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Operator
Please stand by, your program is about to begin. Good morning and welcome to Town Square Media's second quarter 2024 earnings call. As a reminder, today's call is being recorded and your participation implies consent to such recording. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, Press star zero on your telephone keypad. With that, I would like to introduce the first speaker for today's call, Claire Yenneke, Executive Vice President. Please go ahead.
Claire Yenneke
Thank you, Operator, and good morning to everyone. Thank you for joining us today for Town Square'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 know that during this call, we may make statements that provide information other than historical information, including statements relating to the company's future expectations, plans, and prospects. These statements are considered forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These statements reflect the company's beliefs based on current conditions but are subject to certain risks and uncertainties including those that are detailed in the company's annual report on Form 10-K filed with the SEC. We may also discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted operating income 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.
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 Town Square'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 negative two to negative 3% year over year, and net revenue came in directly at the middle point down negative 2.5%, a sequential improvement from Q1 results. I also projected that Town Square 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 quote-unquote solid growth in programmatic digital advertising revenue that I expected came in at a strong plus 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 negative 1%. And I'm glad to report that broadcast advertising performed at the higher end, coming in flat to 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, Town Square'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 Town Square 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 a 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. Town Square 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 plus 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, is 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 revenue, 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 interests, 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 best 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 plus 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 very strong growth rates in programmatic digital advertising revenue, while we expect national digital to remain quite weak in Q3, down roughly $1 million versus prior Q3, and thus would be down over 30%. but we expect national digital should improve in Q4 given the week Q4 2023 comes. 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 Town Square. 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 of our digital advertising business going forward. Programmatic makes up about 60% of our digital advertising segment today and is the fastest growing revenue stream in our company. I am very pleased to share with you today that Town Square Interactive, our subscription digital marketing solutions business, is firmly on the path to recovery and growth after attacking our 2023 challenges head on. In fact, I believe TownSquare Interactive is a better company as a result of attacking ourselves and really 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, as we've discussed at length on earlier calls, 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 was another significant improvement to our business. In January, we launched the Business Management Platform, a SaaS-based or software-as-a-service platform that provides a suite of digital solutions which assist SMBs in identifying, converting, and communicating with clients. Our SaaS platform includes a CRM, a customer relationship management platform, 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 search optimization or SEO company, which served us well for many years as we grew to more than 30,000 subscribers in the first decade of operations. And although these services are still a 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, and 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. And today, it is also sold to the many clients who still have a need for web design and SEO services. We believe that our new SaaS Business Management Platform is very powerful and will be a difference maker as we grow and continue to scale the TalentSquare Interactive business. We are not only helping SMBs with their digital presence, 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, Town Square Interactive's path to recovery and growth accelerated. As I have shared previously, the first sign of rebound at Town Square Interactive is the return to subscriber growth. The second sign of rebound is the month-over-month revenue growth. And given our continued ongoing aggressive investment in Town Square 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, and I'm pleased to share with you 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 Town Square Interactive team. In the second quarter, Town Square Interactive's net revenue declined negative 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 negative 15% decline. The positive development is that on a quarter-over-quarter basis, net revenue increased plus 1% through a large part to the return to subscriber growth I just outlined. Town Square Interactive's second quarter profit, as expected, declined negative 10% year-over-year, and we managed expenses such that we grew our profit margin slightly from 28% in Q2 2023 to 29% in Q2 2024. Additionally, it is worth noting that we also had sequential profit improvement in Q2 over Q1. Although given our aggressive investment in Townscrew Interactive, we expect Q3 profit to be more in line with Q1 profit, yet 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 Town Square Interactive, given the loss of over 7,000 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 Town Square Interactive's third quarter net revenue to decline approximately 7%. a meaningful improvement from 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 Town Square 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, With approximately 58% of those outside of 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 as outlined on slide 15, I am confident that Town Square 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 picked up steam following the lackluster primary season as 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 plus 9% year over year. We believe Town Square'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 Town Square's digital, plus radio, plus live events, plus 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 at an attractive price to avoid shareholder dilution, all while investing 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 4.8 times as of June 30th, We remain very confident in our current capitalization and 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-plus in June, citing 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.
