Greetings. Welcome to the Townsquare Media Second Quarter 2021 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Claire Yenicay. You may begin.

Thank you, 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 Bill Wilson, our CEO; and Stuart Rosenstein, our CFO and Executive Vice President. Please note that during this call, we may make statements that provide information other than historical information, including statements relating to the company's future expectations, plans and prospects. These statements are considered forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties, including those that are detailed in the company's annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC. We may also discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income and adjusted operating income, which we may refer to as profit in our remarks. Such non-GAAP financial measures should be used in conjunction with all the information contained in the quarterly, year-end and current reports available on our website. I would also encourage all participants to go to our corporate website at www.townsquaremedia.com and download our investor presentation, as Bill will reference some of those slides during our discussion this morning. At this time, I would like to turn the call over to Bill Wilson.

Good morning, everyone. Thank you all for joining us this morning as we update you on our incredible financial results and our progress through the first half of 2021. I wanted to start today's call by providing you with our latest outlook for the full year because it is something that Townsquare team is very proud of, and then I will discuss specifically our Q2 results. Becoming a digital-first company with a heightened focus on local has propelled our company forward the past 12 months, allowing us to recover even faster than we initially expected. We now expect 2021 net revenue to increase to at least $410 million, which is $15 million higher than we originally forecasted just last quarter, and it is 95% of 2019's revenue. And incredibly, we expect 2021 adjusted EBITDA to fully recover to at least $102 million, which would equal 2019's pro forma adjusted EBITDA of $102 million, and is $12 million above what we originally forecasted just last quarter. Now let me walk you through how we will recover fully to 2019 profit levels. Our financial recovery accelerated in the second quarter of 2021. And I'm proud to announce that our second quarter financial results exceeded our goals and expectations, and in many cases, exceeded levels we achieved in the pre-COVID second quarter of 2019. Once again, we exceeded our previously issued guidance range for both Q2 net revenue and Q2 adjusted EBITDA. I'd like to draw your attention to Slide 6 of our investor presentation, where we outline second quarter performance. On our last earnings call, we provided key data points to help set expectations for Q2, and I am thrilled to share with you that we over-delivered and beat on every single one. To start, given our revenue recovery and expense management,…

Thank you, Bill, and good morning, everyone. What a difference a year makes? Only one year ago, we were reporting financial results that were materially depressed due to the pandemic. Fast forward to today and we're reporting much improved second quarter financial results that exceeded our expectations, driven by strong year-over-year revenue growth and careful expense management. In total, second quarter net revenue increased 44.9% over the prior year period to $107.3 million, exceeding our previously issued revenue guidance range of $101 million to $104 million. Second quarter adjusted EBITDA increased $28.2 to $30.3 million, exceeding our previously issued EBITDA guidance range of $28 million to $29 million and setting an all-time company record. Although these year-over-year growth trends are important, we believe the most relevant measure of our performance is to compare them to the pre-COVID 2019 results. Q2 2021 net revenue declined 5.1% compared to the second quarter of 2019 and Q2 2021 adjusted EBITDA exceeded Q2's 2019's adjusted EBITDA by 0.6%. However, it's important to note that live events generated $6.3 million of revenue and $1.6 million of profit in the second quarter of 2019 versus only $1.2 million of revenue and $500,000 of profit in the second quarter of this year. Excluding live events, net revenue declined only 0.6% as compared to 2019, and adjusted EBITDA increased 4.5% compared to 2019. Townsquare Interactive delivered second quarter net revenue growth of 19.7% as compared to the prior year. In the first 6 months of 2021, Townsquare Interactive's net revenue increased 17.4% as compared to the prior year. This revenue growth was supported by an all-time record number of subscribers net added in Q2 with the addition of approximately 1,350 net subscribers. Townsquare Interactive's second quarter profit increased 18.5% as compared to the prior year. And on a…

Thanks, Stu. Well done, and thank you to everyone who dialed in this morning. As always, I'd like to thank our Townsquare team, who are the engine behind our strong year-to-date performance and who will be instrumental to Townsquare's future success. I am incredibly optimistic about Townsquare's future and very proud that in 2021, we are on the path to achieving 2019's adjusted EBITDA level of $102 million, and we are on the verge of a full revenue recovery. As a digital-first company, the growth in our digital revenue and digital profit has accelerated and is continually propelling us forward each and every day. And I'd like to reiterate that we expect that our total digital net revenue will increase to $250 million within 3 years. As we say internally, how high is high. And with that, operator, please open the call for any questions.

