Townsquare Media, Inc. Q2 FY2024 Earnings Call

Good morning, and welcome to Townsquare Media's Second Quarter 2024 Earnings Call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. With that, I would like to introduce the first speaker for today's call, Claire Yenicay, Executive Vice President. Please go ahead.

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 that 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 by segment, 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 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. It's great to reconnect with everyone. We're very pleased to share with you that Townsquare's performance continues to improve and strengthen as expected and is sequentially progressing each quarter as I forecasted on our earnings call in May. On that call, you may remember that I projected that second quarter net revenue would be down 2% to 3% year-over-year, and net revenue came in directly at the middle point, down 2.5%, a sequential improvement from Q1 results. I also projected that Townsquare Interactive would return to quarterly net subscriber additions and also return to sequential quarterly revenue growth, which I am pleased to report was achieved. I also projected that Q2's digital advertising net revenue would perform similarly to Q1, and it did just that. The solid growth in programmatic digital advertising revenue that I expected came in at a strong 9% year-over-year, again, sequential improvement from Q1. This was offset by weakness in national digital advertising, which again was expected and forecasted. I also projected on our last earnings call that second quarter broadcast net revenue would be flat to down 1%. And I'm glad to report that broadcast advertising performed at the higher end, coming in flat to the prior year, which again was a sequential improvement from Q1. In essence, we executed and delivered on what we said we would do. As a result of each segment performing as we expected, Townsquare's second quarter results met our previously issued guidance for both net revenue and adjusted EBITDA. It is also worth noting that we purchased just under $20 million of bonds at a discount year-to-date through July and that our bonds recently received an upgrade from S&P Global. We believe that now and going forward, our digital business is a true differentiator for Townsquare and will soon return to historical revenue growth rates of mid to high single digits. As highlighted on Slides 8 and 12 in the investor presentation, in the first half of 2024, approximately 52% of our company's total net revenue came from digital solutions, more than double the industry average, and 51% of our total profit came from digital solutions. This highlights the point we often make and can't state enough. Townsquare is no longer the radio broadcast company it was when it was founded in 2010, nor the company it was when we went public a decade ago. Townsquare has evolved and transformed into a digital-first local media company that is truly distinguished from our local media peers, validating our focus on markets outside of the top 50 U.S. cities with a world-class team and a unique and differentiated strategy, assets, platforms and solutions. This critical point of differentiation has fortified my confidence in our business model and our path forward over the next number of years. Our digital advertising net revenue growth, as I just noted, was driven by great strength in our digital programmatic advertising revenue, which increased 9% in Q2 as compared to the prior year, and this was offset by national digital advertising revenue declines. Fortunately, just as with our Broadcast Advertising business, nationally owned and operated brands like Taste of Country, XXL, Loudwire, are only a small portion of our Digital Advertising business at roughly 6%. And therefore, we were still able to deliver digital advertising revenue growth in the quarter in line with our expectations that we shared on our last call. Excluding national advertising revenues, digital advertising net revenue would have grown at a mid-single digit growth rate in the second quarter, demonstrating the strength and differentiation of our offerings and the ongoing demand from our local clients. All in all, we owe our digital advertising success to our sophisticated digital products and solutions, which are entirely in-house, giving us 100% control of the client relationship, starting with the client pitch, then campaign design, media buying and optimization, and ongoing reporting and insights, which we believe translates to a better customer experience, higher average spend and higher client retention rates. In addition, we have the unique ability to collect and analyze first-party data from our audience of over 70 million monthly unique visitors to our portfolio of over 400 local news and entertainment websites, 400 mobile apps and 10 leading national music and entertainment websites. This very large first-party data set allows us to provide detailed and unique insights about consumer behaviors, audience interest and purchase intent that drive real results with strong return on investment for our clients, giving us a true strategic advantage over our local competition. We are very confident in our ability to continue to grow this business and capitalize on our competitive advantages in our local cities. Owning our tech platforms in-house, combined with the breadth of our digital solutions and quality of our first-party data, is a competitive advantage in any size market. Yet in cities outside the top 50, it is a significant difference maker, driving our digital advertising to be the strongest growth engine in the company. And it is worth noting that we're not the only ones who have noticed our digital strengths. We have been approached by other broadcasters who view our offering