Stu
Thank you, Bill, and good morning, everyone. It's great to speak to you today. We're pleased to report that our second quarter results met our revenue and adjusted EBITDA guidance. Second quarter net revenue declined significantly 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 spend 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 is $2.5 million, ahead of 2020's $2.2 million by 14%. We remain very optimistic in our full-year political revenue estimate of $14 to $16 million, as compared to the all-time high $16 million we recorded in the 2020 political season. Industry specialists are predicting record political expenditures in 2024, benefiting town square, 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, 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 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 was a sequential improvement from first quarter declines. Second quarter broadcast profit improved 8.7% year-over-year, as margins expanded on a year-over-year basis 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 Town Square Interactive, which is our subscription digital marketing solution segment, net revenues and profit will decline on a year-over-year basis due to the loss of subscribers in 2023 and Q1 2023. 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 23's 28% profit margin, despite our continued investment in the business, including the ongoing ramp of our newly opened Phoenix location. Town Square 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 as compared to Q2 of 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 return 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, a live events activity should not be viewed as a growth driver or revenue center for Town Square, 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 these charges 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 decade-old purchase price calculations have no bearing on our cash position, operating revenue, operating expenses, our profitability, or the company's future prospects. They are nothing more than 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. In addition, our effective tax rate for the second quarter was negative 62.7%, a significant change from our Q2 2023's effective tax rate. primarily driven by an increase in the valuation allowance for interest expense carry-forwards 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 carry-forwards 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, and I would again like to emphasize, 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 a creative price on April 1st. 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 4.82 times. 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 Town Square Interactive and Town Square 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 1st to shareholders of record as of October 15th. The dividend of 19.75 cents per share, which we raised by 5% earlier this year, equates to 79 cents 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.
Bill Wilson
Thank you, Stu, and thanks to each of you for taking time to be updated on Town Square'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 a solid profit and political has recovered from its lackluster start of the year. Town Square Interactive has returned to consistent subscriber and month over month revenue growth, which we expect will continue to strengthen. We have efficiently 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 our 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.
Operator
And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question by pressing star two. Once again, that is star and one for your questions. We'll take our first question from Michael Kupinski with Noble Capital Markets. Please go ahead.
Michael Kupinski
Thank you for taking the questions, and congratulations on your performance. Just a couple of quick questions here. I know that you guys are very close to the advertising community, and I was just wondering, you know, a number of radio companies have indicated that things have kind of deteriorated into the third quarter, and I was just wondering, and you're not saying that, and it Obviously, you're in smaller markets that may not feel some of the economic impact. And I was just wondering if you can give us a sense of what you're hearing from your advertisers as you go into the third quarter as it relates to the economic environment.
Bill Wilson
Great to hear from you, Michael. Yeah, 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 there. 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 is inflation has come down dramatically from a year ago, and also wage pressures have come down as well. And what we're hearing from them is 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. And 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 guide, which again is we're 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. And then when you think about the ad community in general and the ad environment overall, You know, 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, you know, over a million dollars. And, you know, that put a damper on that. But our programmatic advertising, which is now 60% of our digital advertising, was up a plus 9% in Q2. And as I shared on the slide, remarks earlier, we expect that to continue in Q3. So in essence, broadcast, we expect to improve from an advertising in terms of Q3 over Q2. And the same thing, we're expecting roughly 4% 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 positive environment from our advertisers. I think once the interest rates actually do come, hopefully in September, but whenever they do come, I think that's going to be a nice tailwind for us as we go into next year.
Michael Kupinski
Gotcha. And then can you talk a little bit about your SaaS-based business service offering and just kind of give us a little bit more color there? I know that you typically, you know, that interactive has been about roughly $300 per subscriber, and now I was just wondering how this offering affects that subscription, and then maybe if you could just talk a little bit about the margins on that product and how this impacts your overall trajectory for your Town Square Interactive business.
