Townsquare Media, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2014. The filing is an annual report; it does not provide a clear standalone fourth-quarter income statement, so the comparisons below are full-year unless noted.
Business context
Townsquare operates local radio, digital advertising and marketing services, and live events, primarily in small and mid-sized U.S. markets. At year-end it owned 311 radio stations, more than 325 local websites and approximately 500 live events across 66 markets. It completed its IPO and converted from an LLC to a corporation in July 2014. Acquisitions, particularly the 2013 Cumulus II and Peak transactions, materially affected year-over-year comparisons.
Key financial metrics
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $373.9 million | $268.6 million |
| Operating income | $40.5 million | $46.2 million |
| Operating margin | 10.8% | 17.2% |
| Net income (loss) | $(17.0) million | $10.1 million |
| Cash from operating activities | $45.3 million | $26.2 million |
| Capital expenditures | $13.5 million | $9.5 million |
| Cash at year-end | $24.5 million | $45.6 million |
| Working capital | $40.2 million | $58.5 million |
| Total debt, including current maturities | $539.7 million | $653.5 million |
Revenue rose 39.2%, but management attributes $80.4 million of the increase to acquisitions; pro forma revenue, including acquired businesses for comparable periods, grew 8.4%. FY 2014 revenue by segment was $302.6 million in Local Advertising, $41.0 million in Live Events and $30.3 million in Other Media and Entertainment. Operating costs included $37.7 million of non-cash stock-based compensation, primarily a one-time IPO/conversion-related charge. Excluding that charge, operating income would be approximately $78.3 million, or about 20.9% of revenue; this is an arithmetic adjustment, not a company-reported non-GAAP measure.
FY 2014 net loss also reflected $46.5 million of net interest expense and $10.9 million of income tax expense. The tax charge included deferred taxes associated with the LLC-to-corporation conversion and the period after conversion. At December 31, debt included $410.9 million principal of 9% unsecured notes due 2019, $111.2 million of term loans and $10.0 million drawn on the revolver. The company reported $15.0 million of remaining revolving capacity and approximately $42.6 million of annual debt-service requirements.
Material changes versus prior year
- Reported revenue increased $105.3 million, driven substantially by acquisitions; on a pro forma basis, Local Advertising grew 2.6%, Live Events 31.6% and Other Media and Entertainment 46.7%.
- Operating income declined $5.7 million despite revenue growth, reflecting higher expenses and the $37.7 million stock-compensation charge. Net income shifted to a $17.0 million loss from $10.1 million income.
- Operating cash flow increased $19.1 million. Cash declined $21.2 million during the year, while debt fell about $113.8 million, mainly after IPO proceeds were used to repay the $32.2 million Senior PIK Notes and $90.0 million of term loans.
- WE Fest was acquired in October 2014 for approximately $22.8 million of total consideration, including cash and 100,000 Class A shares; the company also drew $10.0 million on its revolver to help fund the acquisition.
Outlook, risks and unusual items
- Management said cash, operating cash generation and available revolver capacity were expected to fund operations, debt service and capital needs for at least the next 12 months. No formal revenue or earnings guidance is provided.
- After year-end, the company gave conditional notice to redeem the remaining $410.9 million principal of its 9% notes on April 1, 2015 at 106.75% of principal, contingent on completing refinancing transactions. The filing cautions that refinancing may not be completed.
- Key exposures include substantial leverage and interest-rate sensitivity on floating-rate term loans; dependence on advertising demand; competition and audience shifts to digital platforms; and event attendance, weather, talent availability and event safety risks.
- FCC license renewals and broadcast regulation, acquisition integration and approvals, and potential impairment of goodwill and FCC licenses are additional risks. Goodwill and FCC licenses represented a large share of assets; no impairment was recorded for 2014.
- The Brill lawsuit, which had sought damages exceeding $20 million, was resolved in the company’s favor after the Indiana Supreme Court declined review in October 2014. The filing reports no material off-balance-sheet arrangements and no other material litigation outcome.
- The company is controlled by Oaktree, does not anticipate cash dividends in the foreseeable future, and qualifies as a controlled company and an emerging growth company. Management concluded disclosure controls were effective; the filing did not include management’s internal-control effectiveness assessment due to the newly public company transition period.
Most important facts for investors to verify
- Whether the announced refinancing closed, its final interest rates, fees, maturity profile and effect on leverage and liquidity.
- How much of revenue and cash-flow growth is organic versus acquired, particularly given pro forma growth of 8.4% compared with reported growth of 39.2%.
- Underlying operating performance after separating the one-time stock-based compensation charge and conversion-related tax expense from recurring results.
- Cash conversion, debt service capacity, covenant headroom and the availability of the remaining revolver under weaker advertising or event conditions.
- Whether growth in digital services and live events continues, and whether event margins and attendance withstand competition, weather and changing consumer demand.
- Potential dilution and governance implications from outstanding warrants, options, multi-class shares and Oaktree’s voting control.