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Operator: Good morning. Welcome to Townsquare Media’s Fourth Quarter 2022 Conference Call. As a reminder, today’s call is being recorded and your participation implies consent to do such recording. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. . With that, I would like to introduce to you the first speaker for today’s call, Claire Yenicay, Executive Vice President. Please go ahead.

Claire Yenicay: Thank you, operator. And good morning to everyone. Thank you for joining us today for Townsquare’s fourth quarter and year-end 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 and 10-K/A filed with the SEC. We may also discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income and adjusted operating income, which we may refer to as profit in our remarks. Such non-GAAP financial measures should be used in conjunction with all the information contained in the quarterly, year-end and current reports available on our website. I would also encourage all participants to go to our corporate website and download our investor presentation, as Bill will reference some of those slides during our discussion this morning.

In addition, our annual shareholder letter is now available on our website. 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. As I look back on 2022, I am very pleased with our results that our digital first local media strategy delivered despite a progressively challenging economic landscape. We reached new highs and set new records in 2022. However, it wasn’t due to a favorable economy or an economic rebound. Starting with the war in the Ukraine, then the dramatic rise in gas prices and inflation, together with the persistent impact of COVID-19, the year grew increasingly turbulent, and we entered an environment of ongoing macroeconomic uncertainty. Our success has been the result of the Townsquare team, focusing on what we do best, creating high quality, local original content for our audiences and delivering creative and cost effective marketing solutions for our local clients with strong return on investment.

And it paid off. In 2022, we set new records, reaching all time high financial metrics and setting new digital audience records as well. In 2022, our net revenue increase plus 11% year-over-year, reaching an all-time high of $463 million. Impressively, and importantly, adjusted EBITDA also reached an all-time high of $113.7 million, growing plus 8% year-over-year. Unlike most other media companies in a political year, political ad spend did not drive a majority of our growth. Excluding political revenue, net revenue and adjusted EBITDA increased over the prior year by a solid plus 10% and plus 5%, respectively. And that was largely driven by the strength of our digital offerings. 2022 was a significant inflection point for our company. It marked the first year where radio no longer compromised the majority of our revenue and profit, further separating Townsquare from our local media appears and placing a spotlight on our world class team and our unique and differentiated strategy, assets, platforms and solutions.

As highlighted on slide 11, with 50% digital revenue, we are 2.5 times the industry average. We clearly are no longer a broadcast radio company. Therefore, we do not believe we should continue to be valued as a broadcast radio company as we are today. And we believe that because of our differentiated and unique position as a digital first local media company, focused exclusively on markets outside the top 50 cities, we are in a position to weather economic downturns when they occur better than most, and our record setting 2022 results demonstrate that. Approximately 50% of our company’s total net revenue and 50% of our total adjusted operating income now come from our digital solutions. Historically, for Townsquare, and for the advertising industry at large, digital advertising outperforms other forms of advertising during an economic downturn.

For example, following the shutdown of businesses across the country due to the COVID-19 pandemic in 2020, Townsquare’s digital advertising revenue rebounded quickly, returning to growth by the fourth quarter of 2020. Digital advertising across the United States increased plus 14.3% year-over-year in 2020, according to S&P Global Market Intelligence, while other forms of traditional advertising, including outdoor cinema, print, radio and television declined. As outlined on slide 6 of our investor presentation, our digital revenue comes from two distinct segments, Townsquare Ignite, our digital advertising solutions, and Townsquare Interactive, our subscription digital marketing solutions. Townsquare Interactive, our subscriptions digital marketing solutions offering, which is outlined on slide 13, has been a meaningful growth driver and a key component of our full suite of marketing solutions.

In 2022, Townsquare Interactive contributed nearly 20% of our company’s total net revenue and adjusted operating income, which is especially relevant in a downturn scenario as it represents a non-advertising based recurring revenue stream. In 2022, Townsquare Interactive net revenue increased plus 11% to $90 million and profit increased plus 7% to $26 million. Yet, I do want to make you aware that, in 2023, we expect to see more mile performance in this business as we navigate the challenges that are smaller. And as a reminder, as noted on slide 14, we target clients with less than $5 million in annual revenue that our local customers are currently facing, including high inflation, labor shortages, higher wages, higher interest rates, et cetera.

