Good morning and welcome to Townsquare Media's Fourth Quarter 2023 Conference Call. As a reminder, today's call is being recorded and your participation implies consent to such recording. At this time, all participants are in a listen-only mode. A brief question-and-answer will follow the formal presentation. [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 fourth quarter and year-end 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, 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. In addition, we also issued our annual shareholder letter today, also available on our website, which we encourage you all to read. 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 everybody today. We're very pleased to share with you that Townsquare's fourth quarter results met or exceeded our previously issued guidance and that our full year results met the guidance that we issued at the start of 2023. Although 2023 was a challenging year, I am proud of how the Townsquare team navigated the progressively challenging economic landscape. Macroeconomic headwinds were fierce. As rising interest rates, inflation and wage pressures weighed on consumer mindsets, and advertising budgets, causing an advertising recession. However, despite these challenges, we outperformed competitors and gained market share, primarily due to our local focus and our digital platform. We carefully manage the business as our cash flow from operations increased plus $18 million year-over-year or plus 35% to $68 million, and we initiated a high-yielding dividend due to our strong cash flow generation. I believe that our performance over the past several years has demonstrated the efficacy of our digital-first local media strategy validating our focus on local markets outside of the top 50 US cities and reinvigorating my confidence in our business model and our path forward. In fact, our confidence in our current capitalization, the strength of our balance sheet, our free cash flow generation and our business strategy has led us and the board to increase our dividend by plus 5.3% year-over-year, which we just announced this morning. In 2023, net revenue, excluding political, decreased just under 1% year-over-year and just under 2% in total to $454.2 million, the second highest revenue amount in Townsquare's history. Adjusted EBITDA, excluding political, decreased 9.1% year-over-year and negative 12.1% in total to $100 million. Impressively and worth noting, Townsquare is one of the only media companies that issued and…

Thank you, Bill, and good morning, everyone. It's great to speak to you all today. We're pleased to report that our fourth quarter results met our revenue and profit guidance and more importantly, that our full year results met the guidance that we set out at the beginning of this year, something that not many others managed to achieve given the difficult operating environment. Fourth quarter net revenue declined 4.6% year-over-year to $114.8 million, which exceeded our guidance range of $110.6 million to $112.6 million. Excluding political, fourth quarter net revenue declined 2.7%. Full year net revenue declined 0.9% year-over-year, excluding political, and 1.9% year-over-year in total to $454.2 million, which was within our guidance set at the beginning of the year. In addition, this was our second highest revenue year in the company's history with these assets and was achieved in a nonpolitical year. Fourth quarter adjusted EBITDA declined 6.5% year-over-year, excluding political and 12.7% in total to $24.8 million, also within our guidance range of $24.8 million to $25.8 million. Full year adjusted EBITDA declined 9.1% versus prior year, excluding political, and 12.1% year-over-year in total to $100 million, also within our guidance range. Fourth quarter broadcast advertising net revenue decreased 2.5% and increased 1.3%, excluding political revenue, which was a sequential improvement from third quarter declines. For the year, broadcast advertising net revenue declined in line with expectations at 3.6%, excluding political and 5.4% in total. Fourth quarter broadcast profit margins contracted slightly on a year-over-year basis when excluding political from 26% in Q4 of 2022 to 25% in Q4 of 2023. As we've outlined on previous calls, 2023 was a reset year for Townsquare Interactive, our subscription Digital Marketing Solutions segment. In the fourth quarter, net revenue decreased 14.5% as compared to the prior year and…

