Good morning. And welcome to Townsquare Media’s First Quarter 2023 Conference Call. As a reminder, today’s call is being recorded and your participation implies consent to do such recording. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] With that, I would like to introduce to you the first speaker for today’s call, Claire Yenicay, Executive Vice President.

Thank you, operator. And good morning to everyone. Thank you for joining us today for Townsquare’s first 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, but 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. 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 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. And thank you all for joining us this morning. We are pleased to share our first quarter results with you today. Although we face the same headwinds that have impacted the entire media sector, our first quarter results demonstrate the strength of our Digital Advertising platform and solutions and validate our Digital First Local Media strategy with a focus exclusively on local markets outside of the top 50. Townsquare’s, first quarter net revenue and adjusted EBITDA exceeded the guidance we provided on our last call, due to growth in local revenue, revenue that we control, and in particular the strength of our Digital Advertising solutions. In the first quarter, we had anticipated that total net revenue would be flat to up plus 2% year-over-year, and it finished above guidance at plus 3%. We had expected that first quarter adjusted EBITDA would decline negative 16% to negative 21% year-over-year, and the actual result was also better at negative 12% year-over-year, approximately $1 million over the high end of our guidance. It is worth noting that while many media companies have not yet returned to 2019 levels, both our revenue and our profit results are above our pre-COVID 2019 performance. In 2022, approximately 50% of our company’s total net revenue and 50% of our total adjusted operating income were derived from our digital solutions. In the first quarter of 2023, our digital revenue grew plus 8% year-over-year, and as a result, our digital revenue in Q1 2023 grew to be 54% of our total net revenue. Total digital profit also increased plus 8% year-over-year with a profit margin of 28%. And its first quarter contribution grew to be 63% of our total adjusted operating income. This point bears repeating, 54% of our revenue and 63% of our profit came…

Thank you, Bill, and good morning everyone. It's great to speak to you this morning. We're pleased to report that we exceeded our net revenue and adjusted EBITDA guidance due to strong growth in local advertising revenue, and in particular digital advertising revenue. First quarter net revenue increased 2.9% over the prior year period to $103.1 million, which was above our guidance of $100 million to $102 million. First quarter adjusted EBITDA declined 11.9% year-over-year to $19.4 million above our guidance of $17.5 million to $18.5 million. Of note, both net revenue and adjusted EBITDA remain above pre-COVID 2019 levels, an accomplishment which has not been achieved by many of our local media peers. First quarter Broadcast Advertising net revenue decreased in line with our expectations with a decline of 4.8% year-over-year. Broadcast profit margins dipped to approximately 19% in the first quarter, in part due to revenue declines and in part due to seasonality. Our first quarter Broadcast profit margins are typically the lowest for the year. As we expected and noted on our last call national broadcast revenue declines were significant in the first quarter with revenue down approximately 30% year-over-year and continue to be meaningfully down in the second quarter pacing down approximately 20%. Local broadcast has proven to be much more resilient as has historically been the case, and thus first quarter local broadcast growth was able to partially offset the national broadcast declines. We expect a similar outcome in the second quarter with total broadcast revenue currently projected to be down in the mid-single digits again. Townsquare Interactive are Subscription Digital Marketing Solutions segment had a challenging quarter, which we expect will be the case for the remainder of 2023 as Bill discussed earlier. In the first quarter, net revenue decreased 1.3% as compared to…

Thank you, Stu, and thank you to everyone who joined us this morning. We greatly appreciate it. In closing, I want to reiterate that although we are navigating a number of macroeconomic headwinds in 2023 we are confident in our digital first local media strategy, our focus on markets outside of the Top 50 in the United States, and the long-term profitable growth potential of our digital platform. In fact, if we were to achieve the midpoint of our profit guidance, our full year profit would be the second best in the company's history with last year being its best ever. In addition, our strong cash generation will allow us to continue to reward shareholders via our dividend. As always, we wouldn't have the confidence in our long-term success without the Townsquare team's effort, passion and commitment that is directly driving our growth and innovation each day. I could not be more appreciative of our team and their tremendous work. And again, thanks to each of you for taking the time to be updated on our Q1 results. Operator, at this time please open the line for any and all questions.

Thank you. [Operator Instructions] Your first question comes from the line of Michael Kupinski from Noble Capital Markets. Please go ahead.

Thank you for taking the questions. First of all, congratulations on your industry leading performance. So regarding Townsquare Interactive I was wondering if you can, Bill, in the last quarter you indicated that you gave up some rate in that segment. I was wondering if there was a way to quantify the revenue impact from that. And then also in terms of the Townsquare Interactive revenue mix; how much of the revenue mix is actually coming from in-market versus your out of market opportunities? And then is there any difference in terms of client retention in-market versus your out of market?