Additionally, we are very pleased to share that, this month, we officially opened the second Townsquare Interactive office in Phoenix. We will be expanding our ranks in the Phoenix office. And as I shared previously, we do not expect the Phoenix location to generate a meaningful lift in subscriber and revenue growth until 2024. Over time, we expect the Phoenix location to scale to the size of our Charlotte location, which today houses well over 600 employees. For reference, it took approximately one decade to reach that scale in our original Charlotte location. With 30,650 subscribers at the end of 2022, an addressable market of nearly 9 million target customers as outlined on slide 14, superior product offering and huge market opportunity, I am very confident that Townsquare Interactive is geared for long term, profitable growth and success.

Our Digital Advertising Solutions segment outlined on slide 12 grew substantially in 2022, driven by favorable industry dynamics and by our ability to provide a differentiated full suite of inhouse digital advertising solutions to our local and regional clients. We provide precision customer targeting solutions to our clients, giving them the ability to reach a high percentage of their online audience across desktop, mobile, connected TV, email, paid search and social media platforms utilizing display, video and native executions. As a publisher with more than 400 local news and entertainment websites, 390 mobile apps, and 10 leading national music and entertainment websites, we also have the unique ability to collect and analyze first party data, leading to detailed and unique insights about consumer behaviors, audience interest and purchase intent.

These insights drive real results for our clients and give us a strategic advantage over our local competition. In 2022, we set new audience records with more than 70 million monthly unique visitors on average to our portfolio of owned and operated websites, a plus 17% year-over-year increase to our 2021 audience levels. We believe our digital audience growth will continue, further amplifying the attractiveness of our offerings as we fill the expanding void of local information available in our communities due to the dwindling availability of local news sources in small and mid-sized markets both online and down there. As a publisher with our own first party data, our position also defends us from industry turmoil that has emerged from the discussion of eliminating third-party cookies, as we do not exclusively rely on third-party data, like many of our competitors.

In 2022, Townsquare’s Digital Advertising net revenue was again the fastest growing segment of our company and increased plus 20% year-over-year to $140 million and digital advertising profit increased plus 16% year-over-year to $43 million. S&P Global Market Intelligence latest forecasts project that digital advertising in the United States will increase at a plus 8.5% CAGR through 2027 as it grows from 65% of all advertising spend in 2022 to nearly 75% of all advertising spend in 2027. We are confident that these favorable industry trends, together with our inhouse, full suite of marketing solutions, investment in our original content strategy, and our first-party data advantage will continue to drive strong digital advertising growth during that same period.

To reinforce that point, even with the current challenging macroeconomic conditions, in Q1, our digital advertising is performing very well and pacing up low-double digits. I am proud to report that, in total, our digital revenue grew a very strong plus 16% year-over-year to $231 million and, importantly, generated $69 million of profit, representing a 30% profit margin, a margin much higher than most local media competitors. We are also reaffirming our expectation that our digital revenue will grow to a minimum of $275 million by 2024. We believe Townsquare’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 aggressively invest in our digital business to fuel further profitable growth.

At 50% of our revenue and profit in 2022, we expect that digital will be the majority of our revenue and profit by year-end 2023. And importantly, our digital profit characteristics are essentially equal to those of our broadcast platform. Digital was the primary reason we were able to recover so quickly from the COVID-19 recession and not only return to 2019 levels, but also quickly surpass those levels as well. And we expect our digital revenue will help to mitigate significant national broadcast negative advertising trends that we faced in 2022 and that have worsened in Q1 and helped to insulate our financial results. Our flywheel has gained compounding momentum because of the powerful combination of digital plus radio plus live events and it continues to blaze forward.

And yet, we are very aware that our audience does not differentiate between digital and traditional media or website and social. Rather, consumers live in one world and engage with our brands holistically with no distinction between the over the air brand and the website brand, the listening brand, the app brand or engaging with the brand on social platforms. One only needs to look at how consumers and audiences went about their daily lives just five years ago as compared to today. Overall, consumers spend less time today consuming traditional media, including television, cable, newspaper, radio, et cetera, and more time consuming digital media, including streaming services like Netflix, Disney+, OTT, Spotify, YouTube, or social media like Facebook, TikTok, Instagram, and other digital platforms from Amazon to Uber Eats.

