Townsquare Media Inc (TSQ) 2020 Q2 法說會逐字稿

Good morning and welcome to Townsquare's second quarter conference call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. (Operator Instructions)

With that, I would like to introduce the first speaker of today's call, Claire Yenicay, Executive Vice President.

Thank you, operator, and good morning to everyone. Thank you for joining us today for Townsquare's second quarter financial update. With me on the call today are Bill Wilson, our CEO; and Stuart Rosenstein, our CFO and Executive Vice President.

Please note that during this call, we may make statements that provide information other than historical information, including statements relating to the company's future expectations, plans and prospects. These statements are considered forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These statements reflect the company's beliefs based on current conditions but are subject to certain risks and uncertainties, including those that are detailed in the company's annual report on Form 10-K for the year ended December 31, 2019, filed with the SEC.

We may also discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted operating income, and make certain pro forma adjustments. Such non-GAAP financial measures should be used in conjunction with all the information contained in this quarterly, year-end and current reports available on our website.

At this time, I would like to turn the call over to Bill Wilson.

Thank you, Claire, and thank you all for joining us this morning. I'd like to start this call as I did our last one by sharing that our thoughts and prayers go out to all who have been affected around our country and the world in this unprecedented and challenging time that we're all living in. Our commitment and our obligation has never been greater to do our job, to do our best and to fulfill our responsibility to super serve our listeners, our clients and our local communities.

The Townsquare team continues to impress me each and every day with their passion for what they do and their dedication to their local communities and our company as well as their adaptability as we work in a modified settings due to the unique challenges presented by the pandemic. Our offices are open across the country, and our first and foremost concern continues to be the safety and well-being of our employees and their families, and we have implemented numerous and prudent safety precautions in each of our offices to ensure this. Any team member returning to their office is doing so 100% voluntarily as it is at the employee's option to return to the office, and any team member who is not comfortable doing so is working remotely.

Our teams have seamlessly transitioned to our virtual workplace over the past 5 months. And with the use of visual conference calls, such as Microsoft Teams, our employees are working just as efficiently from home as they would in the office.

Market by market, our goal has been to find the intersection of safety and productivity, and we believe we have achieved it. For example, our 500-plus person Townsquare Interactive office in Charlotte, North Carolina still continues to work remotely, and they have not missed a beat with TSI revenue profit and subscribers growing throughout the pandemic, as I will detail momentarily. At the same time, the majority of our content teams have been regularly coming into the office and their studios, and all of whom have been working relentlessly to keep our audience informed and entertained during this pandemic, both on air and online.

Over the past 5 months, we have seen a surge of consumers coming to our digital properties, our websites, apps, video channels, social platforms, et cetera, as they crave local information that is specific and relevant to their communities and where they live. As we have highlighted on previous earnings calls, as local newspapers and local TV stations have reduced their coverage and investment in local news in our size markets, the resulting coverage for the 67 cities that we serve locally has been greatly diminished over the past 5 to 10 years. Townsquare has, through our websites and mobile apps, stepped in to fill that void, which the COVID-19 pandemic has only magnified.

As a result, we are not only experiencing all-time record number of people visiting our websites with 39 million people coming to our local radio station websites in April, and in Q2, unique visitors to our local websites increasing 113% over prior year, but we are also experiencing all-time record level of engagement, more visits per month, more articles read per visit, et cetera, which is one of the numerous reasons why our digital advertising solutions are performing better than our broadcast advertising solutions during this pandemic as more people than ever engage with our brands online to obtain information specific to their local community.

To that point, Google just provided us a $260,000 grant for the creation of 2 news outlets which will serve the great cities of Tuscaloosa, Alabama, Roll Tide and Portsmouth, New Hampshire. We have also seen an acceleration in listening to our radio broadcast via our 300-plus local radio station apps as well as voice-activated devices, including Amazon Echo and Google Home.

In the second quarter, total online listening cume or audience increased plus 12% year-over-year, while total listening hours increased by 2.6 million hours or plus 15% as compared to the prior year. One of the many silver linings of the pandemic has been the clear evidence that our local brands in our 67 markets are beloved by their communities and are where the audience turns to be informed and entertained across our broadcast and digital platforms.

However, despite the impressive performance of our teams and our brands, the second quarter was a brutal one and unprecedented from a financial perspective. It is our intention to provide the same level of detail to you today that we provided on our last earnings call, so that you, our stakeholders, can more fully understand the impact that the pandemic has had on our business, the steps we have taken to help mitigate the downturn and the recovery that we believe is starting to take hold in our markets.

As we previously highlighted, the year started off on a very strong note, continuing our momentum from an excellent 2019, with January and February pro forma net revenue plus 6% and plus 7%, respectively, compared to those months last year. However, the onset of the COVID-19 pandemic brought with it significant advertising and live event cancellations, which evaporated our strong revenue growth as we ended Q1 with revenue up only plus 0.5% on a pro forma basis.

