Good morning. Welcome to Townsquare's second Quarter 2019 Conference 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. Ma'am, you may proceed.

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 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 those projections. These statements reflect the company's belief based on current conditions but are subject to certain risks and uncertainties that are detailed in the company's annual report on Form 10-K filed with the SEC, and we incorporate these by reference for this call. We may also discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted operating income and make certain pro forma adjustments. Such non-GAAP financial measures should be used in conjunction with all the information contained in the quarterly and year-end reports available on our website. At this time, I would like turn the call over to Bill Wilson.

Thank you, Claire. Good morning, everyone, and thank you for joining us. We start by sharing with you guys in the second quarter Townsquare's net revenue increased a very strong plus 8.3% ex political over the prior year and plus 7.4% including political. Our strong revenue growth is being driven by the consistent strength of our advertising and Townsquare Interactive segments. Just as impressive, our second quarter adjusted EBITDA increased plus 19% over the prior year, representing an all-time record high for Townsquare in a nonpolitical year. It is worth noting that our net revenue and adjusted EBITDA Q2 results exceeded our previously issued Q2 guidance. Also worth noting, we ended the second quarter with 4.9x net leverage, which is our lowest net leverage ever as we continue to make reducing our net debt a priority. Townsquare's strong Q2 and first half of the year results, we believe, demonstrate that our local-first strategy combined with our talented team's execution is accelerating our transformation from being a leading traditional radio broadcaster to being a premier local media and entertainment company, proudly focused on markets outside the top 50 cities in the United States. As I have shared previously, we are very confident that our marketing and advertising solutions are differentiated from our competition in our markets and are very effective and powerful to help local clients achieve their goals, and as a result, enable us to aspire to be not only the #1 radio broadcaster but also the #1 local media company in the markets we choose to operate in. I am proud of our talented Townsquare team and the focus and passion at which they are executing our Local First strategy. As a result, 2019 is turning out to be a transformative year for Townsquare, as we continue to outperform…

Thank you, Bill, and good morning, everyone. As a reminder, over the past two years, we have completed several divestitures and discontinued certain portions of our Live Events business as we reoriented the business to our local media platform. The results of these Live Events businesses have been reclassified to discontinued operations for the current and historical periods and these results can be found in our quarterly filings on Form 10-Q. Although, the financial results that we will discuss today are related to continuing operations. Unless otherwise stated, the second quarter and year-to-date results I'll discuss today are pro forma for the acquisition of 3 radio stations in Princeton, New Jersey on July 2, 2018, as if they occurred at the beginning of the reporting and comparison periods. Please refer to the tables included in our earnings release which provide GAAP results and pro forma results as well as our non-GAAP performance measures. For the quarter ended June 30, 2019, net revenue increased 5.3% to $113.1 million as compared to the second quarter of 2018. As Bill noted earlier, this exceeded our previously issued guidance range of $109.5 million to $111.5 million. Excluding political revenue, which declined approximately $800,000 as compared to the prior year, total net revenue increased 6.2%. For the six months ended June 30, 2019, net revenue increased 5% and 5.7% excluding political revenue compared to the first 6 months of the prior year. Townsquare Interactive net revenue increased 30.8% in the second quarter and direct operating expenses increased 24.2%, translating to an adjusted operating income increase of 46.8% compared to the second quarter of the prior year. Townsquare Interactive second quarter operating margins expanded to 32.8% as compared to 29.2% in the prior year. Advertising net revenue increased 3.6% in the second quarter as compared to…

Thanks, Stu, and thank you to everyone who dialed in this morning. We are very pleased with our performance through the first half of the year and our ability to raise guidance for the full year. We look forward to continuing to deliver strong results for the back half of the year, and we are on track to deliver the strongest year-over-year adjusted EBITDA growth in a nonpolitical year in our company's history. We hope that you agree that Townsquare is not a traditional radio broadcaster that has evolved to be a premier local media and digital marketing solutions company with a thriving digital business that has net revenue growth in excess of 20%. We are hyper-focused on super-serving our local communities and our local clients and helping their businesses grow through our Local First strategy while simultaneously driving results for our stakeholders. As always, please do not hesitate to call us to discuss the business further or ask any questions. I look forward to speaking with our investors at every opportunity. And with that, we're now happy to open the call for questions. Operator, will you please open the lines?

[Operator Instructions] Our first question is from the line of Michael Kupinski with NOBLE Capital.

Congratulations on a great quarter guys. First of all, I wanted to just ask, I know that you're adding a number of sales people in and forth in Ignite. Can you just tell me what the level of FPEs for the total company is at this point? And where that was, like, maybe a year or maybe even for the first quarter? I just wanted to see how quickly you're adding employees at this point?

Well, thank you, Michael, it's Bill. I think when you're asking aby FPEs, you're asking specifically about sales personnel, is that correct?

That's right.

So from a local AE perspective, it's relatively flat year-over-year. So it's -- and as you know Michael, the local AEs are the primary driver of our Ignite revenue and growth in bringing that to market. So that's really a apples-to-apples comparison year-over-year. From a TSI perspective, we've added sellers, and they are primarily driving our a TSI sales. And that is roughly, I would say, 12 people -- 12 to 15 people in terms of sales from a TSI perspective that have increased year-over-year.

And then on Townsquare Interactive up a very strong 30%. It looks like you indicated that the revenue -- run rate is like $62 million or so. It looks like the revenue cadence will achieve $100 million in revenue much earlier than -- well, let's put it this way, on the earlier side of your 3 to 5-year target? First, we'd have to [slow] the low double-digit to be at the long end of your guidance range. I was just wondering is there any reason to be a little concerned that we would see that type of deceleration of revenue growth at this point? And maybe you're just being a little conservative in terms of achieving your target?

