Townsquare Media, Inc.

Good morning and welcome to Town Square's second quarter 2022 conference call. As a reminder, today's call is being recorded and your participation implies consent to do 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, Clare Yaneke, Executive Vice President, Thank you. You may begin your presentation at this time.

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 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 and download our investor presentation, as Bill will reference some of those slides during our discussion this morning. this time, I would like to turn the call over to Bill Wilson.

Thank you, Claire, and thank you all for joining us. My goal on this morning's call, in addition to sharing our record-setting Q2 results and strong outlook, is to clearly distinguish Town Square from others in the local media and radio broadcasting industries because, quite simply, Town Square is very different today and, most importantly, moving forward from the rest. As our country could currently be in a recession based on the first half of the year GDP data released last week, or if one believes our country may potentially enter a recession over the coming months or quarters, it is important to remember that Town Square is a digital-first local media company focused exclusively on markets outside of the top 50. Approximately 50% of our revenue comes from digital solutions, which historically performed better during a downturn than broadcast advertising. And approximately 40% of that digital revenue is non-advertising-based digital subscription revenue, which Town Square grew even during the worst of COVID. Another key differentiator, not only are we focused on markets outside of the top 50, but we selectively pick markets with stabilizing institutions, such as state capitals, four-year universities, and army bases, which have lower unemployment rates compared to national averages and economies less susceptible to recession shocks. Additionally, because we are not in large markets, the majority, over 90% of our advertising revenue is local advertising, which historically has been less volatile than national advertising, particularly during an economic downturn. Overall, we believe that we are very well positioned to perform during a downturn or recession, no matter the duration and severity, a belief which is supported by our 2020 performance during the worst of COVID. We are encouraged by our strong record-setting second quarter results and the increased guidance that we will be issuing today for Q3 and for the full year. Today, we are also reaffirming our expectation that Town Square will deliver record-setting best-ever profits in 2022. Our second quarter financial results reflect strong revenue and profit growth. And as a result, we set an all-time record high for both revenue and adjusted EBITDA. As outlined on slide 19 in the investor deck, these results exceeded our second quarter revenue guidance and met our second quarter EBITDA guidance. The Townsquare team is very proud of our Q2 results, which clearly demonstrate the strength and differentiation we have in our digital businesses, as well as in our legacy cash cow broadcast business. Second quarter net revenue increased a very strong plus 14% year over year, to $121.9 million, above our guidance range of $117 million to $121 million. Second quarter adjusted EBITDA increased plus 7% year over year to $32.4 million, within our guidance range of $32 to $33 million. Digital revenue growth actually accelerated in Q2 from plus 16% year over year in the first quarter to plus 21% year over year in the second quarter. Q2 digital profit increased plus 11% year over year, with Q2 profit margin of 30%, slightly better than Q1's digital profit margin of 29%. In total, 50% of our June year-to-date revenue and 50% of our June year-to-date profit came from our digital businesses. Let me repeat that. as it is a clear differentiator for our company and was also a meaningful driver of our performance during the last recession. Fifty percent of our June year-to-date profit came from our digital solutions for local businesses. During the COVID-19 recession, our digital business held up remarkably well, as did the overall digital industry. Town Square's digital advertising revenue declined for only one quarter during the initial shutdown of the economy in Q2 2020, and return to growth by Q3 2020. Likewise, according to S&P Global estimates, digital advertising increased plus 15% in the United States in 2020, a helpful tailwind to have at our backs and one that can be expected to continue. TownSquare Interactive, our digital marketing solution subscription business, grew revenue, profit, and subscribers during every quarter of 2020, demonstrating its resilience to a downturn. and its vital importance to local businesses in our markets. Our digital business was a key reason that during the COVID-19 recession, our company's total adjusted EBITDA returned to growth by the end of 2020. And in 2021, we delivered an all-time high EBITDA and have continued to set new revenue and profit records in Q1 2022, and again this quarter in Q2 2022. I share these data points to highlight that although it is unclear if a recession is going to occur over the coming year, if one were to occur, Town Square is very well positioned to navigate a recession and return to record-setting revenue and profit post a potential recession, as we demonstrated quite well in 2021. Now, I'm going to provide detailed results of our digital platform as a reminder of the extremely valuable and quite differentiated digital assets and businesses we have at Town Square. Our digital advertising segment, Market Externally as Town Square Ignite, is presented on slide 15. In the second quarter, digital advertising net revenue increased a very strong plus 25% year over year. And digital advertising profit increased plus 12% year over year with a 30% profit margin. Even given all the macro concerns in Q2, our Q2 digital advertising revenue growth actually accelerated from Q1 with strength in all three months of the quarter. Additionally, based on our current pacing, we expect strong digital advertising revenue growth to continue in the third quarter. On a trailing 12-month basis as of June 30th, We generated $129 million of digital advertising net revenue and $39 million of digital advertising profit, which equated to a 30% profit margin. A key component of our digital advertising success is this significant audience that we reach and the high quality local and relevant content we produce curated to our local audiences. With the closing of our Cherry Creek acquisition at the end of Q2, our digital advertising portfolio includes now over 400 local and national news and entertainment websites and mobile apps that generate over 60 million monthly unique visitors and have over 40 million followers across social platforms and have generated over 3.5 billion lifetime views across our YouTube platform. Town Square is one of the largest producers of local content in the United States. Importantly, filling a news and information void that exists in small markets across the United States due to the decline of local news providers. In addition, another key component of our success and differentiation is our organically built digital programmatic advertising platform that has access to more than 250 billion impressions per day, and our proprietary data management platform with rich and valuable first-party data with over 15 million user profiles. We use this incredibly valuable first-party data collected from our own audience for advertising on both our owned and operated brands and our digital programmatic solutions. Being a large at-scale publisher with first-party data is a significant, significant competitive advantage in digital advertising. especially in the programmatic business, as we are able to more effectively target our customers' desired and valuable audience. Although we believe it is unlikely that cookies will be eliminated entirely, any limit on cookies or third-party tracking will make publisher-owned first-party data, like ours, even more critical for successful digital advertising campaigns. Another benefit for Town Square. On slides 12 through 14, we highlight the additional valuable component of our digital business, which is Town Square Interactive, our subscription digital marketing solutions business. With a monthly recurring subscription-based model that generates a substantial profit, this business is a significant differentiator for us versus other local media companies and provides a resilient subscription growth vehicle in good or bad economic environments. Since we organically developed and launched Town Square Interactive in 2012, its subscription revenue has grown double digits versus the prior year each and every quarter, even during COVID recession of 2020. And since reaching profitability in 2014, subscription profit has grown each and every quarter as well. In the second quarter of this year, our consistent and strong growth streak continued. Town Square Interactive's Q2 subscription revenue increased plus 14% year-over-year, and subscription profit increased plus 10% year-over-year, and we added approximately 1,150 net subscribers in the quarter. On a trailing 12-month basis, as of June 30th, Town Square Interactive had $87 million of subscription revenue and $25 million of subscription profit, a 29% profit margin. We have identified a huge addressable market, which we have outlined on slide 13 of nearly 9 million target customers across the United States. With approximately 29,000 subscribers at the end of the second quarter, we have significant, significant runway ahead of us. I'm pleased to announce that in June, we signed a lease for our second Town Square interactive location in Phoenix. As we've discussed previously, this is an important component of our Town Square Interactive Growth Plan as it will greatly enhance our recruiting universe and allow us to access the West Coast talent pool while still growing our employee base on the East Coast. To date, we have hired over 20 employees for our West Coast location, and in 2022, we have added over 50 employees to our Charlotte location, which now is home to over 700 Town Square team members. The new space in Phoenix is currently being built out, and we expect to physically move into the new location in March of 2023. While we build out the new office space, we are arranging for temp space for our existing West Coast employees to work out of, which should be ready by Labor Day. As we have previously stated, we are confident that we will be able to scale and operate this second location at strong profit margins. given our history and experience of launching and operating our Town Square interactive location in Charlotte. As a reminder, and as highlighted on slide 29, our entire digital platform was developed organically by our own very, very talented product design and engineering team. This team is one of Town Square's key strengths and allows us to retain a competitive edge. The fact that our digital products and solutions are developed, managed, and continuously refined in-house, and are not outsourced is a significant, significant competitive advantage that grants us the ability to fully control the customer experience from point of sale to execution and reporting, which also enhances our customer satisfaction and therefore customer retention. Importantly, these solutions in-house also enhances our digital profit margins. In total, we expect and we reaffirm that our digital revenue will grow from $216 million of digital revenue on a trailing 12-month basis as of June 30th to a minimum of $275 million of digital revenue by 2024. On a trailing 12-month basis, our digital profit was $65 million, representing a 30% profit margin. It is our strong belief that our digital platform is not appropriately valued for its growth and margin profile. as we train in line that are often grouped in with radio broadcasters who are not digital-first companies, lack differentiated digital businesses, and have far less digital revenue and profit. This was one factor that led us to resegment the business at the end of last year. It is our expectation that given this more detailed information, Town Square will, over time, get credit and value for being a digital first local media company. And we will be afforded a sum of the parts valuation that gives credit to our digital assets and strong digital profit. That being said, we continue to love our Cash Cow local broadcast business. With the closing of the Cherry Creek acquisition in the second half of June, We now own 357 local radio stations across 74 markets, and importantly, all outside of the top 50 markets. We view local radio as an extremely valuable asset with significant and attractive cash flow properties, unparalleled consumer reach, and important and trusted local connection to our audience and communities, and thus a key component of our multi-platform diverse local media business. We also view radio as a mature cash cow business and not our primary growth driver. In the second quarter, our broadcast advertising increased plus 1%, with continued strong headwinds from the auto industry overcome by strength in a number of categories, including entertainment, contracting, construction, and political. We expect auto headwinds to continue, as we do not anticipate auto advertising to recover until at the earliest sometime in 2023 and potentially not until 2024. I am aware there has been a lot of concern about an advertising slowdown and articles recently referencing standard media index reporting a 3% ad spend decline in June versus prior year. For Town Square, we actually saw strength in June with advertising up plus 9% over prior year. Additionally, specifically in broadcast, June was also stronger than May. Consistent with what we also experienced with digital advertising as well, with June being stronger than May. These are additional and important data points that demonstrate our differentiation. Our radio platform is symbiotic with our digital platform. Our digital solutions benefit our radio solutions, and our radio platform and strong audience reach supercharge our digital solutions. It is because of this and our digital-first local media strategy that we believe the Cherry Creek acquisition was a great use of capital. We are pleased that we are able to close this acquisition a bit earlier than expected, and the integration is going extremely well. We are bringing our large-scale, sophisticated digital platform solutions and expertise to the Cherry Creek markets and expect to significantly increase their digital revenue and margin profiles to match ours over the coming years. With their heritage-strong local brands, many of which are number one in their format, combined with their strong and talented local teams, We are confident that we will have a long-term stable broadcast base from which to inject our digital growth engine. Now, I'll turn the call over to Stu, who will go through our very strong year-to-date results and provide our increased Q3 and full-year outlook for everyone. Stu, take it away.