As I shared on our Q1 earnings call, at that time, I expected that in Q2, our net revenue will be down negative 36% and Townsquare Interactive with growth plus 10%. We actually finished slightly better, as net revenue in Q2 was negative 35%, and Townsquare Interactive revenue grew plus 10.5%.

Of our 3 reporting segments, Advertising has had the most significant negative impact to our overall results, given its relative size. For reference, Advertising accounted for approximately 82% of our total net revenue in 2019. Although revenue in our Live Events segment declined nearly 100% in the second quarter compared to last year, the segment only represented less than 5% of total revenue in 2019. As a result, its decline had a smaller top line revenue impact than the decline in our Advertising business. Therefore, let's dig into our Advertising results first.

Advertising was hit the hardest in the month of April, with significant order cancellations and limited new business written as the majority of Americans were under stay-at-home orders, and many businesses were temporarily closed. As businesses began to reopen subject to state and county reopening plans in May, we began to see less advertising cancellations and more business being generated and booked. Finally, in June, a material improvement began to take hold across our markets. In total, Advertising revenue showed sequential improvement throughout the second quarter, declining negative 42% in April, negative 41% in May and narrowing the decline significantly to negative 30% in June as compared to the same months in 2019.

Broadcast advertising took the brunt of the cancellations as advertisers were less likely to cancel those digital campaigns as consumers have remained heavily engaged online throughout the crisis. Broadcast revenue declined negative 52% in April and improved to negative 35% by June, translating to a negative 45% broadcast decline in Q2 compared to the prior year.

Digital advertising revenue declined only negative 18% in Q2. The sequential improvement in Advertising that we experienced in the second quarter has continued to date in Q3, with each week getting stronger. In July, Advertising revenue improved from June's negative 30% to negative 24%, with broadcast revenue declines narrowing from June's negative 35% to negative 29%, and digital advertising revenue declines narrowing from June's negative 16% to negative 10% driven by continued sequential declines in advertising cancellations.

In addition, July was our strongest new Advertising business month of the year, defined as business from an advertiser that has not advertised with Townsquare in the last 13 months. We expect August will be better than July based on our current revenue booked and, therefore, expect Q3 advertising will be materially better than Q2 for both broadcast and digital advertising revenue. As you would expect, the regions impacted most by the pandemic and the resulting restrictions took the biggest hit in ad revenues.

For example, in the New York tri-state area, net revenue declined by over 53% in April and did not see material improvements throughout the second quarter, with June still off negative 52%. However, as infection rates dropped and restrictions were lifted, revenue rebounded quickly, with July revenue improving to negative 35% and August currently pacing negative 25%, which is 27 points better than only 2 months earlier. New England and Michigan experienced similar declines in April but improved faster than the tri-state area, with June revenue improving to negative 31% in New England and negative 37% in Michigan. That trend continues in July, with New England off negative 21% in July and currently pacing negative 20% in August, and Michigan off negative 27% in July and currently pacing down negative 24% in August.

At the opposite end of the spectrum, in states with the least restrictions, such as Iowa and the Dakotas, the revenue decline wasn't as severe, down negative 28% in April, improving to negative 21% in June and negative 9% in July and currently pacing even for August. I know many investors are curious how we are faring in states where the outbreak has been most severe in the summer months. Thankfully, we do not have any local exposure to current hotspots like Florida, California and Arizona. However, we do have significant presence in Texas, although in smaller cities and not in major cities, as you know our footprint is concentrated on small and midsize markets.

In Texas, where restrictions were implemented later and were also lifted earlier than their counterparts in the Northeast, the hardest hit month was May, where revenue declined negative 45% but quickly rebounded to negative 27% in June as restrictions were lifted. August is currently pacing negative 22%, which is nowhere near as bad as what the Northeast experienced in Q2 during the worst of their outbreak.

From a category perspective, auto and entertainment experienced the largest declines in the second quarter, as did furniture stores, fast food and dentists. There were some bright spots as well, with revenue increases in education, insurance, groceries and state government. Currently, we're seeing new business surge in a number of categories, including contractors and builders, health care, banks, home repair, hardware as well as education and training.

Political revenue came in at $886,000 in the second quarter versus our $950,000 expectation based on some primaries moving from Q2 to Q3. However, political revenue has roared back in Q3. Currently, we have $1.9 million of political revenue booked for Q3, 42% more than we booked in all of Q3 2016. In July alone, political revenue was 5x greater than July 2016, partially due to the primary dates pushback, as I mentioned earlier, but also increases in PAC spending. Because of these trends, we still believe that 2020 will be a strong political year, and we expect to generate approximately $10 million in political for the year, which would exceed 2016's political of $9 million.

Our Live Events net revenue declined nearly 100% in the second quarter as we canceled or postponed our scheduled live events due to the pandemic. Fortunately, after streamlining our Live Event business in 2018 and '19, we now have a significantly smaller events footprint that is concentrated to our local radio markets and their brands, and as a result, our expense base is largely variable. So although Live Events' second quarter revenue declined nearly 100% to $32,000, expenses declined 98%, resulting in a small second quarter loss of only $62,000. And for the first 6 months of the year, our Live Events segment is still cash flow positive, with approximately $0.5 million of adjusted operating income, which I also refer to as profit.

