Good morning, and welcome to Townsquare Media's third-quarter 2023 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.

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 filed with the SEC. We may also discuss certain non-GAAP financial measures, including adjusted EBITDA 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. It's great to reconnect with everyone today. We're very pleased to share with you that our third-quarter results met our previously issued revenue and profit guidance despite the challenging macro environment. After July's promising start to the third quarter, as you are aware, the US advertising industry experienced a slowdown. According to Standard Media Index's US Ad Tracker, the US ad market rose plus 6.3% in July. However, in August, that growth slowed to plus 1.2% and in September was up only plus 0.1%. In essence, flat in September. Our performance through the first nine months of this year has helped to demonstrate the efficacy of our digital-first local media strategy and validated our focus on local markets outside of the top 50 US cities. Of particular note is how our business model allowed for industry-leading digital advertising revenue and profit growth for the first nine months of the year, while also generating consistent meaningful cash flow. Townsquare's digital platform sets us apart from others and local media. As highlighted on slide 11, 52% of our total revenue was digital revenue in the first nine months of 2023, more than two times the industry average. Even more impressive is that 57% of our total profit was digital profit in the same period, which represents a healthy 30% profit margin. As anticipated, third-quarter revenue for Townsquare Interactive, our subscription digital marketing solutions offering outlined on slide 13, declined negative 13% year over year. As I previously shared with you, 2023 is a reset year at Townsquare Interactive. Townsquare Interactive's target clients, generally the smallest of the SMBs with less than 20 employees and less than $5 million in annual revenue, continue to struggle with inflationary and wage pressures, labor…

Thank you, Bill, and good morning, everyone. It's great to speak to you today. We are pleased to report that our third-quarter results met our revenue and profit guidance, supported by the continued growth in our digital advertising revenues. We're also very pleased that we continue to effectively deploy capital in the third quarter by repurchasing shares and debt in the open market and announcing our next dividend payments. Third-quarter net revenue declined 4.6% year over year to $115.1 million, which was within our guidance range of $115 million to $117 million. Excluding political, third-quarter net revenue declined 3.8%. Third-quarter adjusted EBITDA declined 12.1% year over year to $27.2 million, which was within our guidance range of $27 million to $28 million. Third-quarter broadcast advertising net revenue decreased in line with expectations with the decline of 8.6% year over year and 7.2% excluding political. Third-quarter broadcast profit margins sequentially improved to 31% as compared to 27% in the second quarter. As Bill shared, 2023 is a reset year for -- and we expect topline and bottom-line growth to return in 2024. In the third quarter, net revenue decreased 12.6% as compared to the prior year, and profit decreased 10.6% year over year. Margins were strong at approximately 28% in the third quarter and in line with the third-quarter 2022 margin. As we have shared previously, we expect margins at Townsquare Interactive to be suppressed in the second half of 2023 as we continue to invest for future growth, given our confidence in our long-term growth prospects and while we ramp the newly opened Phoenix location. Townsquare Ignite, our digital advertising segment, was again a growth driver for the company with net revenue increasing 5.5% year over year in the third quarter and digital advertising profit increasing 6.3% year over year.…

Thank you, Stu, and thank you to everyone who joined us this morning. We greatly appreciate it. I want to close today's call by highlighting what our business model has delivered this year, despite a challenging backdrop of rising interest rates and inflation and extreme and persistent national advertising weakness. I am proud that despite these challenges, our differentiated digital advertising platform delivered double-digit revenue and profit growth through the first nine months of 2023. Our mature cash cow broadcast advertising platform has and continues to generate a solid profit contributing to our strong cash generation. Our net leverage remains below prior year levels and we have efficiently repurchased both debt and equity this year while maintaining a high yielding dividend, delivering attractive current returns to our shareholders. Our performance this year has reinforced our confidence in our digital-first local media strategy and our deliberate focus on markets outside the top 50 cities in the United States and the long-term profitable growth potential of our digital platforms. And again, thanks to each of you for taking the time to be updated on Townsquare's Q3 results this morning. We greatly appreciate it. Operator, at this time, please open the line for any and all questions.

[Operator Instructions]. Our first question is from Michael Kupinski with NOBLE Capital Markets.

Thank you and good morning. I'm sorry for this if there's any background noise. A couple of questions. Can you talk about the tone of the market for your Interactive services in Q4? I was just wondering, are you still discounting at this point?

