Greetings, and welcome to the Townsquare Media Third Quarter 2014 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Alex Berkett, Executive Vice President for Townsquare Media. Thank you, sir. You may begin.

Thank you, operator, and good morning to everybody. Thank you for joining us today on Townsquare Media's third quarter 2014 financial update. With me on the call today are Steven Price, our Chairman and CEO; and Stuart Rosenstein, our CFO and Executive Vice President. Today, we're going to provide an update on our third quarter financial results. 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 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 those projections. These statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed in the company's S-1 filed with the SEC, and we incorporate these by reference for this call. We may also discuss certain non-GAAP financial measures, including direct profit and adjusted EBITDA and make certain pro forma adjustments. Such non-GAAP financial measures should be used in conjunction with all the information contained in the quarterly and year end reports available on our website. At this time, I would like to turn the call over to Steven Price.

Thanks, Alex. Good morning everyone, and thank you for joining us today. We are very pleased with our results for the third quarter. Pro forma for all material M&A activity completed as of September 30, we delivered a 7.1% increase in net revenue over the prior year period. Pro forma adjusted EBITDA grew 2.7% as compared to the prior year period. These third quarter results are in line with the guidance we have provided last quarter. In the year-to-date period, our net revenue and adjusted EBITDA increased 8.0% and 2.1%, respectively, versus the same period in 2013. Overall, we are happy with our performance in what has been a less than optimal general advertising environment. We continue to execute on our revenue diversification strategy, and we believe the resulting differentiated revenue growth validates our strategy. In the third quarter, we saw strength in both our Local Advertising segment and our Other Media and Entertainment segment. Our Local Advertising revenue increased 1.9% in the quarter. Other Media and Entertainment revenue grew 43.2% in the third quarter, driven by strong performance across our digital marketing services, national digital and Live Event offerings. Last quarter, we mentioned certain markets that negatively affected our second quarter performance. The first set of markets were 4 of the markets that we acquired from Cumulus in November 2013. We're pleased to report that the leadership and other changes we made in the market have had an impact and they are on a good trajectory. In the third quarter, these markets' revenue growth rate improved more than 1,400 basis points and collectively, these markets have positive year-over-year third quarter revenue growth. The second group of markets we mentioned were 2 of our Northeastern markets. In the second quarter, these markets were adversely impacted by the harsh weather in…

Thank you, Steven, and good morning, everyone. As a reminder, the results that Steven referred to earlier are not our historical GAAP financials. They are pro forma for all material M&A activity completed by September 30, as if they had occurred at the beginning of the reporting and comparison period. Please refer to the tables that we have provided in our earnings release, which provide GAAP results with a bridge to our pro forma results, as well as our non-GAAP performance measures. Since we've made several material acquisitions in the reporting period, we feel it's important to report our comparative results in a more meaningful way. Unless otherwise stated, all the financial results discussed will be pro forma for these completed acquisitions. For the quarter ended September 30, 2014, net revenue equaled $94.7 million, up $6.3 million, or an increase of 7.1% from the same period last year. Local Advertising revenue equaled $79 million, or an increase of approximately $1.5 million or a 1.9% increase for the quarter. This increase included approximately $1 million of political advertising revenue. Excluding political, Local Advertising revenue increased 0.6% or approximately $500,000. Other Media and Entertainment revenue equaled $15.8 million, which was an increase of $4.8 million or 43.2% over the quarter ended September 30, 2013. This increase is reflective of the strength across our digital marketing services, national digital and Live Event businesses. Other direct operating expenses increased 7.5% or $4.3 million as compared to the same period last year. Of the total $4.3 million increase, Local Advertising expense only accounted for $300,000 of this increase. Other Media and Entertainment expenses increased $4 million commensurate with the revenue growth. This resulted in third quarter total direct profit of $33.1 million, an increase of $2 million or 6.3% over the prior year period. This…

Thanks, Stu. Again, we are pleased with our third quarter results and that we met the guidance we provided last quarter. I believe we will continue to deliver on our Townsquare Everywhere revenue diversification strategy. Since going public, we met with a number of existing and potential investors, and we want to thank those of you who have been willing to learn more about our company. We intend to remain active in shareholder outreach as we look to grow shareholder value in the future. Please don't hesitate to call us with any questions you may have or just to check in. We continue to believe that we are well positioned as a cross-platform multi-product company with a significant market opportunity. We're excited about our future and we hope you agree. Thanks again for taking time to dial in this morning. And with that, we are now happy to open the call up for questions. Operator, will you please open up the lines?

