My name is Marlene Pereiro. I am the High Yield Cable and Media Analyst here at Bank of America. Today, I have with us Stu Rosenstein, CFO of Townsquare, as well as Claire Yenicay, Executive Vice President of Investor Relations. Thank you both for joining us. We appreciate having you. Thank you for having us. Great. Can you give me this microphone? You guys hear? That's fine. Okay. Thank you very much for having us. Absolutely. It's a pleasure. Thank you. So just, you know, starting out at a high level, you know, thinking about broadcast radio, you know, do you think that broadcast radio can fully recover to pre-pandemic levels, or has the town fundamentally shifted? I think in our markets, small markets, I think it can. We're not counting on it. You know, to us, broadcast is a mature cash cow machine that helps us generate all our free cash flow. Our main focus will always be digital, you know, now and going forward. Yeah. Okay. Then, you know, turning to the advertising environment, you know, could you discuss any potential upside drivers, you know, for both local and national that we could see materialize as we move into, you know, 4Q and possibly into next year? Well, we have a crystal ball. Everybody has their own crystal ball. Hopefully, our administration will start talking more about no more raises in interest rates. As we get into the beginning to the middle of next year, the talk on the street, because Wall Street's financial machine is motivated to do so, hopefully start talking about some cuts. I think the American psyche has as much to do with this as anything that's out there. You know, we're in small and mid-sized markets. 94% of our customers are small, local businesses, like HVAC companies, and plumbers, and nail salons, and boutique men's and women's stores. You know, it's... Our advertising is not like the NFL cities, where if any of you live in, you know, small cities, you'll hear radio advertisements for local restaurants that you go into or stores that you buy stuff at. This is a webcast. Okay, I will use the microphone then. If you live in big cities, all you hear is wireless ads and GEICO insurance ads, right? So, you know, as interest rates rose from levels of next to zero to 2% to 7%-8%, it became very hard on small businesses. You know, people took out car loans, and second mortgages, and college loans, and all of a sudden, your interest expense triples every month. It's tough. So, you know, as we get into next year, I think we'll start hearing leveling off of rates, no more raises, the future prospect and hopes of cuts. I think the psyche will get better. The economy will lighten up. I think we'll start seeing it. Currently, today, I think we have more money on the books for Q1 of next year than we did this time for this past year. You know, national, national is still not doing as well as it had in the past. It started really falling last year in Q2, so, you know, we have easier comps for next year. Great. And then just, you know, continuing with advertising for just a moment, you know, what categories are you seeing strengthen? You know, which are lagging? And, you know, it doesn't seem to be the case, but, you know, have you seen any impact from the auto strikes on auto advertising? So auto's still struggling. Auto's still struggling. Financial services are struggling. You know, everything that's kind of interest rate related is struggling. But, you know, home care, and remodeling, and renovations, and real estate, all that kind of stuff is kind of holding its own and doing pretty well. Also, our markets, all of our markets have some sort of underlying, stabilizing economic base, either a large college, university town, military bases in the town, state capitals. So we don't operate. And it's one of the precursors of what markets we go into and buy. We won't be in real estate boom-bust markets, where when the economy turns bad, there's nothing, you know. We have businesses. We have people that live in these towns that have businesses. So when the interest rates are high or interest rates are low, they still have to be in business, and the only way for them to get people to come into their business and buy their, their goods and services is through advertising. Obviously, they'll spend more, advertise more when things are better and be conservative and cut back when it's not. But, you know, this was a very tough, tough environment this year. And, you know, last year, 2022, was a record year in revenues and EBITDA profits for the company. And we were one of the few media companies that came out and basically gave full year guidance back in the beginning of the year when we reported full results for last year. And we basically reaffirmed them and made them every quarter going forwards, and we just came out at the end of Q3. When we released Q3 earnings, we reaffirmed the full year EBITDA and revenue. So as Tiger Woods says, "It's really pleasing to win a tournament when you're not playing your best." So I look at, we're so proud of our, our company, and our people, and our sales force, and our presidents, and our RVPs. You know, to have made EBITDA in a really tough, challenging environment, I think we did pretty well, and it really goes back to the thesis. The thesis was: Let's go into a market, small, mid-sized markets, where we kind of built a defensive moat for ourselves, where we won't see competition from other digital players, and let's morph a traditional terrestrial broadcast business into a new world digital business. And now, today, we have—you know, digital advertising display, digital advertising streaming. We offer digital marketing services. We offer digital programmatic sales, which enables us with our own full-funnel in-house. We don't white label anything. We have over 150 world-class digital engineers and coders. All of our digital products, we