Townsquare Media, Inc.

Good morning and welcome to Town Square Media's third quarter 2025 conference call. As a reminder, today's call is being recorded and your participation implies consent to the recording. At this time, all participants are in the 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 Store 0 on your telephone keypad. With that, I would like to introduce the first speaker for today's call, Claire Yenike, Executive Vice President, please go ahead.

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. During this call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, 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 today. It's great to reconnect with everyone. We are pleased to share with you this morning that Town Square's third quarter results met the total net revenue and adjusted EBITDA guidance that we provided on our last call, reflecting our team's hard work in the current macroeconomic environment. Despite numerous headwinds that we have encountered, we are proud that the execution of our digital first local media strategy has allowed us to deliver excellent results for our clients while also producing strong cash flow from operations due to the thoughtful and deliberate management of our expense base. In the third quarter, our guidance was that total net revenue would be $106.5 to $108.5 million, and it finished right in line with $106.8 million. We also provided guidance that third quarter adjusted EBITDA would be between $22 million and $23 million, and it came in right at $22 million. Importantly, due to our strong expense management, ADJUSTED EBITDA MARGINS EXCLUDING POLITICAL ACTUALLY IMPROVED YEAR OVER YEAR DESPITE EX-POLITICAL REVENUE DECLINES. BY NOW, IT SHOULD BE VERY CLEAR THAT TOWNSQUARE HAS TRANSFORMED FROM A LEGACY BROADCAST COMPANY INTO A DIGITAL FIRST LOCAL MEDIA COMPANY AND THAT OUR DIGITAL PLATFORM AND DIGITAL EXECUTION SETS US APART FROM OTHERS IN LOCAL MEDIA. IN 2024, APPROXIMATELY 52% OF OUR COMPANY'S TOTAL NET REVENUE AND 50% OF OUR TOTAL SEGMENT PROFIT was generated from our digital solutions. In the first nine months of 2025, our digital revenue grew plus 2% year over year, and as a result, our digital revenue expanded to a very significant 55% of our total net revenue, which as highlighted on slide 11, is industry leading at more than two times the industry average. Total digital segment profit increased plus 4% year over year in the first nine months of the year, with a strong profit margin 26% up slightly year-over-year, and digital's year-to-date contribution grew to be 55% of our total segment profits. As we have consistently stated for many years, digital is and will continue to be Town Square's growth engine and the area we focus the bulk of our investment capital going forward, consistent with our strategy of being a digital-first local media company, focusing on markets outside the top 50 in the United States, and further differentiating us from others in local media. Let's first dive into the results of our two digital divisions, starting with Town Square Ignite, our digital advertising business. In Q3, we're seeing two very different trends play out in our digital advertising business. Digital advertising related to our direct-to-client sales remains very healthy, including strong revenue growth. However, These gains are offset in the short term by significant deterioration in online audience trends that have significantly impacted our indirect, or also known as remnant revenue, on both our local and national websites, which we discussed on our last call. In the third quarter, the negative indirect trends were enough to offset growth, leading to a slight overall digital advertising revenue decline of less than 2% year over year. Let's start with the positives. before diving into and detailing the headwinds. First, our digital programmatic business, which makes up approximately 60% of our digital advertising segment revenue, continues to deliver strong results with high single-digit revenue growth in the third quarter. We believe that this part of our business has very strong organic growth opportunities and we expect it will continue to be our primary growth driver going forward. As a reminder, Our programmatic platform provides our customers with precise targeted solutions, giving them the ability to reach a high percentage of their potential customers across desktop, mobile, connected TV, email, paid search, and social media platforms, utilizing display, video, and native executions. We essentially act as a full-service digital agency for our clients. From providing campaign strategies, creative services, to buying inventory, optimizing campaigns, and providing real-time reporting and analytics and insights, providing a level of service that is often not available in the markets we operate. In addition, we are simply able to offer a more cost-effective campaign to our clients than most of our competitors, given our scale