[Operator Instructions] Our first question comes from the line of Bryan Goldberg with Bank of America Merrill Lynch.

I've got one on Local Advertising, and then two on Other Media and Entertainment. First, on Local Advertising, last night CBS talked about their radio group pacing up mid-single digits this quarter, and I recognize they've got a different asset mix and strategy. But is it reasonable to assume things have ticked up for your Local Advertising business in the fourth quarter? And I guess, what can you tell us about how political came in, now that the elections are over? And more broadly speaking, I mean, how would you characterize the current advertising climate in your local businesses?

So thanks, Bryan. As you know, we're not giving guidance by segments. So our guidance was high-single digits for the fourth quarter, which probably gives you some sense that we feel that the environment is at least a little bit better than it was in the second quarter and into the third quarter. But we don't break out guidance separately segment by segment. As to political, I've seen -- I guess, the story will be written because I've seen lots written by you and others about how political came in, in general. For us, I would say it was in line with what we thought.

And then on the current advertising climate, I mean, are there any kind of categories you would call out as being notably strong or weak?

Yes, I would say in the quarter, some of the better performing categories were entertainment, food/beverage, services, principally financial services, real estate. I think some of the other travel, vehicles, auto, sort of health, education was a little weaker than we had expected.

Okay. And then on the Entertainment -- Media and Entertainment side, the WE Fest acquisition, it's a good-sized deal, I mean how should we think about accretion from this in 2015? Anything you could tell us about the margin characteristics of this type of business that you've acquired? Seasonality, as we should think about folding it into the P&L next year, and then any kind of preliminary thoughts on synergies as it fits into the Townsquare Group would be very helpful.

No problem, thanks, Bryan. From a seasonality perspective, the event happens in August so that's where the financial impact will be. This festival -- we are pleased with this festival. It's founded in 1983. It's in an area that fits very well with our geography. We have 24 stations in Minnesota, 13 in the Dakotas and 14 in Iowa. We are -- we think it's a very strategic acquisition for us. We're pleased with the price that we paid. The festival did about $10 million -- area of $10 million revenue. And in terms of synergies, next year in 2015, we will have a limited ability to impact the festival principally because the acts have been booked, and the tickets have been priced and are on sale. But what we can do with the festival in 2016 and beyond we're quite excited about.

And Bryan this is Steven. I agree with everything Alex said. It adds to the overall -- our overall festival business. So we have -- I don't know, the number is something like 10-or-so, nice-sized country music festival. And having, sort of, an anchor like WE Fest helps with national sponsors, local sponsors, it just overall boosts our footprint in Country Music. As you know, we have 2 of the 3 largest national, digital destinations, tasteofcountry.com and theBoot.com. Actually, I think last night was our biggest traffic night ever, because of the CMAs, on both sites. So it's -- it just overall helps our country music footprint, which as you know is important to our company.

Okay. And then just one kind of minor housekeeping item. I think in your press release you said pro forma net revenue for this segment, Other Media and Entertainment, increased about $5 million, so it's the majority of your -- the vast majority of your pro forma revenue growth. Amongst the drivers of this segment, Live Events, digital marketing, and national digital, can you just -- was one a big -- which one was the biggest driver of growth in the segment? Was it Live or was it digital?

Yes, I mean all components of OM&E increased significantly in the third quarter and year-to-date. On a dollar basis, Live Events increased the most. And on a percentage basis, our marketing services increased the most. The subscriber business.

Our next question comes from the line of David Bank with RBC Capital Markets.

