Townsquare Media, Inc. (TSQ) Q4 2017 Earnings Report, Transcript and Summary

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

Thank you, operator and good morning to everyone. Thank you for joining us today for Townsquare’s year end financial update. Also on the call today are Steven Price, Executive Chairman; Bill Wilson and Dhruv Prasad, our Co-CEOs; 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 conditions, but 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 segment operating income, which we are using instead of direct profit, adjusted EBITDA and adjusted net income 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, Claire. Good morning, everyone and thank you for joining us today. The closing of 2017 brings to a conclusion a year of transition for Townsquare characterized by strong local performance, major leap forward for the digital marketing businesses that fuel our local marketing solution segment, challenges on our entertainment portfolio that we have addressed through the strategic review that Bill and Dhruv announced on our last call and of course the management succession I initiated in October of last year that resulted in the promotion of Bill and Dhruv to the position of Co-CEOs. Amidst this year of transition, our core local marketing solutions business continued its impressive and consistent performance delivering at the end of 2017 its 16th consecutive quarter of positive organic revenue growth. As we turn the page into 2018, we expect to build from this position of strength and stability. I remain energized by our progress as a company and engaged in my new role as Executive Chairman working with Bill, Dhruv, Stuart, Claire and the rest of the team to deliver results for our shareholders and other stakeholders. With that, I am happy to turn the call over to Dhruv who will discuss management’s immediate priorities and capital allocation plans as well as provide commentary on Townsquare’s 2017 performance.

