Townsquare Media, Inc.

Good morning and welcome to Town Square Media's fourth 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 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 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 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 referenced some of those slides during our discussion this morning. In addition, we also issued our annual shareholder letter today, also available on our website, which we encourage you all to read. 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 everybody today. We're very pleased to share with you that Town Square's fourth quarter results met or exceeded our previously issued guidance and that our full year results met the guidance that we issued at the start of 2023. Although 2023 was a challenging year, I am proud of how the Town Square team navigated the progressively challenging economic landscape. Macroeconomic headwinds were fierce. As rising interest rates, inflation and wage pressures weighed on consumer mindsets and advertising budgets, causing an advertising recession. However, despite these challenges, we outperformed competitors and gained market share, primarily due to our local focus and our digital platform. We carefully managed the business so that our cash flow from operations increased plus $18 million year over year, were plus 35% to $68 million. And we initiated a high yielding dividend due to our strong cash flow generation. I believe that our performance over the past several years has demonstrated the efficacy of our digital first local media strategy, validating our focus on local markets outside of the top 50 US cities, and reinvigorating my confidence in our business model and our path forward. In fact, Our confidence in our current capitalization, the strength of our balance sheet, our free cash flow generation, and our business strategy has led us and the board to increase our dividend by plus 5.3% year over year, which we just announced this morning. In 2023, net revenue excluding political decreased just under 1% year over year and just under 2% in total to $454.2 million. the second highest revenue amount in Town Square's history. Adjusted EBITDA excluding political decreased 9.1% year over year and negative 12.1% in total to $100 million. Impressively and worth noting, Town Square is one of the only media companies that issued and met guidance for full year 2023 as macro conditions caused many others to either rescind guidance or not even issue annual and at times even quarterly guidance. Town Square is also among the only broadcasters with net revenue levels above 2019. We are at 105% of 2019 net revenue levels and very close to 2019 adjusted EBITDA levels at 98%. Our digital performance drives this differentiation as Town Square's total 2023 digital net revenue is plus 47% above 2019's digital net revenue, even with the recent setbacks we are overcoming in our digital marketing solutions business. Our digital business is a true differentiator for Town Square. As highlighted on slide 11, in 2023, approximately 51% of our company's total net revenue and 55% of our total adjusted operating income came from our digital solutions. This highlights a point we often make. Town Square is no longer the radio broadcast company it was when it was founded in 2010. Town Square has evolved into a digital-first local media company that is truly distinguished from other local media peers with a world-class team and a unique and differentiated strategy, assets, platforms, and solutions. I'd like to take a brief moment to highlight one of the members of our world-class digital team. I'm proud to share with you this morning that Sun Sachs, our Senior Vice President of Products and Engineering, who is part of the Town Square team from the beginning, a true Town Square OG, will be receiving the NAB's Digital Leadership Award a significant and well-deserved recognition. One of the numerous initiatives Son and the team are working on is leveraging AI in numerous aspects of our business. Congratulations, Son, and our entire tech and product team he leads and inspires each day. Historically, for Town Square and the overall advertising industry, digital advertising outperforms other forms of advertising during a downturn, and that was true for us again last year. In 2023, Many agree that the advertising market was in a recession, which had a larger impact on broadcast than digital, particularly in the national marketplace. Thankfully, our national exposure is limited, with less than 10% of our total revenue coming from the broadcast national marketplace. That, combined with the fact that we enjoy strong, often long-term relationships with our local advertising clients, contributed to our broadcast advertising segment outperforming the industry. However, despite our outperformance, Town Square's broadcast advertising net revenue, excluding political, still declined negative 3.6% year-over-year, in large part due to national, which declined last year negative 18% year-over-year. It is worth noting that national continues to put downward pressure on broadcast and is currently pacing down negative 7% in Q1, while local spot continues to outperform national. so that broadcast overall in Q1 is pacing down just a couple points for us right now. But while broadcast remains significantly below 2019 levels, we have gained broadcast market share since 2019 and proud to say again, we did it in 2023. I am very proud of our team for achieving this market share growth as it demonstrates the benefits and importance of differentiated local content on our local radio broadcast. No better team of content contributors and sales teams. Where we really shined, unsurprisingly, was digital advertising. In a year of macro uncertainty, digital advertising was once again the fastest growing segment of our company, differentiating Town Square from local media peers and even national digital players at times. We owe our digital advertising success to our sophisticated digital products and solutions, which are entirely in-house, giving us 100% control of the client relationship. starting with the client pitch, then campaign design, media buying and optimization, and 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 over 75 million monthly unique visitors to our portfolio of over 400 local news and entertainment websites, 400 mobile apps, and 10 leading national music and entertainment websites. Our large first-party dataset allows us to provide detailed and unique insights about consumer behaviors, audience interest, and purchase intent that drives real results with strong ROI for our clients, giving us a true strategic advantage over our local competition. Another key factor that drives our strong digital advertising success is our focus on markets outside the top 50 U.S. cities, a significant, 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. Owning 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, driving our digital advertising to be the strongest gross engine in the company. In 2023, Town Square's digital advertising net revenue and digital advertising profit each increased plus 7% year over year. S&P Global Market Intelligence latest forecast project that digital advertising in the United States will increase at a plus 8.5% CAGR through 2028, as digital advertising grows from 69% of all advertising spend in 2023 to approximately 76% of all advertising spend in 2028. 