Townsquare Media, Inc.

Good morning and welcome to Town Square's first quarter conference call. As a reminder, today's call is being recorded and your participation implies consent to such recording. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. With that, I would like to introduce the first speaker for today's call, Claire Yenicay, Executive Vice President.

Thank you, Operator, and good morning to everyone. Thank you for joining us today for Town Square'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 for the year ended December 31st, 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. Thank you, Claire, and thank you all for joining us this morning.

I'd like to start this call by sharing that our thoughts and prayers go out to all who have been affected around our country and the world in these unprecedented and challenging times that we are all living in. And that I could not be more proud of how our Town Square team has adapted and adjusted and as a result, grown stronger. 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. Starting in late March, the majority of our team has been working remotely with the exception of much of our on-air staff who have been in our studios working hard to keep their local communities informed, entertained and comforted. Beginning last month, we began opening our offices to the rest of our teams when restrictions were lifted in each of the states and counties we operate in. 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 the employee's option to return to the office and any team member who is not comfortable returning is working remotely. Market by market, our goal is to find the intersection of safety and productivity. Our next focus and priority is to keep our communities well-informed and entertained. Time and again, Radio has proven how vital it is in an emergency or a crisis. Listeners tune into the radio, either on a traditional broadcast radio or via their smart speakers or mobile phones, not only for the trusted connection that is provided by their favorite local DJs, or as we call them, the original social influencers, but also to be updated on key safety information specific to their local community. A recent Nielsen survey found that 83% of consumers say they're listening to as much or more radio as they were before COVID-19 pandemic, with 28% of consumers listening more. And at Town Square, we've seen incredible growth of our digital audience. In March and April, over 64 million people visited our national and local websites each month, and 39 million people specifically visited our local radio station websites. Both are the highest total digital audiences in the history of our company. as we have highlighted over the past couple of years on these earnings calls. With local newspapers and local TV stations reducing their coverage and investment and therefore news coverage of the 67 cities that we serve, Town Square has, through our websites and mobile apps, stepped in to fill that void, which the COVID-19 crisis has magnified. As a result, we are not only experiencing all-time record number of people visiting our websites, but also an 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 as more people than ever engage with our brands online to obtain specific information to their local community. There were plenty of additional bright spots during the first five months of the year regarding audience engagement. but the reality is our stakeholders and investors are very aware of how powerful our brands are and they are currently focused on how Town Square is managing and performing financially during this COVID-19 pandemic downturn. So I, along with Stu, am going to spend the rest of this call providing an overview and financial analysis of Q1, a review of the steps we have taken in reaction to the crisis and share the impact that the COVID-19 pandemic had on our Q2 starting with April and May and what we are currently seeing in June as well. Turning first to our financial performance in the first quarter and since the start of the crisis, Q1 started off on a very strong note with January and February pro forma net revenue plus 6% and plus 7% respectively compared to those months last year. When the month of March began, our net revenue was pacing up a very strong plus 8% compared to the last year. But as the COVID-19 crisis intensified in March, We canceled all of our remaining March live events, as I noted on our March 16th earnings call. At that time, we stated that we had not experienced significant cancellations on the advertising side of our business, although I did note that we had begun to see advertising cancellations related to sports and live events related advertising. On the morning of March 16th, when we last reported, there were no stay-at-home orders issued anywhere in the United States. California was the first state to announce such a directive on March 19th, followed shortly by many states where we have operations, including New York, New Jersey, Connecticut, Illinois, Louisiana, Washington, and Michigan. By the end of March, 17 of the 25 states where we have radio stations had issued stay-at-home orders, with nearly all states joining by the first week of April. In the last two and a half weeks of March, we had over $4 million of cancellations for just the month of March in our advertising segment, resulting in March net revenue declining negative 10%, which was an 18-point swing from where we began the month at plus 8%, unprecedented and brutal. As a result, our net revenue for Q1 was $93.4 million, slightly below our first quarter guidance of $93.9 million to $94.8 million. Although this streak won't continue in Q2 given the COVID-19 crisis, It is very much worth noting that Q1 was our ninth consecutive quarter of pro forma net revenue growth. It is also worth noting that in Q1, over 40% of our net revenue was digital revenue. This clearly differentiates Town Square from other local media companies. First quarter adjusted EBITDA of $15.5 million missed our Q1 guidance as there were some unanticipated expenses that came in at the end of the quarter. in addition to the $4 million in revenue cancellations in our advertising segment that I noted earlier. Stu will provide more detail on these items shortly. As you would expect, for the foreseeable future, we do not plan to produce or operate any live events involving the mass gatherings of people. Any decision to proceed with our live events business will of course observe all federal and local government recommendations as well as our own sense of when it would be responsible and safe for our communities to start hosting events again. Fortunately, with great foresight, we streamlined our live event segment by selling the majority of our live events assets in 2018 and 2019. As a result, now in 2020, we have a significantly