across our 74-market footprint, our first-party data, and our in-house proprietary demand-side trading desk. that is integrated with more than 15 advertising buying platforms with access to all major digital advertising exchanges and therefore more than 250 billion impressions per day. Second, our third-party media partnership model, which is a component of this programmatic business, has been progressing quite well since its beta launch in early 2024. This strategy will be a meaningful component of our digital advertising growth in future years Although in 2025, it's still small, adding approximately $6 million of revenue this year at approximately 20% profit margin. As a reminder, and as we've shared on previous calls, through this Capital Light model, we partners with others in local media and handle all the major components of the digital advertising solution, including managing the creative, buying the inventory, optimizing the inventory, and customer support of the digital campaigns, and importantly, effectively training our partner sales team to sell our solutions. Therefore, we can enter new markets to offer programmatic digital advertising solutions without having to acquire radio broadcast assets to do so, freeing up our capital for other purposes. I expect that in approximately five years, This division can grow to be at least $50 million in revenue for Town Square and approximately 20% profit margin. Ultimately, our goal with this division is to become the chosen provider of digital programmatic advertising to broadcasters and digital agencies in local markets outside of major cities. We are proud and honored to currently have six strong partners in this division, and we expect that number to grow in 2026 and beyond. And third, Direct sales of our local owned and operated digital properties, which includes locally sold advertising, aka traditional feed on the street selling our own inventory on our own 400 local websites and mobile apps, was quite strong in both the third quarter and year-to-date periods, up approximately 10% year-over-year. Given the overall weak advertising environment, We're especially proud of the success of our local sales team and what they've been doing in driving direct sales growth, and we believe that they will continue to drive this growth going forward. Now, to address the digital advertising headwinds that have been created from the emergence of AI and its subsequent impact on content creators and their corresponding online audience. As I'm sure you're aware, this is an industry-wide issue among web publishers of scale. For example, publishers including well-known names like Forbes, Daily Mail, Washington Post, and CNN are seeing major drops in traffic to their websites. In fact, in August, 45 of the top 50 U.S. news websites experienced year-over-year declines in search traffic, with the four publishers I just mentioned averaging declines in search traffic of over 40% year-over-year in July. As we detail on slide 13, Both our local and national websites are also experiencing meaningful declines in our search engine traffic, leading to declines in our overall digital inventory. This impacts our ability to monetize any remnant inventory unsold by our direct sales team. Digital inventory that we have historically sold by a programmatic bidding engines. Although a much smaller part of our digital advertising segment, the declines have been significant. For context, Revenue from remnant inventory on our websites was approximately $20 million in 2024 and accounted for 13% of our digital advertising revenue. In the third quarter of this year, this revenue stream declined 50% year over year, going from $5 million in Q3 2024 to only $2.5 million in Q3 2025, and thus a decline of $2.5 million, which is very high margin revenue. and an acceleration from Q2's decline of approximately 25%. Thus creating a drag on our performance and causing our digital advertising revenues to decline negative 2% year over year in the third quarter, as opposed to the slight growth we originally expected when we last spoke. Important to highlight that excluding revenue from remnant inventory sold programmatically, Q3 digital advertising revenue would have increased plus 5% year over year. Unfortunately, we continue to see these search referral trends in Q4 and believe this headwind will exist through at least the first half of 2026 before remnant revenue stabilizers at a lower run rate. As a result, we expect Q4's digital advertising revenue to be again be muted. And again, I'd like to emphasize that while it's a meaningful drag in the short term, it represents only a small portion of our business. And the majority of our segment, including our programmatic business, which represents 60% of our digital advertising revenue, continues to deliver very healthy revenue growth. Let's now turn to our second digital business, which is our subscription-based digital marketing solution SaaS business, Town Square Interactive. We are pleased to share that our fantastic profit performance has continued in the third quarter, and we again expect strong profit growth in the fourth quarter. IN THE FIRST NINE MONTHS OF 2025, SEGMENT PROFIT HAS INCREASED PLUS 19% YEAR-OVER-YEAR, AN INCREASE OF $3 MILLION. THIS IS AN EXCELLENT RESULT AS YEAR-TO-DAY PROFIT MARGINS EXPANDED TO 33% AS OPPOSED TO THE CUSTOMERY 28% PROFIT MARGIN WE'VE DELIVERED OVER THE PAST FEW YEARS. AS WE DETAILED ON OUR LAST CALL, THE INCREASE IN TOWNSQUARE INTERACTIVITY PROFIT MARGIN IS LARGELY DUE TO THREE CAUSES. the restructuring of our customer service model in 2023 that allows us to grow more efficiently. Number two, changes to our sales structure late last year and early this year have led to both a smaller SaaS team, which is temporary, but very importantly, a more productive sales team. And finally, number three, the deployment of AI solutions to improve efficiency. Thus, we remain very confident that the changes we have made to both our customer service and sales models ALONG WITH THE CONTINUED DEPLOYMENT OF AI SOLUTIONS ARE SETTING TOWNSQUARE INTERACTIVE UP FOR THE NEXT DECADE OF EFFICIENT AND PROFITABLE GROWTH AND SUCCESS HOWEVER AS I JUST MENTIONED ALSO HIGHLIGHTED OUR LAST CALL WITH A SMALLER SALES TEAM COMES SLOWER SALES VELOCITY AND THEREFORE MUTED REVENUE PERFORMANCE IN THE SHORT TERM IN THE THIRD QUARTER TOWNSQUARE INTERACTIVES REVENUE DECREASED APPROXIMATELY NEGATIVE TWO PERCENT YEAR OVER YEAR and was just in line with Q2's total revenue as expected and shared on our last call. We expect Q4 revenue at Towns Grant Interactive to be roughly in line with Q3's $18.6 million, and we are confident that we will return to revenue growth during calendar year 2026 once we have reached previous sales staffing levels. In the meantime, we expect that strong profit growth will continue in Q4 and 2026, as we expect profit margins to remain above 30% in Q4 and above our historical levels next year. We look forward to sharing our strong full-year profit results next quarter as we expect our profit performance at TSI in 2025 to be one of the best in the division's 12-year history. As you have heard me consistently state, I am very confident that Town Square Interactive is on track and set up for long-term profitable growth and success And I believe that 2025 expected profit performance is a great proof point of that. Turning to our third and final business segment, broadcast local radio. As you're all aware, we view local radio as an extremely valuable asset with significant cash flow properties, unparalleled consumer reach, and an important local connection to our audience and our clients. However, radio is not a growth driver for Town Square. And in the third quarter, broadcast advertising net revenue excluding political performed exactly as we telegraphed on our last call and declined negative 8% ex-political year over year in line with our performance through the first half of the year. Despite broadcast revenue declines and macro headwinds, we have consistently outperformed the industry in 2025, gaining local and national broadcast market share according to Miller Kaplan estimates. With our differentiated local content on our local radio broadcast, combined with being able to offer clients marketing solutions powered by the combination of digital and radio, we believe that we will continue to gain broadcast and total market share across our market footprint, while also generating a solid profit as we carefully manage expenses to maintain a strong broadcast profit margin. In fact, in Q3, Our broadcast profit margin expanded significantly year over year when excluding political, from 25% in Q3 2024 to 28% in Q3 2025. As we close out 2025, we expect to see digital advertising trends consistent with our Q3 performance, with continued strength in programmatic and direct sales of our owned and operated 400 plus websites and mobile apps, OFFSET BY ONGOING HEADWINDS TIED TO THE DECLINE IN SEARCH REFERRAL TRAFFIC. AS I ALREADY NOTED, I EXPECT Q4 REVENUE AT TOWN SQUARE INTERACTIVE TO BE IN LINE WITH Q3'S REVENUE. WE ANTICIPATE A SLIGHT IMPROVEMENT IN EX-POLITICAL PERFORMANCE IN OUR BROADCAST SEGMENT IN Q4, ALTHOUGH ON A TOTAL BASIS WE WILL SEE A LARGE DECLINE DUE TO THE SIGNIFICANT POLITICAL COMP WE HAD IN Q4 OF LAST YEAR. coupled with lighter than forecasted fourth quarter political revenue this year. As a result of that, and as Stu will share shortly, our full year revenue and adjusted EBITDA guidance will be revised. Importantly, our business model continues to generate strong cash flow from operations, which we have been applying towards organic investment in our business and debt pay down, as well as rewarding our shareholders with current returns in the form of a dividend, which we will continue to do. And now, I'll hand it over to Stu to discuss our financial results and guidance in more detail. Stu, please take it away.