Hey, good morning, Michael. Great to hear from you. I think the tone of the market in Q4 for Townsquare Interactive, our digital marketing solutions business, is very consistent with Q3. As we shared on the call as well as previous calls, 2023 is definitely a reset year for Townsquare Interactive. We've made a tremendous amount of improvements, I think, to our processes and procedures as well as added some incremental tools that we believe and are confident will return us to growth in 2024. But as it relates to Q4, I don't see any difference. Quite honestly, from an overall company perspective, when you look at the guidance that Stu provided, Q4 net revenue down, ex-political negative 5% to negative 6%; Q3 was negative 4%. So we expect pretty much the same type of results in Q4 as an overall tone in marketplace as we experienced in Q3.

And are you still discounting in Interactive at this point because I know that you were earlier in the year?

We are -- we've really cut that back dramatically. So to your point, particularly in 2020, 2021, when these businesses under different scenarios were suffering, we did discount. And part of the logic there was to bridge them to success. They were also receiving PPE money from the government multiple times throughout that two-year period. Right now, the environment is much different. I think we touched on it on the last call. Our interest rates overall in Q3 were actually higher than Q2. So I think the risk of a recession from the experts has come down. But in terms of the operating environment for these small businesses, as you know, Michael, we target businesses for Townsquare Interactive with less than 20 employees, less than $5 million in revenue. So they are the smallest of the small SMBs. We also mentioned that we didn't know what the impact of the student loan payback coming back online after being suspended for so long. And we have definitely heard that, particularly in the last five to six weeks from our client base, some of the people who are coming -- calling us with concerns as it relates to their cash flow. So going back to your original question, definitely discounting less now because the businesses that are suffering are quite honestly going out of business. So it's not like giving them a discount is going to bridge the gap for them. Given the inflationary pressures, the wage pressures, the higher interest rates, the impact on capital, their business are really suffering. That's why we're seeing an elevation in churn, historically. I think as I mentioned on the prepared remarks, thankfully, I believe Q2 hit the peak of our churn. We're seeing it start to recede in Q3. We cut our subscriber loss, which was 3,000 in Q2 to 1,650 in Q3, which I expect will be roughly the same in Q4, going back to your point about tone in the market. But discounting has really been suspended. We do some one-offs where we believe it's the right thing. But I think you'll see our average price point creep up over the next several quarters as a result of that.

And just one more question and I'll get back in the queue. In terms of Phoenix, can you just kind of give us where you are in terms of the business on the West Coast that you were anticipating, are you -- or is that prospect still seem in line with what you were expecting? Just to add a little color on what's going on in Phoenix.

Yeah, no, really pleased with Phoenix. I think last time we talked about that we were approaching 25 to 30 employees. We're now over 30 employees. We're onboarding new salespeople out there. That talent pool was one of the major reasons that we opened the second location -- was we felt the ability to recruit and hire while we continue to do that in Charlotte, but to add the Phoenix location would be beneficial. So it's still a small team, call it, roughly 30 -- low-30s. But in terms of why we open the market, our prospects for the market all are proving out to be very beneficial. And we think that is one of the reasons that the business will return to growth later in 2024 and really set us up for not only 2024 but '25, '26, and '27. So very pleased with Phoenix, Michael.

Great. I'll get back in queue. Thank you.

And thank you, Michael.

Our next question is from Jim Goss with Barrington Research.

I might kick on a couple of things along the lines Mike was asking. One with regard to Phoenix, is it providing an offset right now to some of the issues that the TSA is facing? Or are there start-up costs to cause it to delay the beneficial impact?

Hey, Jim, good to hear from you this morning. As it relates to financials, as we've already shared, it takes a new salesperson around the year or 12 months to actually breakeven. So given the ramp of hiring and we're primarily right now been hiring salespeople out there, there are some incremental other people on the service side, but primarily it is sales focus. It is not really -- it's actually suppressing our profit margins and we said that would happen when we announced the rollout of Phoenix at the beginning of the year. I expect that probably to roll off sometime in the back half of next year because we did some hiring in the first half. We did a good bunch of hiring in Q3. So I think we'll be hitting that 12-month breakeven point. And you'll see the benefit in the back half of 2024 for that. As in general, sales velocity is suppressed in Townsquare Interactive because of the environment that I just talked Michael through, including student loans coming back and higher interest rates and all of those things. So that's kind of where Phoenix sits. And as I shared with Michael, just really pleased with the team there and the prospects as we go forward.

And when you're talking about a return to growth in '24, I know it's not going to flip the switch, but what sort of things you think need to happen aside from a couple of items you've just mentioned that -- to create that better environment and to relaunch the new business establishment or the sort of things that are going to drive creation of the market you can reach out to at TSA?

