Townsquare Media, Inc.

Good morning and welcome to Town Square's second 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 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 of 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 second quarter financial update. With me on the call today are Bill Wilson, our CEO, and Stuart Rosenstein, our CFO and Executive Vice President. Please note that during this call, we may make statements that provide information other than historical information, including statements relating to the company's future expectations, plans, and prospects. These statements are considered forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These statements reflect the company's beliefs based on current conditions but are subject to certain risks and uncertainties including those that are detailed in the company's annual report on Form 10-K for the year-ended December 31, 2019 filed with the SEC. We may also discuss certain non-GAAP financial measures including adjusted EBITDA and adjusted operating income and make certain pro forma adjustments. Such non-GAAP financial measures should be used in conjunction with all the information contained in this quarterly, year-end, and current reports available on our website. At this time, I would like to turn the call over to Bill Wilson.

Thank you, Claire. and thank you all for joining us this morning. I'd like to start this call as I did our last one by sharing that our thoughts and prayers go out to all who have been affected around our country and the world in this unprecedented and challenging time that we're all living in. Our commitment and our obligation has never been greater to do our job, to do our best and to fulfill our responsibility to super serve our listeners, our clients and our local communities. The Town Square team continues to impress me each and every day with their passion for what they do and their dedication to their local communities and our company, as well as their adaptability as we work in a modified settings due to the unique challenges presented by the pandemic. Our offices are open across the country, and our first and foremost concern continues to be the safety and well-being of our employees and their families, and we have implemented numerous and prudent safety precautions in each of our offices to ensure this. Any team member returning to their office is doing so 100% voluntarily as it is at the employee's option to return to the office. And any team member who is not comfortable doing so is working remotely. Our teams have seamlessly transitioned to a virtual workplace over the past five months. And with the use of visual conference calls such as Microsoft Teams, our employees are working just as efficiently from home as they would in the office. Market by market, our goal has been to find the intersection of safety and productivity, and we believe we have achieved it. For example, our 500-plus person Town Square Interactive office in Charlotte, North Carolina, still continues to work remotely, and they have not missed a beat with TSI revenue, profit, and subscribers growing throughout the pandemic, as I will detail momentarily. At the same time, the majority of our content teams have been regularly coming into the office and their studios and all of whom have been working relentlessly to keep our audience informed and entertained during this pandemic, both on air and online. Over the past five months, we have seen a surge of consumers coming to our digital properties, our websites, apps, video channels, social platforms, et cetera, as they crave local information that is specific and relevant to their communities and where they live. As we have highlighted on previous earnings calls, as local newspapers and local TV stations have reduced their coverage and investment in local news in our size markets, the resulting coverage for the 67 cities that we serve locally has been greatly diminished over the past 5 to 10 years. Town Square has, through our websites and mobile apps, stepped in to fill that void, which the COVID-19 pandemic has only magnified. As a result, We are not only experiencing all-time record number of people visiting our websites, with 39 million people coming to our local radio station websites in April, and in Q2, unique visitors to our local websites increasing 113% over prior year. But we are also experiencing all-time record level of engagement. More visits per month, more articles read per visit, etc., which is one of the numerous reasons why our digital advertising solutions are performing better and our broadcast advertising solutions during this pandemic as more people than ever engage with our brands online to obtain information specific to their local community. To that point, Google just provided us a $260,000 grant for the creation of two news outlets which will serve the great cities of Tuscaloosa, Alabama, World Tide and Portsmouth, New Hampshire. We have also seen an acceleration in listening to our radio broadcast by our 300 plus local radio station apps as well as voice activated devices including Amazon Echo and Google Home. In the second quarter, total online listening cue or audience increased plus 12% year over year while total listening hours increased by 2.6 million hours or plus 15% as compared to the prior year. One of the many silver linings of the pandemic has been the clear evidence that our local brands and our 67 markets are beloved by their communities and are where the audience turns to be informed and entertained across our broadcast and digital platforms. However, despite the impressive performance of our teams and our brands, the second quarter was a brutal one and unprecedented from a financial perspective. It is our intention to provide the same level