The abundance of consumer choice available today drives home the importance of reinforcing every touchpoint we have with our audience, creating more touchpoints as new platforms emerge, and having a full suite of marketing solutions to leverage them. Before I turn it over to Stu to go over our results in more detail, I would also like to announce that, given the performance of our business, and our strong free cash flow generation, our Board of Directors has approved a dividend of $0.1875 per share payable on May 1, which equates to $0.75 per share on an annual basis, which today would be a yield of approximately 10%. In our view, the consistent strong free cash flow characteristics of our business, which we believe has not been reflected in our stock price to date can clearly support this dividend.

As Stu will detail later, we will be providing what we believe is conservative guidance for this year based on current macro conditions. But even with a conservative outlook, we will still generate strong cash flow that can support this dividend, as well as our ability to continue to invest in our digital growth engine, as well as potentially repurchase debt in the open market. We are confident with our current capitalization and the strength of our balance sheet, with $43 million of cash on hand at year-end, a fixed interest rate of 6.875%, and no maturities until 2026 and net leverage of 4.29 times at year-end 2022. And we are pleased that we can generate attractive current cash returns for our equity shareholders. And now, over to you, Stu.

Stuart Rosenstein : Thank you, Bill. And good morning, everyone. It’s great to speak to you today. Before turning to our Q4 operating results, let me begin by making a note on our FCC licenses and non-cash impairments. As I covered on previous calls, given the way these non-cash impairments are determined, we expect the value of our FCC licenses to continue to be written down over time. In 2022, as a result of rising interest rates, the assumptions that we use to evaluate our FCC licenses for impairment were negatively impacted. As a result, we took a non-cash impairment charge to our FCC licenses of $10.6 million in the fourth quarter and $26.1 million for the full year. This write-down of decade-old purchase price calculations has no bearing on our cash position, operating revenue, operating expenses, our profitability, or our future prospects.

They are nothing more than non-cash accounting charges affecting only the purchase price allocations made when we bought our radio station assets roughly a decade or more ago. Our non-cash impairment charges caused our 2022 net income to decrease by $4.4 million year-over-year to $14.4 million. More importantly, let me now turn to our Q4 and full year operating results, and then we will discuss our outlook for 2023. We’re pleased to report that we finished the year with strong growth, driving us to all-time record high revenue and all-time record high adjusted EBITDA levels in 2022. Fourth quarter net revenue increased 8.8% over the prior-year period, to an all-time Q4 high of $120.3 million, which was within our fourth quarter guidance of $116 million to $122 million.

In 2022, we reached an all-time high net revenue of $463.1 million, representing 10.8% year-over-year growth. As we discussed on our last earnings call, our fourth quarter strength wasn’t due to political as our markets didn’t align well with political races in 2022. Excluding political revenue, fourth quarter net revenue increased 6.8% year-over-year and full year net revenue increased 9.9% year-over-year. Fourth quarter adjusted EBITDA increased 11% year-over-year to a Q4 record high of $28.4 million, achieving our guidance range of $27.7 million to $30.7 million. For the year, adjusted EBITDA increased 8.2% year-over-year to an all-time high of $113.7 million. Townsquare Interactive, our subscription digital marketing solutions segment, steadily grew net revenue, profit and net subscribers in 2022.

In the fourth quarter, net revenue increased 4.4% as compared to the prior year, supported by the addition of approximately 800 net subscribers, and profit increased 6.4% year-over-year. In 2022, Townsquare Interactive’s net revenue increased 10.5% year-over-year to $90.4 million and profit increased 7% year-over-year to $26.1 million at a 29% profit margin. Townsquare Ignite, our digital advertising segment, was the largest driver of growth in the fourth quarter and full year periods, with net revenue increasing 16.9% year-over-year in the fourth quarter and 20.2% year-over-year for the full year. Digital Advertising profit increased 28.9% in Q4 and 15.7% for the full year. We expect our Digital Advertising segment will continue to be the biggest driver of our revenue and profit growth in 2023 and beyond.

Broadcast Advertising net revenue increased approximately 4% year-over-year in the fourth quarter and the full year periods, and increased point 4% and 2.2% respectively, excluding political revenue. Broadcast profit margins were approximately 31% in 2022. We anticipate our Broadcast Advertising segment will face the most significant headwinds in 2023 as digital historically performs better during a downturn than traditional broadcast advertising. National broadcast revenue declines continue to accelerate, and we have not seen a meaningful recovery to our auto spending in our small markets, both of which will weigh heavily on 2023 broadcasting results. Our other category, which is comprised of live events activity, generated $1.6 million of revenue in the fourth quarter, and had a small profit of $62,000.

