Good morning, and welcome to Townsquare's Second Quarter 2017 Conference Call. As a reminder, today's call is being recorded, and your participation implies consent to this recording. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] With that, I'd like to introduce the first speaker for today's call, Claire Yenicay, Executive Vice President. Ma'am, you may proceed.

Thank you, Operator, and good morning to everyone. Thank you for joining us today for Townsquare's second 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 those projections. These statements reflect the company's beliefs based on current condition 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 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 report 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. The results that we will report today were in line with our expectations and the guidance we provided last quarter. We are particularly pleased with our Local Marketing Solutions segment, where we marked our 14th consecutive quarter of positive organic revenue growth. Second quarter Local Marketing Solutions revenue increased 4.3% over the prior year and nearly 5% excluding political revenue. This is a testament to the strength of our local advertising solutions as well as the strength of our local team. I'm pleased to report that as expected, our energy markets have stabilized and as a group posted positive revenue growth for the first time since the first quarter of 2016. National however continues to be a drag on our results. On the local digital side, we continue to see strong customer adoption of our product offerings with more than half of our advertiser base purchasing our digital products. At Townsquare Interactive, we continue to see strong steady growth with our subscriber base increasing to 11,750 clients at the end of the second quarter. We also continue to see strong audience adoption of our digital products. In the first half of 2017, our local digital websites attracted a monthly audience of 14 million unique visitors and on average, our listeners spent more than an hour per week listening to our stations online among the industry's best online listening statistics. Entertainment net revenue was flat in the second quarter. As anticipated, our second quarter music festivals rebounded from last year and we saw growth in revenue direct profit and attendees and nearly all of our second quarter major music festivals. We also experienced growth in names revenue and direct profit in the second quarter. But our second quarter…

Thank you, Steven and good morning everyone. For the quarter ended, June 30, 2017 net revenue was $140.7 million versus $137.2 million in the second quarter of 2016. This was within our previously issued guidance. This represents a growth of 2.6% year-over-year and 2.9% excluding political revenue. Local Marketing Solutions net revenue increased by 4.3% or $3.8 million. Political revenue declined $400,000 year-over-year from $1 million in the second quarter of 2016 to $600,000 in the second quarter of 2017. Excluding political revenue, Local Marketing Solutions net revenue increased 4.8% or $4.1 million. Second quarter entertainment net revenue was approximately flat year-over-year with a slight decrease of $200,000 or 0.5%. As a reminder, our results were slightly impacted by the sale of certain live events in the second quarter of last year. Total direct operating expenses increased 3% in the second quarter, the increase in expense was driven by increases in Local Marketing Solutions expenses partially offset by decreases in entertainment and expenses. A local marketing solution expenses included approximately $500,000 of nonrecurring expenses related to the ongoing companywide conversion to a new traffic system. These costs will continue through the fourth quarter when the conversion is scheduled to be completed. Adjusted EBITDA for the quarter ended June 30, 2017 was $25.3 million falling within our guidance. This represented a slight increase from the prior year period. Excluding the traffic system conversion adjusted EBITDA would have increased 2.1% over the prior year period. Depreciation and amortization expense for the quarter increased $800,000 or 13.9%, primarily related to the amortization of capitalized software development costs. Net interest expense for the second quarter of 2017 decreased $900,000 or approximately 10% primarily due to repayment of debt as well as the re-pricing of our term loans in the first quarter. The second quarter…

Thanks, Bill, and thank you to everyone who dialed in this morning. With that, we're now happy to open the line for questions. Operator, will you please open up the line.

Thank you. [Operator Instructions] Our first question is from Kyle Evans from Stephens.

Hi, good morning. It sounds like -- I guess my first question is how long should, we expect the Insane Inflatables to drag on the top line if it started in '14 and peaked in '16 and we're just now starting the decline, we're looking at a multi-year kind of tail-off on that? And I have got several follow-ups. Thanks.

No, it's -- I mean we don't really give 2018 guidance, but I think generally speaking the balance of this year and the beginning of next year.

Great, and could you give us -- this is…

And I just say -- I just -- I love to make one comment on the II5K, our fund run series, it's hurting us in terms of the public financial now, but if you -- and we knew there would be an arc to it, it's probably the -- arguably the only thing we do in our live events business. It isn't perennial content. We knew would have an arc. We still from a shareholder perspective it was a phenomenal return on investment, you know, we made more than three times our money. So it was a very good deal. We just knew there would be an arc. And we're seeing the tail end of the arc, but it won't -- based on the numbers it's not going to last past the beginning of the next year.

