Townsquare Media, Inc. (TSQ) Q3 2021 Earnings Report, Transcript and Summary

Greetings, and welcome to the Townsquare Media Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Claire Yenicay, Investor Relations at Townsquare. Thank you, Claire. You may begin.

Thank you, Operator, and good morning to everyone. Thank you for joining us today for Townsquare's third 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 for the year ended December 31, 2020, filed with the SEC. We may also discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, 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 at www.townsquaremedia.com 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.

Good morning, everyone. Thank you all for joining us this morning. I've been looking forward to today so that we can share our very strong third quarter results, and provide you with an important update on our improved outlook and guidance for the full year 2021. But first, I wanted to take a quick step back and review how far we've come in one short year. At this time last year, we were in a very different place. Although we had already started our recovery from Q2 2020’s low point, there was a significant amount of uncertainty that prohibited us from providing any outlook on the pace of our business improvement. However, at that time, we were very confident in our ability to properly manage through the downturn. And we made a deliberate decision to be strategic and limited in our cost reductions, protecting our core team and resources so that we can emerge from the pandemic-induced downturn faster and stronger than our local competition. Fast forward to today, and it is clear that we made the right decision. Although COVID is still with us today, we are growing our business faster than we thought possible, and we are gaining market share, moving us towards our ultimate goal of being the number one local media company in each and every one of our 67 local markets. In essence, we are not only back on track, we are achieving new profit milestones, and our flywheel continues to pick up momentum each and every quarter. I'm proud to announce this morning that our third quarter financial results exceeded our goals and expectations. Please turn to Slide 6, which highlights that our third quarter net revenue increased a very strong plus 17% year-over-year to $111 million. And more importantly, is 99% of Q3 2019’s net revenue. As a result, we exceeded our previously issued revenue guidance. Third quarter adjusted EBITDA is over $29 million, which is an increase of plus 67% year-over-year. And more importantly, was 104% of Q3 2019 EBITDA. And as a result, that also exceeded previously issued profit guidance. I'm also very pleased to share that Q4 is shaping up to be stronger than initially expected as well. Turning to Slide 7, we now expect full year 2021 net revenue to increase to at least $415 million, which is $5 million higher than our guidance just three months ago, and $20 million higher than we originally forecasted six months ago. Our new full year revenue guidance of at least $415 million, represents 96% of 2019’s net revenue, and 99% excluding live events revenue. And incredibly, we now expect 2021 adjusted EBITDA to be between $104 million and $105 million, which represents plus 2% to plus 3% above 2019’s adjusted EBITDA of $102 million. And at least $14 million above what we originally had forecasted just six months ago. Not only will we exceed our 2019 EBITDA, but 2021 will be the highest profit level Townsquare has ever achieved. What a recovery. Although very challenging and unprecedented, the pandemic served to accelerate Townsquare’s transformation into a digital-first company, and our results clearly back that up. I also wanted to point out that we ended the third quarter with 4.9 times net leverage, a significant year-over-year improvement, and we continue to make reducing net debt a priority. Our success is 100% tied to the effort, hard work, and passion of our incredible Townsquare team, who have fully embraced our transformation, and super-serve their local communities and their local businesses each and every day. Although we are very proud of our roots and DNA in local radio, Townsquare is clearly now a digital-first company. Digital represents nearly half of our revenue, and digital is the source of our strong revenue and profit growth today and in the future. As you can see on Slide 9, digital has been our growth engine for several years. Only four years ago, digital revenue was under $100 million, and contributed just 25% of our total net revenue, excluding political. In 2021, we expect our digital revenue to increase to $193 million, up more than $90 million from 2017, and 47% of total net revenue, excluding political, almost double that of 2017. Within three years, we are confident our digital revenue will grow to over $250 million. And importantly, the success of our digital platform, does not come at the expense of our broadcast platform. The opposite is true. The better we do digitally, the better we do in our core local business, because the digital solutions we provide to local SMBs, encourage them to trust us with their broadcast marketing budget as well. You can see that clearly in our Miller Kaplan local broadcasting advertising results on Slide 8, as we continue to gain market share in local radio advertising. Our digital solutions benefit our radio solutions, and our radio platform and reach supercharge our digital solutions. Digital revenue will represent the majority of our company's revenue in the very near future. Our digital revenue is comprised of two main components. One, Townsquare Interactive, our