In the full-year period, other revenue increased $4.7 million or 124% to $8.4 million due to hosting more events in 2022 than we did last year. Correspondingly, other profit increased $706,000 or 693% to $808,000 at a 10% profit margin. We generated $18.1 million of positive cash flow from operations in the fourth quarter of 2022 and $50.2 million for the year, and ended the year with $43.4 million of cash. We generated $11 million of less cash from operations in 2022 than we did in the prior year, primarily due to the timing of our interest payments. In 2021, we only paid $29 million of interest payments due to the timing of our refinancing as compared to $39 million in 2022. Prior to interest payments, we generated positive cash flow from operations of $89 million in line with the prior-year period.

We ended the year with the lowest net leverage in our company’s history, reducing that leverage from 4.75 times at year-end 2021 to 4.29 times at the end of this year. In 2022, we used our cash to repurchase approximately $90 million of our bond at or below par and $80 million on the accretive acquisition of Cherry Creek. 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 Townsquare Interactive, including at the second Phoenix location and Townsquare Ignite businesses in order to maintain our competitive advantage to market outside the top 50 cities.

As Bill mentioned earlier, our board has approved a dividend, payable on May 1 to shareholders a record as of March 27. The dividend has been set at $0.1875 per share, which would equate to $0.75 per share on an annualized basis. Based on our current shares outstanding and our current stock price, that would imply an annual payment of approximately $13 million and a dividend yield of approximately 10%. We believe our strong cash flow characteristics will allow us to continue to invest in our business, support our new dividend and allow us flexibility to repurchase bonds in the open market opportunistically even during a downturn. We’d 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 of federal NOL carryforwards and other substantial tax shields related to the tax amortization of our intangible assets. We continue to believe that we will not be a material cash taxpayer until the year approximately 2026. Turning to our first quarter and 2023 full year outlook. We expect first quarter net revenue to be between $100 million and $102 million. We anticipate that first quarter digital revenue growth will largely be offset by steep national broadcast revenue declines, leading to a flat to a plus 2% year-over-year total net revenue growth. We expect first quarter adjusted EBITDA to be between $17.5 million and $18.5 million. For the full year, we currently expect that our revenue will be between $450 million and $470 million.

This represents a year-over-year growth rate of plus 1.5% or plus 2.7%, excluding political at the high end of the range, and a negative 2.8% or 1.7% excluding political at the low end of the range. We expect that our 2023 adjusted EBITDA will be between $100 million and $110 million. With that, I will now turn the call back over to Bill.

Bill Wilson : Thank you, Stu. And thank you to everyone who joined us this morning. We greatly appreciate it. Since our 2010 inception, we have worked diligently to transform our company from a traditional broadcast radio company into a digital-first local media company. With 50% of our revenue and 50% of our profits now coming from digital sources, we certainly have come a long way. But our work is not done. In a rapidly changing landscape for consumers and local businesses and as advertisers become even more selective during periods of economic hardship, it has never been more important for us to accelerate our transformation and to create Townsquare’s future. The ability to continue what we are great at, attack and fix what we are not great at and to continually iterate to innovate by creating products and solutions that our audience and clients value, that is what Townsquare is all about, continually evolving and transforming.

In closing, I want to highlight a few key takeaways. One, 2022 revenue and EBITDA were both well above 2019 levels with and without political. Two, both net revenue and adjusted EBITDA represented the highest revenue and the highest adjusted EBITDA that Townsquare has ever achieved with these assets. Three, approximately 50% of our company’s total net revenue and 50% of our total adjusted operating income now come from our digital solutions. Four, we’ve reached the lowest net leverage ever in our history at 4.29 times. Five, we generated over $15 million of operating cash flow in 2022. And six, given our confidence in the long term growth and success of Townsquare, we are initiating a dividend that will generate current cash returns for our shareholders.