Okay, thank you. Could you give us an update on name -- this was the year that you're going to try to extend the shoulders of the season, and maybe get better utilization of the assets, could you just provide us what's kind of your latest thinking there?

Yes, we were -- we are right in the middle of the heart of the name season. So it's a little -- you know, so it's a little hard to -- you never really know. But from what we've seen, we feel good about names. It's up nicely. It's doing quite well. And we feel, I guess, the same way we did when we bought the business that a lot of the things we wanted to implement, whether it's the new Ark & Chauffeur that we won this year,Tolso last year, some of the things that we're implementing, we feel good about it. And last year, we had some weather issues as we talked about. We still feel good, but let's hope something doesn't turn in the three weeks, our torrential downpour across the country, but from where we are now I would say it's on plan from what we thought.

Okay. And lastly, I want to make sure I understand the national ad commentary, I understand national, the digital decline, because you talked about it last quarter. Is national ad as a component of your time sales in radio, is that also weak, I'm not sure I got that straight.

Yes, yes. It's not a huge percentage of our revenues, but it is, the national radio advertising that we get through the principally through our reference, you know, that business has been down. And we've said that our local -- our local business and our regional business has been doing better than our national business. And we've seen that as a as a trend. And that has that continued in the quarter. We've seen that as a trend for -- I don't know; maybe two years, and that continued. We continue to work with our rep firm and pound them and figure out different strategies. And as I said, it's not a huge piece of our business. It's less than 10% of those. So it's not huge, but it -- we noticed it.

Could you maybe some specific commentary on auto advertising X National, just what are you saying on the ground in your small to mid-size markets from the auto dealerships? Thank you.

Yes, it was flat in the quarter. So as you know, it's less than less than 20% of the business. So, that's important but it's not a huge piece. But it's been relatively flat. I mean in this quarter it was flat.

Thank you so much.

Yes, thanks.

Our next question is from Curry Baker from Guggenheim.

Hey, guys, thanks for the question. On Townsquare Interactive, I think you guys said that you had a -- you are up to 11,750 subs, which is about 5% growth year-over-year. It's actually about a 25 -- 20 basis points acceleration in growth from what you saw in 1Q quarter-to-quarter. Longer term, what in end do you guys think you're in regarding that business, and is mid single digit subscriber growth sustainable over the near future? Thanks.

Are you saying quarter-over-quarter it's 5% or year-over-year?

Yes, quarter-over-quarter from the 11,200, yes.

Okay. Oh, yes. Yes, I would say we are probably in the top of the second in that business. I mean, just in our markets, and part of our strategy is to edge out of our markets with Townsquare Interactive, but there are something like 700,000 or 800,000 SMPs. And in my view…

Okay…

In my view, all of them need digital presence, and we have about 12,000.

Okay. Thanks for the color, guys.

Our next question is from Amy Yong from Macquarie.

Thanks, and good morning, maybe two questions.

Hi.

Hi. I guess first for -- first two, can you quantify the run rate, the annual run rate for expenses once the new traffic conversion is complete? And maybe how we should think about '18 and '19? And then maybe a bigger picture question with -- you mentioned the inflatable 5K being one of the few things in your portfolio [technical difficulty] maybe you could talk larger -- bigger picture on how you're actually managing the portfolio, anything else that we should be aware that has a very similar, I guess, profile to something like the 5K? Thank you.

Okay. Let me take the first question, Amy, how are you this morning. So, the conversion over the course of this year is going to cost us about a million six. And we completed up additional cost, because we are still paying our old traffic systems through the end of this year when the contract expires, and we have a lot of license cost and upfront conversion and training course this year. And as we convert over systems, markets throughout this year, you know, we have to additional pay for those. So that will end at the end of this year.

