Good morning, and welcome to Townsquare's Second Quarter 2022 Conference Call. As a reminder, today's call is being recorded, and your participation implies consent to do such recording. [Operator Instructions] With that, I would like to introduce the first speaker for today's call, Claire Yenicay, Executive Vice President. Thank you. You may begin your presentation at this time.

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 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 related 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 filed with the SEC. You 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 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.

Thank you, Claire. Thank you all for joining us. My goal on this morning's call, in addition to sharing our record-setting Q2 results and strong outlook is to clearly distinguish Townsquare from others in the local media and radio broadcasting industries. Because quite simply, Townsquare is very different today and most importantly, moving forward from the rest. As our country could currently be in a recession based on the first half of the year GDP data released last week, or if one believes our country may potentially enter a recession over the coming months or quarters, it is important to remember that Townsquare is a digital-first local media company focused exclusively on markets outside of the top 50. Approximately 50% of our revenue comes from digital solutions, which historically performed better during a downturn than Broadcast Advertising, and approximately 40% of that digital revenue is nonadvertising-based digital subscription revenue, which Townsquare grew even during the worst of COVID. Another key differentiator, not only are we focused on markets outside of the top 50, but we selectively pick markets with stabilizing institutions such as State Capital's 4-year universities and Army bases, which have lower unemployment rates compared to national averages and economies less susceptible to recession shocks. Additionally, because we are not in large markets, the majority, over 90% of our advertising revenue is local advertising, which historically has been less volatile than national advertising, particularly economic downturn. Overall, we believe that we are very well positioned to perform during a downturn or recession, no matter the duration and severity, a belief, which is supported by our 2020 performance during the worst of COVID. We are encouraged by our strong record-setting second quarter results and the increased guidance that we will be issuing today for Q3 and for the full year.…

Thank you, Bill, and good morning, everyone. I hope everyone has been enjoying this summer so far. We started this year with strong first quarter financial results and had strength accelerated in our second quarter, with growth across all of our segments. Second quarter net revenue increased strongly, growing 13.6% over the prior year period to $121.9 million, above our guidance range of $117 million to $120 million. At $121.9 million of revenue, this is the highest quarterly revenue we have ever achieved. In the June year-to-date period, net revenue increased 13.3% year-over-year. As Bill mentioned, we closed the Cherry Creek Radio station acquisition on June 17,. So our second quarter and year-to-date results include less than 2 weeks of contribution from the acquired assets, which is an immaterial amount. Political revenue picked up some steam in the second quarter, coming in at $1.5 million ahead of Q2 2018's $1.3 million. Through the first half of the year, we have generated $1.9 million of political revenue or 94% of 2018's political spend through the first half of that year. As we all know, the majority of political spending occurs in the fourth quarter, and we still believe that political revenue for 2022 has the potential to exceed 2018's political revenue of $10 million. Second quarter adjusted EBITDA increased 6.8% year-over-year to $32.4 million. That's within our guidance range of $32 million to $33 million. And just like revenue, $32.4 million of EBITDA is the highest quarterly EBITDA Townsquare has ever achieved. In the first 6 months of the year, adjusted EBITDA increased 8% year-over-year. Excluding the impact of political revenue, adjusted EBITDA increased 4.8% in the second quarter and 6.9% in the year-to-date period. Our subscription Digital Marketing Solutions segment again delivered another consistently strong quarter of net revenue, profit…

Thank you, Stu, and thank you to everyone who joined us this morning. We greatly appreciate it. I am proud to share our strong performance in Q2 and the first half of the year, and I am incredibly optimistic about our long-term future. Our digital platform contributing 50% of our revenue and profit today continues to distinguish our company with its steady profitable growth and subscription characteristics. With at least $275 million digital revenue expected by 2024, we expect our consistently strong digitally fueled growth to continue. Due to our competitive strengths, our strong cash generation and with net leverage down to 4.65x today and declining towards 4x by the year-end, we believe Townsquare is very well positioned to face any negative headwinds that may or may not arrive; and if they do, we will come out the other end even stronger just like we did through the COVID recession. As always, I'm extremely proud of our and our hard work, which is clearly the driving force behind our strong financial performance. As we say internally, how high is high. Thanks again to all, and please do not hesitate to reach out if you have any more questions about Townsquare. Operator, at this time, please open the line for any and all questions.

[Operator Instructions] Our first question comes from the line of Michael Kupinski with Noble Capital Markets.

Congratulations on your strong quarter. I was just wondering if you can talk a little bit about what you might be hearing from your advertisers, particularly on the broadcast side and maybe on the digital side as well, just in terms of what are their concerns? What are you seeing in terms of -- just what are you hearing so close to your advertising community.

