Yes, direct operating expenses at Townsquare Media rose in Q3.
Nevertheless, analysts and investors alike — along with radio industry cheerleaders looking for a strong start to the quarterly earnings season — will likely be energized by the media company’s performance for the three months ending Sept. 30.
Net leverage is down — way down. At the same time, the company’s 2019 guidance is now higher — way higher.
In fact, Townsquare CEO Bill Wilson and CFO Stu Rosenstein can take pride in the reduction of net leverage — and further moving away from an investment in Live Events that proved to be costly, leading to management changes at the top that started with Steven Price’s shedding of chief executive duties and, later, the departure as co-CEO of Dhruv Prasad.
With Wilson in command, Townsquare’s net leverage as of September 30 was reduced to 4.7x.
That, he says, is a reduction of 0.6x year over year and the lowest net leverage level in the company’s history.
Given the uncertainties for radio industry growth in the wake of a Third Circuit Appeals Court decision that could put a chilling effect on any further FCC “modernization” of local radio ownership caps, it’s a great sign that the business — with a model created by Townsquare — can prove profitable.
On his company’s Q3 earnings call for analysts and investors, Wilson says the net leverage improvement proves that Townsquare’s digital-first locally focused company strategy is paying off.
This revenue generation model is one key reason why Townsquare, with the release of its Q3 earnings, is raising its full-year adjusted EBITDA to the high end of its previous range.
The $4 million upward adjustment means that Townsquare now expects its 2019 adjusted EBITDA to come in between $102 million and $104 million.
“This is up from initial $94 million to $98 million,” Wilson noted.
Fueling this, in a big way, are Townsquare Ignite and Townsquare Interactive, the company’s big revenue-generating programmatic and digital platforms, respectively.
For 2019, total digital revenue is anticipated to come in at $150 million, Wilson says, reflecting a 25% year-over-year growth rate.
Meanwhile, Wilson points to its ad-sales prowess: In markets measured by Miller Kaplan, Townsquare’s Q3 broadcast spot revenue is up 4.7% year-over-year, while industry was flat.
Additionally, total spot revenue for Townsquare rose by 4.4% year-over-year. For the industry, it was down by 0.5%.
The industry out-performance was a key highlight in “a transformative year” for Townsquare, Wilson noted.
As such, there’s no dividend slash for TSQ shareholders to be concerned about — as was recently the case for Entercom stockholders. A 7.5 cent per-share dividend is on the way.
The dividend will be payable on February 14, 2020 to shareholders of record as of the close of business on December 27, 2019.
Two Wall Street analysts participated in the Townsquare Q&A.
Noble Financial Director of Research and M&E Managing Director Michael Kupinski, who is based in Boca Raton, Fla., offered the bulk of the questions.
Kupinski congratulated Townsquare on its “impressive results.”
He also asked for confirmation, which he received, about Townsquare’s political dollars in Q3: Some $635,000 were registered.
Also impressing Kupinski was Townsquare’s debt reduction, which he said was “pretty impressive here.”
What’s the targeted debt leverage? Rosenstein replied that in the near to mid-term, he hopes Townsquare will be in the low 4x range. When will Townsquare get there? At the end of 2020.
Kupinski also asked about merger and acquisition plans, to which EVP/Investor Relations and Corporate Communications Claire Yenicay said there was “not much in the M&A timeline” for Townsquare.
Meanwhile, Kupinski wanted a Townsquare executive to react to his belief that the company’s Q4 guidance is conservative.
Rosenstein said, “We feel great about Q4. If you want to call that conservative we leave that to you.”
Also on the call: Jim Goss, VP/Senior Investment Analyst at Barrington Research, who offered queries on Townsquare Ignite and Townsquare Interactive.
How did investors react to the Q3 report? Very positively.
As of 10:15am Eastern, TSQ was up by a healthy 8%, to $7.70 per share.
It’s Townsquare’s strongest performance in 14 months and indicates TSQ may be poised to meet a 1-year target price set by analysts of $10.46 per share.