Given our largely variable expense base in Live Events, even if we were to generate no more Live Events revenue for the remainder of 2020, we expect our Live Events division to approximately breakeven on an EBITDA and cash flow basis for the year, given our strong expense management. Going forward, we are proceeding very cautiously and operating only a handful of small events that do not involve large crowds and abide by all state and local guidelines.

As you would expect, for the foreseeable future, we do not plan to produce or operate any live events involving mass gatherings of people. We continue to prioritize the health and safety of our employees and our communities. And while we look forward to proceeding with our approximately 200 heritage local live events in our local markets and we look forward to seeing our audiences and our communities in person again, we will not do so until we are confident that it's safe and prudent.

As it became apparent in mid-March that the COVID-19 pandemic was going to have a severe impact on our business and, in particular, our Advertising and Live Events revenue base, we acted quickly to enact cost reductions that would help mitigate the near-term pain we expected to experience. As a result of these actions, during the second quarter, we realized approximately $1.7 million of monthly fixed cost savings related to the reduction in our workforce, temporary hiring freezes, the temporary suspension of our 401(k) contribution matching program and various other cost-saving measures we deem prudent.

In the second quarter, direct operating expenses declined by $11.2 million or approximately 15% as compared to the prior year period, partially offsetting the decline in revenue. We enacted the maximum amount of expense reductions that we felt would not hurt our long-term growth opportunities. Our goal was to minimize personnel layoffs so that we would have a talented, although slightly leaner, world-class team in place and ready to hit the ground running as states reopen for business. Therefore, we did not cut as deeply as we could have, and not all of these cost reductions are permanent, and we expect that some of these expenses will return as business ramps up. For example, we have already started strategically hiring again.

In addition, we did not reduce either our Townsquare Interactive or Townsquare Ignite teams and instead focused on a large number of the headcount reductions at corporate roles or support functions. However, I believe the steps we have taken were the right ones and that we are well positioned not just to prevail through this pandemic, but most importantly, to be one of the best-positioned local media companies on the other side of this pandemic, whenever that may be, months or quarters from now.

Now I'd like to switch directions and focus on some financial highlights of the second quarter. First and foremost is our digital marketing solutions subscription business, Townsquare Interactive. Townsquare Interactive was built to be a recession-resistant subscription business, and we believe it has proven to be so, delivering revenue, profit and subscriber growth throughout the pandemic, a truly impressive accomplishment.

During this pandemic, the Townsquare Interactive team became a tremendous resource for our local clients by not only powering their online communication strategy but also by sharing relevant and timely information with them, for example, providing important information about government stimulus plans and how to apply for assistance. In addition, the team helped restaurants adapt their websites to use online ordering and curbside pickup platforms, helped professional services or health and fitness companies adapt their websites for online scheduling and virtual classes and helped retailers adapt their websites to allow for e-commerce for those that did not offer it prior to the COVID-19 pandemic. Townsquare Interactive provides a true, important and valuable resource for small business owners, which translated to strong financial results for Townsquare.

Second quarter net revenue increased plus 10.5% as compared to Q2 of 2019, ending the quarter with approximately 20,750 net subscribers, an addition of plus 900 net subscribers during the quarter, up from Q1's plus 850, and the ninth consecutive quarter of 850 or more net subscriber adds. Our Q2 revenue for Townsquare Interactive was $16.9 million, and based on our current subscriber base, Townsquare Interactive's run rate annual revenue is over $70 million at the end of Q2. And therefore, I am confident in reaffirming our expectation of Townsquare Interactive achieving $100 million in annual net revenue within 2 to 4 years.

In addition, Townsquare Interactive continues to generate a strong profit, with a healthy profit margin of 30.5% in Q2, and that's over $5 million of profit in the second quarter and close to $10 million in the first 6 months of the year.

As we begin Q3, we are continuing to see growth, with July TSI net revenue plus 13%, and we expect Townsquare Interactive's subscriber base to continue to grow strongly each month for the rest of 2020. It took Townsquare Interactive 57 months to achieve our first 10,000 subscribers, thus averaging 175 net subscriber adds per month during that time period. It then took only 44 months for us to reach the next 10,000 subscribers, which equated to an average of 227 net subscribers added per month during that time period. Given a pace of 850 net subscriber adds a quarter or 283 net subscriber adds per month, we expect we will reach 30,000 subscribers in approximately 35 months or less. When we reach 30,000 subscribers, we expect our revenue at that point will be roughly $110 million on an annualized basis. This also reinforces our expectation that Townsquare Interactive will reach $100 million in annual net revenue within 2 to 4 years and most likely in 3 years or less.

We believe another financial highlight of the second quarter also serves as a clear differentiator between Townsquare and others in local media. In the second quarter, digital revenue accounted for more than 48% of our total net revenue. This was driven not only by Townsquare Interactive's strength but also by our digital advertising solutions faring better than our broadcast advertising solutions during the pandemic. That is in part due to the popularity of Townsquare Ignite, our digital programmatic advertising solution, which was one of our strongest advertising products in the second quarter. While overall digital advertising revenue declined negative 18% in Q2, revenue from Townsquare Ignite solutions only declined 11.6% in Q2 compared to the prior period, and it has entered positive pacing territory in July. And thus, I expect Ignite to be up mid- to high single digits for Q3 over prior year. We remain confident in our estimate that annual Townsquare Ignite advertising revenue will reach $100 million in the next 2 to 4 years.

Additionally, given the strength of our online audience growth and their engagement, which increased our digital ad impressions on our owned sites, digital display advertising on our owned and operated sites and apps only declined negative 10% in Q2 and we expect in Q3 will return to prior year levels, if not higher. In my opinion, this proves that Townsquare's digital assets, be it our digital audience to our websites and apps, our video, social, mobile and programmatic advertising solutions or our robust digital marketing subscription services, are a real differentiator for our company and proves out the fact that although we are proud of our roots and DNA in radio, Townsquare is not limited to being just a radio or audio company but rather at this point can, and quite honestly should be, classified as a premier local media and digital marketing solutions company. And we believe our diversification will enable us to rebound more quickly than others in the radio broadcast industry from this COVID-19 pandemic downturn.

The third and final financial highlight I will point out today is a very important one, and therefore, Stu will spend some more time on it in a bit. And what I'm referring to is our cash generation ability. As we forecasted and shared with you on our last earnings call, our cash flow from operations was positive in the second quarter. Even with revenue declining negative 35% during one of the most severe advertising pullbacks we have ever experienced, cash flow provided by continuing operations was positive $2.3 million in the second quarter and approximately $12 million in the year-to-date period, and that is after making nearly $16 million of cash interest payments in 2020. And based on our current knowledge, visibility and expectations and as a result of our expense reductions and prudent cash management, we strongly believe that our liquidity position today is sufficient to sustain our business at the current advertising levels for the better part of the next 3 years, even if our revenue does not improve.

However, we are prepared for it. And in fact, we believe we are doing the work necessary for business to recover more quickly, and you are seeing that in our sequential revenue improvement through Q2 and in July and currently in August. I trust that I provided a very thorough in-depth perspective, not only on our Q2 results, but also what we are currently seeing in July and August.

Looking ahead to Q3, I want to be very direct and transparent. Although we have seen sequential improvement in our Advertising business and Townsquare Interactive subscription business continues to grow, we still have a long way to go to fully recover and then resume our industry-leading revenue growth that we generated in 2019. As you would expect, future results are dependent on the continued success of businesses opening over the next few weeks and months and quarters and whether there is a second stage of the pandemic in the fall or winter.

Although we will not be providing formal guidance given the continued uncertainty of the COVID-19 pandemic, our goal in Q3 is to improve net revenue from negative 35% in Q2 to close to negative 20% in Q3 as compared to last year. As was the case in Q2 where we had no material event revenue, we expect the same in Q3, and we are comping against $3.6 million in Live Event revenue in Q3 2019. However, we are confident that when we emerge on the other side of this pandemic, we will be a stronger, and in my view, one of the best-positioned local media companies in the U.S. for top line organic revenue growth and bottom line profit growth.

With that, I'll turn the call over to Stu, who's going to discuss our financial results in much greater detail. Take it away, Stu.

Thank you, Bill, and good morning, everyone. As a reminder, for 2019, we sold our Bridal Exposition live events. Our year-to-date 2019 results and year-to-date 2020 growth rates are presented pro forma for the sale of these events, unless otherwise stated. Please refer to the tables included in our earnings release, which provide GAAP results and pro forma results as well as our non-GAAP performance measures.

Our second quarter financial results were in line with our expectations, with net revenues decreasing 34.5% over the prior period to $71.1 million and adjusted EBITDA of $2.1 million. As reported on our first quarter conference call, April and May net revenue declined 36% and 37%, respectively, as compared to the prior period. June finished at negative 31% versus the prior year, marking a significant improvement as we began to benefit from businesses reopening across the country.

Second quarter Advertising net revenue declined 37.5% as compared to the prior year. April was our worst month in terms of advertising cancellations, and we saw a sequential improvement throughout the quarter. In April, May and June, Advertising net revenue declined 42%, 41% and 30%, respectively, compared to the same months of 2019.

Our digital advertising solutions fared better than our broadcasting advertising solutions during the second quarter and continued to do so in the third quarter. Our Townsquare Ignite's advertising solution was one of our best-performing advertising products in the second quarter and year-to-date period, and net revenue from Ignite advertising actually increased in the year-to-date period by approximately 6%.

Townsquare Interactive continued to demonstrate its resilience, with second quarter net revenue increasing 10.5% year-over-year as our subscriber base grew by approximately 900 net subscribers in the quarter, outpacing prior quarters.

Because of the pandemic, we canceled or postponed our second quarter live events, resulting in net revenue declining nearly 100% versus the prior year. Fortunately, our Live Events cost basis is largely variable. And if we do not host the event, we do not incur many of these expenses. Therefore, while second quarter net revenue for Live Events decreased nearly 100% versus the prior year period, direct operating expenses decreased approximately 98% versus the prior year period and were approximately breakeven for the quarter with a loss of approximately $60,000.

