TOWNSQUARE MEDIA, INC. 2026 Q2 Earnings Call

Thank you, operator, and good morning to everyone. Thank you for joining us today. With me on the call 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.

During this call, we may discuss certain non-GAAP financial measures, including Adjusted EBITDA and Adjusted Net Income. 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 good morning, everyone. Thank you for joining us today. We are very pleased to share that our second quarter performed as we anticipated and telegraphed on our last earnings call. In Q2, we met the total net revenue and Adjusted EBITDA guidance we provided, reflecting the continued execution of our digital-first local media strategy, the strength of our differentiated digital platform, and the disciplined way our teams continue to manage the business. In the second quarter, digital advertising revenue accelerated meaningfully from Q1. Our media partnership business continued its impressive growth. Townsquare Interactive delivered another quarter of record-setting profitability, and our broadcast business continued to generate significant cash flow while outperforming the industry. For many years, we've talked about transforming Townsquare from a traditional broadcast company into a digital-first local media company. Today, that transformation is no longer aspirational. It's simply who we are.

Digital now represents approximately 59% of our total segment profit and approximately 57% of our total net revenue on a year-to-date basis. Levels we believe remain unmatched among our local media peers. As highlighted on slide 10, our competitors have only, on average, 31% of their revenue coming from digital sources. That differentiation is the result of more than a decade of strategic decisions and investment in our technology, products, people, and proprietary platforms, rather than simply relying on third-party vendors and traditional media assets. Those investments are increasingly translating into stronger operating performance and expanding competitive advantages for us. As we've consistently said for many years, digital is Townsquare's growth engine. I think it's fair to say today that we have evolved beyond a single digital growth engine.

We now have multiple scalable digital businesses, each serving different customer needs, each generating attractive margins, and each contributing to the long-term growth of our company. Our digital advertising business, Townsquare Ignite, continues to lead that growth. Second quarter digital advertising revenue increased plus 11% year-over-year, representing a meaningful acceleration from Q1's plus 7% year-over-year growth, and one of the strongest quarterly performances we've delivered in recent years. This growth was driven by strategic execution across our numerous specialized verticals as well as our media partnership business. It represented a full funnel strategy that captured greater share from our large client base and a concentrated effort to maximize owned and operated opportunities with our most engaged audiences. As we've discussed previously, we believe our digital advertising platform is differentiated because we're much more than a digital reseller.

We operate as a full-service digital marketing partner for local businesses, combining campaign strategy, creative development, sophisticated audience targeting, campaign optimization, and omnichannel reporting into a single solution for our customers. Just as importantly, our local sales teams continue to execute at an exceptionally high level. Their ability to combine the trusted relationships they've built in our local markets with an increasingly sophisticated suite of digital products continues to differentiate Townsquare from both traditional local competitors and national digital platforms. Our customers aren't simply buying digital advertising inventory. They're buying measurable business outcomes, and that continues to drive healthy client retention, larger average customer spend, and continued market share gains. One area I'm especially excited about is the continued momentum of our media partnership business. Just over two years ago, this business did not exist.

Today, we have 16 media partners contributing 41 incremental markets beyond our owned and operated footprint of 74 markets. Thus we now provide digital programmatic advertising in 115 markets across the United States. We expect that media partnership revenue, which was approximately $6 million in 2025, will more than double in 2026. One major point of differentiation for this business is that our best-in-class sales talent integrates directly into our partners' local markets, leading four-legged calls, mentoring sales teams by leveraging more than a decade of proven sales strategies to drive incremental digital revenue while simultaneously protecting their high-margin radio business. We also manage campaign strategy, creative development, media buying, optimization, and customer support. Notably, this strategy has delivered 100% retention rate of our media partners' client base over the past two years.

