Claire Yenicay - Executive Vice President, Investor Relations Steven Price - Chairman and Chief Executive Officer Stuart Rosenstein - Chief Financial Officer and Executive Vice President.

Kyle Evans - Stephens Leo Kulp - RBC Capital Markets Michael Kupinski - Noble Financial Capital Markets Barry Lucas - Gabelli & Co Curry Baker - Guggenheim Securities James Goss - Barrington Research.

Good morning and welcome to Townsquare’s first quarter 2017 conference call. As a reminder, today’s call is being recorded and your participation implies consent to this 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’d like to introduce the first speaker for today’s call, Ms. 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 first quarter financial update. With me on the call today are Steven Price, our Chairman and 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 these projections.

These statements reflect the company’s beliefs based on current condition that 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 during this call.

We may also discuss certain non-GAAP financial measures including adjusted EBITDA and make pro forma adjustments. Such non-GAAP financial measures should be used in conjunction with all the information contained in the quarterly and year-end report available on our website. At this time, I would like to turn the call over to Steven Price..

Thank you, Claire. Good morning, everyone, and thank you for joining us today. Our first quarter performance is in line with our expectation, with net revenue of $88.4 million and adjusted EBITDA of $10.1 million, falling within our previously issued guidance.

We’re pleased report that the first quarter of 2017 marked the 13th consecutive quarter of positive organic growth in our Local Marketing Solutions segment. First quarter Local Marketing Solutions net revenue grew 1.2% over the prior year period or 2.5% excluding political revenue.

National has continued to have a negative impact on our Local Marketing Solutions result and we’re still seeing some weakness in our energy markets. On a positive note, our Louisiana market has appeared to turn the corner, posting positive revenue growth for the first time since 2015.

However, in spite of these challenges, we have continued to generate organic revenue growth due to the continued strength of our local products and services.

We saw our subscriber base with Townsquare Interactive grow to 11,200 at the end of the quarter and we have started training our sales force to use our first-party data capabilities to help advertisers target their consumers more effectively. Entertainment net revenue declined to $12.3 million in the first quarter of 2017.

As we highlighted on our year-end earnings call, there were a number of items to make a year-over-year comparison of our first-quarter entertainment results difficult, including, as we previously discussed, the sale of certain live events in 2016 and the timing of affair.

Also impacting the revenue results in our entertainment segment was our national digital business where we have made a strategic decision to focus on EBITDA growth at the expense of revenue growth for the near term.

We expect growth from both name and music festival verticals this year, and in particular we are seeing strong taping versus prior year for the tapes of country, country jam and mountain jam music festivals next month. Adjusted EBITDA declined to $10.1 million for the first quarter, in line with our expectations.

Excluding the impact of political and the effect of the fair timing and the sales events, adjusted EBITDA increased 5.6% over the prior year period. As you know, the first quarter is the smallest quarter for us, both in terms of advertising revenue as well as live events activity.

We’re pleased with how the year has started off as it has been right in line with our expectation. With that, I’ll now turn the call over to Stu for further details on our financial results..

Thank you, Steven, and good morning everyone. For the quarter ended March 31, 2017, net revenue equaled $88.4 million versus $94.4 million for the first quarter of 2016.

This was within our previously issued guidance of $88 million and $90 million and, as Steven mentioned, was impacted by the loss revenues since 2017 is a non-political year, the timing of a fair, and the sale of certain live events properties. Excluding political revenue, net revenue decreased 5.4% to $88 million.

Local Marketing Solutions net revenue increased by 1.2% or $900,000. Excluding political revenue, Local Marketing Solutions net revenue increased 2.5% or $1.8 million. First quarter entertainment net revenue decreased $6.9 million or approximately 36% due to the timing of a fair and the certain sale of live events in 2016.

As a reminder, the first quarter is the smallest revenue quarter in this segment as we have very little live event activity in the winter months. In addition, our entertainment segment operates at a loss in the first quarter as a result of the limited activity. Total direct operating expenses decreased 5.1% in the first quarter.

The decrease in expense was driven entirely by decreased in entertainment expenses that correlate with the decline in revenue for the period. Adjusted EBITDA for the first quarter of 2017 was $10.1 million, which was within our first quarter EBITDA guidance of $9.5 million to $10.5 million.

This represents a decline of $1.9 million or approximately 16% from the prior year and was largely driven by political, the scheduled timing of a fair and the sale of certain events. Depreciation and amortization expense for the quarter increased $300,000 or 4.4%, primarily related to the amortization of capitalized software development costs.

