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Operator: Good morning. And welcome to Townsquare Media’s First Quarter 2023 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. [Operator Instructions] With that, I would like to introduce to you the first speaker for today’s call, Claire Yenicay, Executive Vice President.

Claire Yenicay: Thank you, operator. And good morning to everyone. Thank you for joining us today for Townsquare’s first 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 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.

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. We are pleased to share our first quarter results with you today. Although we face the same headwinds that have impacted the entire media sector, our first quarter results demonstrate the strength of our Digital Advertising platform and solutions and validate our Digital First Local Media strategy with a focus exclusively on local markets outside of the top 50. Townsquare’s, first quarter net revenue and adjusted EBITDA exceeded the guidance we provided on our last call, due to growth in local revenue, revenue that we control, and in particular the strength of our Digital Advertising solutions. In the first quarter, we had anticipated that total net revenue would be flat to up plus 2% year-over-year, and it finished above guidance at plus 3%.

We had expected that first quarter adjusted EBITDA would decline negative 16% to negative 21% year-over-year, and the actual result was also better at negative 12% year-over-year, approximately $1 million over the high end of our guidance. It is worth noting that while many media companies have not yet returned to 2019 levels, both our revenue and our profit results are above our pre-COVID 2019 performance. In 2022, approximately 50% of our company’s total net revenue and 50% of our total adjusted operating income were derived from our digital solutions. In the first quarter of 2023, our digital revenue grew plus 8% year-over-year, and as a result, our digital revenue in Q1 2023 grew to be 54% of our total net revenue. Total digital profit also increased plus 8% year-over-year with a profit margin of 28%.

And its first quarter contribution grew to be 63% of our total adjusted operating income. This point bears repeating, 54% of our revenue and 63% of our profit came from digital sources, a new milestone for our company and quite frankly for the industry, this milestone was achieved due to the strength and resiliency of our Digital Advertising solutions with first quarter revenue plus 15% year-over-year. Historically for Townsquare and for the advertising industry at large, Digital Advertising outperforms other forms of advertising during an economic downturn. For example, and as I shared on our last earnings call following the shutdown of businesses across the country, due to 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 all other forms of traditional advertising including outdoor, cinema, print, radio, and television declined. Townsquare’s digital platform sets us apart from our local media peers. As highlighted on Slide 11 with 54% digital revenue, we are approximately 2.5 times the industry average and therefore better situated than our competitive set during a downturn. As anticipated Townsquare Interactive, our subscription digital marketing solutions offering, outlined on Slide 13, faced challenges in the first quarter, which as I noted on our last call, we expect will continue throughout 2023. Townsquare Interactive net revenue decline 1% year-over-year in the first quarter.

As a reminder, our target clients are independent SMBs with less than $5 million in annual revenue. Unfortunately, this demographic in particular is vulnerable to the current macroeconomic environment, battling high inflation, labor shortages, higher wages, higher interest rates, et cetera. This has contributed to a period of higher attrition among our subscribers. In addition, and as we mentioned on our last call, we also faced issues related to employee turnover in our customer service operations at Townsquare Interactive due to our return to work mandate in 2022. This has largely been addressed but did contribute to an increase in client attrition year-to-date. Although challenging these issues caused us to take a step back and analyze the fundamentals of our service platform, highlighting a number of opportunities that we believe we can improve upon moving forward.

Since the start of the year and continuing currently, we have made a number of important changes to our customer service platform that we believe will be very beneficial to our clients and thus client retention in the long term, but the changes will contribute to a muted financial performance for Townsquare Interactive in 2023. Despite the short-term pressure on Townsquare Interactive’s top line, which is facing negative 7% in the second quarter, we are still incredibly confident in the long-term growth prospect of the business, and as such, continue to invest in its long-term future. The second Townsquare Interactive office in Phoenix is now open and we continue to grow our team there while simultaneously growing our team in Charlotte. With an addressable market of nearly nine million target customers as outlined on Slide 14, a superior product offering, a customer service team built for future growth and a huge market opportunity, I am very, very confident that Townsquare Interactive is geared for long-term, profitable growth and success.

Just be aware that in 2023, it will be a reset year for us at Townsquare Interactive with 2024 returning to strong top line and strong bottom line growth. Our Digital Advertising solutions segment, outlined on Slide 12, was once again our largest growth driver with first quarter revenue increasing plus 15% year-over-year, impressive in any environment and even more impressive in the current macro environment. First quarter profit growth outpaced revenue growth at plus 23% year-over-year due in part to an increase in average order size. In addition, due to an increasing online audience, which grew to an all-time high of 84 million average unique visitors per month in the first quarter and higher engagement, we have been able to more efficiently monetize our audience, enhancing our profit margins in digital advertising.

