Townsquare Media, Inc.

Good morning and welcome to Town Square Media's third 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 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 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 all for joining us this morning. It's great to reconnect with everyone today. We're very pleased to share with you that our third quarter results met our previously issued revenue and profit guidance despite the challenging macro environment. After July's promising start to the third quarter, as you are aware, the U.S. advertising industry experienced a slowdown. According to Standard Media Index's U.S. ad tracker, the U.S. ad market rose plus 6.3 percent in July. However, In August, that growth slowed to plus 1.2%, and in September was up only plus 0.1%, in essence, flattened September. Our performance through the first nine months of this year has helped to demonstrate the efficacy of our digital-first local media strategy and validated our focus on local markets outside of the top 50 U.S. cities. Of particular note is how our business model allowed for industry-leading digital advertising revenue and profit growth through the first nine months of the year, while also generating consistent, meaningful cash flow. Town Square's digital platform sets us apart from others in local media. As highlighted on slide 11, 52% of our total revenue is digital revenue in the first nine months of 2023, more than two times the industry average. Even more impressive is that 57% of our total profit was digital profit in the same period, which represents a healthy 30% profit margin. As anticipated, Third quarter revenue for Town Square Interactive, our subscription digital marketing solutions offering outlined on slide 13, declined negative 13% year over year. As I previously shared with you, 2023 is a reset year at Town Square Interactive. Town Square Interactive's target clients, generally the smallest of the SMBs with less than 20 employees and less than $5 million in annual revenue, continue to struggle with inflationary and wage pressures, labor shortages, and higher interest rates. All of these factors have contributed to elevated churn rates among our client subscriber base and moderately slower sales velocity. And while there is no clear end in sight for these hurdles, we are confident that TownScore Interactive will return to growth in 2024. We have already begun to see churn begin to moderate from its peak in Q2, and that's why you will note less subscribers lost in Q3 versus Q2, which we expect will translate to improved revenue and subscriber metrics in 2024. At Town Square, we always look for the silver lining when faced with challenges in our quest to achieve our internal company motto, how high is high? 2023 represents the first growth challenge we have encountered at Town Square Interactive. And as such, it presented us with an opportunity to step back and truly examine our operations, attack ourselves, and evaluate all of our processes and procedures. As we mentioned on our last call, we made a number of important changes to optimize and improve our customer service platform, including moving from a one to one customer service model to a pooled model, and implementing an interactive voice response system as the initial point of contact on customer inbound calls. These changes led to a meaningful increase in call answer rates, enhanced visibility to customer requests and concerns, and improved response times. Those changes, as well as other improvements we have made recently, resulted in Town Square Interactive's Google Business Review ranking increasing to over four stars. We believe we have positioned Town Square Interactive to efficiently scale in 2024 and beyond, and we remain incredibly excited about the growth potential for this business. With an addressable market of nearly 9 million target customers, as outlined on slide 14, a superior product offering, a customer service team and model built for future growth, and a significant market opportunity, I am very confident that Townscrew Interactive is geared for a long-term profitable growth and success. Although revenue at Townscrew Interactive as expected declined negative 13% in the third quarter, and we expect a similar rate of decline in the fourth quarter, through careful expense management and thoughtful investment, we are very pleased to share that we were able to maintain a very strong 28% profit margin in Q3, in line with Q2's profit margin as well as Q3 2022's profit margin. Our digital advertising solution segment, Ignite, is outlined on slide 12 and has been a key driver of growth. In the third quarter, digital advertising revenue increased approximately plus 5.5 percent year-over-year, and through the first nine months of the year, revenue increased plus 10 percent. Our growth in this segment has been due to our differentiated digital solutions, which are often the best and most sophisticated digital advertising products and solutions available in our size markets, as well as our focus on local advertisers. Although year-over-year growth rates have slowed from the start of the year, we believe our performance in this segment has held up better than many of our peers because of our limited reliance on national advertising, which has been particularly weak during the advertising slowdown. Third quarter digital advertising profit growth increased in line with revenue growth, up plus 6% year-over-year, with third quarter profit margins in line with prior year margins at approximately 30%. As radio share of ad spending in the United States continues to decline, along with that of other traditional media such as TV and print, as noted by S&P Global Research, it highlights our need to maximize our broadcast share while simultaneously driving digital advertising growth through both share gain and share shift. And that's exactly what we're doing. Through the first nine months of the year, our broadcast revenue declined negative 5% year over year, excluding political. Yet, according to Miller Kaplan, our total broadcast share in the markets in which we are measured by Miller Kaplan increased by 50 basis points over the same period, driven by gains in our local broadcast share. Our local broadcast revenue once again meaningfully outperformed our national broadcast revenue in the third quarter, as national broadcast radio advertising was down an anticipated negative 19% year over year. Due to our focus on local, with only 8% of our total company revenue comprised of national advertising, and therefore the national advertising steep decline has had less of an impact on our total results. At the same time that we are gaining broadcast share, we are also experiencing market share gains in our digital business. Of course, what truly matters is gaining total market share from our local media competition, including television and cable, and we are keenly focused on that. In fact, One of the largest areas of growth in the digital advertising industry today is streaming or connected TV, which also happens to be a strong growth driver of our digital programmatic revenue stream. What is perhaps most encouraging is that we still have a long way to go. According to Burrell Associates, although Town Square is steadily increasing our digital market share each year, we are still only capturing roughly 14% of the total obtainable digital revenue in our local markets. signifying meaningful upside that we are very confident we can capture. Although in the back half of 2023, advertising overall in the U.S. has slowed down compared to the start of the year, while early, it does appear that advertisers are gearing up for a stronger and better 2024. Our annual customer appreciation sale, which we hold in October and which largely involves placing advertising buys for the year ahead, set an all-time record with orders increasing by plus 10% over 2022 sale. That, combined with our confidence that Town Square Interactive will return to growth in 2024 and the current outlook on strong political spending, solidifies our belief that the pressure to our top and bottom line will be temporary and thus short-term in nature. One very important characteristic of our business model that we like to highlight as often as possible is our significant cash flow generation. Although we have experienced revenue and adjusted EBITDA declines in the first nine months of 2023, we have generated $39 million of cash flow for operations, up an impressive plus 21 percent year over year. We ended the third quarter with $38 million of cash on hand, having utilized our cash in the third quarter to repurchase and retire $14 million of bonds at a price below par, repurchase an additional 94,000 shares, as well as make an $18 million interest payment and pay $3 million of dividends to our shareholders. I'm glad to share that our board of directors approved our next dividend of 18 and three quarter cents per share payable on February 1st, which equates to 75 cents per share on an annual basis, which today would be approximately an 8% yield. We remain very confident with our current capitalization and the strength of our balance sheet. With $38 million of cash on hand at quarter end, a fixed interest rate of 6.875%, no maturities until 2026, and net leverage of 4.5 times at the end of the third quarter. And we are pleased that we can deliver attractive current cash returns for our equity shareholders. And now, I'd like to turn the call over to Stu, who will go over our results in even more detail, as well as provide you our fourth quarter guidance. Stu, take it away.