The beauty of this model is that it allows us to expand well beyond our own market footprint with very little incremental capital investment while generating attractive returns for shareholders and, importantly, attractive returns for our media company partners. Perhaps most importantly, it validates something we've believed for many years, that the capabilities that we've built internally are valuable not only to our own advertisers, but increasingly to other local media companies as well. I'm also very excited to report that we've completed our first licensing deal for our proprietary technology with one of our media partners, SummitMedia, further demonstrating that our partners see substantial value in our tech platform to the point of licensing it for their own use. SummitMedia's decision to adopt our in-house developed CRM software for their own sales team is strong third-party validation of our innovation and further differentiates us from the competition.

Beyond creating a new recurring revenue stream, this deepens our integration into our partners' operations, making us an even more strategic and indispensable partner through a true 360-degree relationship. In addition to our current 16 partners, we expect that number to grow in the coming years as more and more media companies reach out to us to discuss replacing their current third-party solutions with our more comprehensive digital platform. We believe our media partnership business has a long runway for growth, and we continue to target $50 million of revenue at a 20% profit margin within the next four years. Given the growth and scale we've achieved to date and the significant long-term opportunity we see ahead, we've added a slide to our investor presentation highlighting our media partnership business, which you can now find on slide 12.

Our team's performance in the second quarter demonstrates just how resilient and diversified our digital advertising platform has become. Our programmatic revenue, which now represents approximately 70% of our year-to-date digital advertising revenue, increased by plus 27% year-over-year in the second quarter. In addition, the direct sales of our local owned and operated digital websites and mobile apps increased at a high single-digit year-over-year growth rate, just as we expected. Another positive note, which we have outlined on previous calls, is that our digital audience, and therefore our digital remnant revenue, which is only approximately 6% of our year-to-date digital advertising revenue, has sequentially stabilized in 2026, and in Q3 will begin to lap the dramatic year-over-year audience and associated revenue declines that started last August 2025.

Due to the moderation of this headwind, but more importantly, given the continued strength of our digital advertising solutions directly sold by our local sales teams, we expect Q3 digital advertising revenue will accelerate yet again, with growth expected to be stronger than Q2's plus 11%. Let me now turn to our second digital business, Townsquare Interactive, our subscription-based digital marketing solution, SaaS-based business. As we've discussed over the past several quarters, our focus at Townsquare Interactive has been on building a business capable of delivering durable, profitable long-term growth rather than simply maximizing short-term revenue. I'm pleased to report that those efforts continue to produce strong profit results. During the second quarter, Townsquare Interactive performed exactly as I telegraphed on our last call and once again delivered record segment profit margins, reaching nearly 38% profit margins, reflecting the operational improvements we've made over the past several years.

While revenue has sequentially stabilized, yet remains below where we are ultimately expected to be as we continue rebuilding our sales organization over the next 12 months, the quality of the business has never been stronger. We've spent considerable time restructuring our customer service organization and leveraging artificial intelligence throughout the business to improve operational efficiency. At the same time, we've intentionally increased productivity expectations across our sales organization, creating a stronger and more efficient, although temporarily smaller, sales force. The result is a business that is generating meaningfully higher profitability while positioning itself for future revenue growth. Importantly, customer retention remains healthy. Our service offering continues to resonate with small and medium-sized businesses, as evident by our current churn return to historically low levels, and we continue to see a significant long-term addressable market.

We remain very confident that Townsquare Interactive is well positioned to return to sustainable revenue growth while maintaining substantially stronger profitability than we've historically produced. We still continue to expect to return to sequential monthly revenue growth by the end of the year and potentially as early as Q3. Together, Townsquare Ignite and Townsquare Interactive continue to demonstrate the strength of our digital-first strategy. One business is delivering strong top line and profit acceleration in 2026, while the other continues to improve profitability and operating efficiency, and we expect to return to revenue growth later this year. Both are benefiting from the investments we've made in technology, automation, and AI over the past several years. Turning to broadcast, it too performed exactly as we expected and shared on our last call. As we've consistently said, we continue to view local radio as an extremely valuable strategic asset.