[Operator Instructions] Our first question is from Michael Kupinski with NOBLE Capital Markets.

And first of all, congratulations on a strong recovery and a great quarter. Just a couple of questions. You mentioned that 57% of Townsquare Interactive's subscribers were derived from outside your radio markets. Can you talk about the percentage of subscribers that were added in the last quarter and what percent that came from outside your markets?

Hey, Michael, thank you very much. Hope you're well, good to hear from you again. In the quarter, it was consistent. So I think on the last earnings call and the -- probably the year-end as well, we were at 57% outside of our local markets. So the good news for us is our in-market continues to scale quite nicely, and our out of market continues to scale quite nicely as well. So that percentage was consistent in the quarter as it was to the prior quarter. And obviously, extremely satisfied with hitting an all-time high of 1,350 net subscribers added in the quarter and just increasing our confidence in the business, not that it could be much higher than it was before. But obviously, adding the second location, I think, as I noted in our interview a couple of weeks back, we're looking to accelerate the investment in there, particularly in the back half of this year and then going into our West Coast operation in 2022. That's why we outlined that total addressable market for Townsquare Interactive at $32 billion in the investor deck, but couldn't be more pleased with the performance and really excited where we're going.

Amazing that you added -- over 1,300 subscribers. Can you talk a little bit about are you seeing any increased churn or noticing any difference in the amount of churn for the subscribers?

Yes. We continue to have really the lowest churn we've ever had in the business. I think one of the benefits we talked about, I think, on prior earnings calls is the pandemic really put a spotlight on the importance of a strong digital presence for SMBs. So our net adds is a combination of increase of sales velocity as well as lower churn and we expect that to continue and continue to invest in. One of the benefits we have, as you know, is we have a very unique customer service platform and strategy where each business has a customer success manager as opposed to a general customer support phone number or e-mail. So it's really one-to-one digital consulting and just incredibly proud that all of our digital growth is organic. All the results we're providing here are pro forma and also organic built in-house. And as I noted in the prepared remarks, the fact that we have this technology team that's built these technology products and platforms, we think is a true differentiator in general and particularly when we're focused outside the top 50 markets, we are quite pleased with the very attractive competitive landscape and then you factor in the level of sophistication we have from a technology and solutions standpoint, and then obviously I believe we have a world-class team across the board at Townsquare.

Got you. And how long do you think it will take to ramp up the employees to the level that you have in Charlotte in your second office?

I expect the same level of growth out on the West Coast operation as we had in Charlotte. As a reminder, we literally started with 3 employees in 2012, and we're north of 600 now. So I expect us to add anywhere from 60 to 80 employees once we're up and running on an annualized basis to the West Coast operation while also continuing to add in Charlotte as well. As I noted in the prepared remarks, we've already hired dozens of people for the West Coast operation during the last 12 months. I think one of the things we consciously stated, and I think Stu said this well when he said, what a difference a year makes, is, a year ago, we were sharing that our strategy was to cut corporate expenses and other expenses that were more variable in nature, like the 401(k) and other things for the time being and really hold on to our team at the local level and our Townsquare Interactive offices so that as the pandemic subsided, whenever that happened, we would be in the best competitive advantage -- take advantage of that. So throughout the pandemic in the last 18 months, we've been hiring pretty aggressively, and that will continue to happen over the back half of this year. And then going back to your original question, I expect over the course of -- if we're adding 60 to 80 people, we'll be at 600 people, call it, in 8 to 10 years out there.

Got you. And just one question for Stu. In terms of capital allocation, you mentioned that you're going to -- your plans are to kind of increase investment spend a little bit. Can you just talk a little bit about the prospects of share repurchases? Are there any covenants that restrict you from doing that? And then also what are -- is the nature of the capital spend that you're anticipating for internally?

Thanks, Mike. So as Bill had mentioned, and we’ve said consistently, going forward, our first priority is going to be investing in our businesses, specifically our digital businesses. Secondly, we’re going to use that money, excess free cash flow to delever. We really don’t have any plans today, no formal plans to buy back equity. If the stock reacts in a way where it’s our best use of money at the time, the Board will think about it and obviously we’re aware of it, and we’ll watch it. But our first priority is to invest in our digital businesses.

And our next question is from Jim Goss with Barrington Research.

I would like to take on a couple of other questions to what Michael was pursuing in terms of Townsquare Interactive. I was wondering what the run rate you would expect once the Western office is open. And where is the line drawn geographically in terms of what the Charlotte offices, people can be pursuing versus the newer areas? And what is the difference in the sales approach for salespeople dealing in owned radio markets versus non-owned? Is there any difference at all? Is it a separate enough business that really doesn't have a great impact?

Thank you, Jim. All great questions. So I think I captured them all, but obviously feel free to follow up on any. So in terms of the run rate, once our operation on the West Coast is fully operational, so as I noted on the call -- on the prepared remarks that we expect to open the office in the first half of 2022 and then continue to scale from there in hiring. So as you know, we've consistently, for a few years now, added a minimum of 850 net adds. My expectation, once we are fully operational, that baseline will increase quite substantially, I would say, by at least 50% in terms of our net add baseline, so call that 1,250, 1,300 net adds once we're fully operational. And I expect that to be probably in the next 12 to 18 months in terms of being fully operational on that. In terms of geography, it's really more -- so we're going to have a full-service office. So all disciplines will be hired on the West Coast operation just like in Charlotte. So that includes salespeople, that includes customer support, customer service people, that includes technology people, that includes design people, that includes copyrighters, search engine optimization, everything in essence what we call specialists in each areas. So partially what will happen is from a customer service standpoint, from the Midwest to the West Coast, that office will ramp up and handle those customers that are located there, so that that time change that we've been really time shifting for Charlotte, so there's more coverage, we won't have to do that as much. From a sales perspective, as we outlined in the investor deck, I think it's on Slide 11, given the addressable market of almost $9 million target Townsquare…

I think you did on those, but you also segued into the other thing I wanted to ask about, and that is in terms of the trends in the mix of ad spot utilization, just going a little further into that. Can you talk about or characterize it in terms of, say, spots that are sold as ads versus spots that are promos or severely discounted spots that have the capability of generating additional revenue? And like tie -- perhaps tie that into listener mix by time of day and how the digital sales might impact that capability? I assume you don't change the ad spot load over the course of the day, you're just selling it differently and maybe you can characterize how you can get more out of the ad spots available?

Right. Definitely. Great question, Jim. I couldn't be more proud of the local Townsquare content contributors. And they're producing content obviously for broadcast, online for our own websites and apps for our social platforms, for our video platforms. And the fact that we're live and local and continuing to invest in local radio, I believe is another piece of the core differentiator of why we're taking local spot share and taking total spot share. So going to your specific questions, in terms of spots, large majority, 90-plus percent are purchased spots versus promo spots. We do utilize promotional spots for our own products, like Townsquare Interactive, like Townsquare Ignite, like Townsquare Broadcast. We do utilize our own megaphone. One of the core assets and unique differentiators for us is, on average, our AM/FM broadcast reached 50%, 1 in 2 adults in the markets that we operate in. So what an incredible megaphone to reach not only people living in the community, but clearly people living in the community who are business owners and small business owners. So we do use those spots to advertise what we can do to help local businesses, but over 90% of what the spots run are paid spots from local advertisers. You then asked about the listener mix and the spot loads. So spot loads are consistent throughout the day. Our digital streams, which continue to increase in number of people listening to them as well as time spent listening, we do run less spots on our streams and our streams are accessed through obviously laptops, desktops, mobile phones, mobile apps, smart speakers, any connected device, even connected televisions. And what I'm really proud of is even our listening trends, as I just noted, we reach 1 in 2 adults on our AM/FM broadcast. That's been incredibly consistent for the last several years in terms of our overall reach. I think everybody on this call knows that radio overtook television in terms of becoming the #1 reach medium. So in our view, there's no better medium and no better cost-effective ROI for top of the funnel marketing brand awareness than radio. So our listening in terms of reach is stable, a number of people listening on a weekly basis. And I think, overall, as you've heard me share in other forums, I think part of the challenge for radio has been time spent listening. And the fact that we're live and local and the fact that we're in smaller markets, I'm very proud to say our time spent listening is stable as well. So the combination of a stable audience and stable listening trends has really benefited us and allows us to continue to take local spots share. I think you asked about digital sales? Was that your last question?

