Good morning, and welcome to Townsquare's Fourth Quarter and Year-End 2018 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 session 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. Ma'am, you may proceed..

Thank you, operator and good morning to everyone. Thank you for joining us today for Townsquare’s 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 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 beliefs 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 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 to turn the call over to Bill Wilson..

Thank you Claire. Good morning everyone and thank you for joining us today on our year-end call. Today, I'll discuss our strong financial performance in 2018 and our great start to 2019, as well as provide some operational highlights from the past year.

But first I'd like to reiterate how proud I am to lead Townsquare as Chief Executive Officer, a role I stepped into solely in January after serving as Co-CEO with Dhruv Prasad for just over a year.

2018 was a period of significant transformation and reprioritization at Townsquare during which time we were able to drive strong local revenue growth particularly within our digital businesses and solidify our position as a premier local advertising and marketing solutions company.

As we shared on our earnings call a year ago, over the course of 2018 we sought to achieve four main objectives. First reorient the company through our local business with the strategy of local first underlying all of our business decisions. Second, reduce the complexity, volatility, and seasonality in our business.

Third, invest in our growing and profitable digital businesses and fourth, focus on the product innovation that has been a hallmark of Townsquare since our inception in 2010.

We achieved all of these objectives and as a result we are better positioned today than we have been in the history of our company and I am extremely proud of the entire Townsquare team and their hard work each and every day.

We ended the year on a very strong note with fourth quarter pro forma net revenue increasing 9.7% over the prior year and pro forma adjusted EBITDA increasing 6.4%. And although we had one of our strongest political years ever excluding political revenue our fourth quarter net revenue increased over 5% on a pro forma basis year over the prior year.

Our performance in Q4 was a continuation of what we executed throughout 2018. Stability in our broadcast business combined with strong over 20% growth revenue in our digital business which together offset the strategic decision to reduce unprofitable or low margin revenue in our live events business.

For context our live events revenue in Q4 was down 42% and down 21% the entire year. As a result our full year pro forma net revenue grew approximately 4% and adjusted EBITDA grew approximately 6% compared to the prior year. We have now met or exceeded our revenue and EBITDA guidance in each quarter of 2018.

Our stable broadcast business has been helped by many factors this year, primarily our renewed focus on our local business which took the form of investment in content, local management, and sales talent.

For example our investment in local sales talent has coincided with a meaningful increase in new broadcast business revenue generation of approximately 10%.

Our partnership with Analytic Owl which allows our broadcast measurement and quantitative attribution has proven to be an invaluable tool that delivers critical information to our advertisers and is a great retention tool for Townsquare.

In 2018, clients connected to our attribution platform saw on average a 35% increase in new visitors to their websites during their campaigns. Additionally, these results empower our sellers to retain more clients and gain greater wallet share.

Attrition rates of clients that are connected to Townsquare analytics were on average nearly 50% lower than other clients during 2018 and connected clients spent nearly 20% more with us relative to our company wide average.

From a content perspective we had another strong ratings book in fall of 2018 on top of positive fall 2017 and spring 2018 ratings.

We saw broad based ratings improvements across the majority of our formats and in our markets particularly in some of our largest markets like Buffalo, El Paso, Grand Rapids, Shreveport, and also in Lansing where we had four of the top five ranked stations with two of our stations tied for number one.

We have solidified our leading market positions ranking number one or number two in 49 of the 51 Nielsen rated markets we compete in and are number one in 30 of those markets.

Companywide our key [ph] audience was up for the second ratings book in a row and reached its highest point in four and half years while time spent listening metrics were stable year-over-year. With the strength of our ratings we were able to increase our average middle rate in 2018 versus prior year.

All of these factors contributed to the sequential revenue improvement of our local broadcast business throughout the year and we are seeing a solid start to 2019 as well. Additionally regarding content in the fourth quarter, our digital audience to our local radio station website was larger than our broadcast audience.

Townsquare Ignite, our in-house proprietary digital programmatic advertising platform continues to perform exceptionally well and was our fastest growing business in 2018.

The number of orders running per month has increased from roughly 1000 per month on average in 2017 to approximately 1800 per month on average in 2018 driving greater than 50% year-over-year revenue growth. In our size markets we have a significant competitive advantage for this product solution.