as best-in-class. And we're currently testing and exploring the idea of white labeling our digital advertising solutions to broadcasters and markets where we don't compete. Like when we acquire new local markets, this could allow us to accelerate our digital advertising growth, but without taking the capital risk of a new acquisition. In addition, we have also seen more and more local agencies looking to us as their white label digital advertising partner. And although early, we believe this too could be a meaningful difference maker for our business in 2025 and beyond. Looking to Q3 and Q4, we expect our digital advertising revenue growth to improve over the 1% revenue growth in the first half of the year. In fact, we expect Q3 digital advertising net revenue to increase approximately 4%, driven by what we expect to be continued strong growth rates in programmatic digital advertising revenue. While we expect National Digital will remain quite weak in Q3, down roughly $1 million versus prior Q3, and thus would be down over 30%, but we expect National Digital to improve in Q4 given the weak Q4 2023 comps. Overall, we are confident that favorable industry trends, together with our in-house full suite of marketing solutions, our investment in our original content strategy, and our first-party data advantage will continue to drive strong digital advertising growth for Townsquare. In particular, we are most excited and confident about our Digital Programmatic business, where we have unlimited growth potential and which will be the largest growth segment of our Digital Advertising business going forward. I am very pleased to share with you today that Townsquare Interactive, our Subscription Digital Marketing Solutions business, is firmly on the path to recovering growth after tackling our 2023 challenges head-on. In fact, I believe Townsquare Interactive is a better company as a result of questioning why and how we lost subscribers and figuring out what we needed to change to come out of it a stronger company. One way we became better was by revamping our customer service model and designing it to better serve our customers today as well as scale more effectively as we grow in the coming years. Today, I'd like to take a step back and spend some time describing the new product offering we launched at Townsquare Interactive, which I briefly touched on during our last call and is another significant improvement to our business. In January, we launched the business management platform, a SaaS-based platform that provides a suite of digital solutions which assist SMBs in identifying, converting and communicating with clients. Our SaaS platform includes a CRM with email and text capabilities, as well as appointment scheduling services, payment services, and invoice services. Previously, Townsquare Interactive was positioned primarily as a web design and SEO company, which served us well for many years as we grew to more than 30,000 subscribers in the first decade of operations. Although these services remain part of our offering today, we recognized it was time to evolve. There are plenty of SMBs who have a strong web presence but need help in other areas. Our new business management platform can be sold to clients who already have an established website they're happy with and/or those who already have dedicated resources to SEO. In addition, the business management platform can also be an upsell to our existing client base of 23,575 subscribers. It is also sold to many clients who still have a need for web design and SEO services. We believe that our new SaaS business management platform will be a difference maker as we grow and scale the Townsquare Interactive business. We are not only helping SMBs with their digital presence, but we are also helping them operate their businesses more effectively. We're bringing sophisticated national scale to smaller markets, and we're proud to partner with our clients to do so. In the second quarter, Townsquare Interactive's path to recovery and growth accelerated. The first sign of a rebound at Townsquare Interactive is the return to subscriber growth. The second sign of rebound is the month-over-month revenue growth. Given our continued ongoing aggressive investment in Townsquare Interactive, the third sign of returning to strength is month-over-month profit growth. We first reported net subscriber growth and month-over-month revenue growth in March. I am pleased to share that growth continued in the second quarter with the addition of approximately 275 net subscribers as well as month-over-month sequential revenue growth in each month of Q2. We expect this very positive trend to continue in Q3 and onward. I am very proud of our Townsquare Interactive team. In the second quarter, Townsquare Interactive's net revenue declined 13% year-over-year, exactly in line with the expectations I shared with you on our last call, and importantly, a sequential improvement from Q1's 15% decline. The positive development is that on a quarter-over-quarter basis, net revenue increased 1% due in large part to the return to subscriber growth I just outlined. Townsquare Interactive's second quarter profit, as expected, declined 10% year-over-year, and we managed expenses in such a way that we grew our profit margin slightly from 28% in Q2 2023 to 29% in Q2 2024. Additionally, we also had sequential profit improvement in Q2 over Q1. Although given our aggressive investment in Townsquare Interactive, we expect Q3 profit to be more in line with Q1 profit, but we are very pleased to have achieved sequential profit growth sooner than we expected. Looking ahead to Q3, we expect to see net subscriber growth improve over Q2, which will drive continued sequential month-over-month and quarter-over-quarter revenue growth trends. As a reminder, even though we are now on a path of