Townsquare Media, Inc.

Greetings. Welcome to the Town Square Media Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A 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. Please note this conference is being recorded. I will now turn the conference over to your host, Claire Anike. You may begin.

Thank you, 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 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.

Good morning, everyone. Thank you all for joining us this morning as we update you on our incredible financial results and our progress through the first half of 2021. I wanted to start today's call by providing you with our latest outlook for the full year, because it is something the TownSquare team is very proud of. And then I will discuss specifically our Q2 results. Becoming a digital first company with a heightened focus on local has propelled our company forward the past 12 months, allowing us to recover even faster than we initially expected. We now expect 2021 net revenue to increase to at least $410 million, which is $15 million higher than we originally forecasted just last quarter. And it is 95% of 2019's revenue. And incredibly, we expect 2021 adjusted EBITDA to fully recover to at least $102 million which would equal 2019's pro forma adjusted EBITDA of $102 million and is $12 million above what we originally forecasted just last quarter. Now let me walk you through how we will recover fully to 2019 profit levels. Our financial recovery accelerated in the second quarter of 2021, and I'm proud to announce that our second quarter financial results exceeded our goals and expectations. And in many cases, exceeded levels we achieved in the pre-COVID second quarter of 2019. Once again, we exceeded our previously issued guidance range for both Q2 net revenue and Q2 adjusted EBITDA. I'd like to draw your attention to slide six of our investor presentation, where we outlined second quarter performance. On our last earnings call, we provided key data points to help set expectations for Q2. And I am thrilled to share with you that we over delivered and beat on every single one. To start, given our revenue recovery and expense management, particularly corporate expense reductions, we are very proud to announce that in the second quarter, we generated the highest adjusted EBITDA of any quarter in our entire company's history. Let me say that again. Just one year after the start of the pandemic, we are back on track. Our flywheel continues to pick up momentum and we are setting all-time high adjusted EBITDA records. Q2's adjusted EBITDA of $30.3 million is greater than 2019's, our previous EBITDA high watermark. And when excluding live events, Q2 adjusted EBITDA exceeded 2019 adjusted EBITDA by plus 5%. Helping drive that strong profit performance, I am also very proud to share that we set another all-time company record with the most net subscriber ads in Town Square Interactive's history, adding approximately 1,350 net subscribers in Q2. As a result, Town Square Interactive's Q2 net subscription revenue grew plus 20% over Q2 2020, and is now approximately 20% of our total company's revenue on a year-to-date basis. Let me reiterate that, approximately 20% of our total revenue. and nearly one quarter of our total adjusted EBITDA is attributable to a monthly recurring subscription business, a true differentiator for Town Square. Continuing with our strong revenue performance, Q2 net revenue grew plus 45% when compared to 2020, achieving 95% of 2019 second quarter net revenue. That's a very good outcome. Yet, when you exclude live events revenue, which remained limited in the second quarter we made a near full revenue recovery with Q2 2021 net revenue reaching 99.4% of 2019's net revenue. In my view, an incredible result. Broadcast revenue continued to show sequential improvement in Q2. In Q2 2021, broadcast revenue was up plus 54% from a year ago, when in Q2 2020, broadcast was down negative 45%. As a digital-first company, the primary driver of our recovery to 2019 revenue levels has been our digital business. In total, our second quarter digital revenue exceeded 2020's digital revenue by plus 36%, with digital advertising revenue plus 50% and Town Square Interactive revenue plus 20%. As I mentioned earlier, our success can be credited to our digital strategy. 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. So what does being a digital first company actually mean? It means acknowledging both internally and externally that digital is our growth engine today and in the future. It means that our first priority for internal investment will be towards fueling our digital platforms in terms of personnel, product development, and physical expansion. Digital first means ensuring that our content online is as engaging, relevant, and local as our content on air. And it means that when our account executives bring our world-class advertising solutions, both digital and broadcast, to local SMBs to help them grow their business, they are also taking the opportunity to educate them on how important it is that they have a strong digital presence and online storefront and how Town Square has the tools and solutions to accomplish that. Digital first also means that digital revenue will represent the majority of our company's revenue in the near future. And we have two digital solutions that will get us there. First, our digital advertising solutions, which today include Town Square Ignite and Town Square Amps. And second, Town Square Interactive, our digital marketing subscription solutions business. In total, digital revenue from these two revenue streams totaled $180 million over the 12 months ending June 