developed ourselves, we created ourselves. And we're able to put our clients' products in front of people with a 5x-10x higher propensity to buy their products or services in the next seven-10 days, and that's our fastest-growing product, Townsquare Ignite. We're now 54% of our revenues come from our digital products, and 52% of our company's profits come from digital. So we're about halfway there in our thesis, and we've had some pretty tough roadblocks. We had COVID. You know, this year was a tough year, but this year we're doing pretty good for a very tough year. Absolutely. And then, you know, political next year, you know, high margin political ad revenue, you know, you'd given a range. You know, do you see any upside to what you've guided to, you know, in terms of political advertising revenue next year? Political is a tough one to forecast. Political comes in late in the year. It's not huge for us like it is for some big markets and big TV markets. On an off political year, we'll do between $2 million and $4 million, and in a, you know, a presidential year or a political year, we'll do between $8 million and $10 million or $10 million and $12 million for a presidential year. I personally... You know, it's not- this is not official guidance, but personally, unfortunately, I think there's such a horrible divide between Republicans and Democrats, and I think the, you know, the arguments and the fights and the feelings are so at a fever high, at a fever pitch. You know, I just think there's gonna be a lot more advertising this- next year than there ever has been before, so we're hopefully optimistic. You've talked about $14 million-$16 million, if I'm not mistaken. Is that correct? We did. Okay. Yeah. Our all-time high was $16 million in the last presidential cycle. So we're not going out and saying that we're gonna beat that, but you never know. I just think that there are so many people that have such strong feelings for and against the likely two candidates on, you know, round two, like Rocky II and Rocky III. Right. People are gonna be spending a lot of money, hopefully, on political. Great. And then moving on to Interactive, your subscription, digital marketing solutions business, which is geared towards smaller businesses. You know, next year you expect, you know, to return to growth, you know, top and bottom line. So, you know, can you talk about, you know, the key drivers there? And also from a timing perspective, you know, do we start to see that momentum later in the year, earlier in the year? Just kind of getting a sense of when you think that momentum will start to kick in next year. Okay. First, let me kind of rephrase, step back a little bit. The company, that, that division is still extremely profitable. It's a $90 million+ run rate business at, you know, high 20%, 28%, 29% margins. And this thing has been on a fever-pitched tear since we started in 2012. So growth, as a matter of percentages, is all relative, right? Mm-hmm. If you have one customer, you add two, you had a 100% growth. You know, at the end of last year, when we had 30,000 subscribers, it's harder to keep that percentage growth at the same level 'cause your base is so big. Again, this business targets small- and midsize customers, right? The independent insurance salesman, the local CPA, the small law firm, the nail salon, the small pizza parlor, right? Again, it's been a tough business, and it's been a tough environment. So we can tell... We had two little hiccups, two bumps in the road. One is we had trouble getting all of our employees to come back to work and work in the office. So we had to go from a one-on-one customer relationship model to a pooled model, like a call-in service. So we're pretty much past that. So I think the customers that we lost due to them not having their personalized service person, I think we're past that. I think we're good. I think the model is much better. I think service is much better. We've had that feedback, so that's good. The customers going out of business, it's, you know, it's probably at a record high right now. You know, the economy is still very tough. Interest rate has caused these small businesses to go out of business. We can tell because they pay by credit card by the first of the month. When the credit card gets denied, you know that they're either out of business or, or just about to go out of business. Right. And we see it slowly getting better, right? The last few months have been noticeably better than most of Q2 and Q3. Timing on when we're gonna get back to growth in subscribers, middle to the end of next year. It takes a long... Like, we've lost 5,000 subscribers on a net basis. The churn, the customers we're losing is slowing, and also the growth in new customers is stabilizing. It's gonna hopefully get back to new growth and a little bit better as we get into a better economic psyche next year. Great. And then, you know, just moving on to Interactive, you know, the margin profile there is in the high twenties, I think it's about 28%. You know, you've previously discussed that you expect margins to kind of be a little bit suppressed in the latter half of this year, and then, you know, as growth resumes, you know, we're kind of in a better environment next year. You know, how should we think about that margin profile evolving as we move into a more stable and, you know, potentially more robust environment? So we manage that margin based upon growth, and for us, growth is how many new salespeople and how many new account managers we hire. Yeah. We've always managed that business to be in the high 20s, you know, between 20 and 31. So we're gonna keep that at that, that growth level. We'll pull back a little of the hiring if business gets worse, and we'll accelerate it if it gets better. So I think people could feel confident that we're gonna always manage that