consistent revenue and subscriber growth at Townsquare Interactive, given the loss of over 70 subscribers from Q1 2023 through Q1 2024, as you would expect, year-over-year revenue and profit comparisons will look negative. With that context provided, we expect Townsquare Interactive's third quarter net revenue to decline approximately 7%, a meaningful improvement from the second quarter revenue declines. It is worth noting, given the strength in our current performance, there is a small possibility we could return to year-over-year revenue growth at Townsquare Interactive in Q4 2024. In the long term, we are confident that we have a long sustainable runway ahead of us. With approximately 23,575 subscribers at the end of Q2, around 58% of those outside our local media footprint, and an addressable market of nearly 9 million target customers, we are only scratching the surface. With our existing subscriber base, superior product offering, including our new business management platform, and a significant market opportunity of nearly 9 million target customers, I’m confident that Townsquare Interactive is on track and set up for long-term profitable growth and success. Another positive development in the second quarter was that our broadcast advertising revenue was essentially flat, a sequential improvement from Q1, decreasing by less than $100,000 as national broadcast advertising revenue declines finally abated and political revenue picked up steam, following a lackluster primary season after we generated $1.5 million in political revenue in Q2 versus $900,000 in Q2 2020. I am very pleased to share that our broadcast advertising profit increased a strong 9% year-over-year. We believe Townsquare's ability to drive profitable, sustainable digital growth is a key differentiator for our company. Digital is and will continue to be our growth engine, and we will continue to invest in our digital businesses to fuel further profitable growth. We view local radio as an extremely valuable asset with significant cash flow properties, unparalleled consumer reach and an important local connection to our audience. And because of the powerful combination of Townsquare's digital, plus radio, live events, and local investment, we believe that our flywheel will continue to blaze forward and gain momentum. I would also like to shine a bright spotlight on a very important aspect of our business model, our significant cash flow generation. We continue to generate strong cash flow, granting us the ability to invest in our digital growth engine and affording us financial flexibility, as evidenced by our ongoing debt and share buybacks in the open market. Year-to-date through July, we used our cash on hand to repurchase $23 million of our shares, buy back $19 million of bonds at a discount and execute an $11 million option buyback to avoid shareholder dilution, all while investing in our digital growth engine and rewarding our shareholders with a very attractive dividend yield. With $29 million of cash on hand at the end of June and net leverage of 4.8x as of June 30, we remain very confident in our current capitalization and the strength of our balance sheet, and we are pleased that we can continue to deliver attractive current cash returns for our equity shareholders. As I stated earlier, S&P Global upgraded their rating of our bonds from a B to a B+ in June, reflecting our performance and credit metrics. Most importantly, we are building momentum each quarter and anticipate delivering stronger financial results in the back half of 2024, ultimately setting us up for a very strong 2025. As we say internally, how high is high. And now I'd like to turn the call over to Stu, who will go through our results in even more detail as well as provide you with our third quarter guidance. All yours, Stu. 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 revenue and adjusted EBITDA guidance. Second quarter net revenue declined 2.5% year-over-year to $118.2 million, within our guidance range of $117.5 million to $119 million, which is a sequential improvement from the first quarter revenue declines. Despite the slow start to the year in Q1 due to a lackluster primary season, political spending has picked up, and we're now ahead of previous cycles. In Q2, political revenue was $1.5 million, 65% ahead of Q2 2020's $900,000. Through June, political revenue was $2.5 million, ahead of 2020's $2.2 million by 14%. We remain very optimistic about our full year political revenue estimate of $14 million to $16 million as compared to the all-time high of $60 million we recorded in the 2020 political season. Industry specialists are predicting record political expenditures in 2024, benefiting Townsquare, especially in our Michigan, Montana, Arizona, New Jersey, and New Hampshire markets where they expect close races for the governorship, House, and/or Senate seats. Excluding political revenue, second quarter net revenue declined 3.4%. Second quarter adjusted EBITDA declined 8.3% year-over-year to $26.2 million, also within our guidance range of $26 million to $27 million. Second quarter adjusted EBITDA declines also reflect a sequential improvement from first quarter declines. Second quarter broadcast advertising net revenue was approximately flat, which represents a sequential improvement from first quarter declines. Second quarter broadcast profit improved 8.7% year-over-year as margins expanded year-over-year from 27% in Q2 2023 to 30% in Q2 2024 due to cost reductions we made in 2023. As we've outlined on previous calls, we anticipate that Townsquare Interactive, our Subscription Digital Marketing Solutions segment, net revenues and profit will decline on a year-over-year basis due to the loss of subscribers in 2023 and Q1 of this year, even though we have returned to subscriber growth and month-over-month revenue growth. In