30, 2021, contributing 47% of our total net revenue in the first half of 2021. As you can see on slide nine, Digital has been the primary source of our growth over the past several years. Only four years ago, digital revenue was under $100 million and contributed just 25% of our total net revenue. Fast forward four years later, on a trailing 12-month basis, we generated $180 million in digital revenue, an increase of over $80 million of digital revenue from 2017 levels. Going forward, we anticipate strong double digit growth across our digital platform as we grow from an expected $190 million of digital revenue in full year 2021 to over $250 million of digital revenue in three years. Town Square Interactive is a big driver of that growth. We expect it to grow from $76 million of revenue on a trailing 12 month basis today to over $100 million of annual revenue within two to three years. Since we launched Town Square Interactive in 2012, its revenue has grown double digits versus the prior year each and every quarter, even during the worst of the pandemic. And since reaching profitability in 2014, profit also has grown each and every quarter, reaching $23 million on a trailing 12 month basis as of June 30th. with a 31% profit margin. As I have noted on previous calls, if you were to value Town Square Interactive on a standalone basis, one comparable company to look at would be Wix, which currently trades at 16 times trailing revenue multiple. If you apply to similar multiple or even a discounted multiple to Town Square Interactive, that would suggest a valuation north of where Town Square as a whole trades today. Town Square Interactive is an important and valuable resource for small business owners, providing 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, much more on a monthly recurring basis. Over the past 13 quarters, we have added at least 850 net subscribers each quarter to our subscriber base. As I highlighted earlier on the call, we are very proud that in Q2, we set an all-time record with the most net subscriber ads in our history, adding approximately 1,350 net subscribers. As of June 30th, We now provide digital marketing solutions on a monthly subscription basis to approximately 24,950 small and medium-sized local businesses across the U.S., including, but importantly not limited to, the markets in which we operate radio stations. Roughly 57% of our current subscription client base resides outside of our radio markets today. At the risk of being repetitive, as I've shared this on the last couple of earnings calls, I'd like to once again walk you through the vast size of Town Square Interactive's addressable market. Town Square Interactive is still incredibly, incredibly under-penetrated within our local market footprint, and importantly, within additional local markets of similar size and demographics. If you return to slide 12 of our investor presentation, you will see that 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 about 11.5 million businesses. We then put a few additional and 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 revenue of $5 million or less. We then exclude certain types of businesses we have determined that are not the ideal fit for our solutions, including real estate agents, banks, and other types of businesses. And lastly, we include only private 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 are only capturing a small fraction today. There is incredible, incredible, incredible upside. We are planning to add a second Town Square Interactive location in the Western United States to capture this opportunity, most likely in the first half of 2022. In fact, given the success we had during the pandemic working virtually, We have already started hiring dozens of team members for our West Coast location, and those employees are now working for us remotely. Ultimately, we believe the West Coast Town Square Interactive location will be close in size to our Charlotte location, which as you may recall, is currently staffed with over 600 employees. Throughout the pandemic, Town Square Interactive delivered revenue, profit, and subscriber growth, and that growth has accelerated thus far in 2021. Second quarter net revenue increased plus 20% year over year as we added a record amount of subscribers. Second quarter profit increased plus 18% year over year with profit margins at 30%. In Q3, we expect to add at least 850 net subscribers for the 14th consecutive quarter and most likely we'll add over 1,000 net ads with revenue up approximately plus 15% year over year in Q3. As a reminder, in 2020, we added approximately 3,750 Net subscribers, and in 2021, we expect to add over 4,000 Net subscribers. With our second location coming online in the first half of 2022, we expect that our Net subscriber additions will accelerate in 2022, 2023, and beyond. As I noted earlier, our digital advertising revenue in Q2 grew plus 50% over suppressed levels of Q2 2020, and thus it is worth noting digital advertising revenue was up plus 23% compared to Q2 2019. As I outlined on slide five, our digital advertising revenue is driven by Town Square Ignite and Town Square Ant. Town Square Ignite, our digital programmatic technology platform, had an outstanding quarter helping to drive that plus 50% digital advertising growth. 