Townsquare Media, Inc. — Q2 2018 Form 10-Q
Business context and period. Unaudited results cover the three and six months ended June 30, 2018, compared with the same periods in 2017. Townsquare operates radio, digital advertising and marketing services, and live events, serving 67 U.S. markets. In 2018 it sold North American Midway Entertainment (NAME) and exited Mountain Jam; both are reported as discontinued operations. Management describes the continuing business as an integrated local marketing company.
Financial results
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net revenue | $119.6 million | $117.3 million | $207.6 million | $202.2 million |
| Operating income | $22.4 million | $21.2 million | $34.7 million | $30.7 million |
| Continuing-operations net income | $10.1 million | $7.8 million | $12.9 million | $8.5 million |
| Net income (loss), including discontinued operations | $1.6 million | $5.6 million | $(25.0) million | $2.6 million |
| Operating margin | 18.7% | 18.1% | 16.7% | 15.2% |
Q2 revenue increased 1.9% (1.3% excluding political revenue); first-half revenue increased 2.6% (2.2% excluding political). Growth in digital programmatic, digital marketing solutions and political advertising was partly offset by planned declines in live events. For Q2, advertising revenue was $86.3 million, live events $21.6 million and Townsquare Interactive $11.7 million. Continuing-operations diluted EPS was $0.36 in Q2 and $0.47 for the first half; total diluted EPS was affected by discontinued operations.
Cash flow and liquidity. For the first half, operating cash flow was $1.2 million, including $9.4 million from continuing operations and $(8.2) million from discontinued operations. Investing activities provided $12.0 million, primarily reflecting NAME sale proceeds; financing used $12.1 million, including debt repayment and dividends. Cash and restricted cash ended at $62.4 million. Current assets were $140.5 million and current liabilities $64.9 million.
Debt. June 30 debt was $562.4 million before $5.9 million of deferred financing costs ($556.5 million reported net). This included $280.1 million of 6.5% notes due 2023 and $282.3 million of term loans due 2022. The term-loan rate was 5.09%; the $50 million revolving facility had no borrowings. The company reported covenant compliance and estimated approximately $34.4 million in debt service over the next 12 months. A 1 percentage-point increase in LIBOR would raise annual interest expense by about $2.8 million, based on the reported term-loan balance.
Material changes, outlook and risks
- First-half discontinued-operations net loss was $37.8 million, including a $38.0 million impairment charge and a $1.9 million loss on the NAME sale, partly offset by a $1.2 million Mountain Jam sale gain. The reported first-half consolidated net loss was $25.0 million.
- NAME was sold for $23.5 million cash in May. Townsquare also has a right to 15% of any sale proceeds if NAME is resold, in whole or part, within ten years. The Mountain Jam/Taste of Country transaction was agreed in June.
- Management stated cash, operating and investing flows, and available revolver capacity should meet funding needs for at least one year. No specific earnings or revenue guidance was provided. Management expects Q1 to be seasonally weakest, Q2 and Q3 generally strongest, with political advertising typically highest in Q4 of even-numbered years.
- Key risks include advertising demand and economic conditions, competition and changes in media consumption, leverage and floating interest rates, weather impacts on events, and the ability to finance and integrate acquisitions. The filing reports no material off-balance-sheet arrangements and says ordinary-course legal matters are not expected to have a material adverse effect.
- The company declared quarterly dividends of $0.075 per share; a further $0.075 dividend was approved after quarter-end. It completed the acquisition of three Princeton, New Jersey radio stations for $17.3 million on July 2, 2018, funded with cash on hand.
- ASC 606 adoption increased opening retained earnings by $2.3 million and, through June, increased net income by approximately $0.3 million. Management expects the ongoing effect on net income to be immaterial. The company was assessing the impact of the new lease standard, effective for it in 2019.
Important facts for investors to verify
- How continuing-business revenue, margins and cash generation perform after the NAME and Mountain Jam exits, including the relative contributions of digital services and advertising.
- The cash proceeds, final accounting and any contingent resale proceeds associated with the divestitures, and the post-quarter radio-station acquisition’s effect on debt and liquidity.
- Debt-service capacity and covenant headroom amid floating-rate exposure, scheduled dividends and ongoing capital needs.
- The assumptions behind discontinued-operations impairments and the potential for further impairment of FCC licenses, goodwill or other assets.
- Whether the stated one-year liquidity expectation remains supported by operating cash flow, particularly given low first-half consolidated operating cash flow.