of detail to you today that we provided on our last earnings call. so that you, our stakeholders, can more fully understand the impact that the pandemic has had on our business, the steps we have taken to help mitigate the downturn, and the recovery that we believe is starting to take hold in our markets. As we previously highlighted, the year started off on a very strong note, continuing our momentum from an excellent 2019 with January and February pro forma net revenue plus 6% and plus 7%, respectively, compared to those months last year. However, the onset of the COVID-19 pandemic brought with it significant advertising and live event cancellations, which evaporated our strong revenue growth as we ended Q1 with revenue up only plus 0.5% on a pro forma basis. As I shared on our Q1 earnings call, at that time, I expected that in Q2, our net revenue would be down negative 36% and Town Square Interactive would grow plus 10%. We actually finished slightly better, as net revenue in Q2 was negative 35%, and Town Square Interactive revenue grew plus 10.5%. Of our three reporting segments, advertising has had the most significant negative impact to our overall results, given its relative size. For reference, advertising accounted for approximately 82% of our total net revenue in 2019. Although revenue in our live events segment declined nearly 100% in the second quarter compared to last year, the segment only represented less than 5% of total revenue in 2019. As a result, its decline had a smaller top line revenue impact than the decline in our advertising business. Therefore, let's dig into our advertising results first. Advertising was hit the hardest in the month of April, with significant order cancellations and limited new business written as the majority of Americans were under stay-at-home orders and many businesses were temporarily closed. As businesses began to reopen, subject to state and county reopening plans in May, we began to see less advertising cancellations and more business being generated and booked. Finally, in June, a material improvement began to take hold across our markets. In total, advertising revenue showed sequential improvement throughout the second quarter, declining negative 42% in April, negative 41% in May, and narrowing the decline significantly to negative 30% in June as compared to the same months in 2019. Broadcast advertising took the brunt of the cancellations as advertisers were less likely to cancel their digital campaigns as consumers have remained heavily engaged online throughout the crisis. Broadcast revenue declined negative 52% in April and improved to negative 35% by June translating to a negative 45% broadcast decline in Q2 compared to the prior year. Digital advertising revenue declined only negative 18% in Q2. The sequential improvement in advertising that we experienced in the second quarter has continued to date in Q3 with each week getting stronger. In July, advertising revenue improved from June's negative 30% to negative 24%. with broadcast revenue declines narrowing from June's negative 35% to negative 29% and digital advertising revenue declines narrowing from June's negative 16% to negative 10%, driven by continued sequential declines and advertising cancellations. In addition, July was our strongest new advertising business month of the year, defined as business from an advertiser that has not advertised with Town Square in the last 13 months. We expect August will be better than July based on our current revenue book and therefore expect Q3 advertising will be materially better than Q2 for both broadcast and digital advertising revenue. As you would expect, the regions impacted most by the pandemic and the resulting restrictions took the biggest hit in ad revenues. For example, in the New York tri-state area, net revenue declined by over 53% in April and did not see material improvements throughout the second quarter, with June still off negative 52%. However, as infection rates dropped and restrictions were lifted, revenue rebounded quickly, with July revenue improving to negative 35% and August currently pacing negative 25%, which is 27 points better than only two months earlier. New England and Michigan experienced similar declines in April but improved faster than the tri-state area with June revenue improving to negative 31% in New England and negative 37% in Michigan. That trend continues in July with New England off negative 21% in July and currently pacing negative 20% in August and Michigan off negative 27% in July and currently pacing down negative 24% in August. At the opposite end of the spectrum, in states with the least restrictions, such as Iowa and the Dakotas, the revenue decline wasn't as severe, down negative 28% in April, improving to negative 21% in June, and negative 9% in July, and currently pacing even for August. I know many investors are curious how we are faring in states where the outbreak has been most severe in the summer months. Thankfully, we do not have any local exposure to current hotspots like Florida, California, and Arizona. However, we do have significant presence in Texas. Although smaller cities and not in major cities, as you know, our footprint is concentrated on small and mid-sized markets. In Texas, where restrictions were implemented later and were also lifted earlier than their counterparts in the Northeast, the hardest hit month was May, where revenue declined negative 45%, but quickly rebounded to negative 27% in June as restrictions were lifted. August is currently pacing negative 22%, which is nowhere near as bad as what the Northeast experienced in Q2 during the worst of their outbreak. From a category perspective, auto and entertainment experienced the largest declines in the second quarter, as did furniture