Townsquare Media, Inc.

Greetings and welcome to the Town Square Media Third Quarter 2021 Earnings Call. 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Claire Yenneke, Investor Relations at Town Square. Thank you, Claire. You may begin.

Thank you, Operator, and good morning to everyone. Thank you for joining us today for Town Square's third 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-end of 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. I've been looking forward to today so that we can share our very strong third quarter results and provide you with an important update on our improved outlook and guidance for the full year 2021. But first, I wanted to take a quick step back and review how far we've come in one short year. At this time last year, we were in a very different place. Although we had already started our recovery from Q2 2020's low point, there was a significant amount of uncertainty that prohibited us from providing any outlook on the pace of our business improvement. However, at that time, we were very confident in our ability to profitably manage through the downturn, and we made a deliberate decision to be strategic and limited in our cost reductions, protecting our core team and resources, so that we can emerge from the pandemic-induced downturn faster and stronger than our local competition. Fast forward to today, and it is clear that we made the right decision. Although COVID is still with us today, we are growing our business faster than we thought possible, and we are gaining market share, moving us towards our ultimate goal of being the number one local media company in each and every one of our 67 local markets. In essence, we are not only back on track, we are achieving new profit milestones and our flywheel continues to pick up momentum each and every quarter. I'm proud to announce this morning that our third quarter financial results exceeded our goals and expectations. Please turn to slide six, which highlights that our third quarter net revenue increased a very strong plus 17% year over year to $111 million, and more importantly is 99% of Q3 2019's net revenue. As a result, we exceeded our previously issued revenue guidance. Third quarter adjusted EBITDA is over $29 million, which is an increase of plus 67% year-over-year And more importantly, was 104% of Q3 2019 EBITDA. And as a result, that also exceeded previously issued profit guidance. I'm also very pleased to share that Q4 is shaping up to be stronger than initially expected as well. Turning to slide seven. We now expect full year 2021 net revenue to increase to at least $415 million, which is $5 million higher than our guidance just three months ago and $20 million higher than we originally forecasted six months ago. Our new full year revenue guidance of at least $415 million represents 96% of 2019's net revenue and 99% excluding live events revenue. And incredibly, We now expect 2021 adjusted EBITDA to be between $104 million and $105 million, which represents plus 2% to plus 3% above 2019 adjusted EBITDA of $102 million and at least $14 million above what we originally forecasted just six months ago. Not only will we exceed our 2019 EBITDA, but 2021 will be the highest profit level Town Square has ever achieved. What a recovery. Although very challenging and unprecedented, the pandemic served to accelerate Town Square's transformation into a digital-first company. And our results clearly back that up. I also wanted to point out that we ended the third quarter with 4.9 times net leverage, a significant year over year improvement, and we continue to make reducing net debt a priority. Our success is 100% tied to the effort, hard work, and passion of our incredible Town Square team who have fully embraced our transformation and super serve their local communities and their local businesses each and every day. Although we are very proud of our roots and DNA in local radio, Town Square is clearly now a digital first company. Digital represents nearly half of our revenue and digital is the source of our strong revenue and profit growth today and in the future. As you can see on slide nine, digital has been our growth engine for several years. Only four years ago, digital revenue was under $100 million and contributed just 25% of our total net revenue, excluding political. In 2021, we expect our digital revenue to increase to $193 million, up more than $90 million from 2017 and 47% of total net revenue, excluding political, almost double that of 2017. Within three years, We are confident our digital revenue will grow to over $250 million. And importantly, the success of our digital platform does not come at the expense of our broadcast platform. The opposite is true. 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 budget as well. You can see that clearly in our Miller Kaplan local broadcasting advertising results on slide eight. As we continue to gain market share in local radio advertising, our digital solutions benefit our radio solutions and our radio platform and reach supercharge our digital solutions. Digital revenue will represent the majority of our company's revenue in the very near future. Our digital revenue is comprised of two main components. One, Town Square Interactive, our monthly recurring digital marketing subscription solution, and two, our digital advertising solutions, which today include Town Square Ignite and Town Square Amped. In total, digital revenue from these two revenue streams totaled $188 million over the 12 months ending September 30th. and contributed 47% of our total net revenue excluding political in the first nine months of this year. Town Square Interactive alone contributed 20% of our total revenue excluding political and one quarter of our total adjusted EBITDA excluding political in the trailing 12 month period. This is not advertising revenue. This is recurring subscription revenue. Town Square Interactive is a true differentiator for our company. and has been a key growth driver of our financial results prior to and during the pandemic. Since we organically developed and 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 COVID in 2020. And since reaching profitability in 2014, profit also has grown each and every quarter as well. Although I believe the growth at Town Square Interactive has been phenomenal to date, just take a look at slide 10, which shows that a few years ago in 2017, Town Square Interactive generated $40 million in subscription revenue, which we expect will increase to roughly $82 million in subscription revenue in 2021. And yet, I know there is still so much more upside to capture. On our previous calls, I walked you through the addressable market for Town Square Interactive. which is outlined on slide 11. I won't go into the details again, but it is worth noting that the total addressable market is $32 billion, which translates to just under 9 million customers. The takeaway is we are just getting started. With approximately 25,950 subscribers at the end of the third quarter and with increasing net ads each year, we are still only capturing a small fraction of the addressable market today. As we have previously shared, we are planning to open a second TownSquare interactive location in the Western United States in 2022, most likely in Q2. This will have a number of benefits. It will allow us to better serve our West Coast clients with sales and service operating at the same time zone, but most importantly, it will also greatly expand our talent pool. One of our company's biggest investments every year is in sales and service personnel to support our growth at Town Square Interactive. So being able to tap into West Coast employment market will be very, very beneficial. In fact, we have already hired dozens of new team members who will work in our new location next year and who are currently working with us remotely. In Q3, we added plus 1,000 net subscribers. the 14th consecutive quarter of 850 or more net subscriber ads. As a reminder, as you can see on slide 10, in 2020, we added approximately 3,750 net subscribers, which was higher than 2019 and 2018. And in 2021, we expect to add at least 4,050 net subscribers. With our second location coming online in the first half of 2022, we expect that our net subscriber additions will accelerate in the second half of 2022, 2023 and beyond. As I noted on previous calls, we do not believe that Town Square Interactive is properly valued in today's public markets. On a trailing 12 month basis as of September 30th, Town Square Interactive had $79 million of net subscription revenue and $24 million of profit. a 30% profit margin. If you were to value Town Square Interactive on a standalone basis, one comparable company to consider would be Wix, which is currently traded at 10 times trailing revenue multiple. A similar valuation applied to Town Square Interactive alone would exceed the current market cap of Town Square as a whole today. In fact, Town Square trades at what I would call a radio multiple, despite the fact that roughly half of our revenue and half of our profit comes from digital and our strongest growth comes from digital. Our digital advertising solutions, which generated $109 million of net revenue in the trailing 12 months ending September 30th, continued its strong growth in the third quarter. In Q3, digital advertising net revenue increased plus 23% year over year and plus 27% year to date. As outlined on slide 12, our digital advertising revenue is driven by Town Square Ignite and Town Square Amped. Town Square Ignite, our digital programmatic technology platform, has been a significant source of growth for our company, growing from $0 in revenue in 2014 to over $60 million of net revenue on a trailing 12-month basis. 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. We organically built and therefore own the entire Ignite solution. So all of the ad tech and offering is in-house leading to a better customer experience, which we believe translates to higher client retention rates. Our in-house buying platform is integrated with over 1,000 exchanges with access to over 250 billion impressions per day, meaning we have access to nearly all of the available inventory on the internet, making Town Square among the largest in-house trading desks in our 67 local markets. Meanwhile, The majority of our competition we run up against in our markets use a single source inventory. So they simply do not have the resources to provide the level of targeting, optimization, and ultimately the results that we can deliver on our Ignite platform. Industry forecast estimates that by 2025, just 38 months from now, digital will account for approximately 80% of all local advertising spend. and much of that will be sold programmatically. Having our own programmatic solution and owning that solution in-house allows us to fully benefit from these digital industry