Townsquare Media, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. Although the request refers to 2018 Q4, this is an annual filing; quarterly figures below identify the fourth quarter where available. Amounts are U.S. dollars.
Business context and reporting period
Townsquare operates 321 radio stations and more than 330 local websites in 67 U.S. markets, alongside digital marketing and programmatic advertising businesses and live events. Its principal revenue sources are advertising, Townsquare Interactive subscriptions, and live events. The company completed the acquisition of three Princeton, New Jersey radio stations in July 2018. It also sold North American Midway Entertainment (NAME) and Mountain Jam and classified four live-event businesses as discontinued operations.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Net revenue | $430.6 million | $411.4 million |
| Operating income | $40.4 million | $50.5 million |
| Operating margin | 9.4% | 12.3% |
| Continuing-operations net income (loss) | ($0.5) million | $24.8 million |
| Net income (loss), including discontinued operations | ($31.6) million | ($10.3) million |
| Cash from operating activities | $36.6 million | $51.0 million |
| Capital expenditures | $18.1 million | $16.5 million |
| Cash and cash equivalents at year-end | $61.4 million | $61.2 million |
| Working capital at year-end | $67.5 million | $65.1 million |
| Total debt, including current maturities | $555.3 million | $565.1 million |
Revenue increased 4.7% year over year; excluding political revenue, it increased 2.8%. On a pro forma basis including the Princeton stations for the comparable periods, revenue rose 3.7%, or 1.9% excluding political revenue. FY 2018 revenue comprised $339.4 million in advertising, $48.6 million in Townsquare Interactive, and $42.6 million in live events.
Operating cash flow from continuing operations was $47.1 million; total operating cash flow was lower because discontinued operations used $10.4 million. Cash used in investing activities was $18.3 million, including $24.8 million for acquisitions, partly offset by discontinued-operations sale proceeds. Cash used in financing was $18.1 million. The company reported $50 million of available revolver capacity and no revolver borrowings at year-end. It was in compliance with debt covenants.
Debt consisted principally of $282.3 million of term loans and $278.1 million of 6.5% senior notes due 2023. The term loans mature in 2022; their interest rate was 5.52% at year-end. Management estimated approximately $33.9 million of debt-service requirements over the next 12 months.
Q4 2018: Revenue was $109.0 million versus $97.3 million in Q4 2017. Operating loss was $16.6 million versus operating loss of $1.0 million; continuing-operations net loss was $23.2 million versus net income of $9.3 million. The quarter included significant impairment charges.
Material changes and unusual items
- Revenue growth was driven mainly by digital programmatic and digital marketing solutions and higher political advertising; live-event revenue declined amid portfolio rationalization.
- Operating income fell 20.1% as operating expenses increased 8.1%. Results included $32.4 million of goodwill and intangible-asset impairments: $19.9 million related to FCC licenses in 11 markets and $12.5 million to live-events goodwill.
- The company recorded a separate $5.0 million impairment of investments. Continuing-operations interest expense rose to $34.3 million, partly reflecting higher LIBOR, while the term-loan balance declined.
- Discontinued operations generated a $31.1 million net loss in 2018, compared with a $35.1 million loss in 2017. NAME was sold for $23.5 million; Mountain Jam was transferred in a transaction that included a $1.3 million payment by Townsquare.
- Political revenue was $10.0 million in 2018 versus $2.4 million in 2017, contributing to the reported growth. Political advertising is cyclical and generally higher in election years.
- The company began quarterly cash dividends in 2018, declaring $0.30 per share for the year. The board approved a further $0.075-per-share dividend in March 2019.
Outlook, risks, and other disclosures
No specific numerical earnings or revenue guidance is provided in the filing. Management stated that cash on hand, operating cash flows, and revolver availability should meet working-capital, capital-expenditure, debt-service, and other needs for at least one year from the report date, subject to business and market conditions. Management’s priorities include growing digital revenue, expanding advertiser relationships, improving efficiencies, and pursuing disciplined acquisitions.
Key risks include dependence on advertising demand and local economic conditions; competition from digital platforms and other media; the ability to grow and retain digital subscribers and audiences; event attendance, weather, cancellations, and artist availability; substantial leverage and floating-rate exposure; potential further impairments; FCC licensing and ownership regulation; and privacy, cybersecurity, and technology risks. The filing reports no material pending litigation. The company adopted the new lease standard on January 1, 2019 and estimated recognition of a $46.1 million lease liability and a $43.3 million right-of-use asset.
Important facts for investors to verify
- Whether reported revenue growth reflects sustained underlying performance: pro forma growth excluding political revenue was 1.9%.
- Whether digital business growth can offset declining live-event revenue and support margins and operating cash flow.
- The assumptions behind the $32.4 million impairment charges and the risk of additional FCC-license or goodwill impairments.
- Debt-service capacity, interest-rate sensitivity, covenant headroom, and the 2022–2023 debt maturities.
- The earnings and cash effects of discontinued operations, divestitures, and remaining event portfolio changes.
- The sustainability of quarterly dividends given leverage, cash-flow needs, and debt-agreement restrictions.