the second quarter, net revenue decreased 12.9% as compared to the prior year, and profit decreased 10.1% year-over-year. Margins were strong at approximately 29% in Q2, a slight improvement from Q2 2023's 28% profit margin, despite our continued investment in the business, including the ongoing ramp of our newly opened Phoenix location. Townsquare Ignite, our Digital Advertising segment, demonstrated consistent growth in the second quarter as strength in programmatic advertising, which as Bill noted was up 9% year-over-year, offset ongoing weaknesses in national digital advertising, which declined $1.5 million in Q2 compared to Q2 2023. In total, second quarter Digital Advertising net revenue increased 1% year-over-year, in line with Q1's performance. As Bill also noted, we expect Q3 digital advertising revenue growth overall to improve to mid-single digits given we expect our programmatic digital advertising revenue growth to continue to be strong in Q3. Digital advertising profit margins returned to the mid-20s in the second quarter as we anticipated and shared with you on our last call, and we expect margins to once again be in the mid-20s in the third quarter. Our Other category, which is comprised of live events activity, generated $4.6 million of revenue in the second quarter, a decline of 11% year-over-year and a small profit of $266,000. As a reminder, our live events activity should not be viewed as a growth driver or revenue center for Townsquare, but rather a marketing arm of the company. In the second quarter of 2024, we had non-cash impairment charges of $32.6 million, the majority of which related to our FCC licenses. As I covered on previous calls, given the way that 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 2024 impairments were caused by a meaningful increase in the discount rate used in our calculations, which increased by 280 basis points in the second quarter due to rising debt yields of our broadcast peers. In addition, our calculation was negatively impacted by decreases in third-party industry broadcast revenue forecasts. These write-downs of a decade-old purchase price calculations have no bearing on our cash position, operating revenue, operating expenses, profitability, or the company's future prospects. They are merely non-cash accounting charges affecting only the historical recorded purchase price allocations made when we bought our radio station assets roughly a decade or more ago. Our second quarter net loss was $48.9 million or $3.26 per diluted share. The net loss was primarily driven by the non-cash impairment charges. Additionally, our effective tax rate for the second quarter was negative 62.7%, a significant change from our Q2 2023 effective tax rate, primarily driven by an increase in the valuation allowance for interest expense carryforwards related to the non-cash impairment charges and an increase in the non-deductible compensation costs recorded during the quarter. We would like to remind you that any benefit or provision for income taxes included on the face of the income statement is for GAAP financial statement purposes only. We maintain significant tax attributes, including more than $100 million worth of federal NOL carryforwards and other substantial tax yields related to the tax amortization of our intangible assets. We continue to believe that we will not be a material cash taxpayer until approximately 2026. As Bill highlighted, I would again like to emphasize that we consistently have strong cash flow generation. We generated $10.7 million of cash flow from operations in the first half of 2024 and ended the quarter with $29 million of cash. During the first six months of the year, we repurchased $22 million worth of shares, or 2.2 million shares, through our ongoing share buyback program, including the repurchase of $1.5 million of MSG shares at an accretive price on April 1. In July, we repurchased an additional 90,000 shares. Since 2021, we have repurchased 16.5 million shares at an average price of $7.29 per share while simultaneously reducing leverage over that period. In the second quarter, we repurchased and retired approximately $14 million of our bonds below par and bought an additional $5 million below par in July. We plan to continue to chip away at our outstanding debt before we execute our upcoming refinancing. At the end of the second quarter, our net leverage was 4.82x. 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 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 to maintain our strong competitive advantage in markets outside the top 50 cities. In addition, we are highly focused on our balance sheet and feel extremely confident that we are well-positioned to refinance our February 2026 notes before they come due. Our Board has approved our next quarterly dividend, payable on November 1 to shareholders of record as of October 15. The dividend of $0.1975 per share, which we raised by 5% earlier this year, equates to $0.79 per share on an annualized basis, which implies an annual payment of approximately $12 million based on our current share count and a dividend yield of approximately 7% on our current share price. We believe our strong cash flow characteristics will allow us to continue to invest in our business, support our dividend, and give us flexibility to opportunistically pursue debt and share repurchases as circumstances allow. Turning to our third quarter outlook, we expect third quarter net revenue to be between $114 million and $116 million. We expect third quarter adjusted EBITDA to be between $25 million and $27 million. We are narrowing our full year revenue guidance to be between $440 million and $455 million. We are also narrowing our full year adjusted EBITDA guidance to be between $100 million and $105 million. And with that, I will now turn the call back over to Bill.