Thanks, Steven. Good morning, everyone. Since Bill and I started our new jobs last fall, our focus has been executing upon our plan composed of four key principles. First, focus on local execution what we have been calling Local First, the blocking and tackling of delivering our multiplatform local offerings. Second, reduce complexity and volatility in our business, which was largely the focus of our entertainment segment review, the results of which I will discuss in a few minutes. Third, continue to invest in the impressive growth of our most promising digital products, Townsquare Interactive and Townsquare Ignite, both of which Bill will discuss in more detail on this call. And fourth and finally, drive the product innovation that is contributed to Townsquare’s strong revenue growth since our inception. As part of the internal rollout of this plan, over the past several months, we visited nearly all of our company’s 67 local media markets to meet with our local managers and employees in the field. Our key takeaways have been: one, our local marketing offerings continue to demonstrate relevancy for consumers and advertisers as well as strength and resiliency despite the rapidly changing local marketing landscape. Two, there is a meaningful gap between the quality and differentiation of our product set relative to our competitors in most of these markets. We believe simply that we have better resources and superior products and services. Three, we believe we have a meaningful competitive advantage in launching new businesses and products for our local audience, advertisers and consumers consistent with one of Townsquare’s core founding principles. Before we turn to our 2017 results, as you know, we discussed on our last call our intention to begin returning capital to shareholders in 2018. We are delighted to announce this morning that our Board of Directors has approved a dividend of $0.075 per share payable on May 15, which would equate to $0.30 per share on an annual basis. Even after taking the dividend into account, we expect to continue to reduce net leverage over time, whilst at the same time generating attractive current cash returns for our equity shareholders. We are confident with our current capitalization and the strength of our balance sheet with more than $100 million of available liquidity composed of $65 million of cash on hand at year end and capacity under our undrawn revolving credit facility, a weighted average interest rate of 5.6%, no maturities until 2022 and net leverage of 5.2 times at year end 2017 based on 2017 adjusted EBITDA of $97.2 million. In our view, the free cash flow characteristics of our business could clearly support higher debt levels from a cash interest coverage standpoint. However, we don’t anticipate testing the upper bounds of this theory and absent accretive and opportunistic investments like the WOUR-FM acquisition in Utica, New York that we announced on February 15 and after taking into account dividend payments and ongoing smart internal organic investments like the ones we have made to create our local digital product offerings, we continue to work towards reducing overall net leverage to our medium-term to long-term target of 4x. With that as backdrop let’s shift to our 2017 results. As a reminder of our relative business mix, our Local Marketing Solutions segment contributed 69% of our total net revenue in 2017 and 93% of our total adjusted EBITDA before corporate overhead. This is the core of Townsquare’s business and the area where we intend to focus the bulk of our investment capital and growth expectations during 2018. In 2017 net revenue in this segment grew 1.9% or 3.9% excluding political revenue and 5.2% in the fourth quarter excluding political revenue and adjusted segment operating income declined 4%, but increased nearly 1% when excluding the impact of political revenue which we believe reflects the continued strength and resiliency I referenced earlier. Our Entertainment segment is the smaller of our two business segments and in 2017 contributed 31% of our revenue and 7% of our adjusted EBITDA before corporate overhead. As you are aware 2017 was a challenging year in this segment. Our Entertainment segment revenue declined 8.6% over the prior year and adjusted segment operating income from this segment declined 32% from the prior year. As a result of the beginning of the end of the lifecycle for our successful Insane Inflatable 5K fun run property as well as a series of idiosyncratic issues that negatively affected our fairs business North American Midway Entertainment which we discussed on our last call. These entertainment results affected our overall performance muting what was otherwise a good year delivered by our Local Marketing Solutions segment. In total, our 2017 net revenue of $507.4 million was nearly flat when excluding political revenue and declined 1.7% in total. Our adjusted EBITDA was 8.8% lower than the prior year, but at $97.2 million fell in the middle of the guidance range that we shared on our last earnings call. As a result of the performance generated by our Entertainment segment in 2017, Bill and I announced on our last earnings call that one of our first priorities would be to conduct a strategic review of this portion of the business. During this review which began in October, we closely examined each aspect of our entertainment business to assess its long-term stability, sustainable growth prospects, capital intensity and fit with Townsquare’s overall strategy. This review is now largely complete and we have taken corrective steps during quarter four 2017 and quarter one 2018 based on our conclusions. These steps have included an overall reduction in the number of events in our company from approximately 500 in 2017 to approximately 350 planned for 2018, driven by a significantly smaller schedule for Insane Inflatable 5K race series in 2018, the sale of our Holiday Event series, The Glow that we completed last month. The elimination of a handful of less profitable events including the Country on the River and Crude Fest Music Festivals and the significant reduction of our live events overhead as a result of this decline in business activity. The National Digital business, we simplified operations, transitioning to a largely programmatic sales platform which will reduce our revenue potential which had also reduced fixed expenses and therefore should reduce the volatility that we experienced in 2017 associated with the very competitive National Digital markets. Recognizing the uncertainty posed by our normal business risks, including the impact of the H2B labor situation which unfortunately has not been resolved by this Congress and whether at our outdoor live events over the course of 2018, our objective is to keep our restructured Entertainment segment’s adjusted segment operating income roughly flat in 2018. However, we expect our revenue declined as a result of the reduction in overall activity. In the near-term we will be focused on stabilizing profitability and not revenue growth in our Entertainment segment. Finally, while we have completed a set of internal actions intended to improve the performance of our Entertainment segment, we will continue to be opportunistic in exploring strategic transactions that could maximize shareholder value. I will now turn the call over to Bill to discuss our Local Marketing Solutions segment and in particular the exciting growth in our digital business in more detail.

