Townsquare Media, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2023. Townsquare operates local radio stations and digital advertising and subscription marketing businesses, principally in U.S. markets outside the top 50.
Financial performance
- Q2 revenue: $121.2 million, down 0.6% year over year. Digital advertising rose 10.6% to $41.1 million; subscription digital marketing fell 7.5% to $21.3 million; broadcast advertising fell 5.8% to $53.7 million.
- Q2 earnings: Operating loss was $4.8 million, compared with operating income of $16.9 million a year earlier. Net loss was $2.7 million versus net income of $4.9 million; diluted loss per share was $0.19. Operating margin was approximately -4.0%, versus 13.8%.
- First-half results: Revenue was $224.3 million, up 1.0%. Operating loss was $0.6 million versus operating income of $32.7 million; net loss was $4.6 million versus net income of $7.7 million. Diluted loss per share was $0.33.
- Cash flow: First-half operating cash flow was $31.4 million, compared with $23.0 million in 2022. Investing activities provided $2.4 million, versus $30.5 million used in 2022. Financing activities used $27.6 million. Cash and restricted cash increased $6.2 million to $50.1 million.
- Liquidity and debt: Cash and cash equivalents were $49.6 million; current assets were $124.6 million and current liabilities $74.7 million. Long-term debt, net of financing costs, was $512.6 million, consisting of 2026 Notes with $517.8 million principal outstanding. The company estimated $35.6 million of debt service requirements over the next 12 months and reported covenant compliance.
- Shareholder returns: The company declared dividends of $0.1875 per share per quarter and paid a $3.0 million dividend on August 1. It repurchased 1.5 million Class C shares from MSG for $14.6 million ($9.70 per share), and repurchased about 89,600 Class A shares under its plan during the first half.
Material changes and unusual items
- Q2 operating results were sharply lower mainly because total impairment charges rose to $26.2 million from $9.4 million. First-half impairment charges were $34.7 million versus $9.9 million.
- FCC license impairments were $16.6 million in Q2 and $24.8 million for the first half, affecting 20 of 74 markets. Management cited higher discount rates and lower third-party broadcast revenue forecasts. A further 50-basis-point increase in the discount rate could have led to an additional $8.1 million impairment at June 30; a 100-basis-point decline in long-term revenue growth could have led to a further $11.1 million.
- A $9.2 million impairment of an equity investment was also recorded in Q2. This was partly offset below operating income by a $5.2 million gain on the sale of another investment; the company also recognized a $0.8 million gain on selling digital assets and a $0.8 million gain from repurchasing debt below par.
- Q2 direct operating expenses increased 2.2%, including higher medical costs, music license fees, digital inventory costs, and live-event expenses. Corporate expenses rose 21.3%, primarily due to higher compensation.
- Digital advertising growth was offset by weaker broadcast advertising and subscription digital marketing. Management attributed the latter decline partly to fewer net subscribers and the broadcast decline partly to reduced client advertising purchases.
Outlook, commentary, and risks
Management stated that cash on hand and expected cash flows should meet working capital, capital expenditure, debt service, and other funding needs for at least one year from the report date. No specific revenue or earnings guidance was provided. The company identified inflation, elevated interest rates, supply-chain disruption, and economic uncertainty as potential pressures on advertising and subscriptions, expenses, and liquidity. It may respond to revenue declines by controlling costs, including wages and non-essential capital expenditures. Future FCC license impairments could be material if broadcast performance or valuation assumptions weaken. Additional financing, if needed, may not be available on acceptable terms. The company reported no material pending litigation and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether digital advertising growth can continue and offset declines in broadcast advertising and subscription subscribers.
- Further FCC license impairment exposure, including changes in discount rates and broadcast revenue forecasts.
- Underlying operating cash generation relative to interest, dividends, capital expenditures, and the 2026 Notes maturity.
- The durability of liquidity and covenant compliance if advertising demand weakens.
- The investment impairment and transaction gains’ effect on reported results, and the sustainability of dividends and share repurchases.