Well, good morning Michael, and thank you for the accolades in terms of the quarter. We're feeling quite confident going into the rest of the year, even with the macro conditions, and growing plus three is a little bit below our standards, but still Q1 was the highest revenue ever for the company, so we're proud of that. In terms of your questions, a couple in there. So as you noted we shared on our last call that this would really be a, I'd call it almost a reset year for Townsquare Interactive, given the macro environment and the fact that we target clients less than $5 million in revenue. And we've been very transparent about that in our investor deck for about three years now. And obviously those clients are facing significant challenges with high inflation, higher wages, obviously higher interest and all of those things. I actually saw yesterday the National Federation of Independent Businesses, the NFIB said that in April the optimism for small businesses was the lowest ever – were the lowest since January 2013. So obviously the lowest in the last decade. So I share that just in that the conditions for the, I call them, almost micro small, really small businesses is challenging. So as you just asked and noted on our Q1 – on our end of year call in March about eight weeks ago, we shared that we were giving discounts to customers who were struggling. So that impacted the revenue slightly. I'd put that almost marginally. I would characterize it as that. I'd say the revenue declined overall as it relates – it was only 1%, but as we guided for Q2 negative 7 is more in line with we're seeing more of these businesses just struggling given the macro conditions…

Just two more. A number of companies have indicated that they're already seeing presidential political coming in. I was wondering if you can just give us your thoughts about whether or not you're seeing that and if that's being booked and how political shaping up maybe for the second half? And then the last question I have is regarding the cash position, obviously you retain a very healthy cash position and you are generating a lot of free cash flow. Is there a level of cash that you feel that you need to retain liquidity and due to the economic uncertainty or do you think that now would be time to be more aggressive in maybe buying back bonds given that they're trading below par?

Yes. Thank you Michael. Appreciate the questions as always. So presidential political dollars for us, we have not seen an uptick yet. I obviously am following what's happening in local media, particularly on the TV side there you're seeing some political early dollars. We have not yet seen that. Our expectation for the full year is anywhere from $2.25 million to $3 million of political. So it's pretty modest. All indications for next year are quite strong. So we're quite optimistic for 2024 in terms of the political revenue going in there. In terms of the cash position, as you noted we couldn't be more pleased with our strong free cash flow and we generated $9 million of cash flow from operations in Q1, as Stu said $42 million of cash on hand after purchasing $12 million of bonds, and we had our interest payment of $19 million, and lowest net leverage ever at 4.29 and actually lowest total leverage at 4.57. So in terms of your question, in terms of what we're comfortable with given the macro conditions now, I would say anywhere between $20 million to $25 million we're comfortable operating the business at. So we have a lot of flexibility to your point. Even after paying such a high yielding dividend to also continue to buy back bonds if we so choose to as well as that's probably our – after internal investment and continuing to support the dividend would be our next priority in terms of cash allocation. The other thing I would just note because Stu mentioned our broadcast profit margins tick down in Q1 because we continue to believe strongly in our broadcast business with particularly in markets outside the Top 50, just the companionship and local connection. But I did want to share that – that 19% profit margin, we expect that to return to pretty normal levels in Q2 onward. I would say high-20% margin. So again, it just talks about the high leverage that we have in terms of cash flow operations and continuing to be opportunistic in the bond market as you noted, Michael. So I think that was your last question. If so, thank you for that.

Thank you.

If you have any others, happy to take them.

Nope, that's it. Thank you.

Have a great day.

Thank you. Your next question comes from the line of Jim Goss from Barrington Research. Please go ahead.

Thank you and good morning. I would complement you on the slide deck that is always there, but it does frame where you've been and where you're headed in a context of a tougher environment to get through. So I think it's always worth looking at. But I do want to ask a little more about TSI and you made some comments about the employee turnover due to the return to work order? And I was wondering if you'd talk about whether you'd likely pick some of those employees back if they decided they weren't being subsidized by the government? Or if you're bringing in new people what the training time is and the getting up to speed time is to get the staff where you need it to be?

Appreciate it, Jim. Always good to hear from you. Appreciate the feedback on the slide deck and the investor presentation. We spend time on it and to your point, particularly when you started as a legacy broadcast business with the mission of diversifying your business, we really wanted to talk about where we started and what we are today, which is a digital first local media company and importantly, really the only company not just in broadcast TV or radio but in local media principally focused outside the Top 50. And I think the combination of being digitally minded from day one in 2010 when the company was formed to then being incredibly disciplined and staying to our knitting and being outside the Top 50 markets. We've talked about on prior earnings call the hedgehog concept of doing something you are passionate about, but probably just as importantly or more importantly, is doing something you are completely differentiated and that can make you a lot of money. And that's what we feel like we're doing at Townsquare. We're completely differentiated in these markets outside the top 50 with these incredibly strong solutions to help local businesses grow. So, pivoting to your Townsquare Interactive question, which I appreciate, you are correct. I think one of the things we try to do on these calls as well as our follow-ups is to be incredibly transparent. And we shared the last time that given our return to mandate work order it really had the – the only impact that it had from a company-wide perspective was really at Townsquare Interactive. I think that's because in Charlotte it's our largest office with over 600 employees there. And again, the other thing I would share, Jim, I think I shared this on the last call,…