Net interest expense for the first quarter 2017 decreased $400,000 or approximately 4.6% primarily due to the repayment of debt in 2016. For the first quarter of 2017, we reported a net loss of $0.16 per share or a net loss of $3 million as compared to a net loss of $1.4 million in the first quarter of 2016.

We’d like to remind you that the provision for income taxes included on the face [ph] of the income statement is for GAAP financial statement purposes only [ph]. We maintain significant tax attributes including $111.3 million of NOL carryforwards and other substantial tax [indiscernible] related to the tax amortization of our intangible assets.

We continue to believe that we’ll not be a material cash taxpayer until approximately the year 2021. We ended the quarter with a cash balance of $40.6 million and had a revolver capacity of an additional $50 million.

We believe we have sufficient liquidity available to operate the business over the next 12 months and service our debt in the ordinary course. In the first quarter, we made an excess free cash flow sweet payment of $6.7 million reducing that term loan down to $291.9 million.

As of March 31, our total debt balance was $572 million and our total gross and net leverage was 5.5 and 5.1 times respectively. This is based on the trailing 12 month adjusted EBITDA as of March 31, 2017 of $104.9 million. And as of today, the company has approximately 27.4 million shares outstanding [indiscernible].

Turning now to our second quarter outlook, we expect net revenue to be between $139 million and $143 million, representing net revenue excluding political growth of approximately 2% to 5%. We expect adjusted EBITDA to be between $24 million and $26 million compared to adjusted EBITDA of $25 million in the second quarter of 2016.

For the full year 2017, we reaffirm our former net revenue guidance of $525 million to $535 million and adjusted EBITDA guidance of $105 to $109 million. This represents net revenue excluding political growth of 3% to 5%.

Adjusted EBITDA is expected to be relatively flat compared to the prior year and adjusting political revenue is expected to grow in the mid-single digits. And with that, I’ll now turn the call back over to Steven. .

Thanks, Stu. And thank you to everyone who dialed in this morning. In summary, the start of the year is in line with our expectations and we feel we are well-positioned to hit our guidance for the full year and to drive growth across our business.

As we discussed in the past, we will continue to balance investments and growth by evaluating capital allocation alternatives and prioritizing accretive organic and acquisition investment opportunity and debt repayment, with a medium-term leverage target of approximately four times.

And, of course, please do not hesitate to call us with any questions or just to check in. And with that, we’re now happy to open up the line for questions. Operator, will you please open up the line..

Thank you. [Operator Instructions] Our first question is from Kyle Evans of Stephens. Please go ahead..

Hi. Good morning. Thanks for taking my questions. You mentioned that you had some live events that you sold off, certain events.

If you announced that in the press release, I missed that, but could you give us a little bit more detail there?.

Sure, this is Stu. In the first quarter, entertainment revenue declined $6.9 million to $12.3 million, but there's so many items that make this year-over-year comparison difficult. The item includes different – shifting of a fair from first quarter to second quarter, more days fell in Q2 than Q1 this year versus last year.

We also sold certain live events that we had last year. So [indiscernible]. Also, our national digital revenue, as Steven mentioned, [indiscernible] we focus on profitable [indiscernible]..

And, Kyle, we had actually sold some live events back in Q2 of 2016 where our results are not pro forma for. And that was just some consumer shows that we sold as part of a concerted effort to streamline our event portfolio and focus on larger events with stronger growth prospects..

Along those lines, could you give an update on any progress that you might be making for the creation of joint events with MSG?.

We don’t have anything to announce. We’re, like we said at the year-end call, we still are having good discussions with them. We have a few projects that we’re talking about. We think we’ll do a couple this year. I don't think that anything is going to be huge, but I think there will be nice, steady things.

They’re a good partner and we’re excited, as we said, in the midterm and in the long-term to figure out the right things to go do with them..

We’re hearing pretty consistently from our TV broadcast names about retail weakness.

Did you see that in your numbers on the [indiscernible]?.

Actually, we didn't. We didn’t see that. Retail was actually, for us, in the first quarter was up. It was one of our better categories. So, I’m not sure financial services, entertainment and, obviously, political were I would say among the tougher categories.

But, again, given where we are, that could be a few store openings in a few [indiscernible] I didn’t go drill down to see why, but in general, no, retail was actually a good for us.

Maybe people – maybe national advertisers or local advertisers and retailers are realizing that they want to go invest in marketing in the heartland, which is the mantra that we've been articulating for the past five years. It’s time to stop focusing only on the big cities.