And Amy, in terms of the IF 5K, there is nothing else in our portfolio that has the arc that -- fad is a bad word, but I think arc is a nicer word, than that the Fun Run did. And we debated this when we started the Fun Run series, but we thought there was such a huge opportunity so they'll grab share and money. Then we decided it was worth it. And we're seeing, as a public company the sort of negative consequence of that. But if you run the business for the long term for the benefit of the shareholders, it was clearly the right thing to do. And we would do it again. Maybe what we would do next time, lesson learned, is to explain publicly a little bit better what we're doing and what the arc is. We had talked about the 5K run, we didn't talk about the arc, and maybe we should have. But in any event, it wasn't material, and we didn't sort of know exactly what the timing would be. But as we look at, going forward, the things that we're testing and the things that we're launching or the things that we may buy, we have a huge bias and Drew and his team have done a great job on this towards perennial content. That's what music festivals are, that's what carnivals are, that's what all the local events are, perennial, year-after-year kind of events that withstand the test of time. And that's sort of been our strategy. So that's -- there's nothing that we view as similar to this in the portfolio.

Got it. Thank you.

Okay, thanks. Operator?

Yes, our next question is from Barry Lucas from Gabelli & Company.

Thanks, and good morning.

Hi, Barry.

Couple of questions, so the traffic system, it's I guess in total a couple of million dollar investment. What are the benefits you really get from new traffic system?

So I think the main benefit is, right now we operate our business and we have 66 different focal databases in each market. So the most important benefit that we're going to get besides the day-to-day functionality and efficiencies are that the new traffic systems run on one database, it's centrally held one database. So we could do a lot more polling, get a lot better data out of it, get a lot more real-time. And it'll really help us sell digital, and integrate into the regular build. I mean, under our old system we had two different systems, spot sales and digital sales. So it gives us a lot of better analytics and reporting. This system, we're really confident that it's going to help us.

Okay, that's helpful, Stuart. And just coming back to the national digital business, one thing is when do you lap the effort, let's say, the focus on EBITDA versus revenue growth?

This year. So we implemented the strategy at the beginning of the year. So the comps next year will sort of have factored in what -- the strategy from this year.

And just coming back at this strategy, was that a function? And you talked about driving EBITDA, but has the competitive nature of that national digital business made it more expensive to go after revenues? And if so, where is that increased pressure coming from?

It has. I mean, what this business is, it's a really nice business, but it's competitive. We're actually very successful, right. We own some of the biggest music communities on the web, right, XXL, TasteofCountry.com, PopCrush, Loudwire. I mean, I'd urge people to check them out. The content, and the videos, and the short and long-form content is terrific. So if you're a hard rock enthusiast you're going to Loudwire, I would suspect, most days. If you like hip hop you're going to XXL, if you like country you want Taste of Country, it's bigger than CMD, it's the biggest site on the web. So it's a good business. But in order to really ramp it -- if we were a VC-backed company we would be investing like crazy in new forms of content, new forms of video, all the kind of things that you would do to really ramp it up. Given the context that we're in as a public company where this is not a huge component, we're trying to balance where we invest. And you can't invest everywhere. To invest here may not have as much a return as investing in some other places in our business. It might for somebody else. And we don't have lots of other digital portfolios, we have lots of other digital portfolio. So our strategy is to maintain the excellent quality that we have, and we can see that both in the number of uniques we're the biggest music-focused ad network in the entire Internet, and in the engagement. And that's measured in terms of social engagement, YouTube subscribers, pages per view, lots of different -- minutes per page, et cetera. And that has stayed pretty stable. So we're trying to maintain that without sort of going -- spending so much money to really invest to ramp it which would really hurt EBITDA. So we're trying to manage that.

Great.

And it's a business where we're competing with lots of players, so we're -- if that means that we give up some revenue because we're not hiring as many sales people, those kind of things, that's a trade we decide to make that we foreshadowed I think about a year ago. And we're in the middle of that now.

Okay, thanks. One more, Steve, if I may. You made the small acquisition up in -- or signed a deal to buy station, something in Massachusetts. Just wondering what your appetite is for additional properties, and what the M&A pipeline looks like? And do you think sellers are kind of deterred or not active because we haven't had a firm change in tax policy yet?

I don't know about the latter, although I suspect with the family-owned operators that's probably true on the tax issue. But I mean, do we have an appetite for deals like Pittsfield, I would say all day long. We just haven't found a lot of them. It's a good cluster, the dominant cluster with really good management where we could help rollout a digital event strategy, a good team fits right inside our clusters in Massachusetts and New York, Albany, Dutchess County, New Bedford, et cetera. So it'll be close to seamless. And if we could find situations like that it would be great. I would say there's a little bit more of a pipeline of smaller things than in the last two years, but not as robust as we'd liked. And as you know, because we haven't done anything for two years before this, we've been pretty disciplined on price. So if we said, hey, we'll go pay 10 times I think there'll be a huge pipeline. Last time I checked, we haven't done that, and I don't think you would expect us to go do that. So, on the pipeline of things that fit with us at reasonable prices, we think there's a little bit more of a pipeline than there has been, but it's still not huge the couple of things.