We believe no one is offering a product like ours because no one else in these markets has access to the infrastructure required to do so.

Over the past several years we have organically built our programmatic digital platform which includes our own in-house buying team and demand side platform or DSP which is integrated with more than 1000 exchanges with access to more than 250 billion impressions in total per day as well as a full customer service function.

We activate client campaigns, continually optimize those campaigns, and then provide detailed in-depth reporting essentially owning and controlling the entire customer relationship from end-to-end.

In our markets the competition that Townsquare Ignite most often faces is a sales force that white labels a third party product which lessens the buying power, and/or margin, and also we believe results in a subpar customer experience. As a result we believe we benefit from longer campaign length and higher renewal rates than our competitors.

As we discussed on our last call we believe there is a significant runway available to further grow this product and see a path to Townsquare Ignite generating 100 million in annual revenue within the next three to five years.

And in 2019 we expect the business to approach 50 million [ph] in annual revenue at operating margins consistent with our broadcast business.

Our advertising business which is primarily composed of broadcast and digital advertising increased 12.6% in the fourth quarter and 6.9% in the full-year period as compared to the same period in 2017 with growth accelerating in each quarter of 2018.

For reference in the first half of 2018 advertising revenue excluding political increased 2.8% over the prior year. In the second half of 2018 this growth increased to 6.3% over the prior year.

At Townsquare Interactive we are really hitting our stride and continued to see increases in quarterly net adds driven by our larger sales force, greater productivity per seller, and our focus on client retention.

As a result Townsquare Interactive's revenue growth also accelerated each quarter of 2018 culminating in fourth quarter revenue growth of 29% and full year revenue growth of 21%.

Townsquare Interactive ended 2018 with approximately 15,350 subscribers adding approximately 850 net subscribers in the fourth quarter and nearly 3000 subscribers in the year. For context we added 1700 subscribers in 2017. Given our current momentum we anticipate adding more than 3000 net subscribers in 2019.

In 2018 Townsquare Interactive produced nearly 50 million of net revenue and as we stated on our last earnings call we believe this business can double to 100 million of net revenue in the next three to five years operating at margins consistent with our broadcast business.

In fact we're off to a great start in 2019 where in January Townsquare Interactive had its best sales month ever indicating there is still significant runway for this product both within and outside of our local market footprint.

In total our digital businesses grew revenue more than 20% in 2018 to 120 million representing approximately 28% of our pro forma net revenue fueling our strong revenue growth in 2018. I believe this statistic more than any other emphasizes the point that we are not your average radio company.

We would emphasize that although radio remains a core part of our offering and is still the largest part of our business today, Townsquare is better described as a premier local media and digital marketing solutions company with a thriving and growing plus 20% digital business.

In fact 70% of our broadcast clients buy more than just our broadcast product.

This data point speaks to the fact that although we have a wide breadth of advertising solutions across broadcast, digital, and live events they all intersect and operate in the same local market ecosystem which allows us to focus on super serving our clients and helping their businesses grow.

Turning briefly to our balance sheet we ended the year with net leverage of 5.1 times, a slight reduction year-over-year.

Due to our strong cash flow generation not only were we able to initiate a quarterly dividend program, repay approximately 11.4 million of long-term debt, and complete two accretive tuck in acquisitions, but we were also able to invest in our local broadcast and digital platforms increasing our sales team across our local markets and Townsquare Interactive by nearly 100 sales people and in addition further building out our service and support teams.

Going into 2019 we believe we have ample liquidity on hand to continue to invest in attractive growth opportunities that meet our investment criteria with over 60 million at the end of the fourth quarter and an undrawn revolver capacity of 50 million. That said we intend to continue to reduce our net leverage.

With that I'll turn the call over to Stu who's going to discuss our strong financial results in more detail. .

Thank you Bill and good morning everyone. As a reminder in late 2017 and over the course of 2018 we completed several divestitures and discontinued certain portions of our live event business.

The results of these businesses have been reclassified to discontinued operations for the current historical period and the results can be found in our annual filing on Form 10-K. All of the financial results we will discuss today are related to continuing operations.

In addition the fourth quarter and full year results of pro forma for the acquisition of three radio stations in Princeton, New Jersey as if they had occurred at the beginning of the reporting and comparison period.

