Greetings, and welcome to the Townsquare Media Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Claire Yenicay, Investor Relations at Townsquare. Thank you, Claire. You may begin.

Thank you, Operator, and good morning to everyone. Thank you for joining us today for Townsquare's third 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. I've been looking forward to today so that we can share our very strong third quarter results, and provide you with an important update on our improved outlook and guidance for the full year 2021. But first, I wanted to take a quick step back and review how far we've come in one short year. At this time last year, we were in a very different place. Although we had already started our recovery from Q2 2020’s low point, there was a significant amount of uncertainty that prohibited us from providing any outlook on the pace of our business improvement. However, at that time, we were very confident in our ability to properly manage through the downturn. And we made a deliberate decision to be strategic and limited in our cost reductions, protecting our core team and resources so that we can emerge from the pandemic-induced downturn faster and stronger than our local competition. Fast forward to today, and it is clear that we made the right decision. Although COVID is still with us today, we are growing our business faster than we thought possible, and we are gaining market share, moving us towards our ultimate goal of being the number one local media company in each and every one of our 67 local markets. In essence, we are not only back on track, we are achieving new profit milestones, and our flywheel continues to pick up momentum each and every quarter. I'm proud to announce this morning that our third quarter financial results exceeded our goals and expectations. Please turn to Slide 6, which highlights that our third quarter net revenue increased a very strong plus 17% year-over-year to $111 million. And more importantly, is 99% of Q3…

Thank you, Bill and good Election Day morning to everyone. In the third quarter, net revenue increased 16.7% over the prior year to $111.3 million, exceeding our previously issued revenue guidance range of $106 million to $109 million. Excluding political revenue, third quarter net revenue increased 21.8% over the prior year. Third quarter adjusted EBITDA increased 66.5% over the prior year period to $29.2 million, exceeding our previously issued EBITDA guidance range of $27.2 million to $28.2 million. 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. Q3 2021 net revenue declined by only 1.1% as compared to the third quarter of 2019, very significant, yet we were very proud to announce today that our Q3 2021 adjusted EBITDA, exceeded Q3 2019 adjusted EBITDA by 3.6%. On a year-to-date and pro forma basis, 2021’s net revenue declined just 3.5% as compared to the 2019 period. And we're pleased to highlight that our year-to-date adjusted EBITDA exceeded 2019 levels by 3.2%. Townsquare Interactive delivered another strong quarter, with strong net revenue, profit, and net subscriber growth. In Q3 Townsquare Interactive’s net revenue increased 16.2%, as compared to the prior year. In the first nine months of 2021, Townsquare Interactive’s net revenue increased 17% as compared to the prior year period. This revenue growth was supported by approximately 1,000 net subscriber additions in Q3, and approximately 3,200 in the year-to-date period. This compares to approximately 2,900 net subscriber adds in the first nine months of 2020, and approximately 2,800 in the first nine months of 2019. Townsquare Interactive’s third quarter profit increased 12.6% as compared to the prior year. And on a year-to-date basis, profit increased 19.9% as compared to 2020. Townsquare Interactive’s third quarter and…

Thanks, Stu. As always, great job outlining our strong financial performance. And thank you to everyone who dialed in this morning. I'm already looking forward to reporting our full year 2021 results. And I am extremely proud that we are on track to deliver full year adjusted EBITDA levels above pre-COVID 2019 levels, and net revenue that is close to 2019 levels. As always, I'd like to thank and give all the credit of our strong performance to our Townsquare team across the country, who fully embrace our mission, and were instrumental in our transformation from a traditional broadcast operator, to the digital-first company that we are today. Our success in organically growing our digital platform, has and will continue to propel us to new heights, including reaching $250 million of digital revenue within three short years. As we say internally, how high is high? And with that, Operator, please open the call for any and all questions.

[Operator Instructions] Thank you. Our first question is from Michael Kupinski with Noble Capital Markets. Please proceed with your question.

Well, first of all, I have to say is, wow, and congratulations on a great quarter and great guidance for the year. Just a couple of quick questions here. Just turning back to first the radio business, can you talk a little bit about the spot revenue in the fourth quarter and how things are shaping up there? A number of other radio companies have indicated that the fourth quarter looks like it's going to be a little bit soft. Can you talk about your patience in the fourth quarter for radio before I turn to digital?

