Townsquare Media, Inc. (TSQ) Q1 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Townsquare Media First Quarter 2016 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your Claire Yenicay. Thank you. You may now begin.

Thank you, operator and good morning to everyone. Thank you for joining us today for Townsquare’s first quarter financial update. With me on the call today are Steven Price, our Chairman and 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 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 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 annual report on Form 10-K 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 Web site. At this time, I would like to turn the call over to Steven Price.

Thank you, Claire. Good morning, everyone, and thank you for joining us today. We are very pleased to share our first quarter results with you today. The first quarter was a strong start to the year for our company with pro forma net revenue increasing 6.7% over the prior year and pro forma adjusted EBITDA increasing 3.3% over the prior year, both exceeding our expectations and previously issued guidance. In the first quarter, local advertising net revenue grew 4.4% over the prior year period. Overall, our markets are generally performing well. Although, recently we have seen some slight headwinds in our ag and oil related markets. We generated $1.4 million of political revenue in the first quarter. While this is quite a strong outcome for us, we expect the majority of political revenue to fall in the fourth quarter of this year. Excluding political revenue, pro forma net revenue increased 5.5%. Other media and entertainment continued to experience rapid growth with pro forma first quarter net revenue growing 45.3% over the prior year and pro forma direct profit increasing by $1.1 million. We continue to see strong growth from both our national digital business and Townsquare Interactive, our digital marketing solutions business. Townsquare Interactive ended the first quarter with approximately 8700 subscribers, up approximately 9% from year-end and 55% year-over-year. The first quarter as you know is our smallest quarter for live events, both in terms of number of events and revenue. On a pro forma basis, live event net revenue declined 2.2% year-over-year, as expected, largely due to the timing of one of North America Midway Entertainment or NAME's fairs. Excluding NAME, our first quarter live event net revenue increased 11.8%. This growth was driven by our non-music events, including anchor events such as our Insane Inflatable 5K series, on Tap craft beer festivals and consumer expositions. Shifting now to our first quarter cash flow. Pro forma adjusted EBITDA increased 3.3% over the prior year to $12 million, exceeding our guidance of $10.5 million to $11 million. Our EBITDA outperformance was due to higher than expected revenue performance. On the M&A front it has been a fairly quite start to the year. On the radio side we have not seen any large scale opportunities yet this year but we did recently sign a handful of agreements to strengthen our cluster in Tuscaloosa, Alabama. Tuscaloosa is a really good example of how important local market leadership is to the success of our local advertising business. Prior to August 2015, Tuscaloosa was a problem market for us. Despite strong market trends and a number one position, our cluster struggled to drive revenue and was losing market share. In August, we hired a new market President, who immediately had a positive impact on the market. Repairing damaged relationships with key clients and agencies, recruiting and building a stronger sales team, focusing on programming enhancements and other similar steps. Revenue and cash flow immediately improved and Tuscaloosa has been one of our best performing markets in recent months and in the first quarter. Recently we entered into agreements to add an AM station, upgrade our FM station and add three FM translators to this cluster. While we don’t expect this to have a material impact on our operations overall, we are excited to support Tuscaloosa's recent success and provide them with more tools with which to drive continued growth. With that, I will now turn the call over to Stu for further details on our financial results.

Thank you, Steven and gm everyone. As a reminder, our first quarter results discussed today are on a pro forma basis, meaning that they are pro forma for all material M&A activity completed by March 31, as if they had occurred at the beginning of the reporting and comparison period. We had no such transactions in the first quarter thus the transactions that are relevant to the pro forma results are the acquisition of NAME, which we acquired on September 1 of 2015, and the divestiture of 43 of our towers, which was also completed on September 1, 2015. 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. Unless otherwise states, all of the financial results discussed will be on a pro forma basis for these completed acquisitions. For the quarter ended March 31, 2016, net revenue equals $94.4 million, up $5.9 million, or an increase of 6.7% from the same period last year. First quarter net revenue of $94.4 million exceeded our previously issued guidance of $90 million to $92 million. The outperformance was driven by both local advertising and other media and entertainment segments. In addition to solid overall performance, political revenue came in higher than the amount we received in the 2012 presidential cycle. Excluding political revenue, net revenue increased 5.5%, to $93 million. Local advertising net revenue increased approximately $2.9 million or 4.4% to $67.9 million. First quarter live events revenue decreased approximately $400,000 or 2.2% to $15.5 million due to the timing of some events. Other media and entertainment revenue equaled $11 million for the first quarter. This was an increase of $3.4 million or 45.3% over the quarter ended March 31, 2015. Total direct operating expenses increased 7.3% in the first quarter of 2016, driven primarily by increases in local advertising expenses, particularly sales related expenses which are variable in nature and other media and entertainment expenses related largely to an increase in the headcount needed to support the growing business. The increase in other media and entertainment revenue outpaced the increase and its direct operating expenses. Adjusted EBITDA for the first quarter of 2016 was $12 million, up approximately $400,000 from the prior year period. This exceeded our previously issued guidance of $10.5 million to $11 million. If you were to exclude NAME's results which has a timing difference for one of its fairs this quarter, adjusted EBITDA would have increased 5.8% year-over-year. On an as reported basis, depreciation and amortization expense for the quarter increased $2.5 million, or approximately 67%, primarily relating to depreciation on property and equipment acquired through the acquisition of NAME. Also on an as reported basis, interest expense for the first quarter of 2016 decreased $2 million, or approximately 19% due to lower average interest rates as a result of our April 2015 refinancing. For the first quarter of 2016, we reported a net loss of $0.08 per share or a net loss of $1.4 million, as compared to a pro forma net loss of $2.1 million in the first quarter of 2015. As a reminder, we are not a material cash tax payer and believe that we will not become a material cash tax payer until approximately 2020. We maintain significant tax attributes including approximately $97 million of NOL carry-forwards and other substantial tax yields related to the tax amortization of our intangibles. We ended the quarter with a cash balance of $30.8 million and had revolver capacity of an additional $50 million. Total debt at the end of the quarter was $598.1 million. We believe we have sufficient liquidity available to us to operate our business over the next 12 months and to service our debt in the ordinary course. As of March 31, 2016, our total and net leverage was 5.8 and 5.5 times respectively. As of today, the company has approximately 27.4 million shares outstanding inclusive of warrants. Turning now to our second quarter outlook. We expect net revenue to be between $137 million to $141 million and adjusted EBITDA to be between $24 million and $25 million. For the full year 2016, we reaffirmed our formal revenue guidance range of $525 million to $535 million and our adjusted EBITDA range of $108 million to $112 million. And with this, I will now turn the call back over to Steven.