smaller live event footprint that is connected to our local radio station markets and their brands, allowing us to intelligently pivot to a largely variable expense base. As a result, although we are planning on as little as 2.4 million of live events net revenue for 2020, in essence equal to Q1's live events net revenue prior to the COVID-19 pandemic, and thus assuming no additional 2020 live events revenue, we expect our live events division to break even on an EBITDA and cash flow basis for the year given our strong expense management. To the point of smart and strategic expense management, like many other companies, we have had to make some very difficult decisions in order to reduce our expense base during this challenging time. In an effort to help offset the decline in advertising and live event revenue, we enacted approximately $1.7 million of monthly fixed cost savings. These expense reductions included a reduction in workforce of approximately 6% of our full-time staff. Currently, we have approximately 2,100 full-time employees. a significant reduction to our part-time employee base, the temporary suspension of our 401 contribution matching program, as well as some other measures we deem prudent. We did not come to these decisions lightly. After extensive modeling of potential downside scenarios, we enacted the maximum amount of expense reductions that we felt would not hurt our long-term growth opportunities. To be transparent, my goal was to minimize personnel layoffs which we achieved with only a 6% reduction to our full-time staff so that we have a talented, although slightly leaner, world-class team in place and ready to hit the ground running as states reopen for business. Therefore, not all of these cost reductions are permanent, and we expect that some of these expenses will return as business ramps up, although the timing of that is unknown at this time. I believe we are well positioned not just to prevail through this pandemic crisis, 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. But before talking about the other side and how we expect to rebound and be well positioned to take advantage of that rebound, let me first share what we experienced in April and May and what we are seeing currently in June. According to Gordon Burrell, a leading authority on local marketing research, 83% of small and medium-sized businesses experienced a negative business impact from coronavirus in April, with 62% of those seeing a decrease in business of more than 30%. We have seen this sentiment reflected in the results of our own advertising business as well. In the month of April, we took over $16 million of Q2 advertising revenue cancellations. As a result, April net revenue finished down negative 36%. with broadcast revenue down negative 52%, digital revenue down negative 6%, and live events revenue obviously down 100% with no live events taking place. Although not surprising, but rather what we expected, yet still incredible, our Town Square Interactive division continued to deliver growth in April with plus 11% revenue growth in the month. These revenue trends continued into May, with net revenue finishing down negative 37% given a larger live events revenue comp, but broadcast revenue improving by a few points to negative 49%, and similar growth rates across other product lines in May as we saw in April. I am aware that investors and other stakeholders are interested in knowing if we have seen any regional trends in our advertising business given the COVID-19 cases and restrictions that varied by location. Therefore, let me take a moment to share what we have seen in April and May as it relates to regional trends and states reopening. As you might 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 over 53% in April and so far has remained the same throughout the quarter. With restrictions in New York's tri-state area just starting to be lifted now, we expect to see immediate improvements. New England was impacted almost as much as the tri-state area early on. April was negative 50% net revenue, as was Michigan, as April was negative 48% net revenue. But with initial phases of reopening in place, we are seeing improvement later in the quarter, with New England pacing now negative 30% and Michigan now pacing negative 38% for June. And thus you could see the positive revenue impact of the beginning of markets reopening. 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, approximately half of the revenue decline we saw in the tri-state area in Q2. Areas like Texas, Oklahoma, and Arkansas, where restrictions were implemented later but didn't last as long, took the biggest hit in May, negative 44%, but are rebounding nicely in June to negative 28%. As you might expect, advertising categories impacted the most by restrictions took the biggest hit in April and May. Auto suffered the largest revenue drop, followed by furniture stores, dentists, fast foods, and casinos. Interesting to note that there were bright spots as well, with revenue increases in education, insurance, groceries, and state government. As we powered through the worst of the downturn, we were reminded of the incredible power of data and how we can use it to help our clients. Both our first part of data by our DataSquared tech stack and the attribution data by Analytical have proven to be incredible assets for us during this pandemic. When our marketing consultants, otherwise known as AEs, leverage our proprietary DataSquared tech platform and do our attribution data, the data demonstrates that our retention of campaigns is higher, i.e., less churn, and our average spend per campaign is higher. For example, in the month of April, clients connected to our attribution platform powered by Analytical spent 79% more on average than non-connected clients and a retention rate one-third higher than non-connected clients. Very strong data. The key for us is to get more advertisers connected to our attribution platform so that they have the benefit of using this data to optimize their campaigns. That's April and May revenue results for you. But for your benefit, I'm also going to take a step back and share what we experienced since our last earnings call in mid-March. As I detailed earlier, cancellations of our broadcast advertising campaigns in the second half of March and in April were significant and quite honestly brutal. But we believe that we have turned the corner and the worst is behind us. Starting very late in April, new advertising orders began overcoming the advertising cancellations, and thus we started to go positive net ads at that time. In addition, the volume and amount of advertising campaign cancellations have declined in the month of May compared to April, and new advertising business had sequential growth in May. In May, for example, we had 30% fewer cancellations and 32% more