Well, I just wondered if digital sales effort tied into filling those spots in the odd times of the day when it -- I would imagine that's the times you can apply CPMs and try to reach whatever audience there is and sort of balance out the ad mix.

Yes. No, that's right. I'm glad you followed up on that because it is important to note, and I think I shared this on the last couple of calls, our average minute rate is incredibly stable as well. So during the pandemic, when our broadcast advertising declined, I think I noted in the prepared remarks, it was negative 45% in Q2 2020, we kept our average minute rate incredibly stable. And so that was a conscious decision. Obviously, some of our competitors, as we know, dropped rate. Our feeling was we wanted rate integrity based on our market-leading brands and therefore, our decline in the broadcast revenue was driven entirely by number of clients as opposed to average minute rate. So as the clients come back, obviously, our revenue comes back, and that's what we're seeing sequentially and feel good about it. As it relates to digital sales being leveraged for the local spots, the great thing is although we're a digital-first company and proud of it, local radio is incredibly important to us. We believe that our digital success would not be what it is without our local radio brands. So we're proud of radio. We love radio, and we go out there with one ecosystem. We're digital-first, but the 2 go hand-in-hand. So we don't have a separate digital-only sales team, we have local world-class account executives bringing to bear all solutions. So they are, in fact, in essence leveraging "digital sales" to drive local spot sales, but it's one holistic ecosystem and approach. So hopefully, that makes sense, Jim.

No, it does. Maybe one last one, although I've taken a lot of time, but the -- your -- the system you've cultivated in terms of your DJs thinking on-air DJs as digital content creators and local social influencers, I would imagine that's attractive to a number of talented individuals like that and I wonder if you then -- how that works in terms of your attraction to them and your compensation scheme? Can you incentivize them in a way that they win, you win? And is that a lot different than it might have been 5 years ago when some of these opportunities weren't really there? And does that also create a source of live events? That will be it.

Yes. What an astute question. I'm almost hesitant to share too much because I think it is quite differentiated, but I will share some. So you're exactly right. The fact that our on-air DJs are digital content contributors as well as on-air contributors and truly local social influencers, it's been a great source of recruitment. The fact that we're hiring local radio talent to produce content over-the-air as well as online, we've literally hired dozens and dozens and dozens of local DJs over the last 12 months, and we continue to do so now. Couldn't be more proud of our local on-air talent. They literally are the heart of the company in super serving our communities and inspire me each day. As it relates to compensation, I don't want to provide too much secret sauce, but I would share as a digital-first company, over the last 12 months, we completely redid our compensation structure for our on-air talent that are also these digital content contributors and local social influencers. In addition to changing how they're compensated so that they're no longer compensated by ratings, which the majority of were compensated historically tied to ratings and other factors, we dropped that. The other thing we did is every single on-air talent, every single reporter, every single digital content contributor has a bonus opportunity in this company. That's the first time ever in -- in essence, for the last 12 months, particularly in 2021, a good number of people did not have that opportunity. And based on our technology platform, based on our solutions, based on our ability to track our revenue across all platforms from broadcast to live events to digital, I think I've shared on this call, the -- our technology team is world-class, and they build our products in-house, and they've been building a CRM tool for us -- I shouldn't say tool, it's truly a platform that provides so much intelligence, so much data intelligence that allows us to operate our business more strategically, more efficiently and with greater insights, that going back to your original question, the compensation structure is not only completely changed for our DJs and digital contributors, I'm proud to share that literally every one of them now has a bonus opportunity where they did not before. So as you said, as our company does -- continues to grow revenue and profits, they get to participate that in to a one-to-one basis, which I'm quite proud of.

And we have reached the end of the question-and-answer session. I'll now turn the call over to Bill Wilson for closing remarks.

Thank you so much. I know the call went a little longer. Appreciate the questions, couldn’t be more proud of our Townsquare team, couldn’t be more proud of our results that we shared today. Very much looking forward to deliver the results that we provided on a full year basis in terms of the guidance, increasing our net revenue guidance by $15 million since our last call, increasing our profit guidance by $12 million. We clearly have a lot of confidence moving forward and look forward to closing out the back half of the year with continued momentum as we head into 2022. So thank you all for dialing in. Stay safe and stay well.

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