Thank you, Stu, and thank you to everyone who joined us this morning. We greatly appreciate it. In closing, I want to highlight a few key takeaways. Number one, 2023 net revenue and adjusted EBITDA both met the guidance that we initiated at the start of last year. And importantly, net revenue represented the second highest that Townsquare has ever achieved with these assets. Number two, net revenue remains above 2019 levels and adjusted EBITDA is at 98% of 2019 levels, a rare achievement in our industry. Number three, approximately 51% of our company's total net revenue and 55% of our total adjusted operating income now come from our digital solutions. Number four, we're very well positioned for our upcoming refinancing with net leverage at 4.4 times. Number five, we generated $68 million of operating cash flow in 2023. And finally, number six, given our confidence in the long-term growth and success of Townsquare, we are raising our high-yielding dividend that will continue to deliver current cash returns for our shareholders. I am very proud of what our business model delivered in the face of rising interest rates and inflation and extreme and persistent national advertising weakness in 2023. Our differentiated digital advertising platform delivered high single-digit revenue and profit growth. And our mature cash cow broadcast advertising platform has and continues to generate a solid profit contributing to our strong cash generation. Our performance this year has reinforced our confidence in our digital-first local media strategy, our deliberate focus on markets outside the top 50 cities in the United States and the long-term profitable growth potential of our digital platform. And our success is owed to the Townsquare team focusing on what we do best, creating high-quality local original content for our audiences online and on air as well as delivering creative and cost-effective marketing and advertising solutions for our local clients with strong return on investment. If we continue to do this each day, we will achieve success and ultimately achieve our mission of becoming the number one local media company in the markets outside the top 50 in the United States and consequently drive long-term sustainable shareholder value. And again, thanks to each of you for taking the time to be updated on Townsquare's Q4 results this morning. We greatly appreciate it. Operator, at this time, please open the line for any and all questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Michael Kupinski with Noble Capital Markets. Please go ahead.

Thank you. Good morning and thanks for taking my questions. First on Townsquare Interactive. As you mentioned last year, we saw businesses really struggle. What are you seeing now that kind of gives you the tone of optimism that you have with Townsquare Interactive? And then maybe if you can provide some color on how Phoenix is performing? Is most of your optimism being driven by Phoenix and what you're seeing west of the Mississippi or is it fairly broad-based? I was just wondering if you could just kind of give us some color there?

Sure. Good morning, Michael, and thank you for the question and joining us. Yes, we have tremendous optimism as we go through 2024 for Townsquare Interactive. It is definitely not limited to Phoenix, although we're very pleased with how Phoenix has been scaling and the management there and the hiring of talent, which was one of the main drivers of opening the office there. I'm very glad we did last year. But our optimism is really multiple fold. One is business is still, obviously, as you know, are dealing with high interest rates. We're at the highest interest rates in the last couple of decades, but everybody is expecting that to come down, but these businesses are still dealing with that today, but you're seeing some wage pressure decrease. You're seeing inflation starting to come down even though prices are up from a year ago, it's at a lower rate than where we were at a year ago. So that is definitely a positive tailwind, I call that minor right now. I think that picks up steam and more tailwind for us, particularly as interest rates come down. If that's June or if that's later in the summer, I think it's a question of when versus if. And I think that will actually give us more momentum than we've baked into our guidance because that's an unknown. What we're really excited about in terms of the optimism and the confidence for Townsquare Interactive is quite honestly, our own performance in terms of taking a step back, attacking ourselves and I believe building a better client service organization as a result. As I mentioned, last year, we lost over 6,500 subscribers, 6,650 to be exact, and we hit the highest level of churn in Q2, and that's decreased modestly but consistently…

Thank you. One quick one, Bill. Thanks for that color by the way. Obviously, now Google is kind of implementing the deprecation of cookies and I was just wondering if you can kind of give us some visibility on what you're seeing in terms of any impact, anything that you're seeing from whether it be the programmatic side or other parts of your businesses related to that?