Thank you, Michael. It's Bill. Good morning. Good to hear from you. I think as we noted on the script to date, we haven't seen any meaningful impact or advertising pullback. And June was actually stronger than May. Obviously, consumer spending continues to be strong. Manufacturing data released yesterday, continues to be strong. So in our view, much uncertainty almost when the war broke out earlier in the year, late Q1 -- and then all the talk about inflation and high gas prices, we saw more hesitancy from our advertisers in terms of just discussions because it was a little bit more unknown and I think potentially a little murkier at that point. And then we saw June actually accelerate and every month in the quarter get better. So right now, we're feeling quite good. Obviously, local broadcast is pacing up nicely for Q3 and Q4. For the rest of the year, we -- our digital advertising, which was up 25% in Q2. We continue to see strength in Q3 as well. And obviously, our revenue guide of 8% to 14% growth demonstrates that in our revenue guide for the year being up 11% to 15%. So there's definitely education and discussion with advertisers like there always is. But with the consumer spending being as strong as it is, our advertising business as well as our overall business for the Q3 and the back half of the year is looking quite nice. And I think that's probably a testament to our continued and consistent strength in digital. One of the things we noted on the call as well is even in the last recession, digital advertising grew 15%. So obviously, we've been treating our broadcast business for a few years now as a mature cash cow business. As we noted on our end of '21 year update, we pretty much returned to broadcast levels of 2019 outside of auto, national and some supply chain impacted categories like furniture stores and appliance stores. So I think as we go forward, our comps and broadcast are quite different than maybe others in the industry who have yet to return to those 2019 levels. And obviously, with 50% of our profits being digital and 50% of our revenue being digital. Even if a downturn were to occur, that segment has grown, and we're quite differentiated and well positioned to continue to grow in a downturn digitally, even if the one was to occur, and I think we've proven that throughout 2020 and into 2021. So from an advertiser standpoint, we are hearing less concerned today than earlier. But again, we're prepared for anything. We're not in rose-colored glasses at, feeling quite good as we sit here a month into Q3.

And Bill, how many of your -- just going back to your -- the comments about the cookies, how many of your advertisers use first-party data for your programmatic business versus what you would use for third-party data?

So almost all of our owned and operated and programmatic in some way, leverage our own first-party data across the board. That doesn't mean we won't also append third-party data programmatically because we will. But it is a clear differentiator for us. It allows us much greater insights into target customer for them. And that's really tied to the fact that I think we hadn't noted on today's call, but as you know, Michael, we reached 70%, 7 0 percent of the adult population through our digital platform in the markets that we operate in. So I think it's safe to say, we know more about the audiences that we're operating in and the communities and really anyone else be it TV or newspaper. So we bring that differentiation and competitive edge to our customer base. Not only that, but given we have our own data management platform that we're collecting first-party data for customers coming to our mobile apps and websites, we actually allow that capability for advertisers. So we will put tracking code on an advertiser site to allow them to collect first-party data that we manage for them. So I think it continues to demonstrate and hopefully, our Q2 digital advertising being up 25% demonstrate we are clearly differentiated in digital advertising in the markets outside the top 50, and we continue to see continued strength there. And we're quite confident over time, more and more people will recognize that diversification and differentiation of Townsquare.

And final question. As you say, you're differentiated from a lot of your radio peers, how much of your broadcast revenue comes from national?

So our overall national revenue is roughly 7% of our total revenue. So it is a small part. National, as I'm sure everybody is aware, did slow down in Q2. We actually started the year with National in Q1 delivered increases in Q1. In Q2, we were down in national broadcast advertising and the back half of the year is pacing down on national advertising as well. But as I noted in response to your first question, our local broadcast is pacing up for Q3 and Q4. And given it's such a small part of our company, in general, it has a slight impact, but not a material impact.

Yes. It's well below that of the industry averages. And congratulations on your quarter.

Thank you, Mike. I think the other point outside of our digital differentiation is we are the only local media company principally focused on markets outside the not just radio company, but if you think about newspapers, television, outdoor, Townsquare is the only company truly focused on markets outside the top 50. So I think that's -- that's one of the reasons in 2020, 2021, and as I think we sit here today, you're going to see quite different results and strategy moving forward for us than maybe others in local media.

Our next question comes from the line of Jim Goss with Barrington Research.

I've got a couple also. First, you made a point that you're one of the largest producers of local content in the absence of the same type of presence for newspapers these days. Are there any other monetization opportunities you are sensing might exist in this area, where you can take advantage of that local content? Or is it just embellishing the existing radio business as it stands?

