare? Take away that big $79.1 million Q1 2020 impairment, and adjusted net income increased to $4.3 million ($0.17 per diluted share) from $1.41 million ($0.05).
Adjusted EBITDA including political grew to $20.1 million, from $15.5 million.
Thus, Townsquare’s quarter was a positive one. But, for investors, there are two key considerations to think about. First, the word “Radio” appeared exactly twice in the company’s earnings release — in a boilerplate company description that puts radio secondary to Townsquare’s digital media and digital marketing platforms, and when describing how it owns 322 stations in 67 cities.
With radio still outpacing digital by more than $50 million in Q1, the digital growth story can only go so far. And, until live events come back in full swing, more scrutiny on Radio’s core advertising growth could be given by analysts that follow Townsquare Media.
Still, their understanding of core advertising challenges, and comparisons to Townsquare’s peers, will show that the company’s C-Suite leadership has a foundation that may be the most similar to the broadcast TV industry with respect to growth in the face of advertising dollar slowdowns. Only, Townsquare’s digital may be less controversial than broadcast TV’s retransmission consent revenue.
The other possible concern for TSQ shareholders is the company’s cash on hand. At the end of Q1 ’21, it was $20.6 million. One year earlier, it was $136.44 million.
Following the Q1 earnings call, Wilson explained to RBR+TVBR why this decrease occurred. This is directly tied to the repurchase of the entirety of Oaktree Capital Management L.P.’s stake in Townsquare Media and fees related to that.
“It’s accretive to shareholders,” he says.
There’s also less cash because of fees paid for a new bond deal, which allows Townsquare to not have bonds mature until 2026.
RBR+TVBR FAST FACT:
TOWNSQUARE MEDIA SHARES LAST CONSISTENTLY TRADED AT ITS CURRENT PRICING IN AUTUMN 2017.