Our agenda and focus for 2023 remains consistent with the goals we set for our company several years ago. In 2023, we want to continue to be best-in-class in entertaining and informing our audiences and communities across all platforms, while super serving our clients with world class marketing and advertising solutions to grow their businesses. Although we are currently navigating a challenging macroeconomic landscape, we believe that our business model and strategy position us to weather this economic environment better than most. We will continue to grow and support our local teams during these periods of macroeconomic challenges, so that we can continue to be a resource to our local clients and audiences and be well positioned to capture accelerated growth when economic tailwinds return.

As we always do, we are going to create our own opportunities. We are not waiting for them to show up or present themselves. We create opportunities and overcome challenges. It’s the Townsquare way. The Townsquare team’s effort, passion and commitment to transformation is directly driving our growth and innovation. I couldn’t be more thankful. Operator, at this time, please open the lines for any and all questions.

Operator: . Our first question is from Michael Kupinski with Noble Capital Markets.

Michael Kupinski: Congratulations on your digital transition, by the way. A couple of questions. Can you break down your thoughts on digital pacings in the first quarter between Ignite and your subscription business?

Bill Wilson: In terms of the guide, obviously, that Stu provided for revenue, which was, in essence, flat to plus 2%. The breakdown for that in terms of digital will be we expect our Townsquare Interactive revenue to be flat in Q1. As we saw in Q4, that was about plus 4%. And as I described in the remarks already provided that we target customers with less than $5 million in revenue. And we’ve been transparent about that for quite some time in our investor deck. And clearly, those smaller customers are battling higher inflation, higher wages. So we’re definitely seeing a little more mild performance than normal in Townsquare Interactive. We anticipate that for Q1 and probably the first half of the year. Ignite, as I noted, continues to just be extremely powerful for our company, the differentiation of our being an owned and operated publisher at scale with first party data, and then our programmatic stack that we’ve outlined historically on these calls is truly differentiated and continues to be the fastest growing part of our company and will be for the foreseeable future.

So, in Q1, Ignite is up double digits. It’s in that 12% to 14% range. I think we’ll end up 12% to 13% right now. And Q4, as Stu noted, we were up 17%. So, Ignite continues to do quite well. And although you didn’t ask about broadcasts, while we’re just talking about guidance, we noted that national broadcast is almost down 30% in Q1. So it’s material. It’s actually over $3 million just in the quarter versus prior year quarter, while local broadcast is flat. And so, total broadcast overall will be down mid-single digits. TSI flat, Ignite up, low double digits.

Michael Kupinski: Bill, a number of radio peers has kind of stepped up digital investments targeting similar customers to your interactive business and are you seeing more competition in that space? Or is it just simply the market environment?

Bill Wilson: It’s the market environment. And quite honestly, I think there’s some things we can do better as well. So we’re continuing to challenge ourselves to perform better. I think there’s some things we’re doing in that business based on what we’ve experienced over the last six months that I think will also help us in the long run. So in our view, there’s always been competition there. And we’ve also shared quite transparently that the majority of customers that we get through Townsquare Interactive, they all have a web presence already. So they’re already working with somebody or they’re doing self-serve or they’re using Facebook. So our return on investment, as we’ve outlined on these calls, is significantly valued by these customers.

I think it’s just the macroeconomic environment and everything I just described in terms of the increased expense base. And then as we brought people back to the office over the past year, Charlotte is our largest location. So we had some return to work, some people who didn’t want to return to work, so we had some, I’d say, change over there and we’re working through some of those issues as we go through 2023. So I expect, as I said, that revenue to be flat for the first half of the year. But from a competitive set, nothing’s really changed there at all. Our offering is a great return on investment and highly differentiated having everything inhouse. And as you noted, many other people in either radio or local media moving into the space, very few, if not any, are actually doing it with all the technology inhouse.

And as we’ve shared before, that is a clear differentiator and that’s also why we can operate Townsquare Interactive €“ historically, I think we ended the year around 28%, 29% margin. We’re really excited about the Phoenix location. We’re about 30 people in building that. I think we have another six to eight joining us between now and the end of the month. So we’ve talked about bringing our margins down in TSI, Townsquare Interactive into the mid-20s this year because all of the investment in Phoenix in terms of the personnel, the incremental rents, we will see the return of increased revenue and increased subscribers till 2024. But obviously, our confidence is extremely high, and that’s why we’re opening the second location. And as we’ve outlined in the investor deck, and, Michael, you’re very well aware, the total addressable market here is $32 billion and we feel like we’re just getting started.

