Good morning, and welcome to Townsquare Media's Second Quarter 2024 Earnings Call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. [Operator Instructions]. With that, I would like to introduce the first speaker for today's call, Claire Yenicay, Executive Vice President. Please go ahead.

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 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 filed with the SEC. We may also discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted operating income by segment, 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 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. It's great to reconnect with everyone. We're very pleased to share with you that Townsquare's performance continues to improve and strengthen as expected and is sequentially progressing each quarter as I forecasted on our earnings call in May. On that call, you may remember that I projected that second quarter net revenue would be down negative 2% to negative 3% year-over-year, and net revenue came in directly at the middle point, down negative 2.5%, a sequential improvement from Q1 results. I also projected that Townsquare Interactive would return to quarterly net subscriber additions and also return to sequential quarterly revenue growth, which I am pleased to report was achieved. I also projected that Q2's digital advertising net revenue would perform similarly to Q1, and it did just that. The quote-unquote solid growth in programmatic digital advertising revenue that I expected came in at a strong plus 9% year-over-year, again, sequential improvement from Q1. This was offset by weakness in national digital advertising, which again was expected and forecasted. I also projected on our last earnings call that second quarter broadcast net revenue would be flat to down negative 1%. And I'm glad to report that broadcast advertising performed at the higher end, coming in flat to prior year, which again was a sequential improvement from Q1. In essence, we executed and delivered on what we said we would do. As a result of each segment performing as we expected, Townsquare's second quarter results met our previously issued guidance for both net revenue and adjusted EBITDA. It is also worth noting that we purchased just under $20 million of bonds at a discount year-to-date through July and that our bonds recently received an upgrade from S&P Global. We believe…

Thank you, Bill, and good morning, everyone. It's great to speak to you today. We are pleased to report that our second quarter results met our revenue and adjusted EBITDA guidance. Second quarter net revenue declined 2.5% year-over-year to $118.2 million, within our guidance range of $117.5 million to $119 million, which is a sequential improvement from the first quarter revenue declines. Despite the slow start to the year in Q1 due to a lackluster primary season, political spend has picked up, and we're now ahead of previous cycles. In Q2, political revenue was $1.5 million, 65% ahead of Q2 2020's $900,000. Through June, political revenue was $2.5 million, ahead of 2020's $2.2 million by 14%. We remain very optimistic in our full year political revenue estimate of $14 million to $16 million as compared to the all-time high $60 million we recorded in the 2020 political season. Industry specialists are predicting record political expenditures in 2024, benefiting Townsquare, especially in our Michigan, Montana, Arizona, New Jersey and New Hampshire markets where they expect close races for the governorship, House and/or Senate seats. Excluding political, second quarter net revenue declined 3.4%. Second quarter adjusted EBITDA declined 8.3% year-over-year to $26.2 million, also within our guidance range of $26 million to $27 million. Second quarter adjusted EBITDA declines also reflect a sequential improvement from first quarter declines. Second quarter broadcast advertising net revenue was approximately flat, which was a sequential improvement from first quarter declines. Second quarter broadcast profit improved 8.7% year-over-year as margins expanded on a year-over-year basis from 27% in Q2 2023 to 30% in Q2 2024 due to cost reductions we made in 2023. As we've outlined on previous calls, we anticipate that Townsquare Interactive, which is our Subscription Digital Marketing Solutions segment, net revenues and profit will…

Thank you, Stu, and thanks to each of you for taking time to be updated on Townsquare's Q2 results this morning. We greatly appreciate it. I want to close today's call by highlighting just a few of our successes in Q2 and year-to-date. Our differentiated digital advertising platform has delivered revenue growth in the face of extreme national advertising weakness, and based on current trends, we anticipate strengthening performance for the remainder of the year. Our mature cash cow broadcast advertising platform continues to generate a solid profit, and political has recovered from its lackluster start of the year. Townsquare Interactive has returned to consistent subscriber and month-over-month revenue growth, which we expect will continue to strengthen. We have sufficiently repurchased both debt and equity this year while maintaining a high-yielding dividend, delivering attractive current returns to our shareholders, and we retain financial flexibility moving forward. Most importantly, we are confident in our ability to build shareholder value for investors through long-term net revenue, profit and cash flow growth, net leverage reduction, future dividend payments and potential future share repurchases. As always, we wouldn't have the confidence in our long-term success without the Townsquare's team 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. With that, operator, at this time, please open the line for any and all questions.

[Operator Instructions] We'll take our first question from Michael Kupinski with NOBLE Capital Markets.