Thank you, Stu, and thanks to each of you for taking time to be updated on Townsquare's Q2 results 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 delivered revenue growth in the face of extreme national advertising weakness, and based on current trends, we anticipate strengthening performance for the remainder of the year. Our mature cash cow broadcast advertising platform continues to generate solid profit, and political revenue has recovered from its lackluster start of the year. Townsquare Interactive has returned to consistent subscriber and month-over-month revenue growth, which we expect will continue to strengthen. We have sufficiently repurchased both debt and equity this year while maintaining a high-yielding dividend, delivering attractive current returns to our shareholders, and we retain financial flexibility moving forward. Most importantly, we are confident in our ability to build shareholder value for investors through long-term net revenue, profit and cash flow growth, net leverage reduction, future dividend payments and potential future share repurchases. As always, we wouldn't have the confidence in our long-term success without the Townsquare's team 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. With that, operator, at this time, please open the line for any and all questions.

We'll take our first question from Michael Kupinski with NOBLE Capital Markets.

Congratulations on your performance. I have a couple of quick questions. I know you are very connected to the advertising community, and I've noticed that several radio companies have reported some deterioration in the third quarter. However, it seems like you are not experiencing that. Given that you operate in smaller markets that might be less affected by the economic situation, could you share what feedback you're getting from your advertisers as you approach the third quarter in relation to the economic climate?

Great to hear from you, Michael. Yes, I'll take your first question. In terms of the ad community and what we're hearing from our local and regional clients, they're feeling quite good. Obviously, there's a lot of uncertainty. But at the same time, I think the developments of last week with the jobs report on Friday, clearly the expectation of interest rate cuts happening, and maybe happening in greater force in terms of more cuts or greater cuts between now and the end of the year going into next year gives them a tailwind. Obviously, interest rates have been high for quite some time for these small businesses and local businesses. And you've probably heard the good news that inflation has come down dramatically from a year ago and also wage pressures have come down as well. What we're hearing from them is that it's easier to find workers. A year ago when we were having this call, our smaller businesses were having a hard time keeping up with inflation and actually finding employees for retail and service industries and so forth. What we're hearing now is although they'd like to see the interest rates come down sooner than later, they're doing quite well, which leads to our Q3 guidance, of which we are quite proud overall that we've improved in this environment, Q2 over Q1, in all aspects of our business. And then to your specific point about broadcast, our expectation for Q3 is to perform better in broadcast than Q2. When you think about the ad community in general and the ad environment, our digital advertising was similar to Q1, but that was really muted by national digital advertising, which I outlined on the call, which was down over $1 million and that put a damper on that. However, our programmatic advertising, which is now 60% of our digital advertising, was up 9% in Q2. As I shared in my remarks earlier, we expect that to continue in Q3. So in essence, we expect broadcast to improve from an advertising perspective in Q3 compared to Q2. Additionally, we expect roughly 4% growth in digital advertising. Even with more muted national digital advertising, that's going to be down roughly 30%. So from a local and regional perspective, we're hearing quite a positive environment from our advertisers. I think once the interest rates actually do come down, hopefully in September, but whenever they do come, I think that's going to be a nice tailwind for us as we move into next year.