Yes, Michael. Good morning. Good to hear from you. Appreciate the feedback on our results and our guidance. So, as I noted on the call we're very pleased with our broadcast performance year-to-date. We continue to see sequential improvement in our broadcast business from the depths of 2020. And as we highlighted, we continue, importantly, to gain share in local spot, as well as total spot for our broadcast business, as we noted from the Miller Kaplan results in the deck. As it relates to Q4, we're not seeing what you're hearing from others. We continue to see sequential improvement for Q4 versus Q3. So, year-to-date, we ended last year in 2020 down in ex-political broadcast roughly 20% from 2019. We are still down from 2019. I would call it mid-teens, but it continues to get better quarter-over-quarter. In Q4, we expect to be better than Q3. So, it's important. We're not handicapping when broadcast returns is kind of - as we noted, comparing our performance overall to 2020 is in our view, irrelevant. In some ways, we don't spend time focused on when do we return broadcast to 2019 levels. But as I noted on our call, broadcast is a tremendous asset for us, unparalleled reach. The emotional connection in our community is unparalleled as well. And we think and we know that by having the power of that - of radio and reaching one and two consumers in the markets on average that we operate radio in, it really propels our digital solutions forward, because we're a trustworthy partner for local businesses. So, going back to your original question, we're quite pleased with our broadcast spot performance year-to-date. We see sequential improvement, and going into Q4, we expect the same.

Thanks, Bill. And obviously, a lot of these small businesses are seeing labor shortages, even supply chain issues, and so forth. I was just wondering if you can just talk a little bit about what you're hearing from your Interactive business customers, how this might play into your hands in terms of gaining subscribers, or are you starting to see that maybe some of these issues are starting to weigh on some of these businesses that you're targeting?

Yes. So, we see that more on the advertising side. So, I'll pivot to the subscription business, but I will note things like the chip shortage clearly are impacting the advertising segment of our business. Auto is down well over 30% from 2019 levels. That's definitely the largest in terms of dollars from 2021 to 2019. So, as chip shortages - the chip inventory comes back, your guess is probably as good as anybody - others, but most people assume in the back half of ‘22 and then returning to normal in ’23. We'll get that benefit of auto dollars coming back from an advertising standpoint. Same thing with entertainment, retail, food, and travel. Those categories, from an advertising standpoint, are still negative, not only double digits, but down probably 20% roughly from 2019 levels. But to your point, Townsquare Interactive, our digital marketing solution subscription business, continues to outperform. We added 1,000 net subscribers in Q3, as Stu noted, growing our revenues 16% year-over-year in the quarter. Now, literally 20% of our entire company's revenue is the subscription-based SaaS business, and nearly 25% of our entire company's EBITDA. We expect our full year Townsquare Interactive to be $82 million in revenue. And we expect to have the highest net adds ever in the company's history in Townsquare Interactive. So, to your point, there are definitely challenges for local businesses and regional businesses, but I think it's impacting more potentially their advertising spend, than it is something as germane and core to their business like digital marketing solutions from - everything from their website to reputation management, to search engine optimization. So, we're seeing a continued acceleration for Townsquare Interactive with no impediment with those macroeconomic conditions that you described.

That's great. And it looks like you're building a nice cash position again. Can you talk about capital allocation? Your cash flow looks strong, obviously. And are you thinking about maybe reinstating the dividend? Prospects for acquisitions? What areas would you target in terms of acquisitions?

Yes. So, to your point, really pleased with cash flow from operations, $38 million year-to-date. We continue to focus our cash on two things. One is delevering on a net basis, and then continue to invest in our digital platform, not only Townsquare Interactive, which I just touched on, but our digital advertising is actually growing even faster than Townsquare Interactive year-to-date and in Q3. We noted that in 2021, we expect our digital advertising to be over $111 million in revenue, and that would equate to over 20% growth. So, we continue to invest in our programmatic offering and our owned and operated offering for digital advertising. So, you're going to continue to see our prioritization of cash to be investing in our digital platforms. And quite honestly, we continue to invest in local on-air talent and local sales teams, because we have the benefit of this ecosystem of local broadcast really powering our digital and vice versa. So, we've hired roughly dozens and dozens, probably 40 new on-air talent in the company year-to-date. So, we continue to invest primarily in our people, in our technology, and our digital solutions. Stu, anything else you would add from a cash allocation or M&A standpoint?