Congratulations on your performance. Just a couple of quick questions here. I know that you guys are very close to the advertising community. And I was just wondering, a number of radio companies have indicated that things have kind of deteriorated into the third quarter. And I was just wondering -- and you're not seeing that. And obviously, you're in smaller markets that may not feel some of the economic impact. I was just wondering if you can give us a sense of what you're hearing from your advertisers as you go into the third quarter as it relates to the economic environment.

Great to hear from you, Michael. Yes, I'll take your first question. In terms of the ad community and what we're hearing from our local and regional clients, they're feeling quite good. Obviously, there's a lot of uncertainty. But at the same time, I think the developments of last week with the jobs report on Friday, clearly the expectation of interest rate cuts happening and maybe happening in greater force in terms of more cuts or greater cuts between now and the end of the year going into next year gives them a tailwind. Obviously, interest rates have been high for quite some time for these small businesses and local businesses. And you've probably heard the good news is inflation has come down dramatically from a year ago and also wage pressures have come down as well. And what we're hearing from them is it's easier to find workers. A year ago when we were having this call, our smaller businesses were having a hard time keeping up with inflation and actually finding employees for retail and service industries and so forth. And what we're hearing now is although they'd like to see the interest rates come down sooner than later, they're doing quite well, which leads to our Q3 guide, which again is -- we're quite proud overall that we've improved in this environment, Q2 over Q1, in all aspects of our business. And then to your specific point about broadcast, our expectation for Q3 is to perform better in broadcast than Q2. And then when you think about the ad community in general and the ad environment, our digital advertising was similar to Q1, but that was really muted by national digital advertising, which I outlined on the call which was down over $1 million, and that put a damper on that. But our programmatic advertising, which is now 60% of our digital advertising, was up a plus 9% in Q2. And as I shared on the remarks earlier, we expect that to continue in Q3. So in essence, broadcast we expect to improve from an advertising in terms of Q3 over Q2. And the same thing, we're expecting roughly 4% digital advertising. Even with more muted national digital advertising, that's going to be down roughly 30%. So from a local and regional perspective, we're hearing quite positive environment from our advertisers. I think once the interest rates actually do come, hopefully in September, but whenever they do come, I think that's going to be a nice tailwind for us as we go into next year.

Got you. And then can you talk a little bit about your SaaS-based business service offering and just kind of give us a little bit more color there? I know that you typically has -- that Interactive has been about roughly $300 per subscriber, and now was just wondering how this offering affects that subscription. And then maybe if you could just talk a little bit about the margins on that product and how this impacts your overall trajectory for your Townsquare Interactive business.

Thank you, Michael. Yes, I couldn't be more excited, as is the team, with our SaaS-based new product solutions for our local businesses. Just to take a step back, as I said earlier, I couldn't be more proud of the team. We definitely took a step back in 2023. We were challenged. You could almost call it a knockdown. And we got up, we worked harder, we trained harder, and we are definitely a better company as a result of it. We did have 5 quarters of consecutive subscriber losses totaling over 7,350 subscribers. So it's great to be in growth mode again, growing subscribers. We grew 275 in Q2. We'll grow more in Q3. We're back to revenue growth consistently month-over-month, which translates to quarter-over-quarter. And as I shared, beyond my expectations, we actually had a jump up in profit in Q2 over Q1, which actually fueled our confidence to invest even more aggressively at this time, given the SaaS-based product that we have. So our profit will go down more to Q1 levels, but that's more a reflection of our confidence and investment than anything else. In terms of the SaaS-based product, as I said earlier, the good news is we're still doing everything we did prior. We're doing great web presence, websites, great search engine optimization. But we obviously speak to a lot of clients in our local markets as well as throughout the country that have a good web presence and are ranked well with Google, but they need help running their businesses more effectively and efficiently. And that's what this business management platform provides. It provides a very, very powerful CRM, a customer relationship management platform with e-mail and text-based marketing. It allows appointment scheduling so they can manage their customer base as well as…

Sounds exciting. Thanks Bill.

Have a great day, Michael.

Our next question comes from Jim Goss with Barrington Research.

I would like to continue the discussion here just now with TSI in terms of the recovery. Have you largely moved past the start-up issues you had in terms of getting the West Coast offices pretty much up to speed? And you also -- I was wondering if you could analyze the subscriber trends, including the nature of the clients lost versus the nature of the defining characteristics of the new subscriber additions you've been making.