Yeah, no, great question, Jim. And I expect us to return to growth from a subscriber basis, from revenue and profit basis in the back half of 2024. I'm not sure if that's Q3 or Q4, but that's my general timeframe in my perspective right now. As you know, Jim, with the subscription business, a lot of what transpires over the next six months is predicated on what's happened over the last three to six months. So I think the timeframe is Q3, Q4. I think there's a number of things that we've done internally that I've outlined on this call as well as previous calls. We've also increased some product features in terms of like we're now offering a CRM. We're now offering things like invoicing for our clients. Email marketing is enhanced. So we continue to make product improvements. Most importantly, I think our service model is being improved and continues to be improved. We're building certain tools, some of those are helping us leveraging AI to be smarter. When people are calling in, we have more information at our fingertips to handle their needs. Things like that. So my hope is that, obviously, we're not in a recession next year and that interest rates start to come down in the back half of next year, but at a minimum, don't continue to increase at the pace they did so far this year. I think outside of one other time in the last 50 years, interest rates raised the most in the last 12 month period than any other period. And good news I think is inflation looks like it's starting to come down, and if that continues and that is correct, I think that has a dramatic impact on these smaller businesses that have been so hurt in this environment. I'll turn it back to you, Jim.

Okay. Just a couple of other things. One is that political is a small but important and meaningful category for you. But I'm wondering if you think the center there are more options, especially in alone digital lines. If that potentially eats away at some of the political revenues where you see -- having you generate and which has been enough to tilt the balance a little bit in your revenue line, especially in the third and fourth quarters?

You're exactly right. Great question. And we're obviously very much looking forward to next year in political. Again, I think we shared in 2020, the last presidential election, it was an all-time high in terms of political revenue. There was obviously a lot of competition from digital and other things out there for any media like there is every day, but it's at an all-time high. So I think in particular, obviously, TV benefited tremendously. But when you look at radio's reach and we don't talk a lot about this on these calls because for us we treat radio as a mature cash cow business. But we love radio, and it is the number one reach medium in the United States, reaching 93% of Americans on a weekly basis. When I tell people more people listen to AM/FM radio today than 10 years ago and 20 years ago, they can't believe it. So I think as it relates to the regional impact for political candidates, they know -- and political issues. So I expect if not matching the $16 million, our expectation is $14 million to $16 million our political next year, and that's coming off of this year being under $3 million. So going back to your main point, Jim, next year, I think, is a great opportunity for us in terms of political revenue. The Townsquare rebuild coming back on and growing in the back half of the year. And obviously, our digital advertising has and continues to be differentiated in driving and propelling our growth for the last several years.

Okay. One last one. Just sort of a general thought. The FCC now has the chair and the full complement. Is there anything on the docket that might have any impact for Townsquare?

Yeah. Look, A, I'm very glad that's transpired. As you know, there was also a ruling recently where they had -- they have to do a quadrennial review, which they didn't do. So in general, I think people on this call know from prior times, I believe, we should be deregulating and the fact that we are caps in general to four FMs and two AMs in our size markets when we're facing competition that uncapped, be it a Spotify or be it others in the zone, I just don't think is appropriate and fair. So my expectation is -- I don't know when, but I think it's a when question, not an if question. When the FCC starts to recognize the media landscape has tremendously changed in the last 20 years. I mean, it's changing dramatically every few years. So to keep the same archaic rules that were in place 20 years ago, I personally believe does not make sense, and I'm glad the FCC has now had a full firm. And I expect as they review this over time, things will benefit Townsquare like deregulation. I don't know when that will happen, but I believe it will happen, Jim.

All right. Well, thank you very much for taking my questions.

Our next question is from Michael Kupinski with NOBLE Capital Markets.

Thank you. Just a couple of quick ones. I mean you mentioned connected TV as one of the key categories in Ignite. And I was just wondering if you can just talk a little bit about what's driving that performance and then also, is it just more Fast Channel is more connect -- connected TVs are just that we're seeing more support, more volume? And then also how much is connected TV related advertising as a percent of total Ignite advertising?