monthly recurring digital marketing subscription solution. And two, our digital advertising solutions, which today include Townsquare Ignite and Townsquare Amped. In total, digital revenue from these two revenue streams totaled $188 million over the 12 months ending September 30, and contributed 47% of our total net revenue, excluding political, in the first nine months of this year. Townsquare Interactive alone contributed 20% of our total revenue, excluding political, and one quarter of our total adjusted EBITDA, excluding political, in the trailing 12-month period. This is not advertising revenue. This is recurring subscription revenue. Townsquare Interactive is a true differentiator for our company, and has been a key growth driver of our financial results prior to, and during the pandemic. Since we organically developed and launched Townsquare Interactive in 2012, its revenue has grown double digits versus the prior year each and every quarter, even during the worst of COVID in 2020. And since reaching profitability in 2014, profit also has grown each and every quarter as well. Although I believe the growth at Townsquare Interactive has been phenomenal to date, just take a look at Slide 10, which shows that a few years ago in 2017, Townsquare Interactive generated $40 million in subscription revenue, which we expect will increase to roughly $82 million in subscription revenue in 2021. And yet I know there is still so much more upside to capture. On our previous calls, I walked you through the addressable market for Townsquare Interactive, which is outlined on Slide 11. I won't go into the details again, but it is worth noting that the total addressable market is $32 billion, which translates to just under 9 million customers. The takeaway is we are just getting started. With approximately 25,950 subscribers at the end of the third quarter, and with increasing net adds each year, we are still only capturing a small fraction of the addressable market today. As we have previously shared, we are planning to open a second Townsquare Interactive location in the Western United States in 2022, most likely in Q2. This will have a number of benefits. It will allow us to better serve our west coast clients with sales and service operating at the same time zone, but most importantly, it will also greatly expand our talent pool. One of our company's biggest investments every year is in sales and service personnel to support our growth at Townsquare Interactive. So, being able to tap into west coast employment market will be very, very beneficial. In fact, we have already hired dozens of new team members who will work in our new location next year, and who are currently working with us remotely. In Q3, we added plus 1,000 net subscribers, the 14th consecutive quarter of 850 or more net subscriber adds. As a reminder, as you can see on Slide 10, in 2020, we added approximately 3,750 net subscribers, which was higher than 2019 and 2018. And in 2021, we expect to add at least 4,050 net subscribers. With our second location coming online in the first half of 2022, we expect that our net subscriber additions will accelerate in the second half of 2020, 2023, and beyond. As I have noted on previous calls, we do not believe that Townsquare Interactive is properly valued in today's public markets. On a trailing 12-month basis as of September 30, Townsquare Interactive had $79 million of net subscription revenue, and $24 million of profit, a 30% profit margin. If you were to value Townsquare Interactive on a standalone basis, one comparable company to consider would be Wix, which currently trades at 10 times trailing revenue multiple. A similar valuation applied to Townsquare Interactive alone, would exceed the current market cap of Townsquare as a whole today. In fact, Townsquare trades at what I would call a radio multiple, despite the fact that roughly half of our revenue and half of our profit comes from digital. And our strongest growth comes from digital. Our digital advertising solutions, which generated $109 million of net revenue in the trailing 12 months ending September 30, continued its strong growth in the third quarter. In Q3, digital advertising net revenue increased plus 23% year-over-year, and plus 27% year-to-date. As outlined on Slide 12, our digital advertising revenue is driven by Townsquare Ignite, and Townsquare Amped. Townsquare Ignite, our digital programmatic technology platform, has been a significant source of growth for our company, growing from $0 in revenue in 2014, to over $60 million of net revenue on a trailing 12-month basis. Townsquare Ignite combines first and third-party audience data to hyper-target audiences for our local and regional advertisers, providing them the ability to reach their target customer with the right message at the right time. We organically built, and therefore own the entire Ignite solution. So, all of the ad tech and offering is in-house, leading to a better customer experience, which we believe translates to higher client retention rates. Our in-house buying platform is integrated with over 1,000 exchanges, with access to over 250 billion impressions per day. Meaning we have access to nearly all of the available inventory on the internet, making Townsquare among the largest in-house trading desks in our 67 local markets. Meanwhile, the majority of our competition we run up against in our markets, use a single source inventory. So, they simply do not have the resources to provide the level of targeting, optimization, and ultimately the results that we can deliver on our Ignite platform. Industry forecast estimates that by 2025, just 38 months from now, digital will