business in the high 20s. Great. And then shifting to Ignite, your digital advertising segment. You know, it seemed that there's similar products from, you know, other radio peers and competitors. So what are the differentiators of your offering versus some of the others that are out there? So the differentiators are huge, and they're really important. First differentiator is that we own the whole platform. We created it, we developed ourselves, so we're not white labeling it. In our size markets, you could get that type of business from other folks, but they're usually using somebody else. So when they get a question, they have to get back to them. They never really understand the question, they never interpret the question, because the people that are talking to the customers, they're salespeople. Right. Right? Like, we have Townsquare University, TSU. Every one of our salespeople have to go through Townsquare University every year. So they know every aspect of how programmatic sells and works, and they have somebody in their building that's coding it, generating it, coming up with the algorithms that they can talk to and speak to. So they all know it before they go out to sell it. There's really no questions that they get that they can't answer. So the fact that we control the whole funnel from start to finish internally, with our own developed and calculated algorithms and products, is tremendous. That's a big advantage. It gives a lot of confidence to the customer. Second, we're so large. We can buy from these platforms where everybody else can't. So we're able to actually go out and buy inventory at very aggressive prices, very attractive prices, where small shops really can't. And also all of our, you know, all of our markets are kinda connected in the eyes of the digital world. Yeah. So it makes us seem tremendously larger than we are. So we're always able to get product, buy inventory cheaper, put it out there cheaper. That's the second. And the most important thing is that we optimize these programs twice a week. Let me give you an example. Let's say we're gonna go out and run a campaign for a fly fisherman, fly fishing store. And we know that, based upon our algorithms, that avid fly fishermen go to Cabelas.com, flyfishermenusa.com, and weatherchannel.com, 'cause that's the first three things a crazy, avid fly fisherman looks at in the morning to decide what to buy, where to go, and how to dress, and what kind of flies to use. So we'll say, "Okay, let's do a $6,000 campaign, and let's put $2,000 on each- Yep ... and let's see how it works." So a normal, you know, our competitors and most advertising agencies will wait until the end of the month and say, "Okay, well, you got a ton of hits on Fly Fisherman USA and weather.com, but not so many on Cabela's." Where we'll do that twice a week. So we'll start the campaign on Sunday night, midnight. Wednesday night, midnight, we'll get Google Analytics. We'll see, okay, Fly Fisherman USA got us a ton, The Weather Channel got a ton, but Cabela's did nothing. So for the first three days of the monthly campaign of the $2,000 buy, we only-- we didn't get enough. Let's not continue it. So we spent $40. Let's take the remaining $1,960, split it 50/50, and put it on these two. Right? Then, at the end of the next Sunday night, we'll do it again, and we'll say, "All right, it's going well." And twice a week, we'll optimize that campaign, and we'll even give thought to putting it somewheres else. Whereas with somebody else, if you're advertising with a... You're doing this programmatic with somebody else, the end of the month, they'll tell you, but they've already wasted the one dead source. Right. Right. So it's. Our customers love it. It's very, very helpful for them. It makes the campaign very successful. That's great. You know, and then just shifting to, you know, free cash flow items. You know, to confirm, you do not expect to be a material cash taxpayer until 2026, due to various tax shields and NOLs. Correct? That's correct. We have over $100 million in federal and state NOLs, and we have a lot of other tax shields. We conservatively say 2026. Personally, I think it'll be a little bit longer, so that really helps with our cash flow generation. On CapEx, you know, could you just remind us, give us a sense of what maintenance CapEx is versus, you know, kind of a typical normalized run rate CapEx? Maintenance CapEx, Maintenance CapEx is between 60% and 70% of all CapEx. As we grow and make investments in new markets and get better technology for broadcasting boards and, you know, way to do voice tracking, that's the remaining part. And also, we're hiring so many people in the digital space. Computers and, you know, mundane things like desks and chairs and screens make up the rest of it. Great. Are there any assets that you would consider non-core to the business that you could potentially monetize if you chose to or needed to? You know, we've been doing that a lot over the last, I'd say, two or three years. Nothing material, really, that we would get rid of, you know. There are markets that have tower facilities that we own, that we don't have extra, that we don't have rental income from, have other people in it, that we've been able to consolidate, put two antennas on one and sell those off. But really nothing material. Great. And then you do have, you know, debt due in 2026. So can you give us some guidance on your balance sheet strategy, and also, you know, what you think is kind of the right leverage for the business? Okay. So right now, on a net basis, we're levered about 4.5x. In 2021, we floated a $550 million bond with a 6.70% coupon. In the last three years, we've paid down $47 million of that. We've bought them at prices below par. So we have $503 million of bonds outstanding. Probably around this time next year, we'll be in the market