Bill Wilson
Thank you, Michael. Yeah, I couldn't be more excited, as is the team, with our SaaS-based new product solution for our local businesses. You know, just to take a step back, as I said earlier, I couldn't be more proud of the team, you know, We definitely took a step back in 2023. We were challenged. You can almost call it a knockdown. And 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, you know, totaling over 7,350 subscribers. So it's great to be in growth mode again. You know, growing subscribers, we grew 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. And as I shared, you know, beyond my expectations, we actually had a jump up in profit in Q2 over Q1, which actually fueled our confidence to invest even more aggressively at this time, given the SaaS-based product that we have. So our profit will go down more to Q1 levels, but that's more a reflection of our confidence and investment than anything else. In terms of the SaaS-based product, as I said earlier, the good news is we're still doing everything we did prior. We're doing great web presence, websites, great search engine optimization. But we obviously speak to a lot of clients in our local markets as well as throughout the country that have a good web presence and are ranked well with Google. but they need help running their businesses more effectively and efficiently. And that's what this business management platform provides. It provides a very, very powerful CRM, a customer relationship management platform with email and text-based marketing. It allows appointment scheduling so they can manage their customer base as well as their employees schedule. If it's in-home services like HVAC and plumbing, they don't have to communicate. It can all be done electronically as well as payments and invoicing. So it's, As it relates to your question about ARPU and margins, right now I would just say on par. I think what we're able to do today is although when we bundle our prior offering with this new business management platform, clearly our revenue per subscriber is higher. But I think what's really strategically important is that we're able actually to sell this business management platform where people don't need a website and don't need search engine optimization. So that kind of counterbalances the higher our proof they need everything versus a subset. And the margins are quite consistent. You know, we talked about a nice margin improvement overall, but our margin right now is in the mid to high 20s. So that's what I would expect, particularly as we go through this investment cycle. But, again, couldn't be more pleased. We lost, you know, $8 million in revenue from Town Square Interactive in 2023. This year, because of the prior challenges we have, we'll lose $7 million in top-line revenue. We've already lost six in the first half. So that obviously implies we'll lose, you know, roughly a million, a little less than a million in Q3. And as I said on the call, there's a slight chance, a possibility that we'll return to Q4 revenue growth year over year. But we've come back much stronger. And as I look forward to 2025 and 26, couldn't be more confident in our ability not only to grow, but with this business management SaaS platform, quite confident in our trajectory. So, great question, Michael. I appreciate it.
Michael Kupinski
Sounds exciting. Thanks, Bill. I'll let others ask questions. Thank you.
Bill
Thank you. Have a great day, Michael.
Operator
Our next question comes from with Burrington Research. Please go ahead.
Jim
Okay. Good morning. I would like to continue the discussion you were just on with TSI in terms of the recovery. Have you largely moved past the startup issues you had in terms of getting the West Coast offices pretty much up to speed? And you also, I was wondering if you could analyze the subscriber trends, including the nature of the clients lost versus the nature of the defining characteristics of the new subscriber additions you've been making.
Bill Wilson
You got it, Jim. Great to hear from you, and good morning to you. Yes, couldn't be more pleased as I was sharing with Michael at the recovery, and really, quite honestly, the rebuild. We revamped, as you will recall, Jim, our complete service offering in 2023, and then we kicked off this year with the SaaS-based business management platform. So it's really been a significant rebuild. And to your point, the West Coast is humming quite nicely. The whole premise of the West Coast was two phase. One was a great opportunity to attract more talent outside of Charlotte. And we picked Phoenix, which we couldn't be more pleased with being in Phoenix and the talent pool that we're attracting there. And we're able to add great team members to our team there. We're also able to deal with our West Coast and central clients later in the day with the time zone change. So I'd say, you know, over the past year where that business really started in March, April of 23, we really built up quite nicely, and I'd say past that startup phase, as you alluded to, and really humming. We still have a lot more growth. Our expectation, as you may recall, when we opened the division was, over the next decade to grow in presence like we have in Charlotte, which is over 400, almost 500 employees down there. And I think we're really focused now in terms of scale and efficiency. So your second question about subscriber trends, I think when we look at who we lost from Q1 23 through Q1 of this year and now who we're gaining, I'd say some of the smaller clients who had, you know, less employees, less revenue base, they really struggled with these higher interest rates we saw throughout 2023 as well as currently, as well as the high wage and all of the inflation that was hitting their businesses earlier. And they really, really struggled. As I shared on prior calls, we saw bill declines because obviously we have the benefit for these 23,575 subscribers of having their credit card on file. So we get an early indication of just creditworthiness, and that has abated. But we saw that more with these smaller clients. We're seeing with this business management platform, and that's why your question is so astute, A broader verticalization. So we've always been non, we've been very, very diversified in vertical. So not one vertical was the primary driver. But with this business managed platform, we're able to go to some larger customers because they need help running their business, but also more verticals. who maybe had great web presence, great websites, great SEO, but now we're offering them great tools to manage their business more effectively and going to different verticals, be that upstream to more and more doctors and healthcare, white collar professionals like lawyers, things like that, where we definitely had customers in those, but they had greater web presence that were less needed of our primary services over the last decade. And that's why we couldn't be more excited about the SaaS-based business management platform as we move forward, Jim.
Jim
Okay. And thanks for that. And I was wondering, given your broad in-market and out-of-market sales and approach, how do you provide white label options without cannibalizing your existing efforts, effectively competing with yourself?
Bill Wilson
Great question. As we noted, about 58% of our Town Square Interactive subscribers are out of our market, out of our 74 local markets where we have great presence in. What's quite exciting, and I don't want to overstate it, but I think it's worth mentioning, the number of broadcasters... radio as well as television who've approached us since the beginning of the year, recognizing the need for the broadcasters, be it television or radio to really diversify their revenue stream and find the growth engine and recognizing that over 70% of, you know, advertising spend is now digital. And I think they've recognized that, uh, we have really become best in class, particularly in these size markets, but in any size markets. So, um, We're starting a test in Q4. We believe not only us, but our partner who we obviously we're both under NDA, so I can't disclose it, but it's a multi-market radio company. It's a very well run radio company with great broadcast characteristics and market share, but that does not have a Town Square Interactive type solution. It doesn't have any Ignite type digital programmatic solution. And they're quite eager, starting with Ignite, to move forward and also utilize our Townscore Interactive. So primarily right now, it'll be Ignite in 2024 going into Townscore Interactive potentially in 2025. But to your point, we're not worried about capitalization because there's so many target customers. There's over 9 million and we're under 25,000. So we will get a list of clients from our white label partners who they are either pitching in a pitch phase, in a CNA client needs assessment, and there'll be information sharing so that our team, either in Phoenix or Charlotte, would not be calling on clients that our white label partners are already calling on. So that's one of the reasons we're so excited about this potential white label opportunity with other broadcasters. The other thing we're seeing, Jim, is And you had asked about this, quite honestly, very early on, I'd say maybe more than a year ago, about utilizing other media companies with our solutions. So I think you were ahead of the curve, clearly. We also have a lot of local agencies, which I believe I mentioned earlier on the call, who we've been great partners with. Local agency over time has been great partners in our broadcast business and more so in our digital advertising and town square interactive business. And they're now coming to us in greater velocity and to white label to their clients our Ignite offering and our digital advertising. So the combination of the two as we go forward, listen, from an organic standpoint on our own, we're going to continue to do great with digital advertising. It's the growth engine of the company. It has been for quite some time, and we're quite pleased. But if these white label opportunities with other broadcasters and or local agencies continue to pick up steam in 25 and onwards, it can accelerate our growth quite meaningfully. So great question, and hopefully answered your question about potential catalyzation.
Jim
It did. If I might, one more. In the core radio business, even that's shifted, and a lot of your digital advertising exposure is greater in Ignite and the programmatic within your core broadcasting, and your broadcasting industry site has held up probably better than most given the market size and the way you've approached it i'm wondering if you'd look forward five years or whatever the defining characteristics for advertising audiences reach and tsl that you think might characterize any shifts in broadcasting yes thank you thank you for that jim and i appreciate you acknowledging that our broadcast is really
Bill Wilson
Our company is differentiated now becoming a digital-first local media company, but I hope our stakeholders externally have recognized over the last five years, from 2019 to today, that our broadcast business has held up much better than others. And I think that speaks to two things. I think that speaks to we are the only local media company in the United States focused on markets outside the top 50, be that television, radio, newspapers, so forth. We're literally the only company who has really understand and committed to that psychographic and demographic of smaller markets. And in those markets, as you know, Jim, but I'll share it for others on the call, is our broadcast business, just our AM, FM audience, first of all, has been stable for many, many years, has not declined in terms of size of audience. And that size of audience reaches 50%. On average, every week, we reach 50% of the adult population through one of our AMFM signals in our 74 markets. That is highly differentiated against other radio companies in the top 50 markets, where number one market share could be in the low 20s. So to walk into a client and say we're going to reach one and two adult people in this community through radio broadcast is extremely powerful. You layer in the fact that one of the other reasons I think we've held up quite well is really twofold. We don't talk about it a lot, but given our diversification and our growth in digital revenue, and with digital revenue being 50% of the company's total revenue and 51% of our profits now come from our digital solutions, If we didn't have that, Jim, we would have had to do what other people in the broadcast business did, which was cut our local teams, and in particular, cut our local DJs and use syndicated content. And we have not done that. We are very proud of our content contributors. I don't think there's anybody I know there's not. They are the best in the business at informing and entertainment their local communities. And we're able to do that because they also do great content for our website. So we're monetizing our DJs. not only from a broadcast perspective, but from a digital perspective. And we think that's a huge reason our broadcast business, to put it in your words, has held up so nicely because in our markets, we really have encountered news deserts. Thousands of newspapers around the United States in the last five years, COVID accelerated this, have actually folded up shop and not served our markets. They've gone from publishing every day to not even publishing a print edition. They've put up paywalls to pay their bills, which has allowed more and more people in our local communities to come to our websites. So our websites now reach 70, 7-0, 70% of the adult population are coming to our websites or mobile apps on a monthly basis. So that is the reason our broadcast business has held up so differently than the rest of the industry. And going back to Michael's first question about, hey, I'm hearing others talk about the ad environment in Q3, and you're saying something different than others. That is because we are a differentiated local media digital first company. And I believe even from a broadcast perspective, differentiated because we're serving these underserved communities that need the local information and entertainment we're providing. And I'm not aware of another broadcaster who, on average, reaches 50% of the adult population through their AM, FM. So when you think about the next five years, we've been saying this for a number of years, as you know, Jim. We still view broadcast as incredibly advantageous. We've used the term Trojan horse in the past. We would not have the digital business today and in the future if it wasn't for the health and vitality of our local broadcast business. It is vital, and we continue to invest. and have that. At the same time, we view it as a cash cow. It generates incredible profitability, but it is also a declining asset. Even now, we're talking about flat in Q2, flat to plus one in Q3. Obviously, that has the benefit of some political. So we view it as a slightly declining business, call it low single digits over the next five years. But we can continue to still invest in our DJs because of our digital business and what they do for our digital business in creating content and our ability to monetize that. So five years down the line, I expect us to continue to be serving our local communities and doing it better than anybody else. And in some ways, that's a civic duty as well. And I think our audience to the broadcast business in particular could be higher than that 50% we have today because more and more people are abandoning these markets or more and more even television is cutting expenses and investment in our size markets. So From an audience perspective, I see stability to growth. And from a financial perspective, we expect it to be a ex-political, a slow decline or over time, which is just okay with us. And we will continue to serve the communities. And we love our audiences and our businesses in those communities. So hopefully, Jim, that gives you a sense of how we're viewing broadcast over the next five years.
Jim
Yeah. Thanks very much. Very complete answer as always.
Bill
Thank you, Jim. Appreciate the questions as always.
Operator
And this concludes our Q&A session. I will turn the call over to Bill Wilson for closing remarks.
Bill Wilson
Thank you, Operator, and just thank you to everyone who dialed in this morning to be updated on Town Square'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 three months. Have a great day.
Operator
And this will conclude today's program. Thank you for your participation. You may disconnect at any time.
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