In the year-to-date period, Live Events net revenue declined 78%, and Live Events direct operating expenses declined 76%, resulting in a positive adjusted operating income of $0.5 million.

In total, second quarter direct operating expenses decreased by 14.8% compared to the second quarter of the prior year. This was driven by the Live Events expense decrease as well as a 13.3% decrease in advertising direct operating expenses, partially offset by an increase in Townsquare Interactive direct operating expenses of 14.3%. The declines in advertising direct operating expense were driven by cost reduction efforts we announced on our last earnings call and that Bill discussed earlier, including employee headcount reductions, temporary hiring freezes, the reduction of variable expenses, such as sales commissions and music license fees, and various other measures. These reductions were partially offset by increases in medical expenses related to our self-insurance plan, bad debt expense and music license fees. Due to bad debt reductions as well as declining interest rates, interest expense for the second quarter declined approximately 7% or $634,000 as compared to the prior year period and 6% or $1.1 million in the year-to-date period.

During the second quarter of 2020, as a result of the COVID-19 pandemic, the assumptions that we used to evaluate our FCC licenses for impairment were negatively impacted. Specifically, the discount rate we use increased because of COVID impact on market and economic conditions. This translated to a higher risk premium and, therefore, a higher weighted average cost of capital. As a result, we took a noncash impairment charge for our FCC licenses of $28.7 million in the second quarter. In total, and primarily as a result of COVID-19 pandemic, we've recorded approximately $107 million of noncash impairment charges to intangible assets in the first 6 months of 2020.

I would like to telegraph that we expect the value of our FCC licenses to continue to be reduced over the coming years. This is a result of the fact that we no longer include 100% of our revenue streams when supporting the value of these FCC intangible assets. We no longer include the revenue and profit of Townsquare Interactive or Townsquare Ignite, our largest digital revenue stream. As these digital revenue streams continue to outpace our radio spot sales, this formulaic trend will continue. This write-down of decade-old purchase price calculation has no bearing on our cash position, operating revenue, operating expenses, profitability or our company's future prospects. They are nothing more than a noncash accounting charge affecting only the purchase price allocation that we made when we bought our radio station back in 2010 through 2013.

For the second quarter, net loss from continuing operations was $26.8 million or a net loss of $1.46 per diluted share as compared to net income from continuing operations of $9.9 million or $0.34 per diluted share in the second quarter of 2019. The decrease was primarily due to the decline in net revenue driven by the COVID-19 pandemic and the previously discussed noncash impairment charge.

We'd like to remind you that the provision for income taxes included on the face of the income statement is for GAAP financial statement purposes only. We maintained significant tax attributes, including $191 million of federal NOL carryforwards and other substantial tax yields related to the tax amortization of our intangible assets. We continue to believe that we'll not be a material cash taxpayer until approximately the year 2026.

Turning to our balance sheet. As of June 30, our total debt balance was $545.8 million, and our total cash balance was $70 million, implying a net leverage as of June 30 of 6.7x based on our trailing 12 months adjusted EBITDA of $70.7 million. During the second quarter, we generated positive cash flow from continuing operations of approximately $2.3 million and $14.7 million prior to interest payments, demonstrating our assets' strong cash flow generation ability.

Also during the second quarter, we repaid the entire outstanding amount on our revolver, which we had drawn down at the end of Q1 as a precautionary measure as the pandemic first began to hit our markets, and we repaid $9.9 million of our term loan balance due to our 2019 excess cash flow payment requirement.

I also want to highlight that we repurchased $4.7 million of our 6.5% April 2023 unsecured notes at a 25% discount to face value and retired them. We also paid $2.1 million of dividend payments during the second quarter. As a reminder, going forward, our Board has elected not to continue our quarterly dividend.

In the second quarter, we also limited capital expenditures, with total spend declining by $1.2 million or 30% year-over-year. In 2020, we expect an approximately 15% reduction to our capital expenditures or savings of approximately $3 million as compared to 2019. In addition, we are experiencing cash savings by deferring payroll taxes until 2021 and 2022 under the CARES Act.

In total, our cash balance declined by only $15 million in the first 6 months of 2020 despite reducing long-term debt by $14.7 million, making $4.2 million of dividend payments and paying $15.7 million of interest payments. These data points demonstrate the strength of our cash flow from operations.

In the near term, we anticipate holding cash on the balance sheet in order to preserve flexibility during this pandemic. However, our long-term goal remains the same: to reduce net leverage to 4x, which we have been on track to achieve by the end of 2020 prior to the impact of the pandemic. And as we discussed on our last earnings call, based on modeling various revenue projections, we believe that even if business remains at the same levels that we are seeing today, we have sufficient liquidity to meet our cash needs for the better part of the next 3 years.

With that, I will now turn the call back over to Bill.

Thank you, Stu, and thank you to everyone who dialed in this morning. I was recently asked what I was most proud of at Townsquare. Number one by far is my pride in our Townsquare team. Having invested the time to visit each of our 67 markets and our office locations a minimum of once a year over the past 10 years, I've had the privilege of spending a lot of time with our local teams over the past decade. Thus, I knew prior to this pandemic how strong and talented our team was. But what struck a chord with me during this time is their passion for what they do each day and their commitment to their communities and their commitment to our company. It is unparalleled, it is inspiring, and as a result, it is a true honor to serve as their leader, and I let the team know that often and repeatedly.

Number two, I am also extremely proud of our diversified and differentiated product offering, with 48% of our Q2 2020 revenue coming from digital products and solutions, which has allowed us to weather this downturn more efficiently and effectively than if we did not have a diversified revenue foundation. One of the things our teams noted with great pride is that even with all of the challenges and unknowns during this pandemic, we, at Townsquare, have not had to alter our core strategy, but rather the pandemic placed a spotlight on the need to double down on executing our existing long-term strategy.

Number three is pride in our cash flow generation ability and our liquidity position that Stu and I outlined in detail on this call. We want to ensure all of our stakeholders that we are carefully managing through the crisis, first and foremost, by considering the health and well-being of our employees and our local communities above all; and secondly, by taking well-thought-out cost reductions to our business that will help mitigate the near-term pain that we expect in 2020.

As I stated earlier, our goal is to balance cost reductions with our opportunity for long-term growth. We want to be positioned to emerge from this downturn more quickly and more efficiently than our competitors, and we believe that this strategy, together with our diversified and differentiated product offering, ensures that we will be.

As always, please do not hesitate to call us as I look forward to speaking with our investors at every opportunity. Be well, and as we say internally, stay Townsquare strong.

And with that, operator, please open the call for questions.

(Operator Instructions) Your first question comes from the line of Michael Kupinski with NOBLE Capital Markets.

Thanks for all of the detail, by the way, as well. I know that you gave the digital revenue progress in the quarter. Did you give Townsquare's Interactive, specifically for them on the sequential month-to-month improvement in the quarter?

Michael, it's Bill. Yes. What we noted on the call was, as in Q2, it was growth of 10.5%, obviously, 900 net adds, which is up from our trailing quarterly average of 850. And we also noted that in July, we saw that increased to 13%. So we didn't give a specific month-over-month in the quarter, but we did highlight that July has improved from the Q2 growth of 10.5% to 13% and expect that growth rate to continue in Q3.

Okay. Got you. In terms of the expenses, I know that you talked about some of those being permanent. Is there a percentage in terms of what you're anticipating to be permanent expense reductions?

So we noted, as you know, $1.7 million monthly. A little over $1 million of that was tied to our workforce reduction that we did. I believe it was on April 1. So I would say probably in the $1 million to $1.3 million would be more permanent. And then things like the 401(k) company match and other things that are tied to revenue would be more temporary. So I'd say roughly $1.2 million a month would be permanent.

And I know that your Live Events is virtually 0, probably likely to be virtually 0 in the third quarter. But are you planning any Live Event revenue in the fourth quarter at this point?

Currently not. In terms of our planning, I'm expecting no Live Event revenue or any materiality for the rest of this year, and we're currently plotting and looking at what that will look at, at the beginning of next year. But in terms of modeling and planning, we are expecting no material Live Event revenue in Q3 or Q4.

And if I'm looking at this right, corporate expenses, where it showed sequential quarterly uptick in the second quarter, I was just wondering what the run rate -- or what should we look for in terms of corporate expenses in Q3 and going forward.

Sure. I think that was mostly tied to our audit, but I'll turn that over to Stu.

Mike, yes, so we had a big increase in legal costs, audit and professional fees when we changed the auditors. Going forward, we expect it to come back down and being a little bit less than last year.

Got you. And I guess this is kind of a nebulous question but -- and kind of hard to address. But if you look at just generally this pandemic and how things affected you, was there something that you've learned from this pandemic that -- maybe some misgivings that you've had before or opportunities that you may have seen now that present themselves that maybe you may have not looked at before, maybe a past recession or something like that? I'm just wondering if there's something different about this pandemic that may have shown a light on opportunities or misgivings at the company that you would like -- that you're addressing.

Yes. I appreciate that, Michael. I would say, as I noted on the prepared remarks that, based on our strategy of revenue diversification with really a focus on, first and foremost, starting 10 years ago when the company was formed, building a digital audience and our success in doing that. And as I noted on the last couple of calls, the fact that newspapers and television stations in our size markets, in particular, but potentially across America but definitely in our size markets outside the top 50, have really been cut back severely that when we started in 2010, the majority of newspapers were published 7 days a week in all of our markets. And now there's many markets who actually don't have a physical newspaper. Local news coverage has been cut back.

So we've come in and filled that void from a digital audience perspective. And as I noted, it was, I'd say, a nice compliment that Google provided us a $260,000 grant to start 2 news operations in -- one in Tuscaloosa, Alabama and one in Portsmouth, New Hampshire. And then obviously, as we noted, obviously, our digital revenue based on our increase in audience and impressions has held up quite nicely and is expected to be positive in Q3 on our owned and operated networks. And then obviously, Ignite and Townsquare Interactive are really recovering much more strongly.

What I would say is, I'd say, throughout the company, in terms of particularly the sales force, the pandemic has, I'd say, shone -- shined a light on the breadth of our solutions. And we noted it just in a sentence, but it's actually really transformed, I'd say, some of our go-to-market strategy in that we, during this pandemic, actually had the highest amount of new business that we've ever had, meaning clients who hadn't placed orders with us in the last 13 months.

And why that is, is because, obviously, as we noted on our last call, we experienced a tremendous amount of cancellations. We gave all the data on the last call in April, and then we started to rebound sequentially each month. But as our sales force experienced that, they then were able to prospect and do client needs assessment with categories that they traditionally may not have called on. And I think that's why we are recovering as nicely as we are, even though we're still down, as we noted, and expect to be down in Q3 in the low 20%. It's really, from an account executive perspective, I'd say, reopened their eyes to the opportunity that we have solutions for every type of business. And that's been, I'd say, an eye-opener for us and really changed the way we were doing training as well.

So I don't know if that's exactly what you were looking at, but that's really -- it isn't something like we're doing completely differently. It's more the things we were doing, I think, shined brighter, particularly in our sales teams' eyes.

And Bill, can you just explain the Google opportunity? Is this a onetime event? Or is it -- and then if you can also talk a little bit about how it came about and whether or not there's a bigger opportunity there.

Yes. Thank you, Michael. So it came about because they actually have seen what we've done in places like St. Cloud, Minnesota, which is about an hour and 20 minutes north of Minneapolis. We have WJON, which is a news talk station. We have the same type of situation with K2 Radio in Casper, and then, obviously, our premier station, New Jersey 101.5. They've seen that we've, in essence, filled this void that I described. And really, if you go to any one of those brands, either on the web or on an app, it will look to most consumers like a newspaper. And they've noted that, and they have asked us to do this in these 2 markets that I described, Tuscaloosa and Portsmouth.

But part of the grant is our commitment to then share best practices and, in essence, a playbook for the rest of the broadcast industry. That was what they're asking us. What you have done so well over the past decade and really during this last few years with newspapers cutting back as dramatically as they have, will you share some of your learnings and how others, particularly in markets we don't compete in, can do that. And that's how the grant came about. We have an amazing digital team from a content perspective as well as an engineering perspective. And Google took note of that and provided us $260,000.

It could be future funds, but we're not counting on that because we believe, just like our core business, they'll be profitable in a short amount of time. But they -- that doesn't mean there won't be future grants. But this is a onetime grant, but they have expressed interest in us continuing to really not only help the communities we're in but help the industry overall.

(Operator Instructions) Your next question comes from the line of Jim Goss with Barrington Research.

One thing I was interested in what you were talking about was the -- how you were helping some of the small businesses who are clients of TSI to create new business opportunities. One example you used was helping restaurants adapt websites for online ordering. This was an intriguing sort of set of opportunities. Now I wonder if that is helping you in the process of gaining additional clients for the services. And what is the process you're using to attract attention and get new business by publicizing the things you can do for them?

Great question, Jim. Excellent. So yes, to your point, we've been quite, quite pleased for some time, but particularly during this pandemic, with Townsquare Interactive and really super serving small and midsize businesses and being able to pivot the fact that we do all of our technology in-house, not only for Townsquare Interactive, but things like Townsquare Ignite is a competitive advantage for us and allows us to build these type of solutions as well as append existing solutions pretty quickly. And that was the case during this pandemic.

So it broadened the opportunity in terms of who we could address clearly. I think the pandemic, for everyone, if you look at just the space for digital marketing services, in general, has done quite well through the quarter, if you look at other public companies who focus on that just specifically. And we've seen the same thing where, clearly, your online presence being found in search engines but also importantly being able to communicate one by one to your customer base and not rely on social media where you may post something but it may not be seen by all your customers is of critical importance.

And therefore, that's why we highlighted to get to our first 10,000 customers was 57 months, to get to our 20,000 customers was 44 months, and we believe we'll get to 30,000 in under 35 months, and that's partially because the types of businesses and the universe is really -- I think I detailed that probably a year ago on this earnings call, untapped for us. There's literally -- we've identified 8 million SMBs in markets with a population of less than 1.5 million, with less than 25 employees, with less than $5 million in annual revenue as the addressable market for us, and yet we're sitting here at just under 21,000.

So there's a lot of runway, and we couldn't be more excited about the opportunity for Townsquare Interactive. And as you've noted before, operating at roughly a 30% profit margin with a long runway to go, we're confident that we'll be at $100 million in 2 to 4 years and probably more closely to 3 years.

Okay. And then the radio side, I'm sure it's been more of a challenge given the unevenness of the recovery, the sort of fits and starts of states coming forward and maybe backing up a little bit. I'm wondering if you could talk about how that has played into what you're just discussing with the -- a large number of maybe new categories coming up and the -- how -- if there's a consistency or a variance between the core radio side of the business and what Ignite has been focused on in terms of those categories.

Yes, definitely. Great question, Jim. So as we highlighted on the call, but just as a reminder, in terms of just straight broadcast, so just audio commercial over our AM/FM broadcast, in April, we were down 52% for broadcast. That slightly improved in May to 49%, but really took a nice step forward, still a long way to go, but June was negative 35%. So we're seeing that improvement.

We also noted, even in places like Texas, which you've seen some rollbacks and a lot of coverage in terms of where they're at, we were negative 45% in May. May for Texas was the low point versus April because they got hit a little bit later than the Northeast. But we've seen that recover to roughly negative 22% in August and not going backwards but still staying stable and growing.

So broadcast is behaving that way, and we expect as we go through Q3, we will see continued sequential improvement from that negative 35% in June because in July, we were in the high 20s, and I think we're pacing to the mid-20s now, whereas our digital advertising in Q2 was down only 18%, so much, much less. And in July, we're actually -- was down negative 10%. So this is digital advertising. Putting aside our digital marketing subscription business, this is our advertising for our owned and operated properties that I described earlier, which had record traffic as well as Ignite.

Ignite in Q3 -- Q2, I'm sorry, was down 11.6%. We're actually paced positive in July. And as I noted on the call in Q3, I believe we'll be up mid- to high single digits, so anywhere from 6% to 8% for Ignite, and we reaffirmed that we'll be at $100 million in 2 to 4 years with Ignite just like Townsquare Interactive.

So broadcast is definitely coming back, but it's coming back more slowly. And that's why I think it's so important that we have a diversified revenue base with almost half of our revenue now at digital. That's clearly a differentiator for us as we go to market but also provides us this financial stability and to be able to be EBITDA positive in a quarter that was down 35% overall as well as cash flow positive and be able to reaffirm that we've got liquidity for up to 3 years is really based on our digital advertising differentiation.

And particularly, we've outlined -- we didn't talk about a lot today, but we've outlined in the past that in our size markets, we are the premier digital offering. And when we do run up against competition, it's usually somebody who has a third party as a solution versus our own in-house, and that's why we're so aggressive and optimistic about our future growth opportunities as things return to normal in the future.

In terms of the ad categories that are -- you're working with on the Ignite stage versus core radio, is there a big difference in those?

Yes. So I wouldn't say there is a slight difference. Like auto, in particular, got really hit hard from a broadcasting perspective as well as entertainment and fast food and retail. At the same time, from an Ignite perspective, we've seen a lot of new clients coming in from auto for specifically Ignite. We've also seen, in general, a lot of categories that weren't necessarily big spenders with us come through during this pandemic, things like grocery stores, homebuilders, home repair as well as state governments.

So definitely seeing categories that we weren't necessarily either getting a lot of business on or focused on, providing some of this new business growth that I alluded to on the call, which was, quite honestly, at a record level of new business, which, I think, again, proves the tenacity and perseverance of our sales team in the midst of this recovery.

Okay. Maybe one last thing. I know you're very proud of your live and local heritage and the people. But I wonder if there is a greater challenge in these cost-constrained times in terms of what you can do live and local. Is there any greater use of simulcasting or anything like that in certain of your markets to just moderate the cost structure?

There's clearly a lever that's available to us, but it is not a lever that I am planning on utilizing at this time or anytime in the near future. Even as we were down 35% in Q2, the 6% reduction in workforce that we did on April 1 was not tied to live and local, but as I've shared before, was more corporate and support functions because we honestly believe it's a differentiator for our company in many levels. It also matters so much to our communities.

But from a business perspective, they're not only providing the local on-air content. Our on-air DJs are, in essence, as I've talked about in the past, original social influencers, and they're providing all of the local content for our local radio station websites that is driving all of this traffic.

So when we look at the assets and the talent that we have locally, we look at it holistically, and we don't only look at the broadcast side. But as I noted also, our digital O&O advertising is actually trending positive in Q3, and we believe it will be greater than last year. That ties directly and 100% correlated to our on-air staff. So I -- we could do reductions and syndicate more, but we believe that lies in the face of our local first strategy, and we believe it's a real differentiator.

That said, there's been some press reports that we're looking at non-personnel-type expenses that would allow us to take some expenses out. You may have seen Nielsen just exited 9 smaller markets, and we were in 8 of those markets. So we realized that was cost savings starting in the fall. And we also expect that there'll be other Nielsen markets that we will not be in that we've previously been in. So those are moves that I'd make before touching our most -- I believe, one of our most impressive assets, which is our on-air talent and our team.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Mr. Bill Wilson for closing remarks.

Thank you, operator, and thank you, everybody, for dialing in this morning. Hopefully, we provided really in-depth information and updates, and we appreciate you taking the time to learn more about how we are navigating this pandemic. And hopefully, you see that we are confident in our recovery, particularly with almost half of our revenue in digital and our cash flow generation. And just want to say thank you. Be safe, be well, and until next time. Thank you, operator.

This concludes today's conference. You may now disconnect. Thank you for your participation.