Townsquare Media, Inc. (TSQ) Earnings

Management highlights

### Transformation and Strategic Positioning - The company's multi-decade transformation from a traditional broadcast firm to a diversified digital-first local media company is complete, with digital now accounting for a majority of both revenue and profit, a position unmatched by peers. - The company holds competitive advantages from over a decade of internal investment in proprietary technology, products and sales teams, rather than relying on third-party vendors, creating scalable, high-margin digital growth platforms. ### Digital Advertising (Town Square Ignite) and Media Partnership Growth - Digital advertising growth accelerated meaningfully in Q2, driven by a full-funnel omnichannel strategy that captures market share from local businesses via trusted local relationships and measurable business outcomes, driving high client retention and increasing average spend. - The capital-light media partnership business, launched just over two years ago, now serves 115 total U.S. markets (16 partners adding 41 incremental markets beyond the company's 74 owned-and-operated markets). The model integrates the company's sales talent directly into partner markets to drive incremental digital revenue while protecting partners' high-margin radio businesses, and has delivered a 100% partner client retention rate over two years. - The company completed its first proprietary technology licensing deal, with partner Summit Media licensing the company's in-house built Blueprint CRM sales and prospecting tool, creating a new recurring revenue stream and deepening partner integration. Inbound partner interest is strong, with dozens of monthly inquiries from other local media companies, including television, outdoor and newspaper operators. The long-term target for the media partnership business is $50 million in annual revenue at a 20% profit margin within four years. - Headwinds from AI-driven search audience declines have sequentially stabilized in 2026, with direct and social traffic offsetting search volume declines to deliver modest overall audience growth. AI search headwinds will fully lap starting in Q3 2026. - Internal adoption of AI tools has driven meaningful operational efficiency improvements across the business. ### Town Square Interactive - The business is prioritizing durable profitable long-term growth over short-term revenue. Restructuring of the sales and customer service organizations, combined with AI-enabled efficiency improvements, has delivered record profit margins while customer retention has returned to historically low churn levels. - The sales force was intentionally reduced to improve productivity, and is being rebuilt judiciously, with sequential monthly revenue growth expected to resume by the end of 2026. ### Broadcast - Local broadcast radio remains a valuable strategic asset that delivers unmatched local reach and deep advertiser relationships, which the company leverages to support its digital growth strategy. The business continues to outperform industry averages, and generates consistent strong cash flow to fund digital investments.

Guidance

- **Q3 2026 Guidance**: Net revenue is expected to be between $108 million and $110 million, with midpoint reflecting low single-digit year-over-year growth. Adjusted EBITDA is expected to be between $22.5 million and $23.5 million, with midpoint reflecting mid single-digit year-over-year growth. Digital advertising revenue growth is expected to accelerate further, exceeding Q2's 11% year-over-year growth rate. Broadcast ex-political revenue declines are expected to remain in line with Q2's 7.2% rate. Town Square Interactive Q3 revenue is expected to be roughly flat sequentially, with sequential monthly growth resuming by year-end. - **Full Year 2026 Guidance**: The guidance range has been narrowed to $425 million to $431 million in net revenue, and $87 million to $90 million in adjusted EBITDA. This range is within the original guidance provided at the start of the year, and includes forecasted political revenue of ~$8 million, in line with 2022's $7.5 million political revenue cycle. Town Square Interactive profit margins are expected to exceed 2025's record for the remainder of the year. Full year broadcast segment profit margins are expected to average mid 20s, consistent with 2025. - Net leverage is expected to decline in the second half of 2026 as adjusted EBITDA returns to year-over-year growth.

Segment performance

Total Q2 2026 net revenue was $115.4 million, flat year-over-year, with adjusted EBITDA of $24.8 million, a 6.2% year-over-year decline. Digital segments collectively account for 57% of total net revenue and 59% of total segment profit year-to-date, outperforming peer averages of 31% digital revenue. 1. **Town Square Ignite (Digital Advertising)**: Q2 revenue grew 11% year-over-year, accelerating from 6.8% growth in Q1 2026. Programmatic revenue, which represents 70% of year-to-date digital advertising revenue, grew 27% year-over-year, while direct sold owned-and-operated digital revenue grew at a high single-digit rate. The media partnership sub-segment is on track to exceed $12 million in 2026 revenue, more than doubling 2025's $6 million. 2. **Town Square Interactive (Subscription SaaS Digital Marketing)**: Q2 net revenue declined 8.5% year-over-year to $17.2 million, but monthly revenue stabilized at ~$5.7 million per month in the quarter. Segment profit margins reached a record 37.6% year-over-year, and are expected to exceed 2025's record margins for the remainder of 2026. 3. **Broadcast Advertising**: Q2 total broadcast revenue declined 5.5% year-over-year (7.2% excluding political revenue), moderating from the consistent 8% ex-political declines seen in all quarters of 2025. Segment profit margins were 30% in Q2, and are expected to stay in the high 20s for the remainder of 2026, averaging mid 20s for the full year, matching 2025 margins. Broadcast continues to generate strong cash flow for the firm.

Risks & headwinds

- Non-cash impairment charges for FCC broadcast licenses are expected to continue regularly over time, driven by changes in discount rates and third-party industry revenue forecasts. Management notes these are accounting charges only, with no impact on cash flow, operating performance or future prospects. - Broadcast advertising continues to face secular headwinds as ad dollars shift from traditional to digital media, with national network and agency broadcast revenue declining at a high double-digit rate. - The only limiting factor for media partnership growth is the speed at which the company can scale specialized internal teams to support new partners, as the model requires deep integration with partner operations. - AI-driven search algorithm changes created material audience and revenue declines for the company's owned-and-operated digital properties starting in August 2025, though this headwind has now stabilized.

Analyst Q&A

• Q: How is AI search impacting the business going forward, beyond Q2? /

  A: AI search volume declines have been offset by growing direct (newsletter/app) and social traffic, leading to stabilized overall audience and modest sequential growth after declines in 2025. The AI-related revenue headwind will fully lap starting in August 2026, supporting faster Q3 digital growth. In addition to mitigating search headwinds, the company has adopted AI tools internally that drive material operational efficiency, customer targeting, and service improvements, with efficiency gains outweighing remaining search-related headwinds.

• Q: What are the limiting factors for scaling the media partnership business, and is there incremental opportunity from software licensing? /

  A: The only meaningful gating factor is how quickly the company can hire and train specialized internal teams (sales, media buying, data) to support new partners, as the model requires deep integration with partner operations. The first CRM licensing deal with Summit Media opens a new incremental revenue and profit opportunity, and the company is already discussing licensing this and other proprietary software tools to all existing 16 partners. Software licensing also deepens partner integration and retention, adding long-term stability to the business beyond incremental revenue. This opportunity is additive to the existing $50 million four-year revenue target for the partnership segment.

• Q: What subscriber and revenue trends are you seeing at Town Square Interactive after sales restructuring? /

  A: After intentional downsizing of the sales force (it is 40% smaller than its peak) to improve productivity, churn has returned to historically low levels, and revenue stabilized at $5.7 million per month in Q2 after sequential declines. Sales velocity is improving per existing seller, and the company is onboarding new sales staff judiciously. Sequential monthly revenue growth is still expected to resume by the end of 2026 (potentially as early as Q3), with the sales force expected to return to target size by 2027. Restructuring and AI improvements have also driven profit margins to a record 38%, up from 33% a year prior.

• Q: Is there any concern about SiriusXM's plans to expand in local media markets? /

  A: Management sees no material competitive threat from SiriusXM. Town Square is hyper-local, serving mid-sized and small markets where it often fills the gap left by declining local newspapers, and reaches 50% of the adult population in its markets via broadcast, far exceeding SiriusXM's local reach. Local direct broadcast advertising (the majority of the company's current broadcast revenue) is only down low single-digits year-over-year, with declines concentrated in the smaller national/agency broadcast segment. SiriusXM's national satellite offering does not compete with the company's hyper-local value proposition, similar to other national streaming services.