Townsquare Media, Inc. Q2 FY2023 Earnings Call

Good morning and welcome to Townsquare Media’s Second Quarter 2023 Conference Call. Today’s call is being recorded, and by participating, you consent to the recording. All participants are currently in listen-only mode. A brief question-and-answer session will follow the formal presentation. I now introduce the first speaker for today’s call, Claire Yenicay, Executive Vice President.

Thank you, operator and good morning to everyone. Thank you for joining us today for Townsquare’s second quarter financial update. With me on the call today are Bill Wilson, 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 of 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 the quarterly, year-end, and current reports available on our website. I would also encourage all participants to go to our corporate website and download our investor presentation, as Bill will reference 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 pleased to share our second quarter results with you today. Despite a challenging national advertising environment, our performance in the first half of this year has set Townsquare apart in local media, particularly in broadcast radio. Our year-to-date results demonstrate the strength of our digital advertising platform and solutions, validating our digital-first strategy focused on local markets outside the top 50. I’m happy to announce that Townsquare's second quarter net revenue and adjusted EBITDA were in line with our earlier guidance. Our digital growth engine fueled our second quarter results, with a 4% year-over-year growth driven by an 11% year-over-year increase in digital advertising revenue. In the first six months of 2023, roughly 52% of our total net revenue came from digital solutions. We also saw strong profitability, with second quarter digital profit rising 15% year-over-year, thanks to a remarkable 30% profit growth in digital advertising. In the second quarter, our digital advertising revenue increased by 11%, while profit surged by 30%, resulting in a 35% profit margin. Townsquare's digital platform continues to distinguish us from our local media peers, with digital profit growth leading to 60% of our total adjusted operating income coming from our advanced digital solutions. As illustrated on slide 11, 52% of our total revenue in the first half of 2023 was digital, more than double the industry average. As anticipated, revenue for Townsquare Interactive, our digital marketing solutions offering, declined by 7% year-over-year. 2023 is a reset year for Townsquare Interactive. Our target clients—typically the smallest SMBs with under 20 employees and less than $5 million in annual revenue—have faced challenges from inflation, labor shortages, and higher interest rates. Goldman Sachs indicates that 77% of small business owners now express concern about accessing capital, compared to the same period last year when confidence was significantly higher. Additionally, smaller companies have become a larger portion of layoffs, with those under 250 employees making up over 80% in March 2023. These factors have led to higher churn rates among our clients and slower sales. We also experienced challenges related to employee turnover in customer service due to our return-to-work policy, which has largely been resolved but has contributed to client attrition. Nonetheless, these challenges have led us to reassess our operations and processes. Since the beginning of the year, we have made essential changes to enhance our customer service platform. For instance, we've restructured our customer service team into a pooled model and implemented an Interactive Voice Response system for inbound calls. This has improved call answer rates, visibility of customer issues, and response times. We believe this new approach will be advantageous for client retention and enable us to scale more effectively. However, as mentioned during our last earnings call in May, these adjustments will affect Townsquare Interactive's financial performance in 2023, which we see as a reset year with growth expected in 2024. Even with a 7% revenue decline at Townsquare Interactive in the second quarter, we maintained a strong 28% profit margin through careful expense management and strategic investments. Despite short-term pressure on revenue, which we project to decrease in the low double digits in the third quarter, we remain highly confident in the long-term growth potential of this business. Our second Townsquare Interactive office in Phoenix has opened, and we've increased our team there by 28 employees due to favorable hiring conditions, resulting in nearly 50 people working in Phoenix. With an addressable market of nearly nine million target customers, a strong product offering, and a customer service model tailored for growth, I am confident that Townsquare Interactive is poised for long-term profitability and success. Although 2023 will be a reset year for us, we anticipate returning to growth in both revenue and profitability in 2024. Our Digital Advertising solutions segment, Ignite, was our largest growth driver again this quarter, with revenue growing 11% year-over-year. Our growth in this area stems from our unique digital solutions, which are among the best available in our market size, coupled with a focus on local advertisers. While there is a slowdown in the broader digital advertising industry, we have experienced minimal impact, as illustrated by our strong double-digit revenue growth in the first half of 2023. We expect this trend to continue, with Q3 digital advertising revenue currently tracking in high single digits. Once again, digital advertising profit growth significantly surpassed revenue growth, rising 30% year-over-year and expanding profit margins to 35%. We're witnessing growth in both our programmatic and owned/operated digital advertising solutions, supported by a growing online audience, which increased 15% year-over-year to 82 million average unique visitors per month in the first half of the year. Focusing on markets outside the top 50 U.S. cities has been a significant differentiator for both our digital and broadcast advertising businesses. Operating in smaller markets means less competition from larger media companies and allows us to focus on local clients, providing greater control over outcomes. Notably, over 90% of our business comes from local advertising, which is historically more stable during economic downturns. For example, while national broadcast advertising revenue was down 21% compared to last year, this decline has less impact on us since it only represents about 7% of our total revenue. In contrast, our local broadcast advertising performed better both in Q2 and year-to-date. As a result, our second quarter total broadcast advertising revenue declined 6% year-over-year or 4% excluding political revenue. We expect local broadcast advertising to continue to outperform national in the latter half of the year. The key takeaway is that operating in smaller markets protects Townsquare from the national advertising downturn, which has affected many local media companies. Our business primarily comes from local clients, allowing us greater control, and since over 50% of our revenue and profits are derived from our digital platform, it's clear why we continue to excel in the local media sector. Importantly, we also generate substantial cash flow. In the first six months of 2023, we generated $31 million from operations, ending the second quarter with $50 million in cash, up $7 million from year-end, even after repurchasing $13 million in bonds, executing $16 million in share repurchases, and making a $19 million interest payment. We repurchased 1.5 million Class C shares from Madison Square Garden in June at a discount, immediately benefiting our shareholders. Additionally, during the second quarter, we bought back approximately 90,000 shares on the open market. I'm also pleased to announce our Board of Directors has approved our next dividend of $0.1875 per share, payable on November 1, equating to an annualized rate of $0.75, which delivers over a 6% yield. We are confident in our strong balance sheet, which features $50 million in cash, a fixed interest rate of 6.875%, and no maturities until 2026, alongside a net leverage of 4.36 times at the close of the second quarter. We are pleased to provide attractive cash returns for our equity shareholders. Now, I’d like to hand the call over to Stu, who will provide further details on our results and our third quarter guidance. Stu, it’s yours.