Thanks Dhruv. 2017 was a strong year for our Local Marketing Solutions segment. As Steven mentioned at the opening of the call we have finished the year by achieving our 16th consecutive quarter of Local Marketing Solutions’ net revenue growth and excluding political, we grew net revenue of 3.9% and adjusted segment operating income nearly 1%. We have continued to invest in our core local products. In 2017, we built and launched over 300 individual radio station mobile apps for all of our local brands, each of which is integrated with Apple CarPlay & Android Auto for integration interconnected cars. We re-launched all of our local radio branded websites with a new premium design and user interface that has already demonstrated increased engagement as well as generated incremental revenue opportunities. Additionally, we have made each of our stations compatible with the smart speaker platforms operated by Amazon, Google and Apple. We are tremendously excited about smart speakers and in particular the opportunity to place audio content and thus radio back in the center of the home entertainment experience. In 2017, we made several investments in core local broadcast programming. And as a result, we are pleased to report the fall 2017 ratings period was one of our strongest in years. We posted strong ratings, share gains in key demo adults 25 to 54 in some of our largest markets, including El Paso, Texas and Buffalo, New York, where we own the number one and number two ranked stations, Lafayette, Louisiana where we owned three of the top five stations and Portland, Maine where we owned three of the top four stations. In the country format, which is our number one format by net revenue, we achieved our second consecutive positive ratings book finishing 12% ahead of fall 2016 book as measured by average quarter-hour share in the demo adults 25-54. In the aggregate, these ratings represent our best results in several years and we believe are the direct result of Townsquare’s investment in content quality. For example, the decision to hire a new Morning Show for WGNA in Albany led to the station surging to the number two position in the market in the fall ratings period, investment in strong new content managers and aggressive marketing campaigns for our brands. Importantly, we completed a major traffic system conversion across all 67 of our markets in 2017. For those of you who are unfamiliar with our traffic system, it is the core enterprise software platform that handles among other key functions the scheduling of commercials, revenue management and billings. They really get the glory, but we are exceptionally proud of the efforts of our traffic team expended to complete this conversion. With that said, we are also glad the conversion is behind us as it caused incremental expense and employee distraction in 2017. We thought it would be informative to spend some time on today’s call reviewing Townsquare’s digital products and solutions, which have grown significantly in recent years and which we believe are meaningfully superior to those being offered by competitors in our local markets. In 2017, our total net revenue from our digital products and solutions was just under $100 million in net revenue and generated strong profits and operating margins consistent with our overall Local Marketing Solutions segment. By way of background, within our Local Marketing Solutions segment, there are essentially three digital product lines which I will describe in turn. The first is our local digital business, which is the first area that we have focused on when we launched Townsquare in 2010. At that time, nearly all of our revenue came from broadcast and we had virtually no digital presence, nor digital products. After I joined Townsquare from AOL in September of 2010, we built a world-class digital engineering and content team who helped us develop our own content management system, a proprietary mobile app platform and individually branded station websites for our local broadcast brands that we populated and continued to populate with great locally produced content. We produce an astonishing 30,000 pieces of original content each month for our own websites. With this content, we attract our broadcast audience to our digital platforms, not as substitution, but largely as an addition to their consumption of broadcast, which we believe once again demonstrates the strength and relevancy of our brands, our on-air talent and our content. As our digital audience grew for context in 2017, we averaged 13 million unique visitors per month on our local websites, a number that actually exceeds our radio tune. We were able to monetize this audience through high impact display, streaming, video and mobile advertising on our owned and operated local websites generating significant revenue growth from these new platforms. Over time, we have expanded our digital capabilities also include e-commerce, social media and video offerings. For example, together with our national websites, we have 391 channels on our YouTube multi-channel network with over 188,000 videos created and over 1.3 billion video views. The second piece of digital product portfolio was Townsquare Interactive, our digital marketing solutions business. The inspiration for this business was the suggestion of an employee in one of our local markets St. Cloud, Minnesota. This employee mentioned that although we had great digital advertising products, she was facing a significant customer objection. Businesses in her town did not have websites or were not happy with the quality and presentation of their website. As such they didn’t want to buy advertising that directed potential customers to these sites. To solve this problem we created Townsquare Interactive in 2012. Townsquare Interactive develops and host desktop and mobile websites and provides services such as search engine optimization, online directory optimization, online reputation management and social media management services for a monthly subscription to small and mid-size businesses. With Townsquare Interactive as part of our product mix, our sales force could now provide their advertisers with an impressive digital storefront as well as provide them with digital advertising that will help them to grow their business. Our first TSI customers were also often advertisers of our radio stations. However, Townsquare Interactive has grown significantly since 2012 and we now proudly serve over 12,400 clients across the country. We pay approximately $300 per month on average and as a result Townsquare Interactive generated $40 million of net revenue in 2017, significantly up from prior year and we forecast continued growth in 2018. We continue to update our Townsquare Interactive product offerings and over the years have added e-commerce functionality, member benefit programs and are now working on the addition of e-mail marketing, enhanced social services as well as appointment scheduling. Finally, the third and newest part of our local digital product portfolio is Townsquare Ignite, our programmatic digital advertising platform. A few years ago in 2014, we found that while our customers wanted to advertise on our owned and operated local websites, they also wanted to locate and engage their target customers defined by strict demographic and psychographic attributes across multiple platforms including web, mobile, video and social. For example, a client may want to specifically target homeowners in Cedar Rapids, Iowa who are currently in the market to purchase an automobile or another client may want to advertise to women over 25-years-old in Rochester, Minnesota who had been to a particular retailer like Target in the past 30 days. Importantly as a result of our strong relationships and proven track record of digital execution, these local clients wanted Townsquare to buy and manage these powerful digital programmatic advertising programs for them. To address this customer need we built the Townsquare Ignite product platform. Ignite enables us to fulfill our clients entire audience demand using both our own digital inventory on our owned and operated websites in addition to other advertising inventory across the Internet which we access by our digital programmatic buying platform. We believe our competitive advantages in this space are many, including superior customer service which differentiates us in a competitive environment where clients often lack transparency, adequate reporting and responsive customer support and our local advertising relationships that we have leveraged as a trusted partner to build a new advertising business from scratch. Today, we have approximately 1,600 Ignite campaigns running per month, up from approximately 385 per month in 2016 and under 1,000 per month in 2017. We believe that there is significant runway available to further grow this product and we are investing to grow our planning, sales, buying, optimization and service teams in order to support this future growth. In summary, we are incredibly excited about our digital product portfolio and expect continued growth of the portfolio in 2018 and beyond where we worked to continually upgrade our existing products set, our operating plan is also focused on new product innovation as Dhruv referenced several minutes ago. We invest every day to support new product testing. For example, in our first party data initiative that is an early stage of commercialization or in our local broadcast measurement and attribution service. This type of innovation has been a hallmark of Townsquare and we will continue to push forward. With that, I will hand over the call to Stu who will discuss our financial results in more detail.

Thank you, Bill and good morning everyone. As a reminder our results discussed today are presented on a continuing basis and exclude discontinued operations. In 2017, we elected to discontinue the operations of certain portions of our Live Events business, including our Holiday Event series, The Glow that was subsequently sold in 2018. The operations and related expenses of these Live Events operations are presented as net income or loss from discontinued operations in our financial statements. We had net income from discontinued operations of $100,000 for the year ended December 31, 2016 and a net loss of $1.4 million for the year ended December 31, 2017. All other financial results we will discuss today are related to continuing operations unless otherwise noted. For the quarter ended December 31, 2017, net revenue decreased 3.7% or $4.4 million to $114.3 million as compared to the fourth quarter of 2016. For the year ended December 31, 2017, net revenue was $507.4 million as compared to $560 million in 2016. That represented a decline of 1.7% or $8.6 million. In comparison to 2016, an election year, political revenue was significantly down in 2017. Political revenue declined $4.1 million in the fourth quarter from $5.3 million to $1.2 million. For the full year period, political revenue declined $6.6 million from $9 million in 2016 to $2.4 million in 2017. Excluding political revenues, net revenue in both the fourth quarter and full year periods was nearly flat. Fourth quarter net revenue, excluding political, declined 0.2% or $300,000 and full year 2017 net revenue, excluding political, declined 0.4% or $2 million. Local Marketing Solutions net revenue increased 0.4% or $400,000 in the fourth quarter. Excluding political revenue, Local Marketing Solutions net revenue increased by 0.2% or $4.5 million in the fourth quarter. For the full year period, Local Marketing Solutions net revenue increased 1.9% or $6.5 million over the prior year. Excluding political revenue, Local Marketing Solutions net revenue increased 3.9% or $13.1 million in 2017. Fourth quarter entertainment net revenue declined $4.8 million to $22.6 million, a decrease of approximately 17.4% from the prior year. This result was driven in part by declines in attendance at several major fares in the months of October and November, which were as we believe impacted by the tragic mass casualty event in Las Vegas on October 1, 2017. We referred to this on our call in November. In 2017, Entertainment net revenue declined $15 million to $158.8 million, a decrease of approximately 8.6% from 2016. As we have discussed, the declines in our Entertainment segment’s 2017 revenue were largely driven by the decline in our Fun Run series and the decline in our National Digital revenue. In fact, those two properties accounted for 85% of the revenue decline in 2017. Total direct operating expenses decreased 1.9% in the fourth quarter and were approximately flat for the entire year compared to our prior year periods. In both the fourth quarter and full year periods, we saw increases on our Local Marketing Solutions expenses and decreases in our Entertainment expenses. Local Marketing Solutions expenses increased 5.7% or $3.3 million in the fourth quarter and 5% or $11.2 million in 2017 as compared to the corresponding periods in 2016. These increases were largely due to an increase in headcount related expense needed to support revenue growth, particularly for Townsquare Interactive and Townsquare Ignite. Entertainment expenses decreased 17.6% or $5 million in the fourth quarter and 6.7% or $10.8 million for the full year 2017 largely related to lower revenue. Our 2017 expense declines were offset by NAME’s higher expense base in the third and fourth quarter related to the staffing and transportation issues we discussed on our last call. Excluding NAME, expense savings in our Entertainment segment would have entirely offset entertainment revenue declines which would have resulted in a margin expansion in both the fourth quarter and full year periods as compared to the prior year period. Adjusted EBITDA for the fourth quarter of 2017 was $21.6 million. This represented a decline from the prior year period of approximately $3.1 million. In 2017 adjusted EBITDA was $97.2 million, a decline of approximately $9.4 million. Depreciation and amortization expense for the year increased $1.7 million or approximately 7.1%, primarily related to an increase in the amortization of capitalized development costs. Net interest expense for the year ended December 31, 2017, decreased approximately $1.3 million or approximately 3.9% due to the repayment of $6.7 million of our term loan as well as the repricing on our term loans both of which occurred in the first quarter of 2017. As a result of our Entertainment strategic review we made the decision to shutdown or streamline certain areas of the business. This resulted in business realignment expenses of $6.2 million in 2017. Also as a result of our Entertainment strategic review and in conjunction with our regular year end audit testing, we took an impairment charge to the carrying value of our intangible assets. In total, we have recognized an impairment charge of approximately $52 million, primarily related to our entertainment assets. Included in that amount was a small impairment charge to our FCC licenses in two of our 67 markets. For the year ended December 31, 2017, we reported an income tax benefit of $13 million. This was primarily due to the enactment of the Tax Cuts and Jobs Act which reduced the Federal corporate income tax rate from 35% to 21%. As a result of the tax act, we were required to revalue our net deferred tax liabilities at the new rate. We would like to remind you that the provision for and benefits from income taxes included on the pace of our income statement is for GAAP financial statement purposes only. We maintained significant tax attributes including approximately $137 million of NOL carry-forwards and other substantial tax shields related to the tax amortization of our intangible assets. We continued to believe that we will not be a material cash tax payer until approximately 2024. For the year ended December 31, 2017, we reported a net loss from continuing operations of $8.9 million or $0.48 per diluted share as compared to net income per diluted share of $0.85 in 2016. Our net loss from continuing operations was largely driven by our fourth quarter non-cash impairment charge. Adjusted net income which excludes one-time items such as impairment charges and as detailed in the schedules to our earnings release was $20.6 million or $0.74 per diluted share for the year ended December 31, 2017. Adjusted EBITDA less interest CapEx and taxes which we consider to be a proxy for free cash flow was approximately $41.3 million in 2017 equating to $1.50 per share based on approximately 27.5 million shares and warrants outstanding. As of December 31, 2017, we had total debt of $571.9 million and our net leverage was 5.2x based on 2017 adjusted EBITDA of $97.2 million. Over the course of 2017 we repaid $6.7 million of our term loans and we anticipate making approximately $9.5 million excess cash flow payment on our term loan in the next couple of weeks. We ended the year with a cash balance of $65.3 million and have the revolver capacity of an additional $50 million. As Dhruv mentioned earlier, our Board has approved a dividend payable on May 15, 2018. The dividend has been set at $0.075 per share which would equate to $0.30 per share on an annualized basis based on our current shares outstanding inclusive of our warrants and our current stock price that would imply an annual payment of approximately $8 million and a dividend yield of approximately 4%. Based on our existing cash balances, anticipated cash flow generation, an un-drawn revolver capacity, we are confident that we have sufficient liquidity available to us over the next 12 months to operate our business, pay a quarterly dividend and service our debt in the ordinary course. Turning now to our 2018 outlook, as Dhruv mentioned, we have largely completed the strategic review of our entertainment business and have taken several corrective actions in Q4 2017 and Q1 2018 to stabilize this segment. As such to help our investors better understand what our segments look like at this point in time, we are going to provide a little more color on 2018 than we usually do by providing revenue guidance for each of our segments. For the full year 2018, we expect Local Marketing Solutions net revenue to increase between $364 million and $372 million, which represents mid single-digit revenue growth compared to 2017. We expect 2018 entertainment net revenue to decrease to between $140 million and $48 million, a meaningful revenue decline compared to 2017. This estimate incorporates the reduced schedule of our Fun Run series, the new run-rate of our National Digital business and the lower number of events that we are operating this year. In total, we expect 2018 net revenue to be between $510 million and $520 million. We expect adjusted EBITDA of $99 million to $101 million in 2018. This represents growth of approximately 2% to 4%. We expect adjusted EBITDA growth will be driven by increased profitability in our Local Marketing Solutions segment and stable profits in Entertainment segment. We expect first quarter Local Marketing Solutions net revenue to be between $79 million and $80 million and first quarter entertainment net revenue to be between $11 million and $12 million. This resulted in total net revenue of between $90 million and $92 million. We expect first quarter adjusted EBITDA to be between $10 million and $11 million. And with that, I will now turn the call back over to Dhruv.

Thanks, Stuart and thank you to everyone who dialed in to be with us this morning. In summary, after a year of transition, we believe Townsquare is in a strong position. At the end of our last call, we told you that we were focused on three immediate near-term priorities in our first several months in our new jobs. One, growing the Local Marketing Solutions segment, which delivered its strongest ex-political quarterly growth rate of the year in Q4; two, implementing corrective action for our Entertainment segment, which we have done as a part of our recent reset; and three, returning capital to shareholders, which we plan to do in the form of the dividend we announced this morning. As we have executed our immediate priorities, our focus in 2018 is on the medium-term plan we outlined on the front end of this call, which we believe will position Townsquare for profitable growth in this year and beyond. In all respects, we are leaning in and excited about the year. We have covered a lot on this call and we have provided even more context in our annual shareholder letter, which we encourage you all to read and which was released today. As always, please don’t hesitate to call us with any questions or just to check-in. And with that, we are now happy to open the call for questions. Operator, will you please open up the lines?

Thank you. [Operator Instructions] Our first question is from Leo Kulp with RBC Capital Markets. Please proceed.

Hi, good morning guys. Thanks for taking the question. Just a couple around the model, it looks like your Local Marketing Expenses grew about 6% last year. Should we expect that to moderate in ‘18 or is that going to continue?

Hey, Leo. How are you doing? It’s Stuart. I think it will moderate. We will have some additional investment as we add more sellers, but hopefully it will grow in proportion with our revenues.

Okay. And then can you provide some color around the Ignite campaign, how does the ARPU there compared to Townsquare Interactive?

Hey, Leo, it’s Bill Wilson. As we mentioned on the call, we have about 1,600 current active campaigns for Ignite. The average order size in a month is relatively the same as our broadcast order size on a monthly basis. The differences on our Ignite campaigns are about twice as long in length, but the actual average order size per month is roughly the same as our broadcast order.

Got it. Thanks Bill. And then one last question for me, how much more runway do you have on Townsquare Interactive in terms of growing the – both the subscriber base and do you see an opportunity to drive the ARPU growth there with some of the additional services that you are offering?

Yes. We see tremendous runway ahead. We hired a head of customer service, customer retention. Just about a year ago, we are seeing decreased churn, we are seeing consistent sales velocity and as you just mentioned we continue to add services and products. So we are very bullish on that segment.

Got it. Thanks guys.

You’re welcome.

Our next question is from Michael Kupinski with Noble Financial. Please proceed.

Thank you. Can you talk a little bit about the headcount of the company and your plans for 2018 overall?

Sorry Mike, your question was about the headcount in the company?

Right. Yes, in general.

Yes, sure. So this is Dhruv. I would say on the Entertainment side, we have made reductions in staffing and reductions in overhead consistent with the plan that we talked about earlier on the call. On the Local Marketing Solutions side, we are investing in sales people and service people across the business in our local markets as well as to drive Townsquare Ignite and Townsquare Interactive. So on a net basis, we would expect the headcount increase in the Local Marketing Solutions segment.

Got it. And can you talk a little bit about the core expenses that you are picking out it, but that that name and where did the majority of the costs come out of?

Yes. So I would say that the costs, they were across our Entertainment segment. And they relate primarily to staffing and overhead as well as the production costs associated with events that were no longer continuing.

And but specifically related to the name itself has – I assume that you reduce costs there, but can you just give us some more color on that portion of the business?

As it relates to name, we have not reduced costs in a significant way. There hasn’t really been the opportunity to reduce costs, because we have had costs inflation driven by labor that candidly is largely beyond our control.

Got it. And then the last time we talked, you indicated that M&A activity was pretty active and I know that you have a fairly very large cash position, what is the interest in pursuing acquisitions at that this point?

The interest is high moderated by what will continue to be discipline on the price front. So as you know about a month ago, we announced an acquisition a small tuck-in acquisitions in Utica, New York. We see other opportunities like that. There has been a tick-up as we said in activity. Some of the processes that are out there are public and we expect with some of the restructurings that are going on with some of our competitors, we expect and hope that there will be assets that are attractive to us that fit our profile that will come loose and available for sale. So as you said we are very – we feel very well capitalized, we feel very ready to be opportunistic and move quickly when acquisition opportunities arise.

Got it. Thanks. That’s all I have.

You bet. Happy birthday, Mike.

Thank you.

Our next question is from Kyle Evans with Stephens. Please proceed.

Hi, thanks. I didn’t hear any commentary on the core time sales business, can you talk about what you saw specifically in terms of sell-through and pricing on – in the fourth quarter and what you are seeing in 1Q pacing and maybe talk a little bit about some of the vertical of industry trends you see with some highlights in auto please?

Sure. This is Bill. From advertising categories standpoint, our best performings were services, commercial residential, entertainment, retail, health services and travel. Auto is one of our largest as it is retail and entertainment and auto was relatively flat for us last year. As it relates to current pacings, we are feeling really good particularly about local direct, but we continue to see headwinds on the national front and as you guys – we have talked about in the past much smaller segment for us, vis-à-vis others in the radio space given our mid in size and small markets, but is still a headwind for us.

Was local core ex-digital up year-over-year in 4Q?

As you know, this is Dhruv, as you know, we don’t disclose broadcast separate from digital within our Local Marketing Solutions segment, but I would just say taking a step back, because we did provide a lot more information on our local digital business that we have in the past on this call. So, again taking a step back, our thesis since the beginning was that broadcast radio is a Trojan horse to grow other businesses and that informs the formation of the platform of Townsquare and our acquisition of 300 plus radio stations over the course of the last 8 years. I think we have been very successful in that approach. We built a $100 million digital business, which is growing and profitable and we have built a nice portfolio of local live entertainment assets that also continue to grow and are profitable. Going forward, I think our expectation in 2018 is what has been really for several years, which is the objective is to keep broadcast stable and grow our digital products. And that’s the approach at Townsquare – been the approach of Townsquare since the beginning and will continue to be our approach in our expectations for 2018.

What kind of political outlook do you have built into your ‘18 top line guidance?

Hi, this is Stuart. I will take that. We don’t actually give political guidance for the year going forward, but given the unusual outcome for 2016’s advertising cycle, it is difficult to predict what ‘18 will bring, in 2014 the last non-Presidential election year, we generated approximately $600,000 in Q1 of political revenue and approximately $8 million for the entire year. So, we kind of use that as a basis.

That’s helpful. Thanks, guys.

Thanks, Kyle.

[Operator Instructions] Our next question is from Amy Yong with Macquarie Capital. Please proceed.

Thank you. So, I guess two questions, one kind of follow-up to previous ones if you could talk through on how maybe Ignite is synergistic to your Local Marketing Solutions? That will be great. And maybe Steve for my second question, can you walk us through how you came to the conclusion if you do some buybacks rather than the dividend, I am sorry dividend rather than buyback and maybe how quickly can you get to that 4x leverage target? Thank you.

Hey, Amy. It’s Bill. I will take the first one and then Dhruv and Steve will take the second one. So, Townsquare Ignite, our digital programmatic offering is completely integrated with our Local Marketing Solutions and our local teams. Our sales people in the local markets are the primary seller of that solution as I mentioned on the call. It really came out of our success selling our owned and operated properties and our customers really wanted to continue to buy and extend that by targeting consumers across the Internet. And I gave a couple of examples of that, but to answer your question specifically, it’s completely integrated, we do hire a specialist from a programmatic space to go in and train and do four-legged calls, where they are doing joint calls, but the actual sales of Ignite are done at the local level by our local sales teams.

Hi, Amy. So, our Board of Directors felt that a dividend would best support the stock on a long-term business. We will continue to evaluate our use of capital as always in order to deliver the best shareholder – best value to our shareholders. Going forwards, our capital allocation is going to be used to fund the dividend, find accretive investments for our LMS segment and then to de-lever.

Great. And how quickly do you think you could get to 4x kind of given the EBITDA growth?

Amy, this is Dhruv. We think over the course of this year that we will be able to delever in the zone of 0.5 turn, so that would put us well on track to achieving our sort of mid to long-term target of 4x.

Great. Thank you.

You bet. Thanks, Amy.

Our next question is from Jim Goss with Barrington Research. Please proceed.

Thanks. A couple of them. One, I was curious if there are any other events to your sense are becoming long in the tooth someone like the Fun Run and when do you pull the plug in such a situation and alternatively are there events that are stable or growing and leveragable that you think you can expand on?

So, we continue to evaluate our portfolio of events on an ongoing basis. There is nothing today that we look at and say – going forward nothing today that we look at and say is as you said long in the tooth, but consumer taste change every month, every quarter, every week, consumer taste change in this environment. So we do have to be proactive in that regard. We are seeing actually quite strong success in the first quarter of this year from our – your festivals business, which is a business we have actually had and run for quite a long time, but which has been a steady generator of cash flow and in this year actually has been quite strong. So I would point to that as a business we continue to leverage.

Okay. And with regard to M&A I think Utica, if I am not mistaken is the first in quite a while you have required, I am wondering if you have indicated that you have a high interest and it’s based on value, do you think the situation going on with I heard at the movement could windup having some impact on the entire industry, where there might be a sort of a waterfall effect and there could be opportunities, do you think will above what?

So first was just one correction. The Utica acquisition was actually a second in recent history. We acquired a cluster as you may remember we acquired a cluster of radio stations in the brochures [ph] in the fall of last year.

Okay.

Our activity is – our announced activity is ticking up. As it relates to iHeart, Cumulus, yes, our hope is that the processes that are ongoing there will result in asset sales. Obviously, those two companies have been largely on lockdown from an asset sale perspective given their leverage over the last several years. So we think there will be opportunities. We are pretty familiar with the market list and the assets that those two companies and have a sense for which markets would be attractive for us inside of – inside of those companies and are hopeful that there will be processes and hopeful that we will have an opportunity.

Okay. Thank you very much.

Thanks Jim.

[Operator Instructions] We have reached the end of our question-and-answer session. I would like to turn the call back to Dhruv for closing remarks.

Thanks everyone for dialing in. We appreciate your time this morning. We know it’s a busy season for a lot of you. We appreciate the question and we look forward to talking to you in the near future again. In the meantime call us any time. Thanks everybody.

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