Townsquare Media, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Townsquare operates radio, digital advertising and marketing businesses, and live events across 67 U.S. markets. The filing reports three segments: Advertising, Townsquare Interactive, and Live Events.
Financial performance and condition
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net revenue | $113.1 million | $105.3 million | $206.8 million | $193.3 million |
| Operating income | $23.2 million | $20.4 million | $35.1 million | $33.6 million |
| Continuing-operations net income | $10.6 million | $8.6 million | $13.0 million | $12.1 million |
| Net income (loss), including discontinued operations | $10.7 million | $1.6 million | $5.9 million | $(25.0) million |
| Net cash from operating activities | Not presented quarterly | Not presented quarterly | $3.4 million | $0.4 million |
Q2 revenue grew 7.4%; on a pro forma basis, including the Princeton radio acquisition in the comparable period, revenue grew 5.3%. Q2 operating margin was approximately 20.5%, compared with 19.3% a year earlier. For the first half, revenue increased 7.0% (5.0% pro forma), while operating income increased 4.5%; operating margin was approximately 17.0%, versus 17.4%.
- Q2 segment revenue: Advertising $91.5 million, up 6.0%; Townsquare Interactive $15.3 million, up 30.8%; Live Events $6.3 million, down 13.8%.
- First-half segment revenue: Advertising $165.8 million, up 5.0%; Townsquare Interactive $29.5 million, up 31.2%; Live Events $11.5 million, down 11.5%. Management attributed growth mainly to a larger digital-programmatic customer base and Interactive subscriber base; certain eliminated events reduced Live Events revenue.
- Q2 diluted earnings per share from continuing operations were $0.37, versus $0.30. First-half diluted continuing-operations EPS was $0.44, versus $0.42. The company revised prior-period EPS presentation because warrants were determined to be participating securities.
- First-half cash from continuing operations was $6.9 million; discontinued operations used $3.5 million. Capital expenditures were $8.9 million. Cash increased $1.4 million to $62.8 million from year-end 2018.
- At June 30, cash was $62.8 million and accounts receivable was $67.4 million. Debt was $560.5 million before deferred financing costs, or $555.6 million net; there were no revolver borrowings and $50.0 million of revolving capacity available. The company reported covenant compliance. Net debt, calculated as reported debt net of financing costs less cash, was approximately $492.8 million.
- The company declared dividends of $0.075 per share in each quarter. A further $0.075-per-share dividend was approved August 5, payable November 15, 2019.
Material changes, outlook and risks
- On May 24, 2019, Townsquare sold four music festivals to a Live Nation subsidiary for $10.0 million and agreed to provide production services for the 2019 festivals for a share of defined net profits. The business is reported as discontinued operations. First-half discontinued-operations loss was $7.1 million, compared with a $37.0 million loss in the prior-year period, which included substantial impairment charges.
- The company also sold Arizona Bridal Shows for $2.0 million in March 2019, recognizing a $1.4 million gain in discontinued operations. It recorded a $0.2 million impairment related to a Tuscaloosa radio-station disposal group.
- On April 30, the company amended its credit agreement, extending the revolver maturity to April 1, 2022, subject to a springing maturity provision. Term Loans mature April 1, 2022; $278.1 million of 6.5% senior notes mature April 1, 2023. The Term Loan rate was 5.50% at quarter-end.
- Adoption of lease accounting on January 1, 2019 added operating lease liabilities of approximately $45.7 million and right-of-use assets of approximately $42.8 million, and reduced opening equity by $0.8 million. Lease liabilities were $44.8 million at June 30.
- Management said cash, operating cash flow and available revolver capacity were expected to support working capital, capital expenditures, debt service and dividends for at least one year from the report date. It estimated debt service of approximately $33.9 million over the next 12 months. No numerical revenue or earnings guidance was provided.
- Management cited seasonality, with first-quarter revenue typically lowest and political advertising typically strongest in fourth quarters of even-numbered years. Risks include advertising demand and economic conditions, competition and changing media consumption, leverage and floating-rate exposure, and event-related disruptions such as weather.
- Disclosure controls were deemed ineffective as of June 30 due to a material weakness in the design of controls over EPS calculations, specifically the treatment of warrants under the two-class method. Management said it was enhancing EPS review procedures. The filing states the error affected EPS calculations and was not material to prior-period operating results or financial position.
Most important facts for investors to verify
- Whether the EPS-control material weakness has been remediated and whether the auditor’s required internal-control attestation later in 2019 identifies additional issues.
- Whether Interactive and digital-advertising growth can continue while their supporting operating costs and software-related depreciation rise.
- How cash generation, capital spending and dividends will affect the company’s ability to service its substantial debt, including floating-rate Term Loans and 2022–2023 maturities.
- The cash and earnings contribution from the retained live-events business after the music-festival sale, and the terms and results of the 2019 production-services arrangement.
- The filing’s prior-period comparisons include revised EPS and discontinued-operations presentation; confirm comparable-period adjustments when assessing trends.