There are lots of people out in middle America and maybe that’s starting to take hold..

Great. One last one. You’ve highlighted that you’re going to – I guess, you’re shifting the focus of your national digital towards profitability. Just curious what the catalyst there is. .

It’s you. We have a really nice – first of all, it’s not a huge business for us. It’s a really nice business where we have a bunch of our own – 15 or so of our owned and operated sites. I’d urge to go look at XXL or Taste of Country or PopCrush or Loudwire, all for big music communities focused on music niches.

Candidly, if we were a VC fund, we’d invest a ton of money in a lot more video, a lot more content, a lot more – and to make it bigger and – et cetera.

It’s a nice size visit now with a network who are 50 or 60 million unique and our strategy has been to moderate the investment in more video or new products or new shows or take chances on launching new verticals and the like and focus more on cash flow.

If you said, hey, miss your numbers, spend 5 million bucks on that business, so that you could grow it, that’s something that we could go do and our team – some of the people on our team would be excited to do, try to balance where we invest and how we invest, but we’ve just chosen to focus a little bit more in that business on EBITDA as opposed to just revenue growth for revenue growth..

Great, thank you..

Sure. Thanks, Kyle..

Thank you. The next question is from Leo Kulp of RBC Capital Markets. Please go ahead..

Hi. I just had a couple on the entertainment side.

Can you provide an update on how the competitive outlook is shaping up as we head into the festival live event? Has there been any shift there? And then through early 2Q, are you seeing any weather impact on the entertainment segment?.

So, we’re not seeing any weather, but candidly it’s early. And, obviously, May, June, July – June, July, sort of August are big months. So far, we haven't seen anything on that front. In terms of the competitive landscape for music festivals, I would say it's better than it has been for the two years.

It’s been moderating the trends and the concerns we had articulated last year that there was an overbuild and lots of people bidding up talent and fighting, we haven't seen as much of that. So, we probably feel a little bit better about that, which is by the way what we expected.

So, when we built our model and our guidance and our forecast going into the year, we expected that the music festival space would improve. I think we mentioned that on the third or fourth quarter call. And I think that's where we are..

Got it. And then – thank you for that. And then one other question on the local marketing side, your nonpolitical revenue growth accelerated pretty nicely from 4Q.

What were the drivers there? Anything in particular you’re seeing that would have cause that?.

It's hard to say. I think it’s a couple of – I would say it’s a few things. One is, candidly, political does take a little bit of air out. So maybe it depresses the regular growth because you have political dollars.

Also, a couple of our market – a couple of our bigger markets, they’re doing pretty well to start the year compared to last year for some internal and external reasons. So, I think it’s just a combination of different factors. Some of our markets – some of the energy markets haven't done better, not doing worse, some are doing better.

So, I think it’s a combination of things, nothing that sort of sticks out as the single reason..

All right, thanks a lot. .

Okay. Thanks..

Thank you. The next question is from Michael Kupinski of Noble Capital Markets. Please go ahead..

Thank you. Thanks for taking the question. Good morning, everyone. In terms of your guidance, obviously, a nice ramp to end the year. I’m glad that you reaffirmed your guidance.

Can you talk a little bit about what goes into that? Are you anticipating that there might be a little bit improvement in the economy, some of your energy market, what’s all going into that number?.

I think it’s sort of a combination of everything. In fact, when we did our guidance for the full year, I would say if we had broken that up to you in quarters, it should be about where we gave you guidance for the first quarter and guidance for the second quarter.

So, I don’t think we’re seeing anything really different than we did at the end of last year, very early in the year when we did our guidance. In terms of how the – the improvements in the economy, I've read a bunch of transcripts from other marketers and media companies and I read the word choppiness about six times in the last 24 hours when I read.

I would say we saw that too. So, January and March were a lot better than February. May and June look better than April. I don’t know how to account for that, but it’s something that we’re sort of noticing. One month could be a lot worse, the next month could be a lot better. It evens out, obviously.

You’d rather look at it over a year or even over six months than over just a quarter, but we understand the SEC rules that you follow things based on quarters. But we haven't seen any real signs in the economy one way or the other. As we said before, we’re looking for – and what we think we’d correlate to – is really median wages.

And we’re really – you hear a lot about the consumer economy, but we’re sort of trying to see if median wages start to really move. We’ll feel better and better..

Right. And you mentioned that national advertising was a little bit of a variant for you in the quarter.

So, can you give us what was the impact from national because I know it’s pretty small for you, but I would assume that maybe that affected some of your live events as well?.