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. Second quarter net revenue was roughly flat at $121.2 million, down 0.6% year-over-year and up 0.3% year-over-year excluding political, which was within our guidance of $121 million to $122 million. 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 5.8% year-over-year and 4.1% excluding political. Second quarter broadcast profit margins were approximately 27%, a significant and material improvement from the 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 pacings National continues to be very weak in Q3 down approximately 18%. As Bill noted, while this hurts the impact is limited given that National is only 7% of our total company net revenue. Local broadcast has proven to be much more resilient as has historically been the case. And thus, 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 Townsquare Interactive our subscription Digital Marketing Solutions segment as we expect top-line and bottom-line growth to turn in 2024. In the second quarter, net revenue decreased 7.5% as compared to the prior year and profit decreased 9.9% year-over-year. Margins were strong at approximately 28% in the second quarter. As we have shared previously, we expect margins at Townsquare 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. Townsquare 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 expands 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 7.3% year-over-year and a profit of approximately $500,000, a decrease of approximately $400,000 year-over-year. In the first six months of the year, other revenue increased 23.1% year-over-year to $7 million and other profit increased 2.2% to $1 million at a 14% profit margin. This increase was due to hosting more events in the first half of 2023 than in 2022. In the second quarter of 2023, we had non-cash 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 non-cash impairments are mathematically determined, we expect the value of our FCC licenses to continue to be written down regularly over time. The second quarter impairment was caused by rising interest rates, which caused a discount rate in our calculations to increase by approximately 130 basis points from Q1. This write-down of decade-old purchase price calculation has no bearing on our cash position, our operating revenue, operating expenses, our profitability, or the company's future prospects. They are nothing more than the non-cash 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 $0.19 per share. This decline was largely due in part to these non-cash 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 4.36 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 brought back approximately 90,000 shares in the open market during the second quarter. In total, we paid an average of $9.79 per share for 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 to $12.9 million. As always, our number one priority is to invest in our local business through organic, internal investments that support our revenue and profit growth, particularly in our digital growth engine. We plan to continue to invest in our digital product technology, sales, content, and support teams specifically in our Townsquare Interactive and Townsquare Ignite businesses in order to maintain our 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 1 to shareholders of record as of October 2. The dividend of $0.1875 per share, which equates to $0.75 per share on an annualized basis implies an annual payment of approximately $12 million based on our 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, support the new dividend, and give us the flexibility to pursue debt and share repurchases in the open market. We'd 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 maintained 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 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. And with that, I will now turn the call back over to Bill.

Thank you, Stu, and thank you to everyone who joined us this morning. We greatly appreciate it. I want to close today's 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 repurchased both debt and equity this year while maintaining a 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 Townsquare 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 Townsquare's Q2 results this morning. We greatly appreciate it. Now, operator, at this time, please open the line for any and all questions.

Thank you. We will now start the question-and-answer session. Your first question comes from Michael Kupinski from Noble Capital Markets. Please go ahead.

Thank you, and good morning, everyone. The 35% margins in your digital advertising segment are pretty impressive. And I was just wondering what are 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 a 30% profit margin, and that's where I would expect it to be. For the rest of the year, it could be in the low 30s. Part of the reason we are able to have such significant profit margins in our digital advertising business is the fact that we have a huge at-scale digital audience, as I noted on the call, an all-time high in digital audience of 84 million average unique visitors on a monthly basis. So as we've talked about on previous calls, the power of having owned and operated in combination with a programmatic platform stack is really, I'd call it unparalleled, particularly in our size markets, to 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 all intents and 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, we'll be in the low to mid-30 profit percent, I'd call it low 30s, and I think for the next few years, we'll be right around that 30%. We're highly focused on increasing our investment, as Stu just mentioned. We're pretty much running out as fast as we can in terms of hiring and training. So try to be conservative. We usually have a high 20s, but I think it will probably be in the low 30s for the foreseeable future.

Thanks, Bill. Can you provide the number of subscribers for Townsquare Interactive in Q2 compared to Q1? Also, in the last quarter, you mentioned some temporary price reductions for your Townsquare Interactive customers. Have those been continued? Additionally, you mentioned that Townsquare Interactive revenue is trending down in the low double digits. Could you give some insight into what’s happening with the customer numbers in Q3?

Thank you, Michael. As I mentioned in previous calls, 2023 is a reset year for Townsquare Interactive. We have discussed the challenges that small businesses face, particularly those with under 20 employees and less than $5 million in annual revenue. These businesses are struggling to meet their financial obligations, and we are observing a rise in closures. We verify this through our records showing credit card declines, which have noticeably increased in Q2 compared to the end of last year. Currently, we have about 27,400 clients. Looking forward, I expect low double-digit declines in Q3, which may extend into Q4. However, we believe we will achieve growth in both revenue and profit in 2024. We reported strong profit margins, which improved from Q1 to Q2. Our confidence in the business remains high, evidenced by our hiring of 28 new team members in Phoenix this year under favorable conditions. Townsquare Interactive offers a distinct product range, with around 60% of our client base located outside our target markets. Despite the difficulties smaller businesses face, we view this as an opportunity to reassess and enhance our operations. We have shifted our customer service approach to improve response rates and effectively address customer concerns, resulting in increased satisfaction compared to a year ago. Although we are still applying discounts, this is at a significantly reduced level compared to 2020 and 2021 when government support programs were available. Presently, small businesses are grappling with high inflation, increased labor costs, and rising interest rates. While we will continue to offer discounts, it is at a diminished scale, reflected in our current low double-digit pacing. Nevertheless, we are committed to investing heavily in our business moving into the latter half of this year and into 2024, confident in our path to growth.

My final question is just the turn of the advertising environment national. You said it's down 12% pacing into Q3, which appears to be moderating a little bit from what you saw in Q2. I was just wondering, are we starting to see some light at the end of the tunnel aside from Q3 your guidance but just kind of give us a sense of the tone of the advertising environment.

Yes. Right, so to your point on national for Townsquare, it was down 28% in Q1, down 21% in Q2. And as I shared on the call, we're currently pacing down 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 9. I don't see it getting worse by any means, but I don't see it getting better. One of the things we didn't state on the call but we have Miller Kaplan data for a number of our markets. It's not all of our markets but for a good subsample that gives us a good sense of things. So when you look at our markets that are rated by Miller Kaplan, in Q2 total spot broadcast revenue we were down 4.8%, which is pretty much in line with what our whole company was as we just disclosed. The industry was down 8.6% in total spots. So we were down 4% while the industry was down 8.6%. Yet in total revenue for these Miller Kaplan markets we were up 28% and the industry was down 2.6%. So, going back to your point. Broadcast, I believe we treated as a traditional cash cow. We're going to moderate our expenses based on the revenue performance. We truly believe that local will clearly outperform national and smaller markets outside the top 50 will significantly outperform markets in the top 50. And as we just demonstrated, we're able to manage our margins. As Stu 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 20s. So, I don't see the current broadcast advertising market getting better. I don't see it getting worse. Based on our guide, you can imply that we're seeing, in essence, Q3, generally the same as Q2 in terms of broadcast overall. So, I hope Mike, I'm happy for any follow-up but hopefully that gives you a sense of where broadcast is. Auto for us continues to be significantly down, down 35% in Q2 versus 2019, down 3% from 2022. Q3 for us continues to pace down in auto. And we've heard larger markets, bigger television and broadcast companies have noted that auto is coming back for them. And I think that's because there's more inventory in the larger markets. But that's still a headwind. And at some point, as inventory makes it to rise markets, we know it will be a tailwind. But it really is the same environment today as we were seeing three months ago, Michael.

Well, you seem to be managing this environment very well. That's all I have. Thank you.

Thank you, Michael. Appreciate it. Have a great day.

Thank you. Your next question comes from the line of Jim Goss from Barrington Research. Please go ahead.

Thank you and good morning. I have a couple of questions. First, I was interested in your comments about employee turnover and churn, and your thoughts on the pooling model compared to one-on-one relationships, especially in relation to those who prefer not to return full-time to the office. Have you received any feedback from customers regarding whether they prefer the pooling model over one-on-one interactions? This might be less relevant in the smallest markets, but I'd like to hear more about it. Additionally, I recall that you previously mentioned the best employees being afforded more flexibility to work remotely. Are you also implementing incentives that would allow employees to earn additional flexibility by meeting certain productivity benchmarks? I would appreciate any insights you can share on this.

Yes, good morning, Jim. Thank you for joining us today. I'll address your questions and welcome any follow-ups you may have. First, regarding customer reactions, among our 27,400 customers, it's evident that while about 80% prefer the pooled model, there are some, approximately 20%, who valued having a personal representative to speak with. This shift to a pooled model was a trade-off we decided to make, as it enabled our growth from zero to over 27,000 customers. For our future growth towards 50,000 and 100,000 customers, we believe the pooled approach will ultimately enhance customer satisfaction. However, we acknowledge that some clients miss the one-to-one interaction, which has likely contributed to a revenue dip in Q2 and the observed trends in Q3. We are confident that this is the right direction and are implementing various improvements in our customer service platform, including an efficient Interactive Voice Response system that has been well received by our customers. Turning to your second question about employee returns to the office, I must say our Townsquare Interactive team is exceptional. They are dedicated to assisting small businesses in achieving their objectives, and we take great pride in witnessing the growth and success of those businesses. We've offered our best, tenured employees the flexibility of a hybrid work environment. For newer employees, as they meet performance criteria and develop tenure over about 18 months, they also gain the opportunity to work in a hybrid model. This approach has proven effective, and we've developed incentives to support this culture at Townsquare Interactive, which I believe extends to the entire organization. However, we have seen some impact on our performance this year, particularly as some employees chose not to return to the office. This was especially disruptive in a one-to-one model, where personal relationships with representatives like Bobby or Susie were affected. This is why we view 2023 as a year of reset for Townsquare Interactive, aiming for growth in both revenue and profits in 2024. I'll hand it back to you now, as I believe I've addressed your questions about customer reactions and our employee dynamics.

Thank you for the guidance on revenue and profitability for the third quarter and the year. I'm considering these projections in relation to your expectation for 2024 after this reset year. It appears that the third quarter is softer, while the fourth quarter is set to show improvement as we head into 2024. Am I understanding correctly that the adjustments will primarily take place in the current quarter, with improvements starting towards the end of the year to meet your full-year guidance? What factors are contributing to your confidence in these projections? Are concerns about a major recession diminishing, or have interest rate hikes stabilized?

Thank you, Jim. To reinforce our full-year guidance and as Stu mentioned, our Q3 expectations for net revenue are similar to this quarter, projected to be down 2% to 4% excluding political factors, in the range of $115 million to $117 million. For Q3, our digital advertising is showing strong high single-digit growth, while CSI is projected to grow in the low double digits. However, we anticipate a decline in national broadcast revenue by about 18%, with overall broadcast expected to drop a couple of points in Q3 compared to Q2. In response to your question, I observe that the number of experts predicting a recession has decreased since our last call in May. However, interest rates have risen significantly, and there are concerns about them remaining high for an extended period. Back in May, many expected rate cuts by Q4, but that outlook has changed. Our guidance incorporates these factors. Regarding TSI, I do not anticipate significant improvement for Q4, but I am confident we will see meaningful growth in 2024, with both top and bottom line results rebounding. We serve many clients with fewer than 20 employees, often sole proprietors, and recently, the return of student loan repayments starting in October poses additional challenges, especially as these small businesses face rising inflation and labor costs alongside high-interest rates for capital access. This situation is concerning for TSI's target customers, and we do not expect Q4 to show considerable improvement from Q3. Nevertheless, we've accounted for these challenges in our guidance. In the long term, we remain very optimistic about Townsquare Interactive. We manage our broadcast operations as a stable cash flow generator and believe our performance outside the top 50 markets over the past decade reflects our success compared to others in the broadcast sector. Our growth engine continues to be Ignite, leveraging our large owned audience, first-party data, and a sophisticated programmatic platform in our markets. This differentiation positions us well for long-term growth. While we expect Q4 results to align with Q3, those projections are already factored into our full-year and Q3 guidance. Tim, I will hand the discussion back to you, and I hope this answers your question.

Just one last little knit, I guess. I know live events at this stage are just sort of a one-off type situation. You were a little better in the second quarter rather than I think we were looking for a little not far off from last year what happened in that category?