Please refer to the tables including our earnings release which provide GAAP results and pro forma results as well as our non-GAAP performance measures. Unless otherwise stated all of the financial results discussed will be pro forma for these completed acquisitions.

The quarter ended December 31, 2018 net revenue increased 9.7% to $109 million as compared to the fourth quarter of 2017. For the year ended December 31, 2018 net revenue increased 3.7% to $434.2 million as compared to last year. This exceeded our previously issued guidance range of $427 million to $430 million.

2018 was the best non-presidential political year in our history. In 2018 political net revenue was $10 million as compared to $2.4 million in 2017. In the fourth quarter of 2018 political net revenue was $5.7 million as compared to $1.2 million in the fourth quarter of last year.

Excluding political, net revenue increased 5.2% in the fourth quarter and nearly 2% in the full year as compared to the same period in 2017. However, that is partly muted by the intentional revenue decline and a live event business that we budgeted for and indicated to you throughout the year and which should climb 21% in 2018.

As a reminder following 2017 strategic review we streamlined our live events portfolio at the end of 2017 in a series of moves that were intended to maximize growth and profit and margin from our live events business. Not only have we achieved that goal this year but live events profit margin is outstanding [ph] in 2018 as compared to the prior year.

But we have also significantly reduced the CAPEX required, the risk profile, and the seasonality of our business. Excluding live events revenue net revenue increased 12% in the fourth quarter and 7.4% for the year as compared to the same period last year.

Total direct operating expenses increased 11.9% in the fourth quarter and 2.8% in the year as compared to the same period last year.

The expense increase in both the fourth quarter and the full year period was driven primarily by investments we've been making in our digital products and sales team largely related to Townsquare Interactive and Townsquare Ignite.

The Q4 expense increase was largely due to the accelerated growth in the second half of the year in both Townsquare ignite and Townsquare Interactive. Corporate expenses were approximately flat in the fourth quarter and increased $1.4 million or 5.4% in the full year period compared to the same period of 2017.

Moving forward we expect corporate expenses to be relatively flat in 2019. Adjusted EBITDA for the fourth quarter of 2018 increased 6.4% to $23.9 million compared to the fourth quarter of 2017. In the full year period adjusted EBITDA increased 5.9% to $97.5 million compared to the prior year period.

This was at the high end of our previously issued guidance range of $96.5 million to $98 million. Net interest expense for the year increased $1.5 million or 4.6% compared to the prior year as a result of the increase in LIBOR rates partially offset by the repayment of $11.4 million of our long-term debt during 2018.

In 2018 we reported $2.1 million of business realignment costs as compared to $1.3 million in 2017. In 2017 business realignment costs included the costs associated with discontinuing two music festivals and streamlining operations of our national digital business and certain live events verticals.

In 2018 business realignment costs included certain expenses related to the restructuring of the company's traffic department and the senior management restructuring. In connection with our regularly year-end audio testing we took a non-cash impairment charge to the accounting value of our goodwill and intangible assets.

Due to the significant decline of the company's stock price and market capitalization as compared to the prior year among other factors, the company revised certain assumptions in its annual testing including risk adjusted discount rate that had a negative impact on the fair value of calculation of our intangibles.

In total we recorded impairment charges of approximately $37 million in 2018 related to the impairment of certain live events, investments, and FCC licenses in 11 of our 67 markets. This compares to impairment charges of $16.9 million in 2017 which were primarily related to the restructuring and streamlining of our live event business.

For the full year period on a GAAP basis net income from continuing operations decreased $25.3 million to a net loss of $0.5 million or $0.03 per diluted share as compared to net income per diluted share of $0.89 in 2017.

The decline was driven by the increase in non-cash impairment charges as well as the $9 million year-over-year increase in income tax expense.

As you will recall in 2017 we reported income tax benefit related to the tax cut and Jobs Act which required us to evaluate our net deferred tax liabilities at the new reduced federal corporate income tax rate of 21%. In 2018 we recorded an income tax provision of approximately $1.6 million versus income tax benefit of $7.4 million in 2017.