Yes. Thank you, Mike. I appreciate it. So one of the benefits for us is we're at-scale publisher. So we have a great large audience. We talked about the audience growth year-over-year on our network of local sites and national sites and mobile apps. And I couldn't be more proud of all of our content contributors on air and online driving that success. Quite honestly, if cookies go away and as they go away, it's a real advantage to be a publisher because we're still capturing first-party data. We currently utilize third-party data as well, but not a lot of people are at-scale publishers. So it impacts positively our O&O business, our owned and operated local and national websites. And it also helps us with our programmatic business. Obviously, we're quite proud of digital advertising growing 7% last year, increasing $10 million on a full year basis. Overall, programmatic was up low double-digits in 2023, which was really strong and our O&O local was up. We did definitely take a step back in our national O&O business. We haven't spoken a lot about this on previous calls, but we have leading brands in entertainment and music like XXL and HipHop and tasteofcountry.com and country and I won't name all 10 of them, but they are the leading platforms for each of their genre. That business has definitely been impacted, not from cookies because that hasn't happened yet. But there's been some significant change in algorithms for Google as well as Facebook referrals. You may have heard how many referrals to new sites has come down from social platforms. It's been pretty dramatic. And that's definitely impacted our national business, which what I would say is has muted our digital advertising growth. If it wasn't for that, we would have grown more than 7% last year. And as we look at Q1, we're seeing similar trends in Q4 in our digital advertising business. We're seeing sequential improvement from Q4 to Q1. National business that I just described, like XXL and tasteofcountry, still down over 25%, which is over $1 million in Q1. But thankfully, local websites and local owned and operated is up low to mid-single digits, and our programmatic continues to be up high single-digits, which is great. And Q2 today, having the benefit of being here March 15 with you, we obviously have a good look at Q2 right now and Q2 is pacing stronger than Q1 in digital advertising. And I believe I've noted this on the call also is pacing better for broadcast advertising Q2 over Q1. So a lot of positives for us. I see Q2 better than Q1 in digital advertising. I see Q2 better than Q1 in broadcast advertising. And as I just described, I believe Q2 will be a monumental turnaround event for us in terms of subscriber growth and revenue growth in Townsquare Interactive. So a lot of positives as we go into 2024.

Great. Thanks, Bill. I appreciate that. That's all I have.

Thank you, Michael. Have a great day.

[Operator Instructions] Your next question comes from Jim Goss with Barrington Research. Please go ahead.

Hey, thank you, and good morning. Stu, I'd like to ask you on first. I know you alluded to this, the fact that the calculation for the noncash charges had quite a bit to do with the rising interest rate trends we've been experiencing. If the rates tend to start to draw back after this long period of increases, do you think that will change the calculation? And I understand they are noncash, but there might be a little bit of a distraction and maybe you get rid of that element of noise?

Thanks, Jim. Yes. Well, obviously, if interest rates start falling back like we all hopefully expect them to, that will be less of a drain on the calculation. The other important factor that calculated into it this year was BIA's industry forecast came down for broadcast for '24. It really unfairly attaches itself to our company because it's mainly based upon large NFL city markets. Broadcast does a lot better in small local markets than it does in the bigger markets. So we think that those two things together, the rising interest rates and the industry forecast coming down for bigger cities majority, unfairly hurt us in that calculation. But yes, you are correct, assuming that broadcast forecasts hold steady or go up and interest rates come down, we shouldn't see as much of an FCC impairment on those licenses. But it really, I mean, I can't stress enough that these are noncash charges. They don't affect future revenues, future expenses, future cash flow generation. It really is just an academic GAAP calculation of how we allocated purchase price when we bought these markets in 2010 through 2012. It has no effect whatsoever on our business. And people should adjust those out and look at our adjusted earnings per share. They should not just look at flat bottom line earnings per share.

I think people probably do, but it is certain noise in the background. Is there any element to those write-downs that might make it more possible for you to buy some additional broadcast properties if you thought that might be worth it at any lower rates? Or is that going to be a completely separate issue?

I don't think impairment charges in anybody's company really has anything to do with how we would value a business. We look at markets and see what their current state of cash flow is, how much infrastructure they still have left, what we think we can add to those markets by rolling out our digital playbook. So looking at noncash charges for impairments really doesn't factor into our equation and we're looking at M&A.

All right. Thanks. And Bill, talking about TSI and the issues you've had with the staffing shortages for some time. It seems like you're dealing with a group of potential employees or existing employees who require a certain level of competence that they might also have attitudes toward workplace rules that might be different from the population as a whole. And there probably is some competition for those individuals who meet all the requirements you require. I'm just wondering if you might discuss a little bit more about the challenges of that strategy of maintaining that piece of employees and increasing it and restoring a growth element to it with the things you're facing that might see some headwinds as well.

Yes. Good morning. Good to hear from you, and thank you again for the question for Stu, because I think it's very astute because it is a distraction, it's noise as you characterize it because it's noncash impairment, as Stu described and people should look at adjusted EPS, which, as to your point, most investors do, but sometimes there's a headline out there that doesn't take that into account. So I'm glad you highlighted that noise. In terms of TSI staffing and the challenges we faced. Really going into 2023 when we had a back-to-work mandate, those are behind us at this point. They definitely hurt us throughout 2023. There was I think I've detailed it on the prior calls throughout last year that there was a large number of people who just rejected the return to work mandate and look for other employment and moved on from Townsquare Interactive. It was quite a percentage, particularly of our service organization who are used to working from home in essence from March of 2020 till the end of 2022. So obviously, a few years. I think what's happened is as people have come back to work, which were people who were already existing on our team as well as new hires, they definitely see the benefit of the culture and being a part of a team with a common goal to help local businesses in cities outside the top 50. To your point, it's our largest office in Charlotte. It's by far the largest office. So it's a lot of competition for roles, as you described, but we continue to be one of the best named employers and places to work in Charlotte. We actually just won that distinction for our Ignite digital advertising business as well, which we're quite proud…

Okay. Just a couple of other ones. One follow-up on the TSI. Are there any new service offerings you are introducing or you can introduce that can sort of raise the ARPU in that sector? And the other question would be with regard to Ignite. It seems like that's actually been the better performing digital element. I wonder if you might talk about the various specific growth components within Ignite that are really doing well right now.

Yes, I'd be happy to do that. So let me take those one at a time. So from a product and service and solutions offering at Townsquare Interactive, we have, over the past six months, introduced numerous new solutions for clients. And it wouldn't so much, Jim, raised the ARPU. But these new products, including a robust CRM including the ability to text and e-mail market, including the ability to hook into QuickBooks and provide invoicing, set up appointments for contractors without having to take a call. All of these, I'd say, important elements for small businesses that they may either lack that today. We see a lot of people who don't have any of these solutions or some of them have multiple providers for these solutions. And we've been able to come in and say, hey, we can make it a one-stop shop and make it much easier for you. So previously, if you had a great website and you were ranking very high in Google, we may not have been the best partner for you. Now I can tell you, you can continue with your great website, your great placement in Google and Bing and Yahoo! and the search engine, but there's a lot of other solutions we can provide your business so that you can operate more efficiently and more profitably by using Townsquare Interactive. So it's actually broadened the pool of target customers at Townsquare Interactive as we went into end of last year, and particularly, we actually rolled this out. We trained at the end of last year, but we rolled it out in February in full four. So I believe that's going to be part of the reason you see the rebound at Townsquare Interactive in Q2 and onward is because of the product…

All right. Well that was very complete and I appreciate it very much. Thanks a lot.

I appreciate the question, Jim. Anything else?

No, that's for now. That's it for now.

Thank you, Jim.

There are no further questions at this time. I will now hand the conference over to Bill Wilson.

Thank you so much, operator, and thank you to each of you who joined this morning. We appreciate you taking the time. As Claire said at the top of the call, I would encourage all of our investors and shareholders and debt holders to read the shareholder letter, which is now available this morning. I encourage you to reach out if you have any questions. My e-mail is bill@townsquaremedia.com. I'd love to hear from you. Couldn't be more proud of the Townsquare team. We feel, as you could hear through Stu's remarks and my remarks, quite optimistic for the year. We're proud of our cash flow generation last year, increasing $18 million by 35% to $68 million which allowed us to also reduce our net leverage to 4.4 times with $61 million of cash on hand. And we're proud of the Board supporting us in increasing the dividend by over 5% to $0.79 per annual share that today is at a 7.5% yield. So feeling quite bullish and optimistic as we go through this year, and I appreciate you taking the time to hear from us this morning. We have the benefit of reconnecting in less than two months. So I look forward to giving you an update in about two months again on the business. So thank you again. Have a great day and weekend.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.