Michael Kupinski: On your broadcast side, the national, what is it, 12%, 14% of your total revenues on broadcasting?

Bill Wilson: Specifically, the broadcast is about 6%. So it is a small part, but it is down 30%. 30% is a dramatic drop. As I said, it’s over $3 million. Sports betting is a big piece of that. You may recall, if you reflect back on Q1 of 2022, actually, national in Q1 of 2022 was up 19%. So it actually decelerated through the year to low-single digit decline in Q2 and then mid-teens declines in Q3 and Q4. And it just really fell off dramatically in Q1 of this year. A lot of that is sports betting. Sports betting, in 2022, was quite strong. As you may recall, a lot of states legalized it, including New York. So, we saw a big influx of sports betting dollars in Q1 that bled over into Q2. But in Q1, currently in 2023, sports betting is down almost $2 million year-over-year.

So, of the $3 million plus in national declines, sports betting is obviously making up almost two thirds of that. So we think that settles down over the year. And I think that’s why when you look at our full year guide, our revenue on the full year side is really ex political down a couple points or up a few points. And we think national will, as we get into the comps in the back half of the year, be less of a headwind and local continues to perform much better and, as I shared in Q1, is flat.

Michael Kupinski: Yeah, traditionally, your radio station seem to be pretty stable relative to your larger market radio peers. And it seems like, in general, they tend to perform better in past economic headwinds. I was just wondering, outside of the sports betting, are you still seeing the similar kind of performance relative to economic scenarios that we’ve had in the past?

Bill Wilson: Yes, very much so. And to you point, that’s why we are very disciplined. From day one of Townsquare in 2010, our strategy is to be the number one local media provider in markets outside the top 50. We’ve obviously had tremendous opportunities to move into the top 50. But we believe it is a completely different business outside the top 50 markets. Not only for radio where the companionship and €“ as I’ve described on prior calls, there has been such a lack and a deceleration of news and information. It’s quite sad in terms of the media landscape in these markets as it relates to newspapers cutting back. We’ve seen TV stations exit these markets. So we quite honestly feel like we’re serving a mission for these communities to provide news and information.

As we’ve shared in the past, that’s why, on average, in our size markets, we reach 50%, half of the adult population, through one of our AM and FMs. When you factor in our digital audience, which is significant, we reach 7 in 10 adults in the 74 markets that we operate in. So, it is such a different business. It is such a different landscape for consumer choice, as well as from competitive set in these smaller markets. And that’s why we have said, hey, let’s focus on digital as our growth engine. Right? So, today, we’re 50% digital revenue and profits. As we move forward, that will continue to grow because, as you’ve seen, our digital growth is going to be double-digits for quite some time. And the competitive set there and the ability to bring these very sophisticated digital marketing solutions with Townsquare Interactive and digital advertising solutions with Ignite is quite differentiated and, most importantly for the client, our mission is to help them grow.

And our products do that. And the fact that we can use radio, which is number one reach medium, but yet only 6% of all ad spend, but then factor in digital advertising and digital marketing solutions, which today is 65% €“ 65% of every dollar spent today goes to digital. And as I shared on my remarks, that’s moving to 75%. So that’s $0.75 on every dollar by 2027. Clearly, to be strong in digital is incredibly powerful and differentiated. And to your original point, in smaller markets, we’re bringing a level of sophistication and technology in platforms that we believe is second to none.

Michael Kupinski: If I may squeeze in just one more. On your Interactive business, are there any particular categories that are being affected at this point. And in the past, I believe that you’ve actually offered discounts, I know through the COVID situation that we had. Are you currently giving discounts? Or are you maintaining your pricing there in your Interactive business?

Bill Wilson: As it relates to categories, no. But what I would share is €“ what we’re seeing is smaller businesses. So businesses with a smaller revenue base, businesses with more challenging economics, maybe their wages are increasing based on the area. Or if they’re restaurants and their cost of eggs and food is increasing, things like that nature, we’re definitely seeing. And yes, we are working with our customers, as we did during COVID because, again, Townsquare’s mission is to help these businesses grow. So if they’re in business, and we can help them by giving them some discounts, we are definitely doing that. That worked quite well during 2020. And we went back to full pricing for those clients that we did offer discounts in 2021.

You saw that revenue growth come back quite nicely in 2021. So that was what I expect here, as well. We’re going to work with our clients and serve them and help them along this challenging time. When these conditions lift for them, I don’t know when that will be, if that’s in the back half of this year or 2024, we will then return them to full pricing. But we definitely think that’s the right thing to do. And we’re proud to do it. But it clearly will impact our short term results. But I hope and expect our investors and shareholders to look at what we did in 2020. And then look at 2021 where we posted our best record profits coming off of that, only to be beaten this past year in 2022. So, definitely, with the headwinds and these smaller businesses in TSI, you’ll see muted performance, add on the fact that we are working with them and providing discounts, that’ll add to that as well.

But we’re quite confident as we look forward in the future, and those clients get back to normal as inflation comes down, whenever that does, we’ll be in a great position again.

Operator: Our next question is from Jim Goss with Barrington Research.

James Goss: Given all that you’ve laid out now and recent past about your digital priorities, I was wondering if you might discuss the action you are apparently joining involving ownership caps within your radio station group. What are the objectives? Is a greater penetration in existing markets that you would like to adjust? And does the sort of instability at the head of the FCC with another nominee dropping out have any impact on your ability to get something like that through?

Bill Wilson: For those that don’t know, just disclose it in case anybody’s not aware, I’m also the Executive Chair of the National Association of Broadcasters on the radio side. So I’m quite involved in the NAB and some of the policies that they lobby on, including lifting the ownership caps. Personally, for Townsquare, speaking not on the NAB’s behalf, but on our company’s behalf, is the ownership rules are antiquated. They are decades old. And you can have Spotify, Pandora, YouTube, so forth and so on, have billions of offerings, yet we’re restricted to a certain number of signals. I just feel it’s rules based on another time in the past and not relevant now. So, particularly when you factor in what as I described to with Michael’s question, I don’t know how many people are in these smaller markets.

On average, our population is 300,000 people. It is really concerning to see print newspapers 10 years ago go from printing seven days a week to, many of our markets, there’s no longer a printed paper. There’s an online version with a paywall, and the majority of that content is national, not local, and the local content is crime, weather and maybe a little sports. So, we really feel that the ownership caps will allow us to super serve the communities even better. A sub point in there is, yes, we would look for more ownership and penetration in our existing markets first and then, secondarily, we would also look at other markets outside the top 50. If the caps were lifted, it would be highly advantageous. We’ve demonstrated and we’re seeing this now with Cherry Creek that we can go in and we can really create a diversified media business by transforming a local radio company into a digital first company.

So if ownership caps are lifted in the future, we would be pursuing that quite aggressively. And we think it would be the right thing to do. To your last point is, with Gigi withdrawing her nomination for the FCC, I do think it’s going to be a challenging time to get much done there. But I hope in time, and I think we’ve proven we’re quite patient in general, that the ownership caps will be lifted, because I think it’s the right thing to do for consumers and these communities.

James Goss: With regard to TSI, you mentioned that there might be some issues with the return to work aspect in Charlotte. Is that also contributing to the slowdown in the revenue gain in addition to €“ in that area? And is there some destabilization that happens when you have a changeover in personnel if you’re pushing that rather than let them work at home?

Bill Wilson: Correct. Yes. Again, in the spirit of transparency, we always like to share that maybe €“ overshare to some. But, yes, through 2022, we had a return to work policy in Charlotte. It’s our largest office with over 600 employees. And it’s also a population based on an average, let’s say, mid-20s workforce. There’s obviously exceptions to that. But the large majority, the mean is in their mid-20s. And they were obviously working remote through COVID for quite some period of time, which is similar to other businesses across the US. And we made a decision that we’d be returning back to work. And there were some exceptions to that, for people who had tenured and high performers. But if you weren’t tenured and a high performer, we, in essence, required you to come back to work.

Could have been hybrid, meaning it may have been five days in the office, could be three, two, four, one and so forth. But there was a subset of those people who opted out and looked for an opportunity with another company to be able to work remote. And so, that did have some €“ you asked about destabilization, I would just say, it wasn’t destabilizing, but it created some challenges for us. And handing over €“ we’ve been, again, transparent in that our Townsquare Interactive model has been that a client has a customer service, our customer success representative, and that’s a one to one relationship, meaning if you call into Townsquare Interactive, particularly you’ve got the same person every time. So when that person left, and more did during this time of disruption of return to work, it created more challenges for us.