Got you. And then can you talk a little bit about your SaaS-based business service offering and provide a bit more color there? I know that Townsquare Interactive has been about $300 per subscriber, and I was just wondering how this offering affects that subscription. If you could also discuss the margins on that product and how this impacts your overall trajectory for the Townsquare Interactive business.

Thank you, Michael. Yes, I couldn't be more excited, as is the team, with our SaaS-based new product solutions for our local businesses. I'll take a step back; I couldn't be more proud of the team. We definitely took a step back in 2023. We were challenged. You could almost call it a knockdown. We got up, we worked harder, we trained harder, and we are definitely a better company as a result of it. We did have five quarters of consecutive subscriber losses totaling over 7,350 subscribers. So it's great to be in growth mode again, growing subscribers. We added 275 in Q2. We'll grow more in Q3. We're back to revenue growth consistently month-over-month, which translates to quarter-over-quarter. As I shared, beyond my expectations, we actually had a jump up in profit in Q2 over Q1, which fueled our confidence to invest even more aggressively at this time, given the SaaS-based product that we have. Regarding the SaaS-based product, the good news is we're still offering everything we previously did. We provide great web presence, websites, great search engine optimization. However, we obviously speak to many clients in our local markets as well as throughout the country that have a good web presence but need help running their businesses more effectively and efficiently. That's what this business management platform provides. It offers a very powerful CRM, along with email and text-based marketing. It allows for appointment scheduling so they can manage their customer base as well as their employees' schedules. For example, in home services like HVAC and plumbing, communication can all be done electronically. It also includes payment and invoicing solutions. Regarding your question about ARPU and margins, right now, I would just say they are on par. Specifically, when we bundle our previous offerings with this new business management platform, our revenue per subscriber is higher. However, from a strategic perspective, we are selling this business management platform to those who do not need a website or SEO. This approach helps balance our higher ARPU versus a subset of our clients. The margins are quite consistent. We have discussed a margin improvement overall, and our margin currently is in the mid- to high-20s. That’s what I would expect, particularly as we navigate through this investment cycle. But again, I couldn't be more pleased. We lost $8 million of revenue from Townsquare Interactive in 2023. This year, due to prior challenges, we will lose $7 million in top-line revenue. We have already lost $6 million in the first half of the year, implying a loss of roughly $1 million—slightly under— in Q3. As I mentioned on the call, there exists a slight chance of returning to Q4 revenue growth year-over-year. However, we've emerged much stronger. Looking ahead to 2025 and 2026, I couldn't be more confident in our ability to not only grow, but with this business management SaaS platform, I'm greatly confident in our trajectory. So, great question, Michael. I appreciate it.

Sounds exciting. Thanks, Bill.

Have a great day, Michael.

Our next question comes from Jim Goss with Barrington Research.

I would like to continue the discussion here just now with TSI about the recovery. Have you largely moved past the start-up issues you had regarding getting the West Coast offices up to speed? I was also wondering if you could analyze the subscriber trends, including the nature of the clients lost versus the new subscribers you have been adding.

You got it, Jim. Great to hear from you and good morning to you. Yes, I couldn't be more pleased, as I was sharing with Michael, at the recovery and rebuild. We revamped our entire service offering in 2023, then we kicked off this year with the SaaS-based business management platform. The West Coast is humming quite nicely now. The premise of the West Coast was two-phase. One was an opportunity to attract talent outside of Charlotte. We picked Phoenix, which we're very pleased with, as we're attracting great team members there. We can now serve our West Coast and Central clients later in the day due to the time zone change. I'd say that over the past year, starting in March/April 2023, we've built up quite nicely and I believe we've moved past that start-up phase you alluded to, and we're really operating smoothly. However, we still have more growth ahead. Our expectation, as you may recall when we opened the division, is to grow our presence like we have in Charlotte, where we have nearly 500 employees, over the next decade. In terms of subscriber trends, when we look at who we lost from Q1 2023 to Q1 this year and now who we're gaining, we've seen that smaller clients with fewer employees and less revenue-based businesses struggled with the high interest rates and inflation throughout 2023. Specifically, we've observed bill declines, as we maintain our clients' credit card information. This provides insight into their creditworthiness and indicates that has abated. However, we’ve seen growth with our business management platform, leading to a broader verticalization. We've historically been very diversified across various verticals, with none being the primary driver. But with this new management platform, we're able to attract larger customers because they need help running their businesses. We are also reaching verticals, such as healthcare and legal professions, where we've had clients, but they had better web presence and historically needed our primary services less. That is why we couldn't be more excited moving forward with the SaaS-based business management platform.