Thanks, Michael. Yes, I think as you know our confidence in that product and that's why we spent the time on this call to outline not only the differentiation that we have having everything in-house but also importantly the run rate that we have with 5 million to 6 million SMBs that fit this profile and a couple hundred in our local markets when there's 7,500. So there's tremendous amount of runway that's really what's driving close to 2,000 net ads year-to-date. We're being conservative in that 3 to 5 years, I think, we had originally said, $100 million in 3 to 5 years on our Q3 call last year. So I think our next call we'll update that projection. But we are on target and I think it's fair to say it's probably on the earlier side of our projection initially then on the later, as you indicated here.

And then a number of radio companies indicated that the prospect of lifting ownership caps may have split into next year. Can you give us your thoughts on the prospect of lifting radio shift -- radio ownership caps? And then possibly give us an update on the current M&A environment from small-market radio stations?

Yes. So in terms of when we expect D Reg and the announcement on that, what we're hearing is end of first quarter next year was the most right time frame, it's right now open for review. As you know Michael and others and we've spoken about it for quite some time, we are very prolifting the caps, we've outlined why that is particularly in our sized markets where there is a lot less coverage of news and entertainment from print journalism and television journalism, we really feel like we're serving these local companies, particularly as others, are less so these days. So we think D Reg will open up choice for these markets and brought a lot more coverage. In terms of the M&A activity, I'll ask Claire to touch on that.

Sure. So I think there hasn't been a material change in M&A activity in the small mid-sized markets that we look to operate in. I think we believe now a lot of the owners of radio stations in those markets are waiting to see what happens to the D Reg before they look to put their properties on the market.

Our next question is coming from the line of Jim Goss of Barrington Research.

Townsquare has, the start, wanted to differentiate itself from radio group operators with the added growth that was primarily Live Events. And I'm, sort of, thinking that pressure to make that happen probably created the error or misstep with the name. But now with the growth there with TSI and Ignite, you seem to have a better-differentiated strategy. And I'm wondering if it gives you an opportunity to reshape where Live Events might fit in? And how big it might be? Or if it'll just be an ancillary-type business as it's developed into at the moment?

Thanks, Jim, it's Bill. I would probably reclassify what you stated because having joined the company when it was founded in 2010, it was always focused on a great broadcast business and then adding the Live Events and digital growth. So digital's always been a key competent of our growth strategy. I think with spheres, what you alluded to that our Live Events, we expanded outside our local market footprint with NAME and some other assets that we built or acquired through the years. And going back a couple of years now, as I have mentioned we're really focused back on our local markets and that's our Local First strategy. And Live Events are still a very important in those markets. As I noted on the call, we have about 200 annually recurring local events in our local communities. They're differentiated, they're providing great entertainment value. It's a nice business for us and, you call it, midteens profit margin currently. Part of what you're seeing in 2019 is we're fine-tuning that portfolio to make sure we're focused on events that mean a lot to the community and also are great business for us. So in some ways, we've retired some events also in our local markets that may have had a higher revenue, but little to no profit. And that's why you're seeing, in this quarter, our Live Events revenue decrease roughly 14%, but at the same time our profit you noted increased quite nicely in Live Events this quarter. So Live Events will continue to grow, I think, in the future. This year is really a year of rebalancing it, and then we expect to modestly grow that in 2020. And I think we are the best provider of that in our local markets. But what you won't see is us expanding outside our local market footprint in Live Events anytime soon.

Couple of other smaller things I think. I'm wondering with -- I think we've talked in the past about the competition you might have with Townsquare Interactive. I'm wondering if you feel the combination of Gannett to New Media, that was announced yesterday will somehow impact that competitive landscape. I know you don't overlap that much but you do both focus on smaller markets with that sort of activity.

We don't overlap that much. And given what we've seen this year-to-date with almost 2,000 net adds in one of our best quarters ever with 1,100 net adds and growing our revenue over 30% and our profit margin over 40%, we couldn't be more bullish on a TSI. And again, that's out of the extra time to -- sometimes when we're talking to investors, they don't understand how much runway we actually have in this business with today a little over 17,000 subscribers and in our view the core SMB, call it, annual revenue less than $5 million in markets of population less than 1 million. We have about $6 million that we target. So we have a huge runway. So Gannett, New Media, others, clearly they see what we see. We have the benefit of performing quite well, and I really believe we have a differentiated offering there, not only from our sales force but the products that we have. So we welcome all new competitors but currently, we really are differentiated in the marketplace and really building that business quite nicely as you said earlier in your other question with TSI and Ignite really being the core driver of our growth this year and in the future.

In your discussion with Mike, you were just talking about the tremendous runway. The $100 million for each of Ignite and interactive is just a convenience starting point to shape some further growth from there, I'm sure.

Exactly. Well said, Jim.

The political lift, you mentioned I think $3.5 million for your political. I was wondering if you start to get some early primary political ads in the fourth quarter, especially in an environment like the one we expect to be on top of mind for 2020.

Correct. And that's currently in our $3.5 million forecast that we would be getting some of that early primary. And we see a very healthy political environment now and really excited as we go into 2020. I don't think we have any other calls. I just want to thank everybody for dialing in this morning. We're incredibly probably proud of our results, I'm incredibly proud of our Townsquare team across the country. And we're quite confident in our outlook for the future. Please reach out with any questions or any feedback you have at any time, and thank you again for dialing in this morning.

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