Townsquare Media, Inc.

Good morning and welcome to Town Square Media's third quarter 2022 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 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 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, but are subject to certain risks and uncertainties, including those that are detailed in the company's annual report on Form 10-K and 10-K-A 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'd 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. 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. Without question, we all continue to live in unprecedented times. From the persistence of COVID-19 and the war in Eastern Europe, to continued macroeconomic uncertainty headwinds and resulting challenges to media companies. However, because of our differentiated and unique position as a digital-first local media company focused exclusively on local markets outside of the top 50 cities, Town Square achieved our Q3 guidance and set an all-time Q3 revenue and Q3 profit record, and in turn drove strong cash flow growth in the third quarter. and we expect that our strategy will enable us to continue to deliver positive results in the coming quarters. Simply put, our business model allows us to weather economic downturns, when they do occur, better than most. Approximately 50 percent of our revenue and 50 percent of our profits now come from digital solutions, which historically performed better during an economic downturn than broadcast advertising. Approximately 40% of that digital revenue is recurring digital subscription revenue, not tied to advertising trends. Even during the worst of COVID, Town Square Interactive delivered revenue and profit growth. Additionally, because we are not in the large top 50 markets, the majority, over 90% of our advertising revenue is local advertising, which historically is less volatile than national advertising, particularly during an economic downturn. For example, National broadcast advertising revenue continued to be extremely weak in the third quarter, with revenue down in the mid-teens compared to prior year. That decline doesn't hurt us as much as others because national advertising now only accounts for approximately 5% of our total revenue. Overall, we believe that we are very well positioned to perform during a downturn or a recession, no matter the duration and severity, a belief which is supported by our 2020 performance during the worst of COVID as well as our rebound to record profits in 2021. To demonstrate that point, even in the current environment of macroeconomic uncertainty, the Town Square team continues to consistently deliver strong record-setting top-line and bottom-line results across all business segments. I am especially pleased to share our third quarter results with you this morning. To start, our net revenue overall was up a very strong plus 8.4% to approximately $121 million, end up plus 7.5% ex-political. And our adjusted EBITDA increased a strong plus 6% to approximately $31 million. There are two really important takeaways here that I want to share with you. One, third quarter revenue and EBITDA were both well above 2019 levels. And two, both net revenue and adjusted EBITDA represented the highest Q3 revenue and highest Q3 adjusted EBITDA that Town Square has ever achieved. Town Square achieved these results because as I noted before, we have transformed into a highly differentiated digital first local media company focused on communities outside the top 50 markets. As I highlighted on slide 11, over 50% of our revenue is digital. 2.5 times the industry average, and our digital business continues to deliver strong growth, up 17% in Q3 over prior year. The only area of disappointment in Q3, which continued into Q4, is our political advertising results. Unlike prior political cycles, our market footprint did not line up well this year with key political races. We do not own radio station markets where the most contested races are being held in 2022, like Georgia, Pennsylvania, Nevada, Ohio, and Wisconsin, and therefore have not seen the typical political spend that we've received in prior years and that we expected this year. In the third quarter, political revenue of $1.6 million was well below 2018 levels by 31% and below 2020 levels by 64%. Year-to-date through September, political revenue of $3.5 million is nearly 20% below 18 levels and 47% below 2020 levels. Since Election Day has passed, we now have a fairly clear picture of Q4's political revenue, and it's also significantly below our initial expectations as well as 2018 and 2020 levels. Given our performance in prior political cycles, especially 2018 and 2020, as well as the political dollars raised for this election in 2022, we expected between $12 million and $13 million of political revenue this year. But we now believe political will finish just around $7 million. Stu will provide more detail in our guidance discussion shortly, but this is $5 to $6 million decrease in political revenue as a meaningful factor in our current Q4 and therefore full year outlook. Importantly, we believe that this is not indicative of future political cycles, and we expect our 2024 political revenue to return to historic levels. It is also important to note that the broadcast radio industry is seeing strength in political this year. So it is not a radio specific issue, but rather specific to our local markets and the lack of highly contested races. More importantly, political has nothing to do with the success of our underlying solid core digital businesses. As we have detailed in the past, Town Square's current and future growth engine is digital, which as I highlighted earlier delivered strong, profitable, double-digit revenue growth in the third quarter. Q3 digital revenue increased plus 17% year-over-year, and Q3 digital profit increased plus 7% year-over-year, with a Q3 digital profit margin of 29%. In total, 50% of our September year-to-date revenue and 49% of our September year-to-date profit came from our digital businesses. As outlined on slide six of our investor presentation, our digital revenue comes from two distinct segments. Town Square Ignite, our digital advertising solutions, and Town Square Interactive, our subscription digital marketing solutions. Third quarter digital advertising net revenue increased plus 21% year-over-year, And third quarter digital marketing solutions net revenue increased plus 10% year over year. And importantly, both digital segments have a profit margin close to 30% in 2022. And as we highlighted previously, we expect that even with additional investment to fuel our digital growth engines, the margins will remain in the high 20s. In total, we expect and we are reaffirming that our digital revenue will grow from $225 million of digital revenue on a trailing 12 month basis as of September 30th to a minimum of $275 million of digital revenue by 2024. Our digital businesses significantly differentiates us from other local media companies, particularly those that we compete with outside of the top 50 markets. And it was the primary reason we were able to recover so quickly from the COVID recession and not only returned to 2019 levels, but also quickly surpassed those levels as well. Townsquare's adjusted EBITDA returned to growth by the end of 2020, hit an all time high in 2021, and we're on track to deliver yet another record setting profit level in 2022, even with the national macroeconomic uncertainty headlines. Although Town Square has transformed into a digital-first local media company, with digital as our growth driver, we do love our local broadcast business. Our broadcast advertising revenue grew slightly in Q3, increasing plus 3% year over year, or plus 2% excluding political. However, as we continually note, our expectation is not to grow our broadcast business, but to keep it relatively stable. We view local radio as an extremely valuable asset with significant and attractive cash flow properties, unparalleled consumer reach, and an 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 thus not a growth driver. Our growth driver has been and will continue to be digital. We continue to focus on maintaining our profitable cash cow radio business investing in our differentiated and strong digital businesses to fuel continued strength and digital growth, and using excess cash flow to reduce our leverage to below four times. As Stu will highlight, we have made considerable progress on net leverage, which has been one of our core priorities this year, reaching an all-time low of 4.5 times at the end of Q3 and will be even closer to four times by the year end. Now, I'll turn the call over to Stu who will go through our strong third quarter results and provide an update on our Q4 and full year outlook for everyone. Take it away, Stu.