Okay. Well one about radio. You drew a distinction between larger markets, smaller markets, of course. Within the group you do operate within. Is there a lot of difference between the really smaller markets versus the mid-size markets? And does that guide any M&A consideration?

Yes, smaller markets – what we find is really just markets outside the 50 top cities in the U.S. clearly are different. As it relates to our portfolio, there is really no difference. We do have some markets that for us are large meaning market size 50 to a 100, be it Buffalo or El Paso or Grand Rapids and those type of markets. But they are behaving, quite honestly, like markets like Tyler, Texas or Missoula, Montana. As we shared our national advertising has been brutal, I mean down 30% in Q1. What I would share is sports betting was a big part of that. Sports betting was down $2 million in Q1 alone. We are very pleased that our local broadcast was positive for the quarter. And those trends continue for Q2. So our national advertising, I think, as Stu said, is trending down over 20% in Q2 and local continues to trend up. I think the most important thing I would say as relates to size of markets is and we've talked about this before on this call, is just the news deserts. It continues literally month by month the number of newspapers shutting down in our size markets. We're truly filling the void. The fact that we have eight times the audience on our websites versus our over the air, I think, speaks to the fact that we are a digital first company, but also importantly, we're serving a community need, providing trustworthy and important information to communities. And that's a big part of what's driving: a) our broadcast results, because I think, our broadcast results are performing quite well from an industry perspective. Obviously national is only 5% of our total broadcast advertising revenue. So, although it hurts, as I said on the call, it doesn't hurt nearly as much as if you are in double digits national or if you are in 20%, 25%, 30% of your business being national advertising. We recognize we want to control what we control and we are very fortunate that that's local. And that local broadcast advertising continues to perform well. But pivoting back to your original question, we don't see a lot of difference between a market like Grand Rapids, Michigan; and Kalamazoo, Michigan or Battle Creek, they're performing consistently across that. So market size for us really is not a big variance or an indicator of anything.

Okay. One last one. You draw the distinction that you generate with Ignite and your data and management capabilities within those markets. Is there a business you can have relationship with smaller competitors outside of your markets that where you might share some of the things that make differentiate you in the markets which you do operate and possibly even have a sort of a rent with option to buy sort of model with some of those areas?

Great question, Jim. It's something actually we've evaluated, we actually tested at one point. Our Digital Advertising has been for many years now and will continue to be for many years if not decades is performing incredibly well. We actually made some adjustments in terms of personnel and organizational structure at the end of 2022, in the beginning of 2023 that has just compounded the positivity of this business, growing revenue 15% in Q1. But as Stu noted, we grew our profit 23%. Our trailing 12-month profit, there is $45 million and 30% margin, which now Digital Advertising is the largest component of our operating income at 41%. So as you think about digital being 63% of all of our operating income and Digital Advertising being 41%, it is quite differentiated. So to your point about renting it, there is a couple things. The short answer is we've evaluated and although it's an opportunity, we will continue to evaluate. We're not going to go there now. One of the reasons is the benefit of our first party data, the fact that we've got 84 million unique visitors, we've got these trusted local influencers even though we're monetizing inventory across the internet, we're using these insights from our own first party data to help create campaigns that are successful outside of our footprint. I don't want to get into the artificial intelligence discussion now because it's probably too early and we don't have enough time. But as I shared, I think, on the last call, we're starting to deploy certain pieces of artificial intelligence that although extremely early days are having outsized positive impact much more quickly than we recognize. And I bring that up because one example of that is using AI to evaluate all of our campaigns for advertisers.…

No, that'll do it for now. And thanks a lot.

Thank you, Jim. Appreciate it.

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Bill Wilson for any closing remarks.

Thank you very much, operator. And thank you to each and every one who dialled in today. As hopefully you can tell we're quite confident not only for the rest of this year reaffirming our guidance, but probably most importantly, some of the things that we've done over the past six months we think are going to have outsized impact as we look to – 2024, and 2025 and onward. And as we noted earlier, I think, our Digital First strategy combined with focus on outside the top 50 markets, and as you heard throughout this Q&A, our investment in our team, and our leadership and coaching, we couldn't be more confident moving forward. So thank you for joining us this morning. We look forward to regrouping in three months from now. Everybody have a great day.

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.