account for approximately 80% of all local advertising spend. And much of that will be sold programmatically. Having our own programmatic solution, and owning that solution in-house, allows us to fully benefit from these digital industry tailwinds now and in the years and years and years ahead. Townsquare Amped has also been a source of revenue growth for our company, and generated roughly $50 million of revenue on a trailing 12-month basis as of September 30. Townsquare Amped is digital advertising on our owned and operated network of digital brands, made up of over 340 local and national websites and mobile apps. The success of our Townsquare Amped offering is due to our significant investment in local talent, and our commitment to providing localized, relevant content, curated for our audience. And also, the overall lack of local news outlets dedicated to small and mid-sized communities across the country, often called “news deserts.” In many of our markets, we are one of very few creators and suppliers of local news and information, as traditional news outlets like local TV stations and local newspapers have shrunk, shut down, or never even existed in our markets. Since 2004, approximately 1,800 newspapers have closed in the US. And it has been reported that more than 90 local newsrooms have closed during just the pandemic. Our on-air DJs, who also create digital content, are literally the original social influencers who help Townsquare create over 30,000 pieces of local content each and every month, which makes us at Townsquare, one of the largest producers of local content in the entire United States, helping to fill that void. We believe that the pandemic served as a proof point to the value our local communities place on our local brands, as they turn to us in record numbers to stay informed, as well as entertained. To that point, in July, we had an all-time record audience of 69 million unique visitors to our websites and apps, which is double our audience just two years ago. Our consistently strong online audience, which as a reminder, is more than 5x the size of our on-air audience, has allowed us to increasingly monetize our digital inventory, and consistently grow our digital revenue and profit. In total, digital revenue exceeded 2020’s digital revenue by plus 20% in the third quarter, and plus 23% year-to-date. As I mentioned earlier, we expect Townsquare’s full year 2021 digital revenue to increase plus 19% to a very, very strong $193 million. Of that, Townsquare Interactive will be roughly $82 million of revenue, representing plus 17% year-over-year growth, and Townsquare’s digital advertising solutions will be $111 million of revenue, representing plus 21% year-over-year growth. Although our broadcast business continues to modestly improve on a sequential basis, unlike our digital business, it has not yet fully recovered to pre-COVID 2019 levels. This is not surprising, as broadcast advertising on our 322 local radio stations, was the most impacted during the pandemic. The good news, however, is that we are growing market share in our markets, as I mentioned earlier. I'll turn your attention again to metrics published by Miller Kaplan, which are presented on Slide 8. In Q3 2021. Townsquare outperformed the industry and local radio spot sales by 5.8 percentage points, and total spot sales by 4.6 percentage points in our markets that Miller Kaplan measures. Additionally, Townsquare also outperformed the industry in total revenue, which includes both total spot revenue and total digital revenue by 3.8 percentage points. For the total company, Q3 2021 broadcast revenue was up plus 9% from a year ago, and plus 18%, excluding political revenue. We expect that our broadcast revenue will continue to rebound from 2020’s suppressed levels through 2022 and beyond. In the long-term, we view radio as an extremely valuable asset, with significant cash flow properties, unparalleled reach, and an important local connection to our audience. But as a mature cash cow business, our growth will continue to be driven primarily by our digital platform and solutions for local businesses. So, to recap, we outperformed our net revenue and adjusted EBITDA expectations for the third quarter, driven by incredible performances across our digital platform, which contributes approximately 47% of our total net revenue, excluding political, and which we expect to grow to $250 million in three short years. Townsquare Interactive, a major component of our digital revenue, added plus 1,000 net subscribers in the quarter, and increased revenue plus 16% year-over-year. It is worth highlighting that Townsquare Interactive’s recurrent subscription revenue is nearly 20% of our total company's revenue, and nearly 25% of our total company's EBITDA when excluding political. Significantly, for the fourth consecutive quarter, our adjusted EBITDA exceeded pre-COVID 2019 levels. Our net leverage is now below five times, a significant improvement from just last year. Because of our strong performance and our positive outlook, we have once again raised our full year 2021 guidance, indicating revenue that is close to 2019 levels, and adjusted EBITDA that meaningfully beats 2019 levels, and sets an all-time high for the company. I do truly hope that these results we are sharing today, as well as our increased guidance for the full year 2021, demonstrate the fact that although we love the power of radio and its unparalleled emotional connection in our communities, we are truly a digital company moving forward into 2022 and beyond. Now, I'll turn the call over to Stu, who will break down our strong results and outlook in greater detail for everyone.

Thank you, Bill and good Election Day morning to everyone. In the third quarter, net revenue increased 16.7% over the prior year to $111.3 million, exceeding our previously issued revenue guidance range of $106 million to $109 million. Excluding political revenue, third quarter net revenue increased 21.8% over the prior year. Third quarter adjusted EBITDA increased 66.5% over the prior year period to $29.2 million, exceeding our previously issued EBITDA guidance range of $27.2 million to $28.2 million. Although these year-over-year growth trends are important, we believe the most relevant measure of our performance is to compare them to the pre-COVID 2019 results. Q3 2021 net revenue declined by only 1.1% as compared to the third quarter of 2019, very significant, yet we were very proud to announce today that our Q3 2021 adjusted EBITDA, exceeded Q3 2019 adjusted EBITDA by 3.6%. On a year-to-date and pro forma basis, 2021’s net revenue declined just 3.5% as compared to the 2019 period. And we're pleased to highlight that our year-to-date adjusted EBITDA exceeded 2019 levels by 3.2%. Townsquare Interactive delivered another strong quarter, with strong net revenue, profit, and net subscriber growth. In Q3 Townsquare Interactive’s net revenue increased 16.2%, as compared to the prior year. In the first nine months of 2021, Townsquare Interactive’s net revenue increased 17% as compared to the prior year period. This revenue growth was supported by approximately 1,000 net subscriber additions in Q3, and approximately 3,200 in the year-to-date period. This compares to approximately 2,900 net subscriber adds in the first nine months of 2020, and approximately 2,800 in the first nine months of 2019. Townsquare Interactive’s third quarter profit increased 12.6% as compared to the prior year. And on a year-to-date basis, profit increased 19.9% as compared to 2020. Townsquare Interactive’s third quarter and year-to-date profit margins was 29% and 30%, respectively. In the third quarter, advertising that revenue increased 13.3% over the prior year, and 19.5% excluding political revenue. Net revenue from our digital advertising solutions, composed of Townsquare Ignite and Amped, increased approximately 23.2% in the third quarter as compared to the prior year period. Broadcast advertising net revenue improved 9.3% as compared to Q3 of 2020. For the first nine months of the year, advertising net revenue increased 16.4% compared to 2020, and 19.4% excluding political revenue. Third quarter advertising direct operating expenses were essentially flat, up only $146,000, and were down 1.2% in the year-to-date period, leading to significant margin expansion in our advertising segment, as a result of our high operating leverage. Third quarter and year-to-date advertising profit increased 53.8% and 90.1%, respectively, from 2020 levels. Advertising profit margins of 33.2% in Q3, and 31.5% year-to-date, exceeded both 2020 and 2019 profit margins. We continued to host a modified live events schedule in the third quarter, with only 21 events, under half of Q3’s 2019 45 events. Our largest Q3 event was a two-day event called The Taste of Fort Collins, which we sold out both days for the first time ever. We outperformed 2019’s event, and set all-time revenue and profit records. In the third quarter, live events net revenue was $2.7 million, and profit was $400,000, a 13.2% profit margin. Importantly, although Q3 live events revenue was only 76% of 2019’s revenue, Q3 profit was 127% of 2019’s profit. In Q4, we are continuing with an abbreviated schedule, with approximately 25% of the events we operated in Q4 of 2019, and less than $0.5 million of revenue. Going forward, we will carefully evaluate the live event opportunities in each of our markets, and are hopeful that we will resume a more normalized schedule sometimes in 2022. As a reminder, live events are not a growth strategy for our company moving forward, but rather act as a profitable marketing arm of the company, providing another way for us to connect with our audience and communities, and allowing our advertisers to do the same. In a normal operating year, live events revenue and profit is less than 5% of our total company revenue and profits. Consistent with the trends in the first half of the year, third quarter corporate expenses declined 5.2% year-over-year, and are nearly 11% below Q3 2019 levels. Year-to-date corporate expenses declined a meaningful $4.7 million, or 22.8% compared to the prior year. The decline in corporate expenses is primarily due to a decline in professional fees. For the full year, we expect corporate expense will decline by approximately $5 million. Third quarter interest expense increased $2.1 million or 27.6% as compared to the prior year, and was up $6.1 million or 25.6% in the first nine months of this year. This was due to the issuance of our $550 million 6.875% secured bond in January of this year, which entirely replaced our previously outstanding debt. In total, our annual interest expense increased by approximately $9 million due to the higher interest rate. However, from a cash outflow perspective, this increase in annual interest expense is almost entirely offset by last year's elimination of the dividend, which totaled $8.4 million per year. Third quarter net income increased $11.6 million to $12.9 million or $0.64 per diluted share, as compared to $1.3 million, or $0.03 per diluted share in the third quarter of 2020. We'd like to remind you that any benefit or provision for income taxes included on the face of our income statement, is for GAAP financial statement purposes only. We maintain significant tax attributes, including $168 million of federal 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 approximately the year 2026. Through September, we generated positive cash flow from operations of approximately $38 million, a $15 million increase from the prior year period. We also used approximately $80 million during the first quarter to repurchase 100% of Oaktree Capital's equity interest in Townsquare, in a significantly accretive transaction. And we incurred approximately $14 million of fees associated with the issuance of our senior notes. We continue to carefully manage our capital expenditures, which declined 30% year-over-year to $7.8 million in the year-to-date period. In total, we generated $6 million of cash in the third quarter after making our first interest payment on a new bonds of approximately $21 million, ending the third quarter with $31 million of cash on the balance sheet. With total debt of $550 million, and a trailing 12-month adjusted EBITDA of $106.6 million, our net leverage has declined to 4.9 times, which is a very significant and meaningful step-down from net leverage of 7.8 times one year ago. We are focused on continuing to reduce our net leverage, with a target range of four times, which we believe is readily achievable within the next 12 to 24 months. Now, due to our out-performance to date, and our expectations for the fourth quarter, we have once again raised guidance for the full year. We now expect 2021 net revenue to be at least $415 million, or 96% of 2019’s net revenue. We expect 2021 adjusted EBITDA to be between $104 million and $105 million, which exceeds 2019 adjusted EBITDA levels by 2% to 3%. Excluding live events, which we believe is a more relevant comparison, 2021 net revenue will achieve 99% of 2019’s revenue, and exceed 2019’s adjusted EBITDA by 4% to 5%. We're extremely proud that our adjusted EBITDA has now exceeded 2019 levels for four consecutive quarters, and that we will end 2021 with annual adjusted EBITDA in excess of pre-pandemic levels, and an all new time high record for Townsquare. And with that, I will now turn the call back over to Bill.

Thanks, Stu. As always, great job outlining our strong financial performance. And thank you to everyone who dialed in this morning. I'm already looking forward to reporting our full year 2021 results. And I am extremely proud that we are on track to deliver full year adjusted EBITDA levels above pre-COVID 2019 levels, and net revenue that is close to 2019 levels. As always, I'd like to thank and give all the credit of our strong performance to our Townsquare team across the country, who fully embrace our mission, and were instrumental in our transformation from a traditional broadcast operator, to the digital-first company that we are today. Our success in organically growing our digital platform, has and will continue to propel us to new heights, including reaching $250 million of digital revenue within three short years. As we say internally, how high is high? And with that, Operator, please open the call for any and all questions.

[Operator Instructions] Thank you. Our first question is from Michael Kupinski with Noble Capital Markets. Please proceed with your question.

Well, first of all, I have to say is, wow, and congratulations on a great quarter and great guidance for the year. Just a couple of quick questions here. Just turning back to first the radio business, can you talk a little bit about the spot revenue in the fourth quarter and how things are shaping up there? A number of other radio companies have indicated that the fourth quarter looks like it's going to be a little bit soft. Can you talk about your patience in the fourth quarter for radio before I turn to digital?

Yes, Michael. Good morning. Good to hear from you. Appreciate the feedback on our results and our guidance. So, as I noted on the call we're very pleased with our broadcast performance year-to-date. We continue to see sequential improvement in our broadcast business from the depths of 2020. And as we highlighted, we continue, importantly, to gain share in local spot, as well as total spot for our broadcast business, as we noted from the Miller Kaplan results in the deck. As it relates to Q4, we're not seeing what you're hearing from others. We continue to see sequential improvement for Q4 versus Q3. So, year-to-date, we ended last year in 2020 down in ex-political broadcast roughly 20% from 2019. We are still down from 2019. I would call it mid-teens, but it continues to get better quarter-over-quarter. In Q4, we expect to be better than Q3. So, it's important. We're not handicapping when broadcast returns is kind of - as we noted, comparing our performance overall to 2020 is in our view, irrelevant. In some ways, we don't spend time focused on when do we return broadcast to 2019 levels. But as I noted on our call, broadcast is a tremendous asset for us, unparalleled reach. The emotional connection in our community is unparalleled as well. And we think and we know that by having the power of that - of radio and reaching one and two consumers in the markets on average that we operate radio in, it really propels our digital solutions forward, because we're a trustworthy partner for local businesses. So, going back to your original question, we're quite pleased with our broadcast spot performance year-to-date. We see sequential improvement, and going into Q4, we expect the same.

Thanks, Bill. And obviously, a lot of these small businesses are seeing labor shortages, even supply chain issues, and so forth. I was just wondering if you can just talk a little bit about what you're hearing from your Interactive business customers, how this might play into your hands in terms of gaining subscribers, or are you starting to see that maybe some of these issues are starting to weigh on some of these businesses that you're targeting?

Yes. So, we see that more on the advertising side. So, I'll pivot to the subscription business, but I will note things like the chip shortage clearly are impacting the advertising segment of our business. Auto is down well over 30% from 2019 levels. That's definitely the largest in terms of dollars from 2021 to 2019. So, as chip shortages - the chip inventory comes back, your guess is probably as good as anybody - others, but most people assume in the back half of ‘22 and then returning to normal in ’23. We'll get that benefit of auto dollars coming back from an advertising standpoint. Same thing with entertainment, retail, food, and travel. Those categories, from an advertising standpoint, are still negative, not only double digits, but down probably 20% roughly from 2019 levels. But to your point, Townsquare Interactive, our digital marketing solution subscription business, continues to outperform. We added 1,000 net subscribers in Q3, as Stu noted, growing our revenues 16% year-over-year in the quarter. Now, literally 20% of our entire company's revenue is the subscription-based SaaS business, and nearly 25% of our entire company's EBITDA. We expect our full year Townsquare Interactive to be $82 million in revenue. And we expect to have the highest net adds ever in the company's history in Townsquare Interactive. So, to your point, there are definitely challenges for local businesses and regional businesses, but I think it's impacting more potentially their advertising spend, than it is something as germane and core to their business like digital marketing solutions from - everything from their website to reputation management, to search engine optimization. So, we're seeing a continued acceleration for Townsquare Interactive with no impediment with those macroeconomic conditions that you described.

That's great. And it looks like you're building a nice cash position again. Can you talk about capital allocation? Your cash flow looks strong, obviously. And are you thinking about maybe reinstating the dividend? Prospects for acquisitions? What areas would you target in terms of acquisitions?

Yes. So, to your point, really pleased with cash flow from operations, $38 million year-to-date. We continue to focus our cash on two things. One is delevering on a net basis, and then continue to invest in our digital platform, not only Townsquare Interactive, which I just touched on, but our digital advertising is actually growing even faster than Townsquare Interactive year-to-date and in Q3. We noted that in 2021, we expect our digital advertising to be over $111 million in revenue, and that would equate to over 20% growth. So, we continue to invest in our programmatic offering and our owned and operated offering for digital advertising. So, you're going to continue to see our prioritization of cash to be investing in our digital platforms. And quite honestly, we continue to invest in local on-air talent and local sales teams, because we have the benefit of this ecosystem of local broadcast really powering our digital and vice versa. So, we've hired roughly dozens and dozens, probably 40 new on-air talent in the company year-to-date. So, we continue to invest primarily in our people, in our technology, and our digital solutions. Stu, anything else you would add from a cash allocation or M&A standpoint?