tailwinds now and in the years and years and years ahead. Town Square Amped has also been a source of revenue growth for our company and generated roughly $50 million of revenue on a trailing 12-month basis as of September 30th. Town Square Amped is digital advertising our owned and operated network of digital brands made up of over 340 local and national websites and mobile apps. The success of our Town Square AMT offering is due to our significant investment in local talent and our commitment to providing localized relevant content curated for our audience. And also the overall lack of local news outlets dedicated to small and mid-sized communities across the country. often called, quote unquote, news deserts. In many of our markets, we are one of very few creators and suppliers of local news and information. As traditional news outlets like local TV stations and local newspapers have shrunk, shut down, or never even existed in our markets. Since 2004, approximately 1,800 newspapers have closed in the U.S., And it has been reported that more than 90 local newsrooms have closed during just the pandemic. Our on-air DJs who also create digital content are literally the original social influencers who helped Town Square create over 30,000 pieces of local content each and every month, which makes us at Town Square one of the largest producers of local content in the entire United States. helping to fill that void. We believe that the pandemic served as a proof point to the value our local communities place on our local brands as they turn to us in record numbers to stay informed as well as entertained. To that point, in July, we had an all-time record audience of 69 million unique visitors to our websites and apps, which is double our audience just two years ago. Our consistently strong online audience, which as a reminder is more than 5X the size of our on-air audience, has allowed us to increasingly monetize our digital inventory and consistently grow our digital revenue and profit. In total, digital revenue exceeded 2020's digital revenue by plus 20% in the third quarter and plus 23% year to date. As I mentioned earlier, We expect Town Square's full-year 2021 digital revenue to increase plus 19% to a very, very strong $193 million. Of that, Town Square Interactive will be roughly $82 million of revenue, representing plus 17% year-over-year growth, and Town Square's digital advertising solutions will be $111 million of revenue, representing plus 21% year-over-year growth. Although our broadcast business continues to modestly improve on a sequential basis, unlike our digital business, it has not yet fully recovered to pre-COVID-19 levels. This is not surprising, as broadcast advertising on our 322 local radio stations was the most impacted during the pandemic. The good news, however, is that we are growing market share in our markets, as I mentioned earlier. I'll turn your attention again to metrics published by Miller Kaplan, which are presented on slide eight. In Q3, 2021, Town Square outperformed the industry in local radio spot sales by 5.8 percentage points and total spot sales by 4.6 percentage points in our markets that Miller Kaplan's measures. Additionally, Town Square also outperformed the industry in total revenue, which includes both total spot revenue and total digital revenue by 3.8 percentage points. For the total company, Q3 2021 broadcast revenue was up plus 9% from a year ago and plus 18% excluding political revenue. We expect that our broadcast revenue will continue to rebound from 2020 suppressed levels through 2022 and beyond. In the long term, we view radio as an extremely valuable asset with significant cash flow properties, unparalleled reach, and an important local connection to our audience. But as a mature cash cow business, our growth will continue to be driven primarily by our digital platform and solutions for local businesses. So to recap, we outperformed our net revenue and adjusted EBITDA expectations for the third quarter, driven by incredible performances across our digital platform, which contributes approximately 47% of our total net revenue, excluding political, and which we expect to grow to $250 million in three short years. Town Square Interactive, a major component of our digital revenue, added plus 1,000 net subscribers in the quarter and increased revenue plus 16% year over year. It is worth highlighting that Town Square Interactive's recurring subscription revenue is nearly 20% of our total company's revenue and nearly 25% of our total company's EBITDA when excluding political. Significantly, for the fourth consecutive quarter, Our adjusted EBITDA exceeded pre-COVID-19 levels. Our net leverage is now below five times, a significant improvement from just last year. Because of our strong performance and our positive outlook, we have once again raised our full year 2021 guidance, indicating revenue that is close to 2019 levels and adjusted EBITDA that meaningfully beats 2019 levels. and sets an all time high for the company. I do truly hope that these results we are sharing today, as well as our increased guidance for the full year 2021, demonstrate the fact that although we love the power of radio and its unparalleled emotional connection in our communities, We are truly a digital company moving forward into 2022 and beyond. Now, I'll turn the call over to Stu, who will break down our strong results and outlook in greater detail for everyone.