So we -- our Digital Advertising on our own that operated is quite strong. It's in line with our programmatic. So if we grew digital advertising 25% in Q2, our owned and operated monetization of that audience as well as our programmatic was roughly equal in Q2. So that's definitely a big driver as we continue to grow, not only audience but importantly, with a 70% penetration of adults in these markets that, as I've shared historically on this call. It really are news deserts. I mean it's kind of scary as an American that some of these markets are so underserved from a we do it as almost a north star for us in community mission to serve that. So we do quite well in monetizing that. I think a piece of your question is, are there other ways you think you can monetize that moving forward more aggressively than maybe we are today, that is -- it's a very astute question because we're looking more and more into newsletters for these local markets and monetization of newsletters as well as affiliate fees where we're offering other products that aren't advertising based, but provide an affiliate fee where we don't take inventory risk. So given our large outscale digital audience and new communities, there are future opportunities to monetize them in addition to our strength in digital advertising today.

Okay. One other -- one of your slides, you had a -- you had like SiriusXM and Spotify and with Big Red slash through it, saying that they don't have the same presence in your markets, yet I suspect there is significant usage of any of those types of service in your existing markets. I'm just wondering if you might distinguish between their usage and the ad competition.

Yes. No, great question. And just for those who are listening, Jim is referring to Slide 8 of our investor deck. And we really talk about a more attractive competitive landscape in these markets outside the top 50 that is one of the contributing sites to our differentiated results. So there is actually data showing that SiriusXM is used in markets outside the top 50 less than in the market -- in the top 50. But I think the broader point here for all research and our perspective is things like Spotify and Pandora or YouTube or Apple Music, that, in essence, replaces what historically was records, CDs, whatever your age demographic is and what you affiliate with. And then there is definitely a use But I think the key key point, Jim, is there was no local sales force in our markets of our size for XM or Spotify or Apple or Pandora. So a, we have such strength in listenership in terms of -- even our AMF, I talked about the 70% penetration with our digital platforms and our markets. But just looking at our AM/FM broadcast, in our markets, 50% on average, 5 0 of the adult population listens to one of our AM/FM stations on a weekly basis. So to be able to walk into a local advertiser, which, as you know, from a broadcast perspective, is 90-plus percent of our business is -- and say by advertising on one of our radio stations or our collection of our radio stations, you're going to reach 1 in 2 adults who live here, that is incredibly powerful. And obviously, we have one of the largest local sales teams in each of the markets we operate in and usually larger than newspapers, larger than outdoor, larger than television stations, where SiriusXM, Spotify and so forth, do not have really any salespeople in our market. So the combination of our market share of listenership and audience penetration with the strength of our amazing sales teams in our local markets where people like XM don't have any local salespeople is a clear differentiator for us. So hopefully, that speaks to your question.

Yes. And a couple of others, Cherry Creek acquisition. I wonder if you could talk about a little bit more about it as sort of a template for other radio acquisitions. And I wonder if you can outline the expected time frame for the transformation of that business to take advantage of the other opportunities become more of your growth priorities?

Yes. No, I think it's great. We couldn't be more excited with the acquisition. I think I shared on the last call, I visited each of the market spend time with the teams and just incredibly impressed with the talent of our teams that we acquired in terms of the people, the strength of the brands, they are quintessential Townsquare brands and team members. What they lacked and that's one of the driving forces of the acquisition was strength of internal digital solutions and digital platforms to extend their audience and obviously, to do things like Townsquare Interactive and our Townsquare Ignite products. They also had just like Townsquare, as I noted earlier, I think Michael's question, they had strength in broadcast, where last year they were back to 2019 levels, if not above 2019 levels in broadcast, which, again, I think speaks to the fact that radio broadcasting and markets outside the top 50 is quite a different business than markets in the type 50. So they have great strength in broadcasting, but they lack those tools and platforms for digital. So that is the template. So what you'll see, and this is what we did when we acquired a few dozen markets from Cumulus and we've got a few markets from For the first 12 months we will actually invest quite a bit of dollars into these acquisitions. And that will be primarily the majority digital investments, new personnel, not only on the sales side, but on the content side. And then I think to your point, when will we see the transformation, which we've seen already in Townsquare, when will you see that with the Cherry Creek assets. I would say that's in a period of anywhere as early as 18 months to 36 months, 1.5 years to 3 years, you'll see quite an acceleration of their digital business with stability in their broadcast business, which is the template that in essence we've been running with Townsquare for the last few years. So couldn't be more excited. And as you also noted, I think we've telegraphed this on prior calls. I think we are the natural acquirer of radio stations outside the top 50. So I think as you look out into the future, we look forward to more opportunities if they fit that Cherry Creek strength and model because we couldn't be more excited about that acquisition right now.

Okay. I think I'll let that and congratulations.

I appreciate it, Jim. Good to hear from you.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Bill Wilson for closing remarks.

Thank you, Laura, and thank you, everybody, for dialing in this morning. I appreciate you dialing in to listen to our record-setting results and our guidance for the full year. If you have any follow-up questions, please do not state to reach out. We are always available to you. Have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, the rest of your day.