Thank you. As you know, live events used to be a significant part of the company. When I transitioned into this role, we took a strategic step back and decided that this was a business we wanted to maintain. Essentially, we exited the live events business and now view it as a profitable marketing arm. We only conduct live events in our operating markets. We're pleased with the performance, but it doesn't contribute significantly to our overall financial picture. However, it is important for our audiences and clients, which is why we continue with it. In response to your question, Q2 live event revenue was just over $5 million, which represents a 7% increase compared to the previous year. Profit was impacted because some events in Q2 were large music festivals. One of our biggest events takes place in Buffalo, where we have the leading country station, and it featured a large music festival. With the resurgence of live events post-COVID, artists are charging higher fees, leading to increased expenses. Consequently, our profit for live events in Q2 was lower than expected. However, this is not material to the company. We have always aimed to operate the live event business at a margin of roughly mid-teens, and in Q2, we were likely slightly below that, perhaps around 12%. I consider that in the low teens. For Q3, we expect revenue to increase compared to last year, although it remains a very small part of our business with a limited number of time-honored events in our markets that communities look forward to. Our clients appreciate them as well, and they complement our comprehensive marketing solutions, which benefit our broadcast and digital advertising businesses. I'll hand it back to you, Jim, in case you have any more questions about live events.

No, that's it. Thanks very much for all your time.

Thank you, Jim. I appreciate you dialing in and thank you everybody for dialing in. Operator, any other questions?

Yes, we do have another question from Ken Hashimoto from Wellington. Please go ahead.

Hi. Good morning and thanks for taking my questions. The first one I had was 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, and 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 much wherewithal do they have at this point in time to be able to battle the inflationary expenses to see the higher labor cost 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 or vertical.

Great. Thank you. And also on TSI, just recognizing that the expansion is probably stopping up most of your team's bandwidth. I'm just curious if there's any updates forthcoming on the product side, whether it's pursuing that CRM opportunity that you alluded to several calls ago or maybe just kind of redesigning the aesthetics of the landing pages.

Great question. I'm really excited about the expansion in our Phoenix office. It's going well culturally and in terms of hiring, with about 50 employees there. I appreciate you keeping up with our calls because we believe that one of our biggest assets is our engineering and product development team, many of whom have been with us since 2010, and we continue to add to our talent. They are exceptionally skilled and spend a lot of time with our customers, which is somewhat unique. They take the time to understand customer businesses and challenges, collaborating closely with our sales team to gain insights from both sides. We are consistently developing our Townsquare Interactive solutions. The same team also works on our digital advertising platform, including building our content management system and our programmatic offering. Regarding your specific question about TSI, we are continuously making improvements, which you will notice in areas like website design and aesthetics, as well as in our search engine optimization. This is a significant value we provide to our customers, as they get a high-quality website for about $300 a month while we manage their social presence. Plus, they can attract new customers organically through search engines. For instance, someone searching for a plumber in Tyler, Texas, or a lawyer in Buffalo can find them without necessarily paying for search engine marketing because we optimize their visibility for relevant keywords. As for ongoing product enhancements, you can expect new features, such as email marketing and appointment booking, which weren't part of our platform four years ago, along with improvements to the core products in terms of design aesthetics. Hopefully, that answers your question, Ken, and I’ll pass it back to you.

That's great. Thank you so much. For my last question, I appreciate your time. I'm curious, if TV political spending next year is significantly high, do you expect any spillover in core ad demand in your radio markets?

Definitely. And we've seen that in past elections. So 2022 is an off-year for Townsquare in terms of political revenue just based on where we mapped out and we talked about that I think on our earnings call at the end of the year. But 2020 was an all-time high, I think close to $16 million, and a lot of that was spillover from TV into radio. That is a dynamic we see quite often. If there's not that sell-out on CD, we definitely don't get as much political. But as that happens, we do. So a very astute question, and we expect if TV does have a blowout in political in 2024, we will greatly benefit in 2024.

Okay. Thank you so much for your time.

Thank you, Ken. I appreciate you asking the questions this morning on the call. Operator any other calls please?

There are no further questions at this time. I'd 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 couldn't be more proud of the Townsquare 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 is 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, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.