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 has been a significant source of growth for Town Square, growing from less than $10 million of revenue in 2016 to more than $53 million of revenue in 2020. Our success with Town Square Ignite is multifaceted. Yet one strong differentiator for us, just like Town Square Interactive, is that we own the entire Ignite solution. All of the ad tech and the 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 in our view. Town Square Ignite is in essence, a client's full service digital agency. We are confident that Ignite will be our fastest growing revenue stream in 2021 and likely in the years to come. As revenue grows from $59 million on a trailing 12 month basis today to $100 million within two to three years at roughly a 30% profit margin. The other key component of our Q2 digital advertising revenue growth of plus 50% is Town Square Amped, which generated $45 million of revenue on a trailing 12-month basis as of June 30th. Town Square Amped is a 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 59 million unique visitors on a monthly basis in the first half of 2021. During the pandemic, our digital platforms experienced all-time record audience levels as our local communities turned to our local brands to stay informed and be entertained. As the pandemic subsides and life starts to return to normal, we have successfully retained this audience by continuing to provide localized, relevant content curated for our audience. In fact, our on-air DJs, who are also digital content creators and importantly, local social influencers, create over 30,000 pieces of local content each and every month, making Town Square one of the largest producers of local content in the United States. Across the board, our digital offerings performed very, very well during the pandemic and in the first half of 2021, driving our strong top line and profit recovery. As I mentioned earlier, broadcast continues to improve sequentially, but from a steeper decline, as broadcast advertising on our 322 local radio stations was the most impacted during the pandemic. In Q2 2021, broadcast revenue was up plus 54% from a year ago, when in Q2 2020, broadcast revenue was down negative 45%. We expect that our broadcast revenue will continue to rebound from 2020 suppressed levels, supported by stable rates, record new business activity, defined as advertisers who have not advertised with us in the previous 13 months, and growing optimism among our existing advertising base. We also expect some tailwinds from certain advertising categories that have yet to recover, including live event-related advertising, auto advertising, which has been negatively impacted by the industry's ongoing chip shortages, and Canadian businesses, which impacts our markets in Maine and Buffalo, where the border remained closed. To further demonstrate our broadcast recovery, I'll turn your attention to metrics published by Miller Kaplan, which are included on slide seven. In Q2 2021, TownSquare outperformed the industry in local radio spot sales by 11 percentage points and total spot sales by 9 percentage points in our markets that Miller Kaplan measures. Additionally, Town Square also outperform the industry in total revenue, which includes both total spot revenue and total digital revenue. These Miller Kaplan results demonstrate that Town Square is outperforming its peers not only in digital, but also in broadcast. Roughly half of our revenue is digital, but we are also growing local market share in radio. One doesn't have to come at the expense of the other. The opposite is true, in fact. The better we do digitally, the better we do in our core local business because the digital solutions we provide to local SMBs encourage them to trust us with their broadcast marketing budgets as well. We hosted a handful of live events in the second quarter, generating $1.2 million of revenue and $500,000 of profit, a 42% profit margin. So far, we are seeing strong consumer demand for the limited number of events that we have operated, And at certain events, we're even setting all-time records. On our last earnings call, we highlighted the Red Dirt Barbecue Festival in Tyler, Texas that set an all-time revenue and all-time profit record in early May. In late July, just a few weeks ago, we hosted the Taste of Fort Collins, which sold out both days for the first time ever and therefore set an all-time revenue and profit record as well. We will continue to ramp up our live event schedule for the back half of 2021, but we will not return to normal schedule of live events until 2022. For Q3, we are expecting to generate approximately $3 million of live events net revenue at roughly a 20% profit margin. So let me take a moment to recap before I hand the call over to Stu. We outperformed our expectations for the second quarter on both net revenue and non-profit. driven by incredible performances across our digital platform, which contributes approximately 47% of our total net revenue. Town Square Interactive, a major component of our digital revenue, added an all-time high plus 1,350 net subscribers in the quarter. Town Square Interactive's recurring subscription revenue is now approximately 20% of our total company revenue and nearly 25% of our total company EBITDA. We delivered an all-time high adjusted EBITDA of $30.3 million, which was above Q2 2019 by plus 5% excluding live events. Our improvement in adjusted EBITDA contributed a significant decline in our total and net leverage, which are now 5.8 times and 5.5 times respectively. We continue to see improvement in our broadcast business and our live events business is starting to pick up pace. Because of our strong performance and our positive outlook, we have significantly raised our full year 2021 guidance, indicating net revenue that is close to 2019 levels and adjusted EBITDA that achieves 2019 levels. With that brief recap, I'll turn the call over now to Stu, who's going to discuss our financial results in much, much greater detail. Stu, take it away.