stores, fast food, and dentists. There were some bright spots as well, with revenue increases in education, insurance, groceries, and state government. Currently, we're seeing new business surge in a number of categories, including contractors and builders, healthcare, banks, home repair, hardware, as well as education and training. Political revenue came in at $886,000 in the second quarter versus our $950,000 expectation based on some primaries moving from Q2 to Q3. However, political revenue has roared back in Q3. Currently, we have $1.9 million of political revenue booked for Q3, 42% more than we booked in all of Q3 2016. In July alone, political revenue was five times greater than July 2016, partially due to the primary dates pushed back, as I mentioned earlier, but also increases in PAC spending. Because of these trends, we still believe that 2020 will be a strong political year, and we expect to generate approximately 10 million in political for the year, which would exceed 2016's political of 9 million. Our live events net revenue declined nearly 100% in the second quarter as we canceled or postponed our scheduled live events due to the pandemic. Fortunately, after streamlining our live event business in 2018 and 19, we now have a significantly smaller events footprint that is concentrated to our local radio markets and their brands, and as a result, our expense base is largely variable. So although live events second quarter revenue declined nearly 100% to $32,000, Expenses declined 98%, resulting in a small second quarter loss of only $62,000. And for the first six months of the year, our live event segment is still cash flow positive with approximately a half a million dollars of adjusted operating income, which I also refer to as profit. Given our largely variable expense base in live events, even if we were to generate no more live events revenue for the remainder of 2020, We expect our live events division to approximately break even on an EBITDA and cash flow basis for the year, given our strong expense management. Going forward, we are proceeding very cautiously and operating only a handful of small events that do not involve large crowds and abide by all state and local guidelines. As you would expect, for the foreseeable future, we do not plan to produce or operate any live events involving mass gatherings of people. We continue to prioritize the health and safety of our employees and our communities. And while we look forward to proceeding with our approximately 200 heritage local live events in our local markets, and we look forward to seeing our audiences and our communities in person again, we will not do so until we are confident that it's safe and prudent. As it became apparent in mid-March that the COVID-19 pandemic was going to have a severe impact on our business, and in particular, our advertising and live events revenue base, reacted quickly to enact cost reductions that would help mitigate the near-term pain we expected to experience. As a result of these actions, during the second quarter, we realized approximately $1.7 million of monthly fixed cost savings related to the reduction in our workforce, temporary hiring freezes, the temporary suspension of our 401 contribution matching program, and various other cost-saving measures we deemed prudent. In the second quarter, direct operating expenses declined by 11.2 million, or approximately 15% as compared to the prior year period, partially offsetting the decline in revenue. We enacted the maximum amount of expense reductions that we felt would not hurt our long-term growth opportunities. Our goal was to minimize personnel layoffs so that we would have a talented, although slightly leaner, world-class team in place and ready to hit the ground running as states reopen for business. We did not cut as deeply as we could have, and not all of these cost reductions are permanent, and we expect that some of these expenses will return as business ramps up. For example, we have already started strategically hiring again. In addition, we did not reduce either our Town Square Interactive or Town Square Ignite teams, and instead focused on a large number of the headcount reductions at corporate roles or support functions. However, I believe the steps we have taken were the right ones. and that we are well positioned not just to prevail through this pandemic, but most importantly to be one of the best positioned local media companies on the other side of this pandemic, whenever that may be, months or quarters from now. Now I'd like to switch directions and focus on some financial highlights of the second quarter. First and foremost is our digital marketing solutions subscription business, Town Square Interactive. Town Square Interactive was built to be a recession-resistant subscription business, and we believe it has proven to be so, delivering revenue, profit, and subscriber growth throughout the pandemic, a truly impressive accomplishment. During this pandemic, the Town Square Interactive team became a tremendous resource for our local clients by not only powering their online communication strategy, but also by sharing relevant and timely information with them. For example, providing important information about government stimulus plans and how to apply for assistance. In addition, the team helped restaurants adapt their websites to use online ordering and curbside pickup platforms, help professional services or health and fitness companies adapt their websites for online scheduling and virtual classes, and helped retailers adapt their websites to allow for e-commerce for those that did not offer it prior to the COVID-19 pandemic. Town Square Interactive provides a true, important, and valuable resource for small business owners, which translated