Thanks, Stu and thank you to everyone who dialed in this morning. In summary, it was a strong start to the year and we feel that we are well positioned going forward. As always, we will continue to focus on balancing the proper mix of investment in growth for our business in order to build shareholder value. And of course, please don’t hesitate to call us with any questions or just to check in. With that we are now happy to open the line for questions. Operator, will you please open up the call?

[Operator Instructions] Our first question comes from the line of John Janedis with Jefferies. Please go ahead with your question.

Two questions, Steven. One on the local front. How much of the strength has been driven by digital and based on your growth versus some of the local TV players, do you think you are taking share from other local media? And then separately, can you talk more about the live events business and the NAME deal specifically. I know you called that as seasonality and some timing but is that deal tracking according to plan. Thanks a lot.

Okay. I will take all three in order. We don’t, in our local advertising business as we have said, we don’t breakout the difference between particular lines within broadcast and particular lines within digital, or between broadcast and digital. And as we have said, that’s largely because it's the same content producers. So our local DJs and other local staff work on the content, whether it's content for the radio station, audio, or content for the Web site, which is written or video. And it's the same sales force. So if we spend too much time on, hey, you have to meet a radio budget and a digital budget and even within digital there are five or six categories, then the sales reps are going to be selling what they want to sell as opposed to what the client wants. So the strategy is, to look at it as local advertising, go to the client and say, what are you looking to go do. And based on that provide them the solution they want. So we don’t break it out. I mean clearly digital is, in general, growing -- it's a very good business across the world and for us. In terms of market share, we are trying to get more granularity. As you know, it's often hard to find out exactly how you are doing, not only against the radio broadcasters, and Miller Kaplan provides some of that in a handful of our markets. But against other local media players, I would hope the strategy is that we are going to take share from yellow pages and TV, and local cable and local newspapers and direct mail and all the other people who in general get $0.93 of every dollar of advertising in America. Because radio for the past 40 years, as you know as well as anybody, gets about 7% or so of ad dollars. So you want to get a bigger piece. You don’t want to fight for the seven, you want to fight for the 93. So I hope we are being able to take some share by the strategy of staying really live and local. And on the third,, yes, you won't see much of NAME in the first quarter. You won't even see a ton of NAME as much in the second quarter. As we have said before, third quarter, it makes more than all of its cash flow for the year. So you won't necessarily [see] [ph] it in the numbers but we feel good about where we are. We spent a lot of the winter working on plans. As we said, this is a year to test a number of things and we are doing that and we feel like all that is on track to get the synergies over time that we said back in September when we did the deal. So we still feel good about where we are with that.

The next question comes from the line of Kyle Evans with Stephens. Please proceed with your question.

I want to dig down into the 11.8% growth in live events excluding NAME. Could you talk a little bit about what drove that in terms of number of events versus revenue per event? And then I have got some follow ups. Thanks.

Yes. So I don’t have particularly the actual number of events. As we said about a year ago, we are less focused on the specific number of events because going back to 2011 and 2012, we did lots of events that were really small and they take almost as much time as the bigger ones. So we tried to migrate to larger events and more [indiscernible] events as opposed to just stating a number and then feeling like we have got to grow that number even if that’s an event that’s you know $2000 event. So we are not as focused and I don’t specifically have that number, although we could probably dig that out. I would say it was across the board in our live event business. As we said, we have our Fun Run series. We have our craft beer festivals, we have our expos and then we have lots of other interesting local events in the market, many of which we syndicate through our market, some of which are specific to a particular market. So it’s not that one, it was generally non-music in the first quarter. Our music festivals don’t really start until round about now. So it wasn’t one particular place in our live event business. It was sort of across the board.

You mentioned some ag and oil related headwinds. You reaffirmed your guidance. How many markets do you have where you are seeing that and does that add some risk to the guide for the year.

I don’t think so. I mean I am not a oil prognosticator. If oil is in the, and it isn't today, in the 20s for a long time, that’s going to affect -- where will that affect for us? It will affect Louisiana, it will affect East and West Texas and may affect North Dakota, where we have one market. That’s sort of principally it. And it won't affect all of the markets in Louisiana or in Texas. It's episodic. But we noticed it in the first quarter more than we did last year and into the second quarter. So we just thought we would highlight that there is some impact. It's not a material effect on our company. I don’t know, is it five to seven markets maybe, out of 66 in a zone that are affected maybe, that kind of thing.

Okay. And then lastly, maybe you could talk a little bit about within other, the trends you are seeing in national and then the various [indiscernible] you saw at Townsquare Interactive. Thanks.

Yes both businesses had good quarters. And we are excited about, as we said throughout last year. Townsquare Interactive is something which is a nice complement to what we are doing with our small business and very small business customers. Something that they need and are willing to have a local provider help them with their digital marketing services. And our national digital business is growing with a lot of a trend of a digital more broadly. Even if you take out search, which obviously we don’t do. It's very strong, music and entertainment focused network. The largest out there. And it's getting, I think increasing traction. So we feel good about that business.

[Operator Instructions] Our next question comes from the line of Jim Goss of Barrington Research. Please go ahead with your question.

This is [indiscernible] for Jim Goss. I just had a question about the NAME business. How much room do you guys have to sort of spread out the profitability of the business either to like one off events in your market or is that something that’s like with issues getting the workhorse up and ready for the peak season. Is that less of a opportunity?

I would say it's a small, it's somewhat of an opportunity but not a huge opportunity. In other words, it's a business that does go from March through Octoberish. And clearly the bulk of it is, the vast majority, is in the third quarter. That sort of when people are used to going out and taking their kids and willing to spend six hours which is what they spend at a fair or a carnival. You do need some downtime because people travel. The equipment needs to get refurb. So you do need a handful of months off. Could you do more events? Maybe in March, in April, to try to squeeze it into the first quarter, the second quarter. Maybe. But I don’t think that will have a dramatic effect. And we are looking at all those things. And we are doing some tests this year. For sort of stretching out the season a little bit. But directionally, I sort of think summer and its early fall, is where the bulk of this business is.

Okay. Thanks. And for political revenues. For 2014, you base comparison would be about $8 million. Correct. What would be your comparison in the last presidential cycle?

$10 million.

Our next question is coming from the line of Barry Lucas with Gabelli & Company. Please go ahead with your question.

Just a quickie on M&A. You said, it was kind of quiet out there other than some small deals in Tuscaloosa. But if you look across the landscape, and I know CBS is bigger, but you have got some dynamism, let's say. Put it that way in CBS Radio. You have got certain dislocations at that Cumulus and similar issues at iHeart. So do you think that there is an opportunity for stations to shake out of any of those three organizations and would you be willing to take advantage of?

Sure, we will be willing to take advantage if the situation was right. And do I think there will be opportunities based on dislocations. Maybe to probably. I don’t know if that’s imminent. But I think there should be opportunities. A number of other companies that you mentioned and others have said that at some point they would like to focus on either their bigger markets or whatever but either given leverage levels or a variety of factors, aren't doing that today but might do that in the future. And what we have said, Barry, from the very beginning is, we still like radio. We think it's a great platform to grow, diversified local businesses. And if we could find the right kind of market with the right kind of cluster, which means the dominant cluster, a number one or number two share cluster at the right price, we would look at that. For the last year and half, we haven't found that. So other than a small transaction like Tuscaloosa here and there, which is really de minimis dollars. We haven't found that. So the other thing we have said and we mentioned to you is, we don’t feel like we have to be a rollup. We have to be a consolidation play. We think there is enough organic growth and other opportunities that we are going to do well where we are. That doesn’t mean we don’t want to grow but we don’t feel like we have to stretch, have to overpay for something. So we are not going to. But if the situation presented itself in one of the scenarios you talked about or elsewhere, we would take a look.

Thank you. At this time I would turn the floor back to Steven Price for closing remarks.

Great. Thank you all for listening to the call, paying attention to us and supporting us and our staff and in our loans and in our bonds. And as we said, if people have any questions don’t hesitate to give any of us a call. Thanks so much. Have a great day.

Thank you. This concludes today's conference. Thank you for your participation. You may now disconnect your lines at this time.