Townsquare Media, Inc.

Good morning and welcome to Town Square's year end 2020 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 Yenneke, Executive Vice President.

Thank you, Operator, and good morning to everyone. Thank you for joining us today for Town Square'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 that 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, 2020, 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 at www.townsquaremedia.com 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.

Thank you, Claire, and thank you all for joining us this morning. 2020 was an incredibly challenging and turbulent year, but it was also an extremely rewarding year. Over the past 12 months, I've continually thanked the entire Town Square team for their hard work, best effort, and dedication. Our team worked tirelessly and with great passion throughout the pandemic to help our company by helping local advertisers and businesses, as well as by keeping our local communities informed and entertained at a time when both needed it the most. We would not be reporting our strong finish to the year without the amazing and inspiring effort of our entire Town Square team across the country. As we said internally throughout 2020, we strived to perform the best when it mattered the most. Perform the best for our own team members our clients, our communities, and our partners. I'm proud to say that our fourth quarter financial results reflect that performance as they exceeded our goals and expectations. And as we look at 2021, we believe that we will continue to see strong improvement and strong results in our business. My goal for Q4, as outlined on our Q3 earnings call, was to cut our revenue declines by half from negative 15% in Q3 to to negative 7.5% in Q4. I am very proud that we outperformed this goal, reducing our net revenue year-over-year decline to just negative 3.2% in the fourth quarter. It is also important to note that we experienced sequential net revenue improvement on an ex-political basis in each month of Q4 as compared to the prior year as our business continued to rebound, each month better. Impressively, Because we outperformed fourth quarter revenue expectations and carefully managed expenses, we delivered year-over-year growth of plus 8.4% in fourth quarter adjusted EBITDA. Let me say that again. In the face of all the challenges of the pandemic during Q4, as COVID cases and deaths were rising, the TownSquare team was able to increase adjusted EBITDA by plus 8.4% over fourth quarter of 2019. to $27 million, which also represented a plus 54% increase from Q3 2020 adjusted EBITDA. Clearly, our business rebounded quite nicely and consistently, starting in Q2 and continuing through Q4. And I am glad to report that this strong rebound is currently continuing into Q1 2021. Just as important, if not more important than our 2020 financial results, was the acceleration of Town Square's transformation into a premier local media and digital marketing solutions company. Although we are very proud of our roots and DNA in local radio, and we are proud to call it radio, not audio, we became a digital-first company in 2020, which was reflected in our digital revenue and digital profit growth in 2020. Later in the call, Stu will highlight the new capital structure that we put in place at the beginning of this year. But what was very eye-opening to me during our bond offering process was the lack of clear understanding of our digital strategy, our digital assets, and our consistent year-over-year digital revenue and profit growth ever since we became a public company. To that end, we have updated our investor presentation to better reflect and communicate the vision of our TownSquare transformation and our digital first orientation. And I wanted to share a few highlights from that presentation with you this morning. As you will see on the opening slide of the presentation, we have updated our company description to more accurately reflect Town Square. It now reads, Town Square is a community-focused digital media, digital marketing solutions, and radio company focused outside the top 50 markets in the United States. Our assets include Town Square Interactive, a digital marketing services subscription business providing websites, search engine optimization, social platforms, and online reputation management for SMBs. Town Square Ignite, a proprietary digital programmatic advertising technology with an in-house demand and data management platform. And Town Square Media, our portfolio of 322 local terrestrial radio stations with corresponding local news and entertainment websites and apps, along with a network of national music brands. As you are aware, we have three financial segments, advertising, Town Square Interactive, and live events. And I thought it would be helpful if I quickly walk you through slide five of our investor deck as it breaks down the key operating components behind those three segments. Our advertising segment is composed of digital advertising and broadcast advertising. Given digital advertising is growing faster, plus 5% in Q4 2020 versus Q4 2019, I will start there. Our digital advertising is made up of primarily two solutions. The first is Ignite, which is our digital programmatic technology platform. The second is Amped, which is monetizing our owned and operated digital brands. On the far left column of slide five, you will see the revenue specifics for Ignite, which in 2020 was $53 million in digital advertising revenue, an increase of plus 11% versus 2019. As we have previously stated, this solution has a normalized profit margin of approximately 30%. We believe our success with Town Square Ignite is multifaceted, yet one strong differentiator for us is that we have our own solution. The entire ad tech and offering is in-house. We own and control the customer relationship from end to end, from