No. you hit all the important points. And more importantly, we're also growing our cash balance. We’re going to end the year pretty close to $50 million, Mike. So, we're really happy with that.

That's terrific. Well, that's all I have. Congratulations again.

Thank you, Michael.

[Operator instructions]. Our next question is from Jim Goss with Barrington Research. Please proceed with your question.

All right, thank you. I do have a few. Maybe I'd start with, first one, I was curious, your revenues have been recovering post-COVID or as we moved through COVID. Are there any other expenses that you think we should expect would return as the business rebounds?

Yes. Stu, you want to start with that one?

Sure. So, hi, Jim. Thanks for the question, and thanks for joining us. As you recall, in the beginning of the year, we said during the beginning of COVID, we took about $20 million of operating costs out of the business. And we said early on that as business came back, a lot of those expenses would come back. And we said, I think two quarters ago and last quarter, that we felt that at least half of that, at least $10 million of operating expenses, would be permanent savings based upon the way we restructured. And we're confirming that now. We still feel good about that. So, we're going to have $10 million of operating expenses from last year reduced going forwards.

Okay. And those are up …

Yes. The only thing I would add, Jim, is like things like the 401(k) company match, which we had suspended, will be coming back in Q1 of 2022. So, that's like roughly$1.5 million or so. But otherwise, I'll turn it back to you, Jim, for follow-up questions.

No, just following of that. So, you're at that current expense run rate right now. So, there's nothing further to come back into the picture

Other than the 401(k) company match, which is not back until Q1. Stu, anything else?

Nope. We're where we at.

Okay, great. Another thing, you made a comment that your objective is still to be number one in all 67 local markets, and that you're getting close to that. Are you defining that as being bigger than say the TV operators as well in those markets? And sort of as a part of this too, you also mentioned online audiences were about five times your on-air audiences. What is the key conduit to getting that? And are they all counting in your ad revenues within those markets?

Yes. So, a couple of pieces, really good questions. Thank you, Jim. So, yes, we will become the number one local media company in each one of the 67 markets that we have radio operations. And to your point, that means we will be larger than any TV station that we compete with in those 67 markets, larger than any outdoor company, larger than any other media company. So, that is our goal. We are already that in a handful and continues to grow each quarter. That is our mission for the company. That is going to be driven by our digital solutions and products. Clearly, today in the United States, digital makes up roughly 50% of all local advertising spend. In 2025, the projections are in - that we'll be close to 80%. So, growing from 50% today, that literally in 38 months in 2025, will be 80%. So, to be the number one local media company, you need to be the number one digital company. And that is really what's propelled our strategic direction over the last 18 months to become a digital-first company. To your point about the audience, we couldn't be more pleased, couldn't be more proud of the team across the board from our sales to our leaders, to our online content contributors. So, each and every one of our DJs that we call the original social influencers, they produce and create amazing local content for their on-air shows each day. But importantly, they create online content for each and every one of our brands, websites, and mobile apps. So, as I noted on the call, we literally had record audience of 69 million people coming to our websites and mobile apps in the month of July. So, we're increasing, not only the size of our audience, which as you noted, is over five times our over-the-year AM-FM broadcasts, but importantly, the number of times they're coming back and their level of engagement, continues to increase. Therefore, the ad impressions continue to increase. Therefore, we're able to grow our digital advertising on our owned and operated sites quite materially because of that. And that's really what's driving - as I noted in 2021, we expect over $111 million in digital advertising, which would be 20% growth over last year. And last year, even a pandemic year, our digital advertising grew versus 2019. So, for full year, digital overall, as we noted, will be $193 million of revenue, which would include digital advertising and Townsquare Interactive. That will be approximately 20% year-over-year growth. And we expect that to grow to 250 million within 2024. So, Jim, no doubt, our mission is to be the number one local media company in each and, and every one of the markets that we operate in. And that would be larger than any TV station outdoor or any other competitor. So, I'll turn it back to you because I know you had a couple of other questions.