to strong financial results for Town Square. Second quarter net revenue increased plus 10.5% as compared to Q2 of 2019, ending the quarter with approximately 20,750 net subscribers, an addition of plus 900 net subscribers during the quarter. Up from Q1's plus 850 and the ninth consecutive quarter of 850 or more net subscriber ads. Our Q2 revenue for Town Square Interactive was $16.9 million. And based on our current subscriber base, Town Square Interactive's run rate annual revenue is over $70 million at the end of Q2. And therefore, I am confident in reaffirming our expectation of Town Square Interactive's achieving $100 million in annual net revenue within two to four years. In addition, Town Square Interactive continues to generate a strong profit with a healthy profit margin of 30.5% in Q2, and that's over $5 million of profit in the second quarter and close to $10 million in the first six months of the year. As we begin Q3, we are continuing to see growth with July TSI net revenue plus 13%, and we expect Town Square Interactive subscriber base to continue to grow strongly each month for the rest of 2020. It took Town Square Interactive 57 months to achieve our first 10,000 subscribers, thus averaging 175 net subscriber ads per month during that time period. It then took only 44 months for us to reach the next 10,000 subscribers, which equated to an average of 227 net subscribers added per month during that time period. Given a pace of 850 net subscriber ads a quarter or 283 net subscriber ads per month, we expect we will reach 30,000 subscribers in approximately 35 months or less. When we reach 30,000 subscribers, we expect our revenue at that point will be roughly $110 million on an annualized basis. This also reinforces our expectation that Town Square Interactive will reach $100 million in annual net revenue within two to four years and most likely in three years or less. We believe another financial highlight of the second quarter also serves as a clear differentiator between Town Square and others in local media. In the second quarter, digital revenue accounted for more than 48% of our total net revenue. This was driven not only by Town Square Interactive's strength will also buy our digital advertising solutions faring better than our broadcast advertising solutions during the pandemic. That is in part due to the popularity of Town Square Ignite, our digital programmatic advertising solution, which was one of our strongest advertising products in the second quarter. While overall digital advertising revenue declined negative 18% in Q2, revenue from Town Square Ignite solutions only declined 11.6% in Q2 compared to the prior period. and it has entered positive pacing territory in July and thus I expect Ignite to be up mid to high single digits for Q3 over prior year. We remain confident in our estimate that annual Town Square Ignite advertising revenue will reach $100 million in the next two to four years. Additionally, given the strength of our online audience growth and their engagement, which increased our digital ad impressions on our own sites, Digital display advertising on our owned and operated sites and apps only declined negative 10% in Q2, and we expect in Q3 we'll return to prior year levels, if not higher. In my opinion, this proves 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 subscription services, are a real differentiator for our company. and proved out the fact that although we are proud of our roots and DNA in 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 will enable us to rebound more quickly than others in the radio broadcast industry from this COVID-19 pandemic downturn. The third and final financial highlight I will point out today is a very important one. And therefore, Stu will spend some more time on it in a bit. And what I'm referring to is our cash generation ability. As we forecasted and shared with you on our last earnings call, our cash flow from operations was positive in the second quarter. Even with revenue declining negative 35% during one of the most severe advertising pullbacks we have ever experienced, cash flow provided by continuing operations was positive and many more. We believe that our liquidity position today is sufficient to sustain our business at the current advertising levels for the better part of the next three years. even if our revenue does not improve. However, we are prepared for and in fact we believe we are doing the work necessary for business to recover more quickly and you are seeing that in our sequential revenue improvement through Q2 and in July and currently in August. I trust that I provided a very thorough in-depth perspective not only on our Q2 results but also what we are currently seeing in July and August. Looking ahead to Q3, I want to be very direct and transparent. Future results are dependent on the continued success of businesses opening over the next few weeks and months and quarters and whether there is a second stage of the pandemic in the fall or winter. Although we will not be providing formal guidance given the continued uncertainty of the COVID-19 pandemic, our goal in Q3 is to improve net revenue from negative 35% in Q2 to close to negative 20% in Q3 as compared to last year. As was the case in Q2, where we had no material event revenue, we expect the same in Q3, and we are comping against $3.6 million in live event revenue in Q3 2019. However, we are confident that when we emerge on the other side of this pandemic, we will be a stronger and, in my view, one of the best positioned local media companies in the U.S. for top-line organic revenue growth and bottom-line profit growth. With that, I'll turn the call over to Stu, who is going to discuss our financial results in much greater detail. Take it away, Stu.