creating the right message and creative to the activation and optimization of the client campaigns to the detailed in-depth client reporting, which leads to a better customer experience and higher client retention rates. Town Square Ignite is, in essence, a client's full-service digital agency. Moving one column over to AMPS, which is digital advertising our owned and operated network of digital brands made up of over 340 websites and 350 mobile apps, which together delivered a highly engaged audience of 58 million unique visitors on a monthly basis in 2020, an all-time record set during the pandemic. In 2020, the digital advertising revenue generated by AMPT was $39 million, which Combined, Ignite and Amped generated $92 million in digital advertising revenue in 2020. The remaining component of our advertising segment is our 322 local radio stations, which in 2020 generated $185 million in ex-political broadcast revenue. As we detailed throughout 2020, broadcast revenue ex-political declined as much as 51% in April 2020, and was down negative 46% for Q2 overall compared to 2019. That improved in Q3 to negative 29% and improved again in Q4 to negative 19%. According to Metrics, published by Miller Kaplan, in 2020, we outperformed the industry in local radio spot sales by 180 basis points and total spot sales by 120 basis points in our markets that they measure and track. Additionally, we also outperform the industry in total revenue in the markets surveyed by Miller Kaplan, which includes both total spot revenue and total digital revenue. Thus, as it relates to our advertising segment, I trust that it's clear that we have an at-scale and quickly growing digital advertising component and a mature, strong broadcast advertising component. I expect post-COVID that our broadcast advertising revenue will return to 2019 levels while digital advertising revenue will accelerate its current growth rate. And to back up that belief, I am very pleased to share that our expectation in Q1 is that year-over-year digital advertising revenue growth will accelerate from plus 5% in Q4 2020 to plus 10% in Q1 2021. It is also worth pointing out that in Q1 2020, digital advertising revenue was over $3 million higher than Q1 2019. As it relates to broadcast advertising ex-political, our current expectation is that our negative 19% decline in Q4 2020 will improve to negative 13% in Q1 2021. In total, our advertising segment continued the path of sequential improvement to close out 2020, narrowing revenue declines from negative 38% year-over-year in Q2 to negative 17% in Q3 and negative 4% in Q4. Our improvement was broad-based across the segment, a sequential improvement on nearly every revenue line. The third component of our digital solutions is our digital monthly subscription business, Town Square Interactive. Town Square Interactive was built to be a recession-resistant subscription business, and in 2020, it delivered on that promise. growing revenue, profit, and subscribers throughout the pandemic, a truly impressive accomplishment. Town Square Interactive provides an important and valuable resource for small business owners, which translated to strong financial results for Town Square. In 2020, Town Square Interactive net revenue increased plus 14% and profit increased plus 10% over a prior year. In the fourth quarter, TSI's net revenue growth accelerated to plus 16%. and profit growth accelerated to plus 24%, each as compared to the prior year. Town Square Interactive generated strong profit margins throughout the year, with 2020 margins of 30% translating to $21.1 million of profit for Town Square Interactive. We added approximately 3,750 net subscribers in 2020, setting an all-time record. And now we have added 850 or more net subscribers per quarter for 11 consecutive quarters. We ended the year with approximately 22,750 subscribers. At the end of 2020, approximately 57% of our subscribers are outside of our local market footprint. We are able to accomplish this because we have an approximately 200-person inside sales team based within TSI's headquarters in Charlotte. which houses a total team of TSI personnel of approximately 600 people. What an amazing team. We believe that Town Square Interactive is still incredibly, incredibly under-penetrated within our local market footprint, and importantly, as well as within our additional local markets of similar size and demographics. Town Square Interactive's addressable market is significant. If you would turn to slide 10 of our investor presentation, I would like to take the opportunity to walk you through it. There are a little over 28 million businesses nationwide. Given that we focus on markets outside the top 50 cities, that eliminates over 16.5 million businesses, which gets us to 11.5 million businesses. We then put a few additional important filters on the SMBs we target for Town Square Interactive. The first filter is businesses with 20 or fewer employees. The second filter is companies with annual revenue of $5 million or less. We then exclude certain types of businesses we have determined over the years are not ideal fit for our solutions, which include real estate agents, banks, and other types of businesses. And lastly, we include only privately independently owned businesses. After applying all of those filters, that equates to over 8.8 million target customers for TownSquare Interactive, At a $300 per month ARPU, that equates to an estimated $32 billion total addressable market for Town Square Interactive. Incredible. In fact, we are planning on adding a second location for Town Square Interactive in the western U.S. in order to capture this opportunity. Our original timeline for opening this location in 2020 was sidelined when the pandemic hit, but we plan to open this location once the pandemic is fully in America's rearview mirror. With our existing subscriber base, current sales