That's pretty exhaustive list before me, so most of them were taken care of, but I have a couple. The first on your perspective from the events business and what you saw in the third quarter versus, kind of, what you're seeing in the fourth quarter. Is there anything about, kind of, consumer behavior and spend in the context of the events business that sequentially is, sort of, different for -- from what you can see? Or is it, kind of, more or less the same? I know overall, revenues are growing, but your kind of gut feeling about kind of consumer behavior. And the second question is your markets are -- they're pretty unique in that they tend to be smaller, but they're anchored by some form of economic, like, strength from various institutions, or there's something about them that tends to keep them less volatile. Do you think you're seeing things that are different right now in your markets versus the, kind of, general markets for Local Advertising? And for events, for that matter.

Yes, sure. Thanks, David. I would say on the first one, we haven't seen any sort of change in consumer behavior sort of writ large Q2 versus Q3 on the events side. I think it has more to do with where the event is, the mix -- we tend to do a little bit more music in the second quarter than in the third quarter, and in the third quarter than in the fourth quarter, where they tend to be more family-based or local-based kind of events. That probably has more to do with it but sort of on a same-store basis if you looked at the same kind of events, we really haven't seen a shift in spending patterns. My personal view is that's because in our markets sort of Main Street versus Wall Street. The economy seems okay, not great, wages are not great, wage growth, but it's not -- it doesn't seem as bad as it had been when we started Townsquare for the first couple of years. It sort of seems, I don't know, it's sluggish or slow growth or stable. And that really -- we really haven't seen that markedly change. It obviously looks a little better now than it did, let's say, in the second quarter, maybe some of that was weather, et cetera. Your second question was are our markets different? I would say our whole thesis is that small to mid-sized markets are less volatile and have a better local environment and a local competitive environment than in the bigger market. So I think that would drive you to a conclusion more than -- the South is good, the North is bad, the North is good, the South -- that kind of thing, anything geographically. When we look at all markets across our footprint, the star market -- if I picked in my head a handful of better performing markets that are crushing it this year, it's not like they're all in X states or in X region. They're pretty scattered. And the same thing with the ones that are not performing as well. We call that 2 of our bigger ones that are in the Northeast that aren't performing well. The next 3 that are not performing well are not in the Northeast. So and again much more has to do with the size of market for us and our strategy then it does with a particular geography.

Our next question comes from the line of Amy Yong with Macquarie.

Two for Steven, two for Stu. Just following up on the advertising market, Steve, can you talk about visibility from where we stand? It's November already. Just heading into the retail season, has it improved coming out of the summer months and into the fall? And then my second question is can you just -- is there any way to quantify some of the drag as you improve the Cumulus markets and your Northeast markets, what that impact is going to be heading into 4Q and 1Q? And then just two for Stu. Can you talk about the working capital needs, and how we think about the 2015 number, and the impact of WE Fest? And then just what's kind of the reasonable cash on hand that we should be thinking about for your company going forward?

Okay, thanks, Amy. I would say on your first point, there's always a pickup, as -- I mean it's sort of a self-evident comment. When we talked about advertising there is a pickup as you go into the holiday, as you going to the holiday season. That's sort of the same year-over-year, so that's not going to help a year-over-year comp. We haven't seen anything noticeable. Maybe because in October, political tends to crowd out some advertising, so it's a little hard to get a sense of where your other advertisers are, dependent upon the state, et cetera. As I said, retail was not one of our better, in fact, it was one of our lower performing, worst-performing categories in the third quarter. So we're sort of a little bit optimistic that it will -- that will improve, how much, hard to say right now. I think we sort of factored that all in, when Stu gave you our guidance for high-single digits in the fourth quarter. After the drag of a couple of the markets that underperformed, we feel -- to some extent, right, there are always going to be markets that will underperform, it just depends how much they underperform and how big they are. It turns out that this year, a couple of the newer markets that you identified plus a couple of our Northeastern markets were some of our more important markets and performed pretty badly for us, as you can see, because we improved at least some of those markets 1,400 basis points, as we said, quarter-over-quarter. We think, as I mentioned in my remarks, a lot of those issues in those markets are either fixed or on the road to fix, a bunch of it was sort of new leadership, some of it was some other things. Our strategies have kicked in, there were some, other kinds of issues that, I think, we've sorted through. So I guess, to some extent, and we factored this in when we think about guidance, I think those politics markets will do great next year, because they'll have easy comps. We obviously factor that when do the GM budgets. But there will be a handful of other markets that are on the watch list. So I don't think that the drag of those markets is really going to affect us going forward. And I think, I'd feel actually pretty good about the markets that we had issues with this year. Stu, did you want to answer Amy's question?