additions than April, a trend that is continuing into June. A few other data points that may help illustrate the improvement in May over April. First, in the month of April, when calculating all advertising cancellations and business booked in the month, we went backwards approximately $1 million in advertising revenue from where we started the month of April. In May, we added approximately $2 million in advertising revenue in month, which is obviously approximately a $3 million swing from April to May, in essence an improvement, which we found encouraging. June obviously is not even halfway over in terms of business days, so it is very early. But it is worth noting that in the first 10 business days of June, we already have net ads of over 32% where we had in the first 10 days of May. Thus, given our month-over-month data, we expect our advertising revenue will continue to sequentially improve as it did in May over April and June over May as well. However, let me be very direct and transparent. The impact has been severe. and we expect that full quarter Q2 results will likely be in line with what we experienced in April and May, a total net revenue decline of approximately 36%, almost no live events revenue and approximately plus 10% revenue growth for Town Square Interactive. As I just noted, our advertising business is improving sequentially month over month. However, we are comping against live events revenue of nearly $6 million in May and June of last year, which will offset the improvement in our advertising business and negatively impact our overall net revenue decline for Q2. As you would expect, future results are dependent on the success of state reopenings over the next few weeks and months and if there is a second stage of the pandemic in the fall or winter. Based on our current knowledge, visibility, and expectations, as a result of our expense reductions and prudent cash management, We will have positive adjusted EBITDA and positive cash flow from operations prior to interest payments in the second quarter. In addition to the expense savings I discussed earlier, we have also reduced capital expenditures, and our board of directors has decided to withdraw our quarterly dividend, which will result in us saving approximately $4 million in 2020 and approximately $8 million on an annualized basis moving forward. I trust that I have provided a very thorough and in-depth perspective on not only our Q1 results, but also importantly what we experienced in April and May, as well as what we are currently expecting for Q2 overall. Although, as you would expect, we are not providing formal guidance given the continued uncertainty related to the COVID-19 pandemic. Before handing the call over to Stu, I'd like to take a moment to highlight the strength and resiliency of Town Square Interactive. Given that it's a digital marketing subscription business, Town Square Interactive is a major differentiator for our company in numerous ways. Town Square Interactive was built to be a recession-resistant business, and we believe that strategy is proving out today as subscribers continue to grow, revenue continues to grow, and profits continue to grow, even during the depths of the worst months of the pandemic. Now more than ever, small and medium-sized businesses need to strengthen and maintain their online presence and Town Square Interactive's marketing solutions can do that at a highly competitive price point. I'm very proud of how our sales teams were able to pivot their marketing strategies to help small and medium-sized businesses digitize and adapt to the new normal. Whether that involved helping restaurants adapt their websites to use online ordering and curbside pickup platform, professional services or health and fitness companies adapting their websites to enable online scheduling and virtual classes, were helping retailers adapt their websites to allow for e-commerce for those that did not offer prior to the pandemic. Town Square Interactive was a bright spot in Q1, with net revenue increasing plus 16% as compared to Q1 of 2019, and ending the quarter with approximately 19,850 net subscribers, in addition of 850 net subscribers during the quarter. Our Q1 revenue for Town Square Interactive was 16.5 million, and based on our current subscriber base, Town Square Interactive's run rate annual revenue is now 71 million as of the end of Q1. And importantly, as I just noted, April and May continue to be strong for Town Square Interactive with approximately plus 10% revenue growth. We expect Town Square Interactive to continue to grow in June as well as throughout the back half of this year. In addition, in Q2, I expect Town Square Interactive to have 850 net ads just as we have delivered 850 or more net subscriber ads for the last eight consecutive quarters. I'd like to wrap up by highlighting Town Square Ignite, our digital programmatic advertising solution, which was once again our strongest advertising product in the first quarter. Town Square Ignite grew net revenue each month in the first quarter compared to the prior year, including March, and for Q1, Ignite net revenue grew plus 30%. Overall, in April and May, our digital advertising solutions fared better than our broadcast advertising solution, and that is in part due to the popularity of Town Square Ignite. Although Ignite is not immune to the advertising pullback, it was one of our best performing advertising products in both April and May, down far less than our other advertising solutions. Town Square Ignite's relative strength and Town Square Interactive solutions, which have been resistant to the effects of the pandemic, highlight that Town Square'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 services, are a real differentiator for our company and proves out the fact that although we are very proud of our roots in DNA and radio, Town Square 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 with digital revenue in Q1 contributing 40% of our total net revenue will help us not only prevail and be able to rebound more quickly than others in the radio broadcast industry from this COVID-19 pandemic downturn, but most importantly, be a stronger and in my view, one of the best positioned local media companies in the US for top line organic revenue growth and bottom line profit growth. I am so proud of our talented TownSquare team and the focus and commitment in which they are delivering for our local communities, our listeners and our clients during these times. Because of their dedication and performance, I believe we will emerge from this crisis well-positioned to grow and return to our market-leading performance quickly after this crisis abates. With that, I'll turn the call over to Stu who's going to go over our financial results as well as our cost-saving initiatives in much greater detail.