I feel quite confident as we sit here on March 9, we’ve addressed those challenges. But as with a subscription business, pretty much what happened more in the last six months dictates our current results versus what’s happening today or over the next six months. So yes, return to work was definitely a challenge for us. We’ve addressed those challenges, and we’re in a great place. Just to be clear, too, in case my comment made people think we lost a lot of people, we’re net positive in terms of employees at Townsquare Interactive. And our Phoenix location, again, just opening this month in March, we’re coming up, I think, on roughly 30 people. And I think I said earlier, we have eight new hires joining us by the end of the month. So, again, robust, aggressive investment in our digital operation based on the market opportunity and our performance to date.

James Goss: And maybe one last question. You were quite aggressive with the dividend increase, 10% plus yield being implied. Could you talk about the rationale the behind going that far?

Bill Wilson: The dividend clearly speaks to the fact that we have significant, significant strong cash flow and have had that year-in and year-out. And even during the challenging time of 2020, we had positive operating cash flow. So, yes, you are correct. At today’s stock price, it is a an aggressive yield, approximately 10%, if not slightly higher. As you know, Jim, a year ago, our stock was $13. 15 months ago, we were in the $14, We were about $15 at one point. So at a $15 stock price, that would be a 5% yield. Our expectation is that our stock price will get back to the level it was at just a year ago and it’ll grow from there. But that, obviously, is not the case today. So we’ve been focused up until this point, utilizing our free cash flow for our digital investment and we will continue to do that, but also de-levering.

We bought bonds in the open market. So we delevered to the lowest leverage point in the company’s history at 4.29 times, as you know, at the end of 2022. And yet, our stock price has not reflected delevering. It has not reflected the record setting revenue, record setting profits in 2021 and then again in 2022. So, our view is we want to highlight the strong cash flow characteristics. And that’s why we wanted to provide a reward to our shareholders. Because even with this performance, from a profit and revenue standpoint, given this performance of transforming a local radio company to a digital-first local media company, our shareholders have not been rewarded and seen the appropriate, we believe, stock valuation. So, that is why we went with the $0.75 a year.

My expectation is that, although it’s a 10% plus yield today, that will come down because we will continue to execute, we will continue to drive our digital growth and, over time, we will be appropriately rewarded from a stock price valuation. I would also point out that we bought back 12.6 million shares from Oak Tree two years ago today. It was March 9, 2021. And at that time, our stock price was roughly, I believe, and Claire can correct me, or Stu, I believe it was just under $8 €“ $7.90, I believe it was. And yet, after retiring 12.6 million shares, here we are below that point. So, we’ve obviously evaluated delevering, which we’ve done quite well. We’ve evaluated stock buybacks, which we have an authorization of a $50 million buyback that’s still active, yet neither one of those things have actually positively influenced our stock price.

So given our stock, our shareholders have not yet been rewarded, we felt the most appropriate thing to do right now was a dividend. We have strong cash flow. And it allows us €“ as Stu said, it’s only roughly about $13 million a year. And it allows us to continue to do everything we want to do from a digital investment standpoint. It allows us now to reward our current shareholders and, hopefully future shareholders when they evaluate what a strong cash flow, high yielding dividend, and digital company is doing. And it also allows us, as Stu said, to opportunistically continue to delever and buy bonds in the open market. So, we’re quite pleased the board approved this and we look forward to our current shareholders receiving this dividend on May 1.

And we look forward to hopefully other people who are not shareholders today, having them look at this yield as well as our strong cash flow generation and then factor that into a growing, robust digital company that’s highly differentiated in markets outside the top 50. So we’re quite excited about the dividend and pleased to share that with our shareholders.

Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to Bill for closing comments.

Bill Wilson: Thank you, operator. And thanks, everybody, for joining in today. We’re quite pleased and proud to share the results of 2022. We feel that we are in a tremendously strong position to weather the current macroeconomic environment. And I just want to say thank you to the Townsquare team. I feel like the commitment, passion for not only driving the company forward in this transformation to a digital first local media company, but their commitment to their communities and to our clients is second to none and we are very, very proud of that. So, hope everybody has a great day. Look forward to connecting with you, it should be, a couple of months from now to share our Q1 results and our Q2 pacings. Have a great day.

Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time and thank you for your participation.