Okay. I was wondering, given your broad end market and out-of-market sales approach, how do you provide white label options without cannibalizing your existing efforts and effectively competing with yourselves?

Great question. As we noted, about 58% of our Townsquare Interactive subscribers are outside our 74 local markets. What's quite exciting, and I can't overstate it, is the number of broadcasters, both radio and television, who have approached us since the beginning of the year to diversify their revenue stream and find growth. Recognizing that over 70% of advertising spend is now digital, they've acknowledged our offering has become best-in-class in these smaller markets but also in any size market. We are beginning a test in Q4. We believe not only ourselves but our partner, who we cannot disclose under NDA, is a multi-market radio company. This partner has great broadcast characteristics and market share but lacks a Townsquare Interactive or Ignite-type solution. They are eager to move forward with Ignite and possibly Townsquare Interactive. Primarily, 2024 will focus on Ignite before potentially advancing to Townsquare Interactive in 2025. We aren't concerned about cannibalization since there are so many target customers—over 9 million—and we have under 25,000 subscribers. We'll receive client lists from our white label partners, indicating whom they are pitching. Our team in Phoenix or Charlotte will avoid reaching out to clients already pursued by our white label partners. That’s one reason I’m excited about this potential white labeling with other broadcasters and local agencies; we’re already partnering with local agencies who have been great partners in our broadcast and digital advertising and Townsquare Interactive businesses. They’re now coming to us more frequently to white label our Ignite offering and digital advertising solutions. So, we’ll continue to grow organically in digital advertising. It's been our growth engine, and we feel pleased about that. Should white labeling partnerships evolve, it could meaningfully accelerate our growth.

If I might ask one more question. In the core radio business, you've noted that the digital advertising exposure is greater within Ignite and the programmatic within your core broadcasting. Your broadcasting side has held up better than most given the market size and your approach. I wonder, if you look forward 5 years or so, what defining characteristics for advertising, audiences, reach, and TSL do you think might characterize any shifts in broadcasting?

Yes. Thank you, Jim. I appreciate your acknowledgment of our differentiation as a digital-first local media company. Our broadcast business has indeed held up much better than others, and I attribute this to two things. First, we are the only local media company in the U.S. focused on markets outside the top 50, encompassing television, radio, and newspapers. We're uniquely positioned to understand and commit to the psychographics and demographics of smaller markets. In these markets, as you know, our broadcast business, specifically our AM/FM audience, has been stable for years; it has not declined in size. Our AM/FM signals reach 50% of the adult population on average every week across our 74 markets. That’s a powerful marketing message for clients. Additionally, we have diversified our digital revenue, which makes up 51% of our profits now. Without that revenue stream, we would need to follow the trend of other broadcasters to cut local teams and shift to syndicated content. We're proud of our content contributors; they’re the best in the business at providing local information and entertainment while also contributing to our website, allowing us to monetize from both avenues. The last five years have seen challenges in local journalism; many newspapers have downsized or folded entirely, creating news deserts. This has led us to capture an even larger audience, as our websites now reach 70% of the adult population. Looking five years ahead, we’ll continue to provide valuable local information and entertainment necessary for our communities. Despite the challenges, I remain optimistic regarding maintaining audience stability and growth. We anticipate our broadcast business will likely decline slowly, but we will continue to invest in our DJs because of the success of our digital business. Broadcast remains vital, serving as a cash cow that generates strong profitability. We believe digital will continue to positively impact our business, and we will remain committed to serving our local communities. Hopefully, that provides clarity on how we view broadcast in the next five years.

Thanks very much for a complete answer, as always.

Thank you, Jim. I appreciate the questions as always.

And this concludes our Q&A session. I will turn the call over to Bill Wilson for closing remarks.

Thank you, operator. And just thank you to everyone who dialed in this morning to be updated on Townsquare's sequential improvement in our outlook for the rest of the year and, importantly, for 2025 and beyond. We look forward to reconnecting with you in 3 months. Have a great day.

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.