You got it, Jim. Great to hear from you and good morning to you. Yes, couldn't be more pleased, as I was sharing with Michael, at the recovery. And really quite honestly, the rebuild. We revamped, as you will recall, Jim, our complete service offering in 2023, and then we kicked off this year with the SaaS-based business management platform. So it's really been a significant rebuild. And to your point, the West Coast is humming quite nicely. The whole premise of the West Coast was two phase. One was a great opportunity to attract more talent outside of Charlotte. And we picked Phoenix, which we couldn't be more pleased with being in Phoenix and the talent pool that we're attracting there, and we're able to add great team members to our team there. We're also able to deal with our West Coast and Central clients later in the day with the time zone change. So I'd say over the past year, where that business really started in March/April of 2023, we've really built up quite nicely and I'd say past that start-up phase, as you alluded to, and really humming. We still have a lot more growth. Our expectation, as you may recall when we opened the division was over the next decade to grow in presence like we have in Charlotte, which is over 400, almost 500 employees down there. And I think we're really focused now in terms of scale and efficiency. So your second question about subscriber trends. I think when we look at who we lost from Q1 2023 through Q1 of this year and now who we're gaining, I'd say some of the smaller clients who had less employees, less revenue based, they really struggled with these higher interest rates we saw throughout 2023…

Okay. And I was wondering, given your broad end market and out-of-market sales and approach, how do you provide white label options without cannibalizing your existing efforts, effectively competing with yourselves?

Great question. As we noted, about 58% of our Townsquare Interactive subscribers are out of our market, out of our 74 local markets where we have great presence in. What's quite exciting, and I don't want to overstate it but I think it's worth mentioning, the number of broadcasters, radio as well as television, who have approached us since the beginning of the year, recognizing the need for broadcasters, be it television or radio, to really diversify their revenue stream and find the growth engine and recognizing that over 70% of advertising spend is now digital. And I think they've recognized that we have really become best-in-class, particularly in these size markets, but in any size market. So we're starting a test in Q4. We believe not only us, but our partner who we -- obviously we're both under an NDA so I can't disclose it, but it's a multi-market radio company. It's a very well-run radio company with great broadcast characteristics and market share, but that does not have a Townsquare Interactive type solution. It doesn't have an Ignite type digital programmatic solution. And they're quite eager, starting with Ignite to move forward and also utilize our Townsquare Interactive. So primarily right now, it will be Ignite in 2024 going into Townsquare Interactive potentially in 2025. But to your point, we're not worried about cannibalization because there's so many target customers. There's over 9 million, and we're under 25,000. So we will get a list of clients from our white label partners who they are either pitching, in a pitch phase, in a CAN, client needs assessment. And there'll be information sharing so that our team either in Phoenix or Charlotte would not be calling on clients that our white label partners are already calling on. So that's one…

It did. If I might, one more. In the core radio business, even that's shifted, and a lot of -- your digital advertising exposure is greater in Ignite and the programmatic within your core broadcasting. And your broadcasting side has held up probably better than most, given the market size and the way you've approached it. I'm wondering, if you look forward 5 years or whatever, the defining characteristics for advertising, audiences, reach and TSL that you think might characterize any shifts in broadcasting.

Yes. Thank you for that, Jim. And I appreciate you acknowledging that our broadcast is really -- our company is differentiated, now becoming a digital-first local media company. But I hope our stakeholders externally have recognized over the last 5 years from 2019 to today that our broadcast business has held up much better than others. And I think that speaks to two things. I think that speaks to we are the only local media company in the United States focused on markets outside the top 50, be that television, radio and newspapers and so forth. We're literally the only company who has really understand and committed to that psychographic and demographic of smaller markets. And in those markets, as you know, Jim, but I'll share it for others on the call, is our broadcast business, just our AM/FM audience, first of all has been stable for many, many years. Has not declined in terms of size of audience. And that size of audience reaches 50%. On average, every week, we reach 50% of the adult population through one of our AM/FM signals in our 74 markets. That is highly differentiated against other radio companies in the top 50 markets. We're number 1 market share to be in the low 20s. So to walk into a client and say, we're going to reach 1 and 2 adult people in this community through radio broadcast is extremely powerful. You layer in the fact that one of the other reasons I think we've held up quite well is really two-fold. We don't talk about it a lot, but given our diversification and our growth in digital revenue, and with digital revenue being 50% of the company's total revenue and 51% of our profits now come from our digital solutions, if we didn't…

Thanks very much for a complete answer, as always.

Thank you, Jim. Appreciate the questions as always.

And this concludes our Q&A session. I will turn the call over to Bill Wilson for closing remarks.

Thank you, operator. And just thank you to everyone who dialed in this morning to be updated on Townsquare's sequential improvement in our outlook for the rest of the year and, importantly, for 2025 and beyond. We look forward to reconnecting with you in 3 months. Have a great day.

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.