We'd like to remind you that the provision for income taxes included on the face of our income statement is for GAAP financial statement purposes only. We maintain significant tax attributes including $189 million of federal NOL carry forwards and other substantial tax yields related to tax amortization of our intangible assets.

We continue to believe that we will not be a material cash tax payer [indiscernible].

Adjusted net income which excludes non-recurring items such as impairment charges and as detailed in the schedules to our earnings release was $29.8 million or a $1.08 per diluted share for the year-ended December 31, 2018 as compared to net income per diluted share of $0.77 in 2017. As of December 31st our total debt balance was $560.5 million.

Our total cash balance was $61.4 million and we had revolver capacity of $50 million. Our net leverage as of December 31st declined to 5.1 times based on the 2018 pro forma adjusted EBITDA of $97.5 million.

Yesterday the Board approved our fifth quarterly dividend distribution which will be payable on May 15, 2019 to shareholders of record as of April 2nd. We declared dividends of $0.075 per share which would equate to $0.30 per share on an annualized basis. This represents a dividend yield of approximately 6% for our current share price.

We are confident that with our existing cash balance, anticipated cash flow generation, and undrawn revolver capacity we have sufficient liquidity available to us over the next 12 months to operate our business and service our dividend and debt obligations in the ordinary course.

Turning now to our 2019 outlook as Bill mentioned we're off to a great start.

In the first quarter of 2019 we expect net revenues to be between $92 million and $94 million representing approximately 3% to 5% increase over the prior year on a pro forma basis and we expect adjusted EBITDA to increase approximately 1% to 7% of between $17.5 million and $18.5 million on a pro forma basis as compared to the prior year.

Please remember these growth rates would be even stronger if we excluded the impact of political revenue. For the full year 2019 we expect net revenue to increase to between $445 million and $455 million which represents pro-forma net revenue growth of approximately 2% to 5% over the prior year.

Excluding political revenue which we anticipate to decline approximately $7 million this represents growth of approximately 4% to 6%. We anticipate our growth will be characterized by stable broadcast and live events revenue and a continued double-digit growth of our digital businesses.

We expect 2019 adjusted EBITDA to be between $94 million and $98 million. At the midpoint of the range this represents a slight year-over-year decline due to the loss of high margin political revenue in 2019.

If you were to exclude the impact of political revenue, adjusted EBITDA would increase year-over-year and with that I will now turn the call back over to Bill. .

Thanks Stu and thank you to everyone who dialed in this morning. In summary we are extremely pleased with Townsquare's performance in 2018 particularly the fact that our advertising and digital marketing solutions revenue growth increased sequentially each quarter in 2018 as well as being positive about our outlook for 2019 given our Q1 pacing.

I hope it comes across to everyone how excited we are about our business today and most importantly our future prospects particularly with respect to our digital businesses. Overall, I am very confident in our Townsquare team and thus the continued organic growth of our core multi-platform local advertising and marketing solutions.

I look forward to connecting with our investors as the year progresses addressing any questions that you may have and sharing our story with all those who are interested. And with that we're now happy to open the call for questions. Operator will you please open the line..

Thank you. [Operator Instructions]. Our first question comes from the line Michael Kupinski with Noble Financial. Please proceed with your question. .

Thank you and congratulations on a great quarter and the guidance looks great.

I was wondering if you can break out the number of FTEs that you have in Townsquare Interactive at this point and how many you have companywide because obviously I would imagine that's a source of investment still?.

That's exactly right Michael. First of all thank you thank you for your kind words and as it relates to FTEs in Townsquare Interactive we are just under 500 full-time employees in our Townsquare Interactive division. I know as you know it's based in Charlotte and we've added just over 100 personnel to Townsquare Interactive in the past year alone.

The personnel is roughly 125 to 150 sales people, roughly about 150 to 175 support people in terms of client support, and the rest are category experts either design, SEO, reputation management, engineers, things along that nature. But if that gives you a sense of scale it's 500 in total and last year it grew a 100 net. .

And what was the Ignite revenue in 2018, I'm sorry if I missed that?.

Yeah, we didn't break that out. What we said was we expect 50 million in 2019 and we also said that it was the fastest growing segment of our business last year in absolute dollar terms as well as percentage terms.