No. you hit all the important points. And more importantly, we're also growing our cash balance. We’re going to end the year pretty close to $50 million, Mike. So, we're really happy with that.

That's terrific. Well, that's all I have. Congratulations again.

Thank you, Michael.

[Operator instructions]. Our next question is from Jim Goss with Barrington Research. Please proceed with your question.

All right, thank you. I do have a few. Maybe I'd start with, first one, I was curious, your revenues have been recovering post-COVID or as we moved through COVID. Are there any other expenses that you think we should expect would return as the business rebounds?

Yes. Stu, you want to start with that one?

Sure. So, hi, Jim. Thanks for the question, and thanks for joining us. As you recall, in the beginning of the year, we said during the beginning of COVID, we took about $20 million of operating costs out of the business. And we said early on that as business came back, a lot of those expenses would come back. And we said, I think two quarters ago and last quarter, that we felt that at least half of that, at least $10 million of operating expenses, would be permanent savings based upon the way we restructured. And we're confirming that now. We still feel good about that. So, we're going to have $10 million of operating expenses from last year reduced going forwards.

Okay. And those are up …

Yes. The only thing I would add, Jim, is like things like the 401(k) company match, which we had suspended, will be coming back in Q1 of 2022. So, that's like roughly$1.5 million or so. But otherwise, I'll turn it back to you, Jim, for follow-up questions.

No, just following of that. So, you're at that current expense run rate right now. So, there's nothing further to come back into the picture

Other than the 401(k) company match, which is not back until Q1. Stu, anything else?

Nope. We're where we at.

Okay, great. Another thing, you made a comment that your objective is still to be number one in all 67 local markets, and that you're getting close to that. Are you defining that as being bigger than say the TV operators as well in those markets? And sort of as a part of this too, you also mentioned online audiences were about five times your on-air audiences. What is the key conduit to getting that? And are they all counting in your ad revenues within those markets?

Yes. So, a couple of pieces, really good questions. Thank you, Jim. So, yes, we will become the number one local media company in each one of the 67 markets that we have radio operations. And to your point, that means we will be larger than any TV station that we compete with in those 67 markets, larger than any outdoor company, larger than any other media company. So, that is our goal. We are already that in a handful and continues to grow each quarter. That is our mission for the company. That is going to be driven by our digital solutions and products. Clearly, today in the United States, digital makes up roughly 50% of all local advertising spend. In 2025, the projections are in - that we'll be close to 80%. So, growing from 50% today, that literally in 38 months in 2025, will be 80%. So, to be the number one local media company, you need to be the number one digital company. And that is really what's propelled our strategic direction over the last 18 months to become a digital-first company. To your point about the audience, we couldn't be more pleased, couldn't be more proud of the team across the board from our sales to our leaders, to our online content contributors. So, each and every one of our DJs that we call the original social influencers, they produce and create amazing local content for their on-air shows each day. But importantly, they create online content for each and every one of our brands, websites, and mobile apps. So, as I noted on the call, we literally had record audience of 69 million people coming to our websites and mobile apps in the month of July. So, we're increasing, not only the size of our audience, which as you noted, is over five times our over-the-year AM-FM broadcasts, but importantly, the number of times they're coming back and their level of engagement, continues to increase. Therefore, the ad impressions continue to increase. Therefore, we're able to grow our digital advertising on our owned and operated sites quite materially because of that. And that's really what's driving - as I noted in 2021, we expect over $111 million in digital advertising, which would be 20% growth over last year. And last year, even a pandemic year, our digital advertising grew versus 2019. So, for full year, digital overall, as we noted, will be $193 million of revenue, which would include digital advertising and Townsquare Interactive. That will be approximately 20% year-over-year growth. And we expect that to grow to 250 million within 2024. So, Jim, no doubt, our mission is to be the number one local media company in each and, and every one of the markets that we operate in. And that would be larger than any TV station outdoor or any other competitor. So, I'll turn it back to you because I know you had a couple of other questions.

Okay. Yes. Just one follow-up to that. Does your success in that regard, encourage you to find some additional markets of sufficient size and quality to try to move into some additional markets, even with radio? I think you've been reluctant to do much of that in the past because of the digital growth, but are there additional markets that would work with you on your comprehensive strategy?

Yes, we believe so. I think there's two different paths for M&A for Townsquare. One is what you're describing, which is, we clearly have demonstrated by the acquisitions we've done to date, be it with Millennium, or Connoisseur, or Cumulus, that we can take a traditional broadcast company with 90 plus percent of their revenue being broadcast, and transform that operation into a digital-first local media company, and have almost half the revenue being digital and growing, not only double digits, but close to 20% this year in digital revenue. So, the opportunity to acquire more markets, they would all be outside the top 50. We're very disciplined in our strategic approach and what we're doing here. So, we wouldn't take - we wouldn't acquire any radio operator in the top 50 markets, but we continue to evaluate opportunities where we could run our strategic playbook of continuing to have strong broadcast assets. So, as I noted earlier, it's amazing that we reach one in two adults with our AM-FM broadcast on average in our 67 markets. So, if we can acquire other markets that have that type of unparalleled reach and emotional connection, and then build our digital business alongside that and on top of that, that is something we're interested in. It really comes down to the quality of the assets, meaning they need to be really strong in terms of market reach, local talent. We want to make sure they have great local on-air DJs. We don't want to take - we wouldn't be interested in acquiring stations that are syndicated or something like that. It really has to have a local connection. The other avenue for M&A outside of local broadcasters would be, and we are evaluating this on the regular, is digital operations, either as a bolt-on our SaaS business Townsquare Interactive, our subscription business, or a bolt-on to our digital programmatic offering. Those are things that we continue to evaluate with companies. So, I wouldn't limit it to one or the other. We continue to look at both, but we'll see what transpires over the next 24 months.

Okay. And one last one regarding the second headquarters in the Western US for TSI that you've discussed over the last several conference calls. Can you talk about the sequence and process of adding costs versus generating revenues? I think you're probably adding a little of both before you even make the formal move, but maybe how that might flow through the income statement.

Yep. Great. As noted, Townsquare Interactive, our subscription SaaS business, continues to really outperform with a net - 1,000 net subscribers we expect in Q3. We expect over 4,000, and therefore, will be a record year of net subscriber growth for the company. We expect $82 million in subscription revenue from Townsquare Interactive this year. I mean, I just think, looking at Slide 10 in our deck, more than doubling revenue from 2017 $40 million, to this year being roughly $82 million. We couldn't be more pleased with our operation, our management, our leadership, and our team at Townsquare Interactive, which as you know, is based in Charlotte. Roughly 650 people at this point. 58% of our subscribers are outside of our radio markets. Probably most importantly, the reason we're opening this second west coast operation, which we're planning in Q2 2022, is that total addressable market of $32 billion that - and we spent a lot of time in the last few calls. So, I didn't go through the details, but on Slide 11, with just under 9 million target SMBs, and yet we're at just under 26,000 today. We've already, Jim, to your question, hired literally, I think we're approaching about 35 to 40 people that we've hired on the west coast who are operating currently remotely. From a cost perspective, we look at it as, we will make back those costs that we have for the west coast within 12 months. So, it will not - given that we're going to end this year at $82 million, and then, as you know, Jim, we've added topline average $10 million every year. We added more this year, probably about $12 million, as you can see in the slide. We expect our margins to continue to be in the high 20% this year. We're at about 30%, even with the west coast operation. So, it will not materially impact our margin in 2022 with that west coast location opening up in Q2.

Okay. Thanks for taking all my questions.

Thank you for the questions, Jim. Be well.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Bill Wilson for closing comments.

Appreciate that, Operator. Thank you so much to each and every one of you who dialed in this morning. We couldn't be more proud of our results, and most importantly, our Townsquare team, who each and every day, deliver these amazing results with great passion for their audience, their communities, and their local businesses. Our flywheel continues to gain momentum, and I really look forward to reconnecting with you to update you, not only in our full year 2021 results, but obviously at that point, what we're experiencing in 2022. So, be well, have a great election day, and thanks again for dialing in.

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