Sure. Hi, Amy. So WE Fest won't have a great impact on working capital. Our working capital in 2015 will be slightly need to be increased but practically the same as 2014 this year. As far as cash on hand, we always try to keep somewheres between $5 million and $10 million cash on hand. Any excess we'll look to pay down debt or make acquisitions.

[Operator Instructions] Our next question comes from the line of Davis Hebert with Wells Fargo Securities.

I just wanted to ask a question about the live entertainment festival M&A environment, can you share with us what kind of multiples these businesses attract? And how competitive are these situations? Because we hear Live Nation being fairly acquisitive as well in the space and there are obviously a lot of other smaller players. So just curious kind of what -- if you can just talk about the M&A environment in general about that industry.

Sure. Thanks for the question, Dave. I would say, stupid answer, it depends. A lot of the things that we do are really small that will fit in, sort of put WE Fest a little separate from this, but in general the things we've done have been very small, sort of more add-on to what we're doing, tuck-ins, some of these $100,000 is expensive kind of thing, okay. So we're really, in a lot of cases, the only buyer, not only the best buyer, we're probably the only buyer for some small things that are in our market that we think fit with what we're doing. And we obviously already have the footprint in our markets. That's probably been most of what we've done. WE Fest was a little different because it was bigger. And people value it differently. We looked at it as how does it fit in with our overall footprint? Minnesota and the Midwest are good markets for us. If this were a festival in California or Southern Florida, I don't think you would've seen us as the buyer. I guess, I'll never say never, if it was somebody handed it to us dirt cheap maybe. But in general, we've been looking at things where we have a major strategic -- places where we have a major strategic advantage. So when we bought some festivals over 1 year ago in Colorado, we have a nice footprint in Colorado, same thing in upstate New York, same thing in Montana, and now the same thing here. So what we're -- our strategy is to try to find things where we will have a differentiated strategic reason to be there and marketing power and the like. And we're thinking about this acquisition, as Alex said, as what it could do for us sort of for our overall business and for long-term. It's obviously going to be tough to influence materially 2015 numbers since the, as Alex said, the ticket pricing is set, a bunch of tickets are already sold and the talent's booked. But as we think about '16 and '17 and adding other festivals and doing other kinds of things, we think it's a really strong acquisition for us.

Our next question comes from the line of Trip Handke [ph] with Tricadia Capital.

It's David Walker with Tricadia, actually. I had a couple of questions in addition. The first one is on margins. Your guidance for the fourth quarter suggests that obviously EBITDA and revenue growth will be in the same zone. Is that something we should anticipate for the most part from this point forward? Or will we see perhaps some variability in margins in the next several quarters? And then secondly, I apologize, I had to click off the call for a bit, have you provided color on the EBITDA that the WE Festival is anticipated to do, or maybe what it did in 2013?

David, it's Alex speaking. In terms of cash flow for the WE Fest festival, I'll take that one first and I'll turn it over to Stu to answer your question on margins. The financials that we observed -- the festival recorded in 2014 are area of $10 million of revenue and area of $2.5 million of cash flow.

And as far as future guidance --

Sorry, I was just going to ask, cash flow, is that comparable to EBITDA, or is that...

Yes.

[indiscernible] cash or?

No, that's EBITDA.

Okay, great. Sorry, I cut you off, Stu.

No problem. So guidance for fourth quarter revenue we said high-single digits and we're not -- we don't give guidance for future years or future quarters until the earnings release when we give the next quarter. So what we're really guiding to is high-single digits revenue and high-single digits EBITDA for the fourth quarter at this point.

[Operator Instructions] Mr. Price, there are no further questions at this time. I'd like to turn the floor back to you for any closing and final remarks.

Great. Thank you, operator. Thank you, everybody, for joining us on our call today. Hope you're as pleased with our results as we are. As you think about things and look at the numbers, if you have any follow-ups, please don't hesitate to give us a call, and we look forward to talking or seeing you soon. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.