And since we break out Townsquare Interactive revenue you could get a sense of how much that increased and know that this increased more in 2018. But we didn't give a specific number for 2018. .

Got you, and then in pro forma for the fourth quarter for the Princeton, New Jersey stations that were acquired, what was the pro forma revenue and adjusted EBITDA just adjusting for those?.

Yeah, we didn't disclose that but it was roughly a 1.5 million of revenue in 2018, I believe. Is that right Claire, or is it a little lower, for Q4. .

I don't have Q4 in front of me but Mike our pro forma numbers versus our GAAP numbers in Q4 if that's the only adjustment that you would see from the GAAP to the pro forma numbers. .

Okay, got you.

Okay, and then can you just kind of obviously your guidance is a little bit better than my expectations for the first quarter and for the full year, I was just wondering if you can just kind of frame for me in the fourth quarter it looks like the local advertising business was doing a little bit better than expected as well, I was just wondering if you can give us some thoughts on maybe the color between local versus your interactive businesses and so forth?.

As you know we break it out in the schedule so to your point our local business as we discussed on the call actually improved throughout the year, sequentially throughout the year. Second half of the year was stronger than the first half excluding political and we're seeing that strength continue into Q1.

So we are feeling quite confident about the year and therefore the guidance that we provided and then as you as you noted Townsquare Interactive also increased sequentially every quarter in revenue, had our best month in January as I noted.

So we're feeling really good about the year, therefore our pacings are strong in Q1 and our guidance as you noted sounds like above what you had. The other piece I'll note is that with Ignite as I mentioned on the call we're benefiting from longer-term contracts so we're laying in a lot more money than we historically have earlier on.

So we have better visibility into Q2 than we've had in the past and therefore our confidence in the year. .

Great, thank you so much. Appreciate it..

You're welcome. Thank you Michael..

[Operator Instructions]. Our next question comes from line of James Goss with Barrington Research. Please proceed with your questions. .

Hi, good morning. This is Pat on for Jim. I was wondering if you guys provided information on the Ignite and Interactive margins being roughly similar to broadcast.

How do they compare to -- and how did they compare to broadcast in 2018?.

Jim it was roughly the same. The margins are consistent in 2018 than what we expect in 2019..

And then what opportunity you think you guys have to sort of grow margins within those businesses?.

I would expect those margins to be pretty consistent for the next couple of years because we're going to continue to invest. As we noted on the call both of those businesses on their own will be $100 million in revenue in three to five years so we need to continue to invest in sales and the support.

So the margins that we're experiencing in 2018 and we'll experience in 2019, we expect in 2020 there may be greater margin expansion down the road but that's not what we're focused on right now. We're very pleased with the margins that we have today..

Okay, thank you. .

You're welcome. Have a good day Pat..

[Operator Instructions]. Thank you our next question comes from the line of Rachel Arrowood with Macquarie Group. Please proceed with your question..

Hi, congratulation on the quarter. [Question Inaudible]. .

Yeah, hi Rachel this is Stu. As in the past our priorities for excess cash flow will start off with internal investments; first pay our dividend, service our debt. But internal investments, external investments that fit the criteria of the markets that we like.

We're focused on local first in our markets, we've diverted our emphasis away from events outside of our markets. We do have 200 annual recurring events that are fantastic for our markets that we do like. Most of those we create ourselves so we find that it's more economical to build them than to buy them..

Yes Rachel, and this is Bill. I would just that as we noted on our call our current focus is reducing our net leverage and that's what we're focused on through this year. And if there's opportunities for M&A we always evaluate that but our primary focus right now is of reducing that leverage..

Okay, and are you still targeting low to mid four times?.

Yes, medium term is mid four and long term closer to four..

Perfect, thank you. .

Thank you Rachel..

Thank you. Ladies and gentlemen that concludes our question-and-answer session. I'll turn the floor back to Mr. Wilson for any final comment. .

Thank you operator. Thank you everybody for dialing in. We are very proud of our Q4 results but more importantly we're very confident about 2019 and the start that we've had. Lastly, I want to make you aware we released our annual shareholder letter and that's available on our website. So I encourage you to review it.

And if you have any questions about our results or anything we discussed on the call or the shareholder letter please reach out with any feedback or questions and again appreciate you for dialing in today. Have a great day..

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