Okay. Yes. Just one follow-up to that. Does your success in that regard, encourage you to find some additional markets of sufficient size and quality to try to move into some additional markets, even with radio? I think you've been reluctant to do much of that in the past because of the digital growth, but are there additional markets that would work with you on your comprehensive strategy?

Yes, we believe so. I think there's two different paths for M&A for Townsquare. One is what you're describing, which is, we clearly have demonstrated by the acquisitions we've done to date, be it with Millennium, or Connoisseur, or Cumulus, that we can take a traditional broadcast company with 90 plus percent of their revenue being broadcast, and transform that operation into a digital-first local media company, and have almost half the revenue being digital and growing, not only double digits, but close to 20% this year in digital revenue. So, the opportunity to acquire more markets, they would all be outside the top 50. We're very disciplined in our strategic approach and what we're doing here. So, we wouldn't take - we wouldn't acquire any radio operator in the top 50 markets, but we continue to evaluate opportunities where we could run our strategic playbook of continuing to have strong broadcast assets. So, as I noted earlier, it's amazing that we reach one in two adults with our AM-FM broadcast on average in our 67 markets. So, if we can acquire other markets that have that type of unparalleled reach and emotional connection, and then build our digital business alongside that and on top of that, that is something we're interested in. It really comes down to the quality of the assets, meaning they need to be really strong in terms of market reach, local talent. We want to make sure they have great local on-air DJs. We don't want to take - we wouldn't be interested in acquiring stations that are syndicated or something like that. It really has to have a local connection. The other avenue for M&A outside of local broadcasters would be, and we are evaluating this on the regular, is digital operations, either as a bolt-on our SaaS business Townsquare Interactive, our subscription business, or a bolt-on to our digital programmatic offering. Those are things that we continue to evaluate with companies. So, I wouldn't limit it to one or the other. We continue to look at both, but we'll see what transpires over the next 24 months.

Okay. And one last one regarding the second headquarters in the Western US for TSI that you've discussed over the last several conference calls. Can you talk about the sequence and process of adding costs versus generating revenues? I think you're probably adding a little of both before you even make the formal move, but maybe how that might flow through the income statement.

Yep. Great. As noted, Townsquare Interactive, our subscription SaaS business, continues to really outperform with a net - 1,000 net subscribers we expect in Q3. We expect over 4,000, and therefore, will be a record year of net subscriber growth for the company. We expect $82 million in subscription revenue from Townsquare Interactive this year. I mean, I just think, looking at Slide 10 in our deck, more than doubling revenue from 2017 $40 million, to this year being roughly $82 million. We couldn't be more pleased with our operation, our management, our leadership, and our team at Townsquare Interactive, which as you know, is based in Charlotte. Roughly 650 people at this point. 58% of our subscribers are outside of our radio markets. Probably most importantly, the reason we're opening this second west coast operation, which we're planning in Q2 2022, is that total addressable market of $32 billion that - and we spent a lot of time in the last few calls. So, I didn't go through the details, but on Slide 11, with just under 9 million target SMBs, and yet we're at just under 26,000 today. We've already, Jim, to your question, hired literally, I think we're approaching about 35 to 40 people that we've hired on the west coast who are operating currently remotely. From a cost perspective, we look at it as, we will make back those costs that we have for the west coast within 12 months. So, it will not - given that we're going to end this year at $82 million, and then, as you know, Jim, we've added topline average $10 million every year. We added more this year, probably about $12 million, as you can see in the slide. We expect our margins to continue to be in the high 20% this year. We're at about 30%, even with the west coast operation. So, it will not materially impact our margin in 2022 with that west coast location opening up in Q2.

Okay. Thanks for taking all my questions.

Thank you for the questions, Jim. Be well.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Bill Wilson for closing comments.

Appreciate that, Operator. Thank you so much to each and every one of you who dialed in this morning. We couldn't be more proud of our results, and most importantly, our Townsquare team, who each and every day, deliver these amazing results with great passion for their audience, their communities, and their local businesses. Our flywheel continues to gain momentum, and I really look forward to reconnecting with you to update you, not only in our full year 2021 results, but obviously at that point, what we're experiencing in 2022. So, be well, have a great election day, and thanks again for dialing in.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.