looking to refinance those. You know, we'll take a look and see what's more advantageous for us. If rates are significantly better in the loan market versus the bond market, we'll, we'll make that choice. We think that we'll be under 4 times levered when we come out to refinance. We have $60 million on our, in our bank accounts today. By the end of the third quarter next year, we'll have $100 million, assuming we don't buy back any more bonds. But that's just on net basis, that'll be the same. We'll probably go out looking to borrow between $430 million and $450 million, and that leverage point at that point will put us, you know, comfortably under 4x. Long term, I think... Midterm, we'll get to 3.5x, and long term, 3x leverage is what we, what we think is the appropriate amount for a company of our size. Great. And as you alluded to, I know historically, you know, before the current rate environment, you had talked about potentially a loan, you know, and it's something that you would consider. You know, where would rates have to be to, you know, make that an attractive endeavor? Or is it more the trajectory of rates as you kind of perceive them to be? Well, SOFR today is 5.31. Yeah. Future yield curve has it when we're gonna be in the market at 5.1. Current spreads in this environment for both bank and bond are anywhere, as for a company of our makeup, 2.5-3.5. Mm-hmm. Hopefully, the administration will start talking about ceasing raises and start talking about lowering, cutting rates at some point. So, you know, people that we've spoken to at Bank of America who are really in tune to this think that spreads could be between 1.5 and 2.5. Mm-hmm. So the yield curve so far of 5-5.1, it could put us, like, 8.5. Or, you know, with our lower amount outstanding, interest expense will be less. Yeah. It'll be closer to 30 than 35. Given parity in both markets, we probably wanna go with a term loan. It's easier to pay down the debt. We think rates are probably more likely to go down than go up over the next five years, starting a year from today. So having a variable rate instrument in a decreasing rate environment is definitely advantageous. Probably go that way. Great ... if they're close to the same. That's helpful, Stu. Yeah. Then, you know, shifting gears a bit to the FCC, and, you know, obviously, the composition of your businesses is more digital than traditional broadcast radio. Do you think at some point we will see, you know, radio ownership limits eased and, you know, kind of your thoughts on that for yourselves or the industry? It's unbelievable to us that we haven't already seen it. It's just ridiculous that there are no limitations on digital advertising companies, and that we're still handcuffed to the same rules that were put in place over 20 years ago. It's just mind-boggling that we haven't seen it yet. So I don't know when. I've really thought a couple of years ago, before the current administration took over, we were pretty close to getting caps lifted. I think when caps do lift, it'll be a tremendous help to the broadcast radio industry. You know, if you have seven radio stations in a market, and you can add two, three, four, or five, you don't really have to add any more infrastructure. You have one general manager, you have one head of sales, you have the same sales force. It would be tremendously economically advantageous, and I can't believe that we haven't seen it yet. It's as we're acting back in the dark ages, it's ridiculous. It's fair. Then, you know, just more broadly, you know, what do you see as the biggest challenges and opportunities for the business today? Challenges are the continuing raising of interest rates. You know, for us, we're the 900-pound gorilla when it comes to digital competition in our market, so, that's not gonna be a challenge. It's really the, the struggles of the small business owner, right? So if interest rates come down, I think the psyche of the business owner and the economy and the buyers will improve. I think there's more upside today, looking forward, than downside. Some of the potential problems coming down the road are more geopolitical than anything else. You know, wars, invasions, accidents, but hopefully, those are behind us, too, or soon to be behind us. And no new ones will come up for lots of different reasons. Hopefully. Hopefully... I think the opportunities of really just executing on our digital strategy because there's just so much runway there, and tailwinds with the digital advertising growth in the industry. Great. Thank you. We do have a few more minutes, so we can open it up if there's any questions. Okay, I actually have a few more myself- Mm-hmm ... but I can keep going. You know, on that point, Claire, like, what... You know, can you just, you know, talk about the, you know, addressable market opportunity for your digital businesses? Sure. So, there's the Townsquare Interactive business and then the digital advertising. For Townsquare Interactive, we've outlined in our investor presentation- Mm-hmm ... for several years, how we believe that there is, nine million customers, SMBs, in the United States that fit our target profile, and today we have a little over 25,000. So we see a huge opportunity there. And, you know, there's just even with our current challenges this year, we're still so excited about that business and its growth potential that we've continued to invest, even as we've seen some, you know, subscriber loss this year. So that is a huge opportunity there. And on the digital side, in our markets, we only have less than 10% digital market share on average in our markets. So we think there's still a huge opportunity, alone in that space. Great. Wonderful. Well, that's all I have. Okay. Thank you very much for having us. Stu, Claire, it was a pleasure having you both. Great. I really appreciate it. Great to see you.