Thank you, Michael. Yeah, we're tremendously excited. For the first time, really in our company's history, we're able to compete head-to-head with television. We couldn't do that even five, six years ago. And today, getting to your second part of your question, seems like it's the fastest growing part of our programmatic offering. Obviously, we're competing with great local television providers in our markets who have owned and operated and as well as programmatic. And we see a great advantage because we're not favoring anything. We're focused on the audience and the results, and we don't need to look at, okay, how do we -- how are we managing our own cable inventory or TV spot? Because we don't have it. So I think it's been very beneficial for us. A big part of Ignite, but in particular, micro connected TV and now creating commercial spots, television spots for our clients, we've really beefed up our creative service offering because obviously, historically, we didn't need to create television spots. And now we do. We're starting to use artificial intelligence in that creation as well and advertising that we do. But for us, the connected TV and producing these TV spots is somewhat new. I think as you noted, for us, Ignite is still differentiated. We've got this full funnel from reach with radio all the way now down to activation. And the fact that we can marry this programmatic side of our -- Ignite, our digital advertising with a huge large-scale owned and operated websites and mobile apps that give us incredibly valuable first-party data, which gives us audio insights and allows us to audience target, I think, more effectively than anybody in our size markets really is the reason I think that our digital advertising not only in Q3 year to date, but for the last several years has outperformed the industry. And that's why when you look at digital overall being 52% of our revenue, which is two times the average in the industry and 57% of our profits, we're tremendously excited. And I think connected TV will continue to grow and grow. You see more and more ad supported. You've seen Netflix. You see -- I don't -- you may have heard that Amazon Prime is talking about introducing advertising into their video platform. So particularly in our size markets, as more and more people cord cut and more and more streaming inventory opens up, I cannot emphasize what a tremendous tailwind and opportunity for us at Townsquare with connected TV. But that said, we're having tremendous success with social and other targeting vehicles, including just standard display. So we're excited by connected TV. It is the fastest-growing part of programmatic currently. It is for us as well, but tremendously excited about our digital advertising business overall, Michael. So I'll turn it back to you.

Yeah. Just one last question. On the broadcast side, I know that national is a small component, but you mentioned that national has been down and it's been affecting you. And I was just wondering, some broadcasters have indicated that national advertising seems to be improving, especially as they look into 2024. Just wondering if you can kind of give us a tone of what you're seeing in terms of national in the fourth quarter. And then are you seeing pacing for national improve as you go into the first quarter?

Great question, Michael. Again, I appreciate you being with us this morning. So just as a recap for everyone on the call, as Michael is asking about national -- Q1 national broadcast advertising was down 28%. Q2 moderated to 21%. Moderated in general, that's obviously down quite a bit. Q3 was still down negative 19%. It actually got a little bit worse in the quarter. Part of that is on the ad tracking that we shared where the US ad tracking was plus 6% in July, plus 1% in August, and flat in September. So we saw the quarter. We saw that activity throughout the quarter. To your question, Michael, about Q4, we definitely see national getting better. We see national getting better. We see local getting better. Probably, most importantly, we mentioned our customer appreciation sale, which the team did a tremendous job on.10% more orders that I mentioned in the prepared remarks. As it relates to Q1 pacing -- we don't spend a lot of time usually talking about our pacing because we'd rather talk about the results versus what we expect to come because it can change quite a bit. So I'm a little hesitant to share this, but since you asked. I will tell you that at this point last year for Q1, as it relates specifically to broadcast, we've got about 2% more business booked for Q1 specifically for broadcast than this time last year. And when you look at the broadcast decline we've experienced in Q3, that's a material change. So hopefully, that holds. But in our view, that is a very, very, very positive sign for Q1. We're seeing also an uptick in Q1 on the digital advertising side too. And you probably heard from others that you alluded to that it could be pacing better for, I think, initially a large broadcast as well as digital advertising. And we're seeing the same thin. For Q4, as I shared earlier, we gave the guide, which I think is net revenue pretty much in line with where we ended Q3 ex-political. So maybe a point or two below that, but in general, in line. But obviously, excited for 2024 for all the reasons we just talked about, improved pacing, and broadcast, digital advertising comes back here in the back half of the year for TSI, and what I just mentioned was broadcast having more on books for Q1 at this point than last year, which is if that holds, that's a very positive development. So, Michael, hopefully that gives you some color for 2024 as we enter the holidays here.

Yes. Thanks, Bill. That was perfect. That's all I have. Thank you.

And at this time, there are no further questions. I'd like to turn the call back over to Bill for closing remarks.

Thank you, operator. I appreciate your help this morning. I just want to give a shout out to the Townsquare team. The results we talk about, the differentiation, the transformation, the culture is all the result of their hard work, their passion, and commitment, not only for Townsquare, but quite honestly, their communities and their clients and their audiences. So I can't thank them enough. And I appreciate everybody dialing this morning. We obviously look forward to updating you on our yearend results in 2024, but we're also excited to share how Q1 is shaping up when we report in the beginning of March. So wishing everybody a great Thanksgiving and thank you again for dialing in this morning. Take care.

This concludes today's conference call. Thank you for attending.