It didn’t really affect the live events as much. When we said national was down, we’re thinking a little bit more on local side. I don't have off hand – it’s not a huge driver. But I don’t exactly have how much it was variant. But our local business is doing better than our national business.

That’s been a trend and we’re trying to come up with increasing and new strategies to try to tackle that issue, although national isn’t a huge piece of our business, but still a business and we’d rather do better..

And in terms of your digital marketing solutions, the subscriber still growing pretty nicely. Looks like sequential growth is starting to slow a little bit.

Are you still looking for about 25% to 30% growth in your subscribers year-over-year?.

Mike, this is Claire. I would say we should really look at subscriber growth as number of subscribers each quarter or each year versus percentage growth because it’s just a lot of small numbers. That is basically the figure that growth rate is going to show..

Got you..

And I don’t think that subscriber growth is slowing..

We still feel good about that Townsquare Interactive as we have..

Okay, perfect. That’s all I have..

Okay. Thanks, Mike..

Thank you. The next question is from Barry Lucas of Gabelli & Co. Please go ahead..

Good morning and thank you.

Claire, as long as we're on that subscriber topic, could you just refresh my memory and provide the 1Q 2016 subscriber number and the 12/31 number?.

Sure. So, the 12/31 number was about 10,700 and the March 31, 2016 number was about 8,700..

Great, thanks for that.

Steve, you had a couple of the categories and geographies, maybe talk a little bit about what all in a flattening SAR [ph] environment?.

Yeah. I would say generally flattish for us. It has been in the first quarter slightly down, but, fine, we haven't seen anything different in the auto in the first quarter than we did through most of 2016. It’s been stable, some quarters slowed down, some quarters little up. So, we haven’t seen last couple of quarters or going out.

I don't know if there's auto sales or flattening, what that’s going to mean. I’d argue that means they’d have to spend more on marketing, but [indiscernible]..

Okay. The last area for me, it feels like there’s been a little bit of a shift if you cut out less productive shows and you’re kind of focusing a bit more on EBITDA on the Interactive business.

How should we think directionally about the way you’re taking the company? And then, maybe think a little bit about valuation, are you looking at an EBITDA multiple, are we going to look at earnings at some point, free cash flow? [indiscernible] how do you think about the value of the company and where the drivers are?.

That our stock should be higher. .

Understood. We like….

I would say – maybe we’ve talked about it more. I’ll go back and look in terms of changing the way we operate the business, but really since we went public for the last handful of years, we haven't changed our strategy. We've been pruning unprofitable events. We even said about a year and a half ago, people keep focusing on the number of events you do.

Oh, you do this, how many are you going to do, how many more are you going to do. And we said that’s really not how we’re measuring ourselves in terms of the raw number of events. And so, we've been doing that. The change in the Townsquare Media national digital business has been evolving over the past year. It’s not huge dollars.

It’s not a swing of couple of million bucks. It’s smaller than that. It’s more sort of nuance. In terms of valuation, I guess, honestly, we’ll leave that to you and to smarter people. What we’re trying to do is build, which has been our strategy since the beginning, right? My shareholder letter.

We’re trying to build a great company for a long time; and however people evaluate and whatever people do, we’ll do. But we’re trying to grow revenues and grow EBITDA. So, I don’t think people are valuing us – as we go around and talk to investors, including the prestigious Gabelli & Co., I don’t think people are valuing us on revenue multiples.

That would be great, but the market seems to only value revenue – companies – great huge revenue multiples when they don’t have cash flow. We’re burdened in a weird way with cash flow. So, some people value us on a multiple of cash flow. Some people value us on free cash flow.

I don't know the – on the assets, on a breakup or some of the parts value, a lots of different ways as we’ve talked to different investors. So, I'm probably not the best person to answer how other people should value us. We just want to keep growing and keep building a good company..

Thank you..

Yeah. Thank you, Barry..

Thank you. [Operator Instructions] The next question is from Curry Baker of Guggenheim Securities. Please go ahead..

Thanks for the question, guys. On the new products front, I believe you began launching individual station mobile apps last year. I think you called out 100 available as of the last earnings call, with the remainder being rolled out through the rest of 2017.

Can you guys share where you are in rolling out the apps for the remaining stations, if you’re still on pace for this year. Also, I know it’s probably early, but can you share any metrics you have on engagement or adoption within the local markets? Any color will be helpful. Thanks..

Yes. So, I don't have color today on it. It’s still early and we’re still digesting it and tweaking it and sharing it internally. So, I don’t think we’re ready to go talk about adoption or how it’s going to affect sort of all the different parts of our business. On the first part, we’re still on track.