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. Conversely, as I shared previously, 2023 was a reset year at Town Square Interactive. Rising interest rates, inflation and wage pressures drove elevated churn rates and slower sales velocity. In addition, we started the year with higher customer attrition driven by internal customer service turnover, That was a result of our return to work mandate at our Town Square Interactive headquarters. We have been asked if we still believe in the growth strategy and addressable market of Town Square Interactive given last year's challenge. And the answer is yes, without a doubt, unquestionably so. We are seeing numerous early signs of improvement. Customer churn peaked in Q2 2023, although still above historical levels today. The spike in employee attrition and the related customer churn is behind us. and our proof for new sales is increasing. The changes we made to our customer service model in response to the challenges we faced last year allowed us to capture cost efficiencies and importantly, set us up to scale more efficiently going forward. In 2023, Town Square Interactive's net subscription revenue declined negative 9.1% compared to the prior year. However, we managed expenses such that Town Square Interactive adjusted operating income margin only contracted 60 basis points to 28.3%. However, given the loss of over 6,500 subscribers in 2023, even though we are currently experiencing many positive signs at Town Square Interactive, including improving subscriber trends, which I'll outline in a few moments, the impact of losing over 6,500 subscribers in 2023 puts significant negative pressure on both revenue and profit year-over-year growth in 2024. For example, even with meaningfully lower subscriber losses in Q1 2024 versus Q4 2023, first quarter revenue for Town Square Interactive will still be down 15% to 16%, which is a decline of over $3 million from Q1 2023. In the long term, we are confident that we have a long, sustainable runway ahead of us. With 24,000 subscribers at the end of 2023, which approximately 58% are outside of our local media footprint, and an addressable market of nearly 9 million target customers, we are only scratching the surface. With our existing subscriber base, superior product offering, and a huge market opportunity of nearly 9 million target customers, as outlined on slide 14, I am confident that Town Square Interactive is geared up for long-term profitable growth and success. To that end, the first sign of the rebound in Town Square Interactive, will be the return to subscriber growth. The second sign of the rebound will be month-over-month revenue growth. And given our continued ongoing aggressive investment in Town Square Interactive, the third sign of returning to strength will be month-over-month profit growth. In Q1 2024, I expect net subscriber losses to be materially improved over the rate we experienced in both Q3 and Q4 of 2023. My current expectation is we could return to net subscriber ads in Q2 and no later than Q3 2024. My expectation for month-over-month revenue growth is also in Q2 and no later than Q3 2024. And my expectation for month-over-month profit growth is dependent on how aggressive we can continue to invest in the business in Charlotte and Phoenix. Yet, with that context provided, I do expect to return to month-over-month profit growth in Q3 or Q4 of 2024. As I already stated, I am very confident that TownSquare Interactive is back on track and set up a long-term profitable growth and success again. Thankfully, we strategically built a diverse product and service platform, and the strength of digital advertising offset a difficult year in subscription digital marketing solutions. In total, our digital revenue grew approximately 1% year over year to $232.5 million, and importantly, generated $69.1 million of adjusted operating income, representing a very strong 30% profit margin, a margin much higher than most local media competitors. 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 invest in our digital business to fuel further profitable growth. We view local radio as an extremely valuable asset with significant cash flow properties, unparalleled consumer reach, and important local connection to our audience. In fact, we would have never achieved the success we have had in building an at-scale digital audience and the resulting digital advertising and digital marketing solutions businesses if not for our continued strong local radio presence and performance. Our traditional AM FM over-the-air broadcast continues to reach, on average, one out of every two adults in our markets where we operate radio stations. Very, very powerful and very, very important. And because of the powerful connection and combination of Town Square's digital plus radio plus live events plus local investment, we believe that our flywheel will continue to blaze forward and gain momentum. One very important characteristic of our business model that we like to highlight as often as possible is our significant cash flow generation. Although net revenue on adjusted EBITDA declined in 2023, we generated $68 million of cash flow from operations, up an impressive plus 35% year over year. We ended the year with $61 million of cash on hand and net leverage of 4.4 times, We remain very confident in our current capitalization and the strength of our balance sheet, and are pleased that we can continue to deliver attractive current cash returns for our equity shareholders. And now, I'd like to turn the call over to Stu, who'll go through our results in even more detail, as well as provide you our first quarter and full year guidance. Stu, take it away.