Townsquare Media, Inc. — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. The company completed its IPO and converted from an LLC to a corporation during the quarter, affecting taxes, equity and comparability. Townsquare operates radio, digital media and live-event businesses; at quarter-end it owned 311 radio stations and more than 325 local websites across 66 markets.
Key financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Net revenue | $94.7 million | $66.9 million | $280.2 million | $192.8 million |
| Operating income (loss) | $(15.5) million | $12.0 million | $20.6 million | $31.7 million |
| Net income (loss) | $(33.6) million | $4.4 million | $(22.0) million | $9.1 million |
| Operating cash flow | Not separately provided | Not separately provided | $35.2 million | $20.5 million |
- Q3 revenue increased 41.7% year over year, but pro forma revenue growth—assuming acquisitions were completed at the start of the comparable periods—was 7.1%. For the nine-month period, reported growth was 45.3% and pro forma growth was 8.0%.
- Pro forma Q3 Local Advertising revenue grew 1.9%; Other Media and Entertainment grew 43.2%, driven by digital marketing, national digital assets and live events. For nine months, those segments grew 1.5% and 42.7%, respectively.
- Q3 operating loss included a one-time, non-cash $37.6 million stock-based compensation charge tied to the IPO and equity conversion; management said it reduced Q3 net income by about $24.9 million. Excluding that charge, operating income would be approximately $22.1 million, a simple arithmetic adjustment rather than a company-reported measure.
- Q3 net interest expense was $11.7 million, up 57.3%; nine-month expense was $35.9 million, up 60.8%, primarily reflecting acquisition-related financing. Reported operating margin was approximately (16.3)% in Q3 and 7.3% for the nine-month period.
- Nine-month investing cash outflow was $15.1 million, including $11.1 million of capital expenditures and $4.2 million for acquisitions. Financing cash outflow was $35.8 million, reflecting debt repayments after IPO proceeds.
Debt, liquidity and capital
- At September 30, cash was $29.9 million. Balance-sheet long-term debt, including bond premium and current maturities, was $530.4 million; management cited $522.8 million of outstanding indebtedness and annual debt-service requirements of about $42.3 million.
- The company repaid $90.0 million of term loans and all $32.2 million of its 10% Senior PIK Notes using IPO proceeds and cash on hand. Remaining term loans were $111.4 million; $418.5 million of 9% senior notes were due in 2019.
- The amended revolving facility provided $25.0 million of availability, with no amount drawn at September 30. The term loans carried a 3.7% effective rate and expose the company to LIBOR fluctuations. The company reported compliance with credit-facility covenants.
- Management stated cash, operating cash generation and available revolver capacity were expected to cover working capital, capital expenditures and debt service for at least the next 12 months. It anticipated capital expenditures would be consistent with prior years and increase slightly to support growth.
- The IPO was priced at $11 per share in July, with additional shares sold through the underwriters’ option in August. At September 30, the company had 9.5 million warrants outstanding and 7.0 million immediately vested options; potential dilution merits attention.
Outlook, risks and unusual items
- No specific earnings or revenue guidance was provided. Management highlighted advertising demand, the economy, competition and audience trends as important drivers; revenue is seasonal, generally strongest in the second and third quarters, with political advertising benefiting even-numbered election years.
- Other risks include