We still are rolling out the apps and intend to roll them out throughout the course of the year, so that we’re largely done by the end of the year. And I would say, the early trends, while small, are positive, but I think it's probably too early to say they are trends..

Okay. Thanks, guys..

Thanks..

Thank you. The next question is from Jim Goss of Barrington Research. Please go ahead. .

Thanks. First, I would like to say that – or echo comment that I think it's good that you are able to reaffirm full year guidance, even though the first couple of quarters are perhaps a little less than you might have thought originally. So, I think that was good. A couple of questions I have.

Political in 2018, I'm wondering how – what you have noticed between presidential years and midterm years in terms of the level of political advertising you might've gotten. Am thinking it might actually be pretty good relatively speaking because of the issues in the local races..

Yeah, we hope so. First, I would disagree with the premise of your comment, Jim, with all due respect. I don't think the first quarter was – in light of what we saw – in fact, we gave guidance and we’re right in the middle our guidance. So, I think it’s actually what we thought..

Okay..

In terms of political, what we said was, during presidential years, it’s sort of $9 million to $10 million what it has been historically. And then in the odd years, it’s sort of a few million dollars. And there’ll be some issue kind of advertising and some smaller local races. It’s too early to say what 2018 is going to look like.

It looks like there are going to be a couple of pretty active senate races, a couple of which are in our market. So, we’re sort of optimistic just from a – not from an American standpoint, but from a running Townsquare standpoint.

We’re optimistic that the fight for control of both statehouses and state legislatures and then federal is going to be pretty robust going into 2018 where people see it as a pivotal year. We’re hoping to – but it’s way too early for us to say..

Okay. Last year, you discussed the weather issue with regard to entertainment.

I was wondering if it's only the extreme weather that really matters because the attendance will tend to be fairly stable and predictable at such events unless you have the extreme situations or whether there are ideal weather situations there, better or worse, and whether that affects any of the contracts you have since you are working on behalf of a lot of states and that sort of thing?.

Yeah. It doesn’t affect the contracts. Listen, if it’s beautiful sunny day, that’s good. I’m no meteorologists, so I don’t know severe weather, pretty bad weather, rainy and raining hard, all that will probably have some effect. Last year, it ended up being pretty severe weather in a handful of places.

I have no idea what it will be this year, but if everything is sunny and 75, it would be good..

So, normally, it's only the very extreme situations that would have a big impact?.

Not necessarily. If it rained hard, but not extreme – I don’t know what you mean by extreme, but rains hard, but not extreme, for two straight weeks of a fair that lasts for two straight weeks, I wouldn't say that’s perfect..

Okay. And then, are there any new events you can point to that you think are promising? And with regard to the MSU situation, I know you said it’s really early in trying to develop these relationships or extending the relationship.

Are there some events you've done in smaller markets that you think are applicable in some of the bigger market venues that they might have that might have a crossover in that direction as well?.

Yeah, yeah, I think so. And in terms of new events, nothing we’re prepared to talk about today. All right, thank you..

Okay, thank you..

Thank you. The next question is from Michael Kupinski of Noble Capital Markets. Please go ahead. .

Thank you. Just one quick follow-up.

I thought I’d ask about – obviously, we have a new radio world with the Entercom/CBS merger, now I was just wondering if there was any thoughts on how – even though I know that those are concentrating on larger market, how that merger might affect you or if you see some benefit from it, just some commentary on that? Let’s start there..

Yeah. I think David, I’ve known for a long time and the Entercom team were terrific.

What’s going to help us at Townsquare is a healthy growing combined CBS/Entercom, number one, and a lot more liquidity and float of radio and local media stock, so to the extent that there's a lot more float out there, we could in theory attract new groups of investors who think that it makes sense now to look at this space broadly because there is enough equity to buy and hopefully that will help us.

So, I think off the top of my – there are probably lots of things we could do with them, but off the top of my head, I think having a little bit of a better run CBS, which I think David and his team are more than capable and will do, would be great to show people that it’s a healthy industry and then more float to hopefully bring in more investors..

And can you describe the current M&A environment? Has anything improved there?.

It’s probably about the same. Probably about the same as it’s been. Great, thank you..

That’s all I have. Thank you..

There are no further questions in the queue at this time. I’d like to turn the conference back over to management for closing remarks. .

Great, thanks so much for joining us on what I understand is a pretty busy morning. So, any questions, comments, thoughts, please don't hesitate to give us a call. And have a great day. Thanks..

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation..