Townsquare Media, Inc.

Good morning and welcome to Town Square's first quarter 2021 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 presentation. If anyone should require operator assistance during the conference, please press star zero from 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 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 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 these 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. 2021 is off to a strong start, and I feel incredibly optimistic about where we are today and most importantly, the future of Town Square. The economy is on fire. Q1 GDP growth is at a 15-year high. The government continues to provide economic stimulus, and states have further relaxed restrictions across the country, all but ensuring strong growth for the remainder of 2021. These events and the resulting optimism have positively impacted our business as well. I'm proud to announce this morning that our first quarter financial results exceeded our goals and expectations, and in many cases, even exceeded levels we achieved in the pre-COVID first quarter of 2019. Once again, we exceeded our previously issued guidance range for both Q1 net revenue and Q1 adjusted EBITDA. I'd like to draw your attention to slide six of our investor presentation, where we outlined first quarter performance. On our last earnings call, We provided numerous data points to help set expectations for Q1, and I am thrilled to share that we delivered on each and every one. From my perspective, although each is important, the most significant data points is the outperformance in net revenue and the outperformance in adjusted EBITDA. In the first quarter of 2021, we had expected net revenue excluding political and live events to decline negative 2% to negative 3% as compared to Q1 2020, And in fact, it came in slightly better at negative 1.6% and was slightly above Q1 2019 revenue levels. We anticipated that adjusted EBITDA would increase plus 16% to plus 22% over the first quarter of 2020. And it not only exceeded that expected growth by increasing 30%, but also exceeded Q1 2019 pro forma adjusted EBITDA levels by plus 7%. So let me say that again. Our first quarter net revenue excluding live events and our first quarter adjusted EBITDA both exceeded 2019 levels. Incredible. We are on the verge of a full financial recovery to pre-COVID levels. And one of the key drivers is our strong digital performance. Although we are very proud of our roots and DNA in local radio, and we are proud to call it local radio, Town Square became a digital first company in 2020. reflected in our strong and transformational digital revenue and digital profit growth, which increased in strength in Q1 2021. To demonstrate that fact, as you can see on slide 9, in the first quarter, digital revenue growth accelerated to plus 13%, more than double 2020's full-year revenue growth of plus 6%. Our digital revenue totaled $167 million over the 12 months ending March 31, 2021. contributing nearly 49% of our total net revenue in the first quarter of 2021. I'd like to spend a little time providing additional color on our digital solutions this morning as they drove Town Square's transformation and are truly a meaningful differentiator to other local media competitors in our markets. Our digital solutions can be broken down into three buckets, Town Square Ignite and Town Square Amped, which are our digital advertising solutions, and Town Square Interactive, which is our digital marketing subscription solution. I'll start with Town Square Interactive, our largest digital solution, contributing approximately 21% of our total company net revenue and approximately 30% of our total company adjusted EBITDA in Q1, and thus Town Square Interactive is reported as its own segment in our financials. Town Square Interactive provides digital marketing solutions, on a monthly subscription basis to approximately 23,600 small and mid-sized local businesses across the U.S., including, but importantly not limited to, the markets in which we operate radio stations. TownSquare Interactive is a complete solution, offering mobile-enabled website development and hosting services, e-commerce solutions, search engine organic traffic and online directory optimization services, online reputation monitoring, social media management, appointment scheduling services, email marketing services, website retargeting, and much more. Because Town Square Interactive provides such an important and valuable resource for small business owners, this business is, in essence, recession-resistant, delivering revenue, profit, and subscriber growth each quarter since the start of the pandemic. In the first quarter of 2021, Town Square Interactive added approximately 850 net subscribers, net revenue increased plus 15%, and profit increased plus 30% over the prior year period, all at a profit margin of 31%. In the second quarter, we expect Town Square Interactive net revenue growth to accelerate to plus 18% year over year. We are often asked What differentiates Town Square Interactive from its competitors? And the answer is threefold. First, we have a significant strategic advantage by being local. Our local feet on the street sales teams have longstanding local relationships that we have cultivated in our local markets across the country. This local presence and depth of contact allowed us to launch Town Square Interactive in 2012 and quickly build a critical mass of customers that would not have been possible without the efforts of and the advantages we derive from our local sales team. At the same time, while we were able to incubate this product in our local radio markets, we have also proven that we can very successfully provide our Town Square Interactive solutions outside of our radio markets, with now 57% of our current client base residing outside of our radio markets today. It is important to highlight that Town Square Interactive is a full-service solution and not a self-service model. Our typical customer is a small business with less than 20 employees. Most of the time, they do not have the internal resources nor the expertise to handle website production and digital presence management. Our full-service solution, delivered at an attractive price and without the significant setup fees charged by some of our competitors, addresses this market opportunity head-on. Finally, and continuing with the important theme of customer service, we believe Town Square Interactive delivers a better customer experience through its end-to-end control and ownership. We do not outsource any aspect of our solution. Town Square Interactive was originally built from the content management system we organically developed to operate our own branded media websites, built from the ground up by Town Square's world-class product and engineering team. With Towsquare Interactive, we build the client's website, including its design, photos, creative, and messaging. And then, importantly, we provide dedicated customer service following its launch so that we are confident we are addressing the customer's needs. In our markets, we sometimes compete with other local media companies who go to market with a similar pitch, with one vitally important difference. While their sales reps may generate the lead and sell the service, These companies most often outsource fulfillment to a third party because they do not actually own the product. They are simply white-labeling someone else's service. Not only does that give up margin points as the business scales, but these companies typically lose the critical touchpoint of ongoing customer interaction. This leads to inefficient communication, poor customer service, and ultimately low retention. We believe at Townsville Interactive our customer service is best in class. It reinforces the local sales relationship in our local markets and leads to significant higher retention rates than the rest of the industry. And given these distinct advantages, there is so much upside. Town Square Interactive is still incredibly, incredibly underpenetrated within our local market footprint and, importantly, within additional local markets of similar size and demographics. I would like to take the opportunity this morning to walk you through the opportunity in greater detail, given its importance as well as its scale. If you would turn to slide 12 of our investment presentation, I appreciate it. Here you will see there are a little over 28 million businesses nationwide. Given that we at Town Square focus on markets outside the top 50 cities, that eliminates over 16.5 million businesses, which gets us to about 11.5 million businesses. We then put a few additional very 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 revenues of $5 million or less. We then exclude certain types of businesses we have determined are not the ideal fit for our solutions, including 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 Town Square Interactive. At a $300 per month ARPU, that equates to an estimated $32 billion total addressable market for Town Square Interactive, of which we only capture a small fraction today. There is incredible, incredible upside. As I noted on our last call, We are planning to add a second TownSquare Interactive location in the Western United States to capture this opportunity once the pandemic is in America's rear view mirror fully, most likely in Q1 2022. On a trailing 12-month basis, TownSquare Interactive generated $73 million of net subscription revenue at a 31% profit margin, therefore delivering $22.5 million of profit. If you were to value this business on a standalone basis, One comparable company to look to would be Wix, which trades at 17 times trailing revenue multiple. If you applied a similar or even a discounted multiple to Town Square Interactive, that would suggest a valuation north of where Town Square as a whole trades today. With our existing subscriber base, our competitive advantages, and our significant market opportunity, I am very 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. So that's Town Square Interactive, which is our digital marketing solution. Now I'd like to briefly cover our digital advertising solutions. The first is Ignite, our digital programmatic technology platform. The second is Amped, monetizing our owned and operated digital brands. Let's start with Ignite. which if you turn to slide five is in the first column on the left-hand side. Town Square Ignite combines first and third party audience data to hyper-target audiences for our local and regional advertisers, providing them the ability to reach their target customer with the right message at the right time. Ignite was one of our strongest performing digital advertising solutions in 2020, growing plus 11% over 2019. That strength continued into 2021 as Ignite's net revenue increased plus 12% in the first quarter as compared to the prior year and was plus 45% greater than Q1 2019 revenue levels. We expect that Ignite's second quarter net revenue will accelerate and increase to plus 30% or more compared to Q2 2020. We believe our success with Town Square Ignite is multifaceted, yet one strong differentiator for us which is similar to Town Square Interactive, is we own the 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, therefore, higher client retention rates. Town Square Ignite is, in essence, a client's full-service digital agency. Moving one column over on slide five to the right, our next digital solution is Town Square Amped, which is digital advertising on 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 57 million unique visitors on a monthly basis over the trailing 12-month period. In the first quarter, Town Square Amps net revenue increased plus 11% over the prior year period and was plus 15% greater than Q1 2019 revenue levels. We also expect Town Square Amps second quarter net revenue will accelerate and increase by plus 45% or more compared to 2020. In total, Our first quarter digital advertising revenue, including in night and AMT, increased plus 12% over the prior year and plus 31% over 2019 levels. We expect our digital advertising second quarter net revenue to increase approximately plus 40% compared to Q2 2020 and over plus 15% compared to Q2 2019 levels. These growth rates clearly demonstrate that Town Square is now a digital-first company. As you can see on slide 9, our transformation into a digital company is in a class of its own. As of March 31st, our digital revenue totaled $167 million over the trailing 12-month period. Over the next three years, we expect to grow our digital revenue to $250 million which will be well above 50% of our company's total revenue. However, local radio remains a core aspect of our local media offering, and radio's recovery is a component to achieving a full financial recovery to 2019 levels and growing from there. Broadcast advertising on our 322 local radio stations was the most impacted by the pandemic. but has been gaining ground each quarter since its trough of negative 45% in the second quarter of 2020. In the first quarter of 2021, broadcast revenue, excluding political, declined negative 11% versus the prior year period, a significant improvement from Q4 2020's decline of negative 19% and full year 2020 decline of negative 26%. To demonstrate our progress of the broadcast recovery, I'll turn your attention to metrics published by Miller Kaplan. In Q1 2021, Town Square outperformed the industry in local radio spot sales by 570 basis points and total spot sales by 390 basis points in our markets that Miller Kaplan measures. Additionally, Town Square also outperformed the industry in total revenue, which includes both total spot revenue and total digital revenue by 270 basis points. If you single out March 2021, since March 2020 was the first month impacted by the pandemic, Town Square's local spot revenue increased plus 9.8%, while the industry was down negative 0.8% in the markets measured and tracked by Miller Kaplan. And excluding Town Square, the industry was down negative 5.7%. From a total net revenue perspective, Town Square's Miller Kaplan markets were up plus 12.6% in March, while the industry was up plus 6%. and up only 2.1% excluding Town Square. The Miller Kaplan results demonstrate that Town Square is outperforming its peers not only in digital, but also in broadcast. In the second quarter and the back half of 2021, we expect our broadcast revenue to post significant year-over-year gains as it comps against pandemic-depressed revenue levels. For example, we expect broadcast revenue to be up almost 50% or greater in Q2 And although it will take some time, our expectation is to fully recover back to 2019 broadcast levels. That is what our Town Square team is focused on. Internally, we are measuring our progress via comps to 2019 rather than pandemic-depressed 2020 levels. Live events remains the only part of our business that through Q1 2021 hasn't had the opportunity to recover, as live events have been canceled for the past year due to the pandemic. However, starting in the second quarter, we have begun to schedule a handful of live events in markets that have loosened restrictions. For example, last week we hosted the Red Dirt Barbecue Festival in Tyler, Texas. It was a huge success, setting an all-time revenue and all-time profit record. As states continue to relax restrictions on public events, We are optimistic that we will be able to deliver and schedule more events as the year progresses before returning to a normal schedule of live events in 2022. For Q2, we are expecting to generate roughly $1 million of live events net revenue at a high 20% profit margin. Before I hand the call over to Stu, I'd like to reiterate our strong operating and financial position. Our business continues to improve each and every quarter. so much so that we feel it is most relevant to compare our financial results to pre-COVID 2019 levels as we believe we are on the verge of a full revenue and EBITDA recovery. We successfully refinanced our capital structure with a single tranche of 6.875% paper that does not mature until 2026, eliminating any near-term maturities at a better-than-expected rate. Through careful expense and cash management, we built a significant cash balance that allowed us to take advantage of the opportunity to repurchase 100% of Oak Tree's capital shares in Town Square at a significant discount, a transaction which was very, very accretive to our shareholders. Further, the permanent actions that we took last year to reduce our expense base and cash outflows have enhanced our operating leverage moving forward. With that, I'll turn the call over to Stu, who is going to discuss our financial results in much, much greater detail. Stu, take it away.