We are a success in Digital Advertising to our sophisticated digital products and solutions, which are entirely in-house, giving us one hundred percent control of the client relationship from the first client pitch, to campaign design, media buying and optimization to ongoing reporting and insights, which we believe translates to a better customer experience and higher client retention rates. In addition, we have the unique ability to collect and analyze first party data from our audience of 84 million monthly unique visitors to our portfolio of over 400 local news and entertainment websites, 390 mobile apps, and our 10 leading national music and entertainment websites. This leads to detailed and unique insights about consumer behaviors, audience interest and purchase intent, that drive real results with strong ROI for our clients and give us a strategic advantage over our local competition.

Another key factor driving our strong Digital Advertising success is our focus on markets outside of the top 50 cities of the United States. This is a significant differentiator for our broadcast business and most importantly for our digital businesses. Because we are not in large top 50 markets, we face significantly less competition from large media players, digital marketing solutions players and digital programmatic providers, and importantly, the competitors we do face rarely have in-house solutions and instead utilize out-of-house third party vendors. The fact that we own our own tech platforms in-house combined with the breadth of our digital solutions is a competitive advantage in any size market. Yet in cities outside the top 50, it is a significant difference maker, which is driving our Digital Advertising to be the strongest growth engine in the company.

In addition, the majority over 90% of our advertising revenue is local advertising, which historically is less volatile than national advertising, particularly during an economic downturn. For example, national broadcast advertising revenue continued to be extremely weak in the first quarter with revenue down approximately 30% compared to prior year. No doubt that hurts, but that decline doesn’t hurt as much as others because national broadcast advertising now accounts for approximately 5% of our total revenue. In contrast, our local broadcast advertising performed much better as it was positive in Q1. We are confident that favorable industry trends, together with our in-house, full suite of marketing solutions, strategic footprint focus on small- to mid-size markets, investment in our original content strategy, and our first-party data advantage will continue to drive strong digital advertising growth.

To reinforce that point, even with the current challenging macroeconomic conditions, in Q2, our digital advertising continues to perform very well and is pacing up low-double digits. I would also like to share a bright spotlight on the fact that our business continues to generate strong cash flows including $9 million of cash flow from operations in the first quarter. We ended the quarter with $42 million of cash on hand, down only $1 million from year end, even after repurchasing $12 million of our bonds on the open market at a price below par and also making our $19 million interest payment during the first quarter. And as a reminder, our next interest payment is not due until August. In addition, our Board of Directors approved a dividend of $0.1875 per share payable on August 1st, which equates to $0.75 per share on an annual basis, which today would be approximately 8% yield.

We remain very confident with our current capitalization and strength of our balance sheet with $42 million of cash on hand at quarter end, a fixed interest rate of 6.875%, no maturities until 2026 and net leverage of 4.29 times at the end of the first quarter. And we are pleased that we can generate attractive current cash returns for our equity shareholders. Overall, we continue to believe that we are very well positioned to perform during a downturn or recession, no matter the duration and severity. A belief which is supported by our 2020 performance during the worst of COVID as well as our rebound to record profits in 2021, which was then topped again in 2022 with record revenue and record profits and the ongoing strength of our digital advertising platforms and solutions.

And now I’d like to turn the call over to Stu to go over our results in even more detail as well as to provide you our second quarter guidance. Take it away, Stu.

Stuart Rosenstein: Thank you, Bill, and good morning everyone. It’s great to speak to you this morning. We’re pleased to report that we exceeded our net revenue and adjusted EBITDA guidance due to strong growth in local advertising revenue, and in particular digital advertising revenue. First quarter net revenue increased 2.9% over the prior year period to $103.1 million, which was above our guidance of $100 million to $102 million. First quarter adjusted EBITDA declined 11.9% year-over-year to $19.4 million above our guidance of $17.5 million to $18.5 million. Of note, both net revenue and adjusted EBITDA remain above pre-COVID 2019 levels, an accomplishment which has not been achieved by many of our local media peers. First quarter Broadcast Advertising net revenue decreased in line with our expectations with a decline of 4.8% year-over-year.

Broadcast profit margins dipped to approximately 19% in the first quarter, in part due to revenue declines and in part due to seasonality. Our first quarter Broadcast profit margins are typically the lowest for the year. As we expected and noted on our last call national broadcast revenue declines were significant in the first quarter with revenue down approximately 30% year-over-year and continue to be meaningfully down in the second quarter pacing down approximately 20%. Local broadcast has proven to be much more resilient as has historically been the case, and thus first quarter local broadcast growth was able to partially offset the national broadcast declines. We expect a similar outcome in the second quarter with total broadcast revenue currently projected to be down in the mid-single digits again.

Townsquare Interactive are Subscription Digital Marketing Solutions segment had a challenging quarter, which we expect will be the case for the remainder of 2023 as Bill discussed earlier. In the first quarter, net revenue decreased 1.3% as compared to the prior year, and profit decreased 12.1% year-over-year. Given our long-term growth prospects at Townsquare Interactive we continue to invest in our sales and support teams and we do have some incremental expenses such as the rent of the second location in Phoenix. This led to our profit margin dropping slightly to 26% in the first quarter. Additionally, it’s worth noting revenue is currently pacing down 7% in Q2. As we have shared on our last call, we expect margins at Townsquare Interactive to be suppressed in 2023 as we continue to invest for future growth while we ramp the newly open Phoenix location.

Townsquare Ignite our digital advertising segment was again the largest driver of growth in the first quarter with net revenue increasing 15.4% year-over-year and profit increasing 22.9% year-over-year. This segment’s profit margin expanded to 30% in Q1 as compared to 28% in the prior year period due to the increase of average order sizes and more efficient monetization of our owned and operated websites. We expect digital advertising segment will continue to be the biggest driver of our revenue and profit growth in 2023 and beyond. Our other category which is comprised of Live Events activity generated $1.9 million of revenue in the first quarter, an increase of $1 million year-over-year and profit of approximately $500,000, which was an increase of approximately $400,000 year-over-year.

The increase was due to hosting more events in the first quarter of 2023 than the prior year. In the first quarter of 2023, we took a non-cash impairment charge to our FCC licenses of $8.2 million. 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. The first quarter impairment was caused by rising interest rates and declining third-party broadcast advertising projections, both of which are factored into the assumption that we use to evaluate the FCC licenses for impairment. This write down of decade old purchase price calculations has no bearing on our cash position, operating revenue, operating expenses, our profitability or future prospects.

There are nothing more than the non-cash accounting charges affecting only the purchase price allocations made when we bought these radio station assets roughly a decade or more ago. Our net income declined $4.7 million to a net loss of $1.9 million or $0.14 per share. The decline was largely due to the $8 million non-cash impairment charges. As Bill highlighted, and I would again like to emphasize, we consistently have strong cash flow generation. We generated $9.4 million of cash flow from operations in the first quarter of 2023, up 9% year-over-year and ended the quarter with $41.8 million of cash. At the end of the first quarter our net leverage remained at the lowest net leverage in our company’s history, which is 4.29 times. We repurchase approximately $12.2 million of our bonds at a price below par in the first quarter.

As always, our number one priority to invest in our local business to organic, internal investments that support our revenue and profit growth particularly our digital growth engine. We plan to continue to invest in our digital product technology, sales, content and support teams, specifically in our Townsquare Interactive and Townsquare Ignite businesses in order to maintain our strong competitive advantage in our markets outside the Top 50 cities. As Bill mentioned earlier, our Board has approved a dividend payable on August 1st to shareholders of record as of June 30th. The dividend of $0.1875 per share, which equates to $0.75 per share on an annualized basis implies an annual payment of approximately $13 million and a dividend yield of approximately 8% based on current shares outstanding and our current share price.

We believe our strong cash flow characteristics will allow us to continue to invest in the business and support our new dividend. 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 approximately 2026. Turning to our second quarter outlook. We expect second quarter net revenue to be between $120 million and $122 million. We anticipate that double-digit digital advertising revenue growth will be offset by mid-single digit declines in Broadcast Advertising led by steep national declines and a negative 7% decline in Townsquare Interactive.

We expect second quarter adjusted EBITDA to be between $28 million and $29 million. For the full year we are reaffirming our expectations that revenue will be between $450 million and $470 million. We are also reaffirming our expectation that 2023 adjusted EBITDA will be between $100 million and $110 million. And 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. In closing, I want to reiterate that although we are navigating a number of macroeconomic headwinds in 2023 we are confident in our digital first local media strategy, our focus on markets outside of the Top 50 in the United States, and the long-term profitable growth potential of our digital platform. In fact, if we were to achieve the midpoint of our profit guidance, our full year profit would be the second best in the company’s history with last year being its best ever. In addition, our strong cash generation will allow us to continue to reward shareholders via our dividend. As always, we wouldn’t have the confidence in our long-term success without the Townsquare team’s effort, passion and commitment that is directly driving our growth and innovation each day.

I could not be more appreciative of our team and their tremendous work. And again, thanks to each of you for taking the time to be updated on our Q1 results. Operator, at this time please open the line for any and all questions.

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Michael Kupinski from Noble Capital Markets. Please go ahead.

Operator: Thank you. Your next question comes from the line of Jim Goss from Barrington Research. Please go ahead.

Operator: Thank you. There are no further questions at this time. I’d now like to turn the call back over to Mr. Bill Wilson for any closing remarks.

Bill Wilson: Thank you very much, operator. And thank you to each and every one who dialled in today. As hopefully you can tell we’re quite confident not only for the rest of this year reaffirming our guidance, but probably most importantly, some of the things that we’ve done over the past six months we think are going to have outsized impact as we look to – 2024, and 2025 and onward. And as we noted earlier, I think, our Digital First strategy combined with focus on outside the top 50 markets, and as you heard throughout this Q&A, our investment in our team, and our leadership and coaching, we couldn’t be more confident moving forward. So thank you for joining us this morning. We look forward to regrouping in three months from now. Everybody have a great day.

Operator: Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.