Townsquare Media, Inc.

Good morning and welcome to Town Square Media's first quarter 2023 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 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 first 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 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. At this time, I would like to turn the call over to Bill Wilson.

Thank you, Claire, and thank you for joining us this morning. We're pleased to share our first quarter results with you today. Although we face the same headwinds that have impacted the entire media sector, our first quarter results demonstrate the strength of our digital advertising platform and solutions and validate our digital-first local media strategy with a focus exclusively on local markets outside of the top 50. Town Square's first quarter net revenue and adjusted EBITDA exceeded the guidance we provided on our last call due to growth in local revenue, revenue that we control, and in particular, the strength of our digital advertising solutions. In the first quarter, we had anticipated that total net revenue would be flat to up plus 2% year-over-year, and it finished above guidance at plus 3%. We had expected that first quarter adjusted EBITDA would decline negative 16 to negative 21% year-over-year, and the actual result was also better at negative 12% year-over-year, approximately $1 million over the high end of our guidance. It is worth noting that while many media companies have not yet returned to 2019 levels, both our revenue and our profit results are above our pre-COVID 2019 performance. In 2022, approximately 50% of our company's total net revenue and 50% of our total adjusted operating income were derived from our digital solutions. In the first quarter of 2023, our digital revenue grew plus 8% year over year, and as a result, our digital revenue in Q1 2023 grew to be 54% of our total net revenue. Total digital profit also increased plus 8% year over year, with a profit margin of 28%. And its first quarter contribution grew to be 63% of our total adjusted operating income. This point bears repeating. 54% of our revenue and 63% of our profit came from digital sources, a new milestone for our company and quite frankly, for the industry. This milestone was achieved due to the strength and resiliency of our digital advertising solutions with first quarter revenue plus 15% year over year. Historically, for Town Square and for the advertising industry at large, digital advertising outperforms other forms of advertising during an economic downturn. For example, and as I shared on our last earnings call, Following the shutdown of businesses across the country due to 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 all other forms of traditional advertising, including outdoor, cinema, print, radio, and television, declined. Town Square's digital platform sets us apart from our local media peers. As highlighted on slide 11, with 54% digital revenue, we are approximately 2.5 times the industry average, and therefore better situated than our competitive set during a downturn. As anticipated, Town Square Interactive, our subscription digital marketing solutions offering outlined on slide 13, faced challenges in the first quarter, which as I noted on our last call, we expect will continue throughout 2023. Town Square Interactive net revenue declined 1% year over year in the first quarter. As a reminder, our target clients are independent SMBs with less than $5 million in annual revenue. Unfortunately, this demographic in particular is vulnerable to the current macroeconomic environment, battling high inflation, labor shortages, higher wages, higher interest rates, et cetera. This has contributed to a period of higher attrition among our subscribers. In addition, and as we mentioned on our last call, we also faced issues related to employee turnover in our customer service operations at Town Square Interactive due to our return to work mandate in 2022. This has largely been addressed, but did contribute to an increase in client attrition year to date. Although challenging, these issues caused us to take a step back and analyze the fundamentals of our service platform, highlighting a number of opportunities that we believe we can improve upon moving forward. Since the start of the year and continuing currently, we have made a number of important changes to our customer service platform that we believe will be very beneficial to our clients and thus client retention in the long term. but the changes will contribute to a muted financial performance for Town Square Interactive in 2023. Despite the short-term pressure on Town Square Interactive's top line, which is pacing negative 7% in the second quarter, we are still incredibly confident in the long-term growth prospect of the business, and as such, continue to invest in its long-term future. The second Town Square Interactive office in Phoenix is now open, and we continue to grow our team there, while simultaneously growing our team in Charlotte. With an addressable market of nearly 9 million target customers as outlined on slide 14, a superior product offering, a customer service team built for future growth, and a huge market opportunity, I am very, very confident that Town Square Interactive is geared for long-term profitable growth and success. Just be aware that in 2023, it will be a reset year for us at Town Square Interactive with 2024 returning to strong top line and strong bottom line growth. Our digital advertising solution segment outlined on slide 12 was once again our largest growth driver, with first quarter revenue increasing plus 15% year over year. Impressive in any environment, and even more impressive in the current macro environment. First quarter profit growth outpaced revenue growth at plus 23% year over year, due in part to an increase in average order size. In addition, due to an increasing online audience, which grew to an all-time high of 84 million average unique visitors per month in the first quarter, and higher engagement, we have been able to more efficiently monetize our audience, enhancing our profit margins in digital advertising. We owe our success in digital advertising to our sophisticated digital products and solutions, which are entirely in-house, giving us 100% control of the client relationship from the first client pitch to campaign design, media buying and optimization to ongoing reporting and insights, which we believe translates to a better customer experience and higher client retention rates. In addition, we have the unique ability to collect and analyze first-party data from our audience of 84 million monthly unique visitors to our portfolio of over 400 local news and entertainment websites, 390 mobile apps, and our 10 leading national music and entertainment websites. This leads to detailed and unique insights about consumer behaviors, audience interest and purchase intent that drive real results with strong ROI for our clients and give us a strategic advantage over our local competition. Another key factor driving our strong digital advertising success is our focus on markets outside of the top 50 cities of the United States. This is a significant differentiator for our broadcast business and most importantly for our digital businesses. Because we are not in large top 50 markets, we face significantly less competition from large media players, digital marketing solutions players, and digital programmatic providers. And importantly, the competitors we do face rarely have in-house solutions and instead utilize out-of-house third-party vendors. The fact that we own our own tech platforms in-house combined with the breadth of our digital solutions is a competitive advantage in any size market. Yet in cities outside the top 50, it is a significant difference maker, which is driving our digital advertising to be the strongest growth engine in the company. In addition, 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 first quarter, with revenue down approximately 30% compared to prior year. No doubt that hurts, but that decline doesn't hurt as much as others because National broadcast advertising now accounts for approximately 5% of our total revenue. In contrast, our local broadcast advertising performed much better as it was positive in Q1. We are confident that favorable industry trends together with our in-house full suite of marketing solutions, strategic footprint focus on small to mid-sized markets, investment in our original content strategy, and our first-party data advantage will continue to drive strong digital advertising growth. To reinforce that point, even with the current challenging macroeconomic conditions, in Q2, our digital advertising continues to perform very well and is pacing up low double digits. I would also like to shine a bright spotlight on the fact that our business continues to generate strong cash flows. including $9 million of cash flow from operations in the first quarter. We ended the quarter with $42 million of cash on hand, down only $1 million from year end, even after repurchasing $12 million of our bonds on the open market at a price below par, and also making our $19 million interest payment during the first quarter. And as a reminder, our next interest payment is not due until August. In addition, our Board of Directors approved a dividend of 18.75 cents per share payable on August 1st, which equates to 75 cents per share on an annual basis, which today would be approximately 8% yield. We remain very confident with our current capitalization and strength of our balance sheet. With $42 million of cash on hand at quarter end, a fixed interest rate of 6.875%, no maturities until 2026, and net leverage of 4.29 times at the end of the first quarter, And we are pleased that we can generate attractive current cash returns for our equity shareholders. Overall, we continue to 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, as well as our rebound to record profits in 2021, which was then topped again in 2022 with record revenue and record profits. and the ongoing strength of our digital advertising platforms and solutions. And now, I'd like to turn the call over to Stu to go over our results in even more detail, as well as to provide you our second quarter guidance. Take it away, Stu.