Great. Thanks for that, Steve.

Okay, thanks.

Our next question is from Jim Goss with Barrington Research.

Thank you. I recognize you have been very disciplined in your approach to M&A, and that that has put some hold-on activity. I was curious though on a couple of things. One, how big a gap are you perceiving between buyer and seller expectations. And also, given that the Entercom CBS Radio merger probably won't shake loose a lot of properties there would be in your types of markets. But maybe there are, and I'd be curious about that. And to the extent that iHeart has properties in pretty much every segment, and there are some financial issues there, are there properties you might make a bid on in that context that you might have an opportunity with?

The answer is I don't know -- yes, I don't see the CBS and Entercom combination creating opportunities for us to grow our business. I mean, the things either that are being spun off in bigger markets, which as we said historically been our strategy nor they given any indication let's say are willing to entertain selling off some of the smaller markets, that might fit with us. In terms of iHeart --– I don't -- we are not going to go make a particular bid I think people, lots of people know that it's a right price we are interested in small to midsize market and that we are really a buyer for the kind of things you want to buy at the prices we are interested in. So, I guess anybody was thinking of selling or doing something with those kind of markets, my guess it would be one of the top, that's not the top call. So whether or not something shakes out from either iHeart or elsewhere I don't know, but I hope so.

Okay. And one other thing I tell you just mentioned again you are not making 2018 projections, so I wonder if there are any early clinical expectations and that it could be a good midterm election with protocol hostility around and I'm wondering if your market seem to overlay probably with the potential heightened political interest.

It's funny I said yesterday with gentlemen in our company that obviously it's political to talk about the exact issue, it's early and if you look at the and it's easier to tell what we are going to be incentive competitive races and what potentially a governor -- potentially competitive races as oppose to what are the house potentially competitor races and there are some that right in our sweet spot, but ultimately it's going to be as you get in whether or not there are going to be on both sides primary and whether or not a lot of the house races are going to competitive or not. So right now clearly optimistic that it's going to be a good political year just given lots of dynamics but it's way too early to tell.

Okay. Well, thanks very much.

Yes, thank you.

[Operator Instructions] Our next question is a follow-up from Kyle Evans, Stephens.

Hi, thanks. I wonder if you could dig a little bit more into that 4% on core radio and maybe call out some areas maybe regionally or advertising verticals that drove that strength, and then, also kind of what you are seeing on 3Q facing so far in the quarter? Thanks.

Right. So, our LMS segments has been growing 14 straight quarters or organically as you said I will confirm you that was a good quarter retail entertainment and we are good categories for us I would say in the quarter and then in terms of regionally our energy markets as we said has turned the corner, we noted -- I will say complain but that, I don't mean that because we love the people down there and they work really hard and it was a tough time in some of the energy markets, not just for our clients but for lots of people and as the price of oil goes backup and there is potential offshore drilling in the like coming back, it does seem to be -- as we said in our remarks, the energy market has stabilized, some, and in fact are showing growth that they didn't have last year. So Texas, Louisiana, Dakota some of those kinds of places are doing a little bit better than they were. And then, generally you know, we are a company of 60 something different stories. So there are handful of markets that are performing pretty and obviously there are because we are so critical at time you have plenty of places where we should be doing better, so other than that I don't think there is a any particular region that's materially above or any other regions that's really fallen behind, it's more epistatic things in specific market, they just add up to the total.

And then, three key phasing?

I would say we don't see an advertising market that's different than it has been for the past handful of quarters. Again, it's a little bit 60 different stories in some places there is a client closing in some places there is a new employer moving it. There are those kinds of things, but sort of in an aggregated basis, we don't see either a massive slowdown or a massive uptick or something along those lines, it seems sort of a bad work since for the past couple of quarters for us.

Okay. Thank you.

Okay. Thanks, Evans.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Steven Price for closing remarks.

Great, thanks. In middle of August people dial-in early and spending time with us, I hope people have a great rest of the summer and nice Labor Day. And anybody has questions or thoughts, don't hesitate to give us a call. Thanks for joining.

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