Townsquare Media, Inc.

Good morning. Welcome to Town Square Media's fourth 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 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 to you The first speaker for today's call, Claire Yenneke, Executive Vice President. Please go ahead.

Thank you, Operator, and good morning to everyone. Thank you for joining us today for Town Square's fourth quarter and year-end 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 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 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 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. In addition, our annual shareholder letter is now available on our website. 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. As I look back on 2022, I am very pleased with our results that our digital-first local media strategy delivered despite a progressively challenging economic landscape. We reached new highs and set new records in 2022. However, it wasn't due to a favorable economy or an economic rebound. Starting with the war in the Ukraine, then the dramatic rise in gas prices and inflation, together with the persistent impact of COVID-19, the year grew increasingly turbulent, and we entered an environment of ongoing macroeconomic uncertainty. Our success has been the result of the Town Square team focusing on what we do best, creating high-quality, local, original content for our audiences, and delivering creative and cost-effective marketing solutions for our local clients, with strong return on investment. And it paid off. In 2022, we set new records, reaching all-time high financial metrics and setting new digital audience records as well. In 2022, our net revenue increased plus 11% year over year, reaching an all-time high of $463 million. Impressively and importantly, Adjusted EBITDA also reached an all time high of $113.7 million, growing plus 8% year over year. Unlike most other media companies in a political year, political ad spend did not drive a majority of our growth. Excluding political revenue, net revenue and adjusted EBITDA increased over the prior year by a solid plus 10% and plus 5% respectively. And that was largely driven by the strength of our digital offerings. 2022 was a significant inflection point for our company. It marked the first year where radio no longer compromised the majority of our revenue and profit, further separating Town Square from our local media peers and placing a spotlight on our world-class team and our unique and differentiated strategy, assets, platforms, and solutions. As highlighted on slide 11, with 50% digital revenue, we are 2.5 times the industry average. We clearly are no longer a broadcast radio company. Therefore, we do not believe we should continue to be valued as a broadcast radio company as we are today. And we believe that because of our differentiated and unique position as a digital-first local media company focused exclusively on markets outside the top 50 cities, we are in a position to weather economic downturns, when they occur, better than most. And our record-setting 2022 results demonstrate that. Approximately 50% of our company's total net revenue and 50% of our total adjusted operating income now come from our digital solutions. Historically, for Town Square and for the advertising industry at large, digital advertising outperforms other forms of advertising during an economic downturn. For example, following the shutdown of businesses across the country due to the COVID-19 pandemic in 2020, Town Square's digital advertising revenue rebounded quickly. returning to growth by the fourth quarter of 2020. Digital advertising across the United States increased plus 14.3% year-over-year in 2020, according to S&P Global Market Intelligence, while other forms of traditional advertising, including outdoor, cinema, print, radio, and television, declined. 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. Town Square Interactive, our subscription digital marketing solutions offering, which is outlined on slide 13, has been a meaningful growth driver and a key component of our full suite of marketing solutions. In 2022, Town Square Interactive contributed nearly 20% of our company's total net revenue and adjusted operating income. which is especially relevant in a downturn scenario as it represents a non-advertising based recurring revenue stream. In 2022, Townscrew Interactive net revenue increased plus 11% to $90 million and profit increased plus 7% to $26 million. Yet, I do want to make you aware that in 2023, we expect to see more mild performance in this business as we navigate the challenges that are smaller. And as a reminder, as noted on slide 14, we target clients with less than $5 million in annual revenue that our local customers are currently facing, including high inflation, labor shortages, higher wages, higher interest rates, etc., Additionally, we are very pleased to share that this month, we officially opened the second Town Square Interactive office in Phoenix. We will be expanding our ranks in the Phoenix office, and as I shared previously, we do not expect the Phoenix location to generate a meaningful lift in subscriber and revenue growth until 2024. Over time, we expect the Phoenix location to scale to the size of our Charlotte location, which today houses well over 600 employees. For reference, it took approximately one decade to reach that scale in our original Charlotte location. With 30,650 subscribers at the end of 2022, an addressable market of nearly 9 million target customers as outlined on slide 14, superior product offering and huge market opportunity, I am very confident that TownSquare Interactive is geared for long-term profitable growth and success. Our digital advertising solution segment outlined on slide 12 grew substantially in 2022, driven by favorable industry dynamics and by our ability to provide a differentiated full suite of in-house digital advertising solutions to our local and regional clients. We provide precision customer targeting solutions to our clients, giving them the ability to reach a high percentage of their online audience across desktop, mobile, connected TV, email, paid search, and social media platforms, utilizing display, video, and native executions. As a publisher with more than 400 local news and entertainment websites, 390 mobile apps, and 10 leading national music and entertainment websites, we also have the unique ability to collect information and analyze first party data, leading to detailed and unique insights about consumer behaviors, audience interest, and purchase intent. These insights drive real results for our clients and give us a strategic advantage over our local competition. In 2022, we set new audience records with more than 70 million monthly unique visitors on average. to our portfolio of owned and operated websites, a plus 17% year-over-year increase to our 2021 audience levels. We believe our digital audience growth will continue, further amplifying the attractiveness of our offerings as we fill the expanding void of local information available in our communities due to the dwindling availability of local news sources in small and mid-sized markets, both online and on air. As a publisher with our own first-party data, our position also defends us from industry turmoil that has emerged from the discussion of eliminating third-party cookies, as we do not exclusively rely on third-party data like many of our competitors. In 2022, Town Square's digital advertising net revenue was again the fastest-growing segment of our company and increased plus 20% year-over-year to $140 million. And digital advertising profit increased plus 16% year over year to $43 million. S&P Global Market Intelligence latest forecast project that digital advertising in the United States will increase at a plus 8.5% CAGR through 2027 as it grows from 65% of all advertising spend in 2022 to nearly 75% of all advertising spend in 2027. We are confident that these favorable industry trends, together with our in-house full suite of marketing solutions, investment in our original content strategy, and our first-party data advantage, will continue to drive strong digital advertising growth during that same period. To reinforce that point, even with the current challenging macroeconomic conditions, in Q1, our digital advertising is performing very well and pacing up low double digits. I am proud to report that in total, our digital revenue grew a very strong plus 16% year over year to $231 million and importantly generated $69 million of profit representing a 30% profit margin, a margin much higher than most local media competitors. We are also reaffirming our expectation that our digital revenue will grow to a minimum of $275 million by 2024. We believe Townsquare's ability to drive profitable, sustainable digital growth is a key differentiator for our company. Digital is and will continue to be our growth engine, and we will continue to aggressively invest in our digital business to fuel further profitable growth. At 50% of our revenue and profit in 2022, we expect that digital will be the majority of our revenue and profit by year-end 2023. And importantly, our digital profit characteristics are essentially equal to those of our broadcast platform. Digital was the primary reason we were able to recover so quickly from the COVID-19 recession and not only return to 2019 levels, but also quickly surpass those levels as well. And we expect our digital revenue will help to mitigate significant national broadcast negative advertising trends that we faced in 2022 and that have worsened in Q1 and helped to insulate our financial results. Our flywheel has gained compounding momentum because of the powerful combination of digital plus radio plus live events, and it continues to blaze forward. And yet, we are very aware that our audience does not differentiate between digital and traditional media or website and social. Rather, consumers live in one world and engage with our brands holistically. with no distinction between the over-the-air brand and the website brand, the listening brand, the app brand, or engaging with the brand on social platforms. One only needs to look at how consumers and audiences went about their daily lives just five years ago as compared to today. Overall, Consumers spend less time today consuming traditional media, including television, cable, newspaper, radio, et cetera, and more time consuming digital media, including streaming services like Netflix, Disney+, OTT, Spotify, YouTube, or social media like Facebook, TikTok, Instagram, and other digital platforms from Amazon to Uber Eats. The abundance of consumer choice available today drives home the importance of reinforcing every touchpoint we have with our audience, creating more touchpoints as new platforms emerge, and having a full suite of marketing solutions to leverage them. Before I turn it over to Stu to go over our results in more detail, I would also like to announce that given the performance of our business and our strong free cash flow generation, our board of directors has approved a dividend of 18.75 cents per share payable on May 1st, which equates to 75 cents per share on an annual basis, which today would be a yield of approximately 10%. In our view, the consistent strong free cash flow characteristics of our business, which we believe has not been reflected in our stock price to date, can clearly support this dividend. As Stu will detail later, we will be providing what we believe is conservative guidance for this year based on current macro conditions. But even with a conservative outlook, we will still generate strong cash flow that can support this dividend, as well as our ability to continue to invest in our digital growth engine, as well as potentially repurchase debt in the open market. We are confident with our current capitalization and the strength of our balance sheet, with $43 million of cash on hand at year end, a fixed interest rate of 6.875%, and no maturities until 2026, and net leverage of 4.29 times at year-end 2022. And we are pleased that we can generate attractive current cash returns for our equity shareholders. And now, over to you, Stu.