momentum, and significant market opportunity, I am confident in reaffirming our expectation that Town Square Interactive will achieve $100 million in annual net revenue at roughly a 30% profit margin within two to three years. The next slide I will turn your attention to is arguably the most important one, slide number seven, which clearly demonstrates Town Square's transformation into a digital-first company in 2020. Even during a pandemic and the resulting recession, we have been able to grow our profitable digital revenue from $99 million in 2017 to $162 million in 2020. Pre-pandemic, our digital revenue was growing plus 27% in 2019. And although I am very proud of our plus 6% digital growth last year during a pandemic, I am confident post-pandemic we will again return to strong double-digit revenue growth. With $162 million of profitable digital revenue in 2020, that translated to 44% of our total revenue coming from digital, even in a political year. On slide 7, in addition to noting the consistent year-in and year-out growth of our digital revenue since 2016, You can also see a comparison to other broadcasters who have already reported their 2020 results. No other company listed is above 20%, and TownSquare is at 44%. And important to note, our digital growth is 100% organic, as we have built all of our digital solutions in-house with one of our greatest assets, which is our product and engineering team, truly world-class. It is just a matter of time before our digital revenue will be over 50% of our total revenue, Yet we believe that will just be a pit stop to 60%, 70%, 80%, et cetera, given the continued digital revenue growth of Town Square. The last slide from our investor presentation I will highlight is slide number six, which spotlights the net revenue ex-political, ex-live event recovery by quarter in 2020, along with our digital growth and, importantly, our year-over-year profit growth in Q4 2020. As you can see, starting on the top row, net revenue ex political ex live events was negative 31% in Q2, negative 16% in Q3, and negative 9% in Q4 compared to the prior year periods. Given our current outlook, I expect in Q1 2021, we will reduce that further to negative 2% to negative 3% year over year. We believe Town Square is on the verge of a full revenue recovery. In the middle row, you will see our digital revenue results. Town Square Interactive Revenue is plus 14% in 2020 versus 2019, and currently we are expecting plus 15% in Q1 2021. Town Square Ignite Revenue is plus 11% in 2020 versus 2019, and our current expectation is that improves in Q1 2021 to plus 12%. And take it all together, Our digital revenue grew plus 6% in 2020 to comprise 44% of our total company revenue, and our current expectation is to double that and have plus 12% growth in digital revenue in Q1 2021. On the bottom row, we have outlined adjusted EBITDA for each quarter of 2020, with the highlight being plus 8% growth in Q4 2020 over Q4 2019. That is the result the TownSquare team is most proud of, adjusted EBITDA growth of plus 8% during the depths of the pandemic. As you can also see on slide number six, we are expecting adjusted EBITDA growth in Q1 2021 of plus 16% to plus 22% growth over Q1 2020, and also profit growth over Q1 2019. Thanks for allowing me to go through a few of the slides in our investor presentation. I do highly encourage all current and potential investors to review the presentation in full detail on their own. And, of course, please reach out to me if you have any questions. Before I hand the call over to Stu, I'd like to outline our strong position as we begin 2021. We materially narrowed our year-over-year revenue declines throughout 2020 from negative 35% in Q2 to negative 3% in Q4. We also returned to adjusted EBITDA growth of plus 8% in Q4. and we enhanced our operating leverage through careful expense and cash management that allowed us to generate positive cash flow from operations in 2020. At the end of the year, we also addressed our balance sheet, which Stu will discuss in much greater detail shortly, replacing our debt with a single tranche of 6.875% paper that does not mature until 2026. And finally and importantly, we were able to address the large equity overhang that Oak Tree Capital's majority ownership of Town Square presented. On March 9th, 2021, we repurchased 100% of Oaktree's outstanding shares and warrants in Town Square for $6.40 per security. As you are all very well aware, Oaktree has been a long-time investor of the company, and this transaction represents a natural conclusion to their investment. We previously announced in January that we would repurchase a minimum of 10 million shares. And I'm very, very pleased we instead repurchased and retired all 12.6 million shares and warrants of Oaktree, representing 26% more than we previously committed to buying. This resolves the significant overhang of Oaktree's long-dated investment, which we have often heard from current and prospective investors is an impediment to investing and building a position in Town Square. Based on current share counts, the transaction is accretive, on a free cash flow per share and adjusted earnings per share basis in excess of 70%. At 10 million shares, the repurchase would have been accreted by approximately 50%. The aggregate purchase price of the share repurchase was $80 million and was funded with cash on hand. Following the repurchase, the company has 16.1 million shares outstanding, inclusive of common stock and warrants. Since we announced the share buyback on January 25th, we have seen TownSquare's stock price increase by 34% through March 12th, a 65% premium to the buyback price, evidence the market's support of this transaction, and more importantly, TownSquare's future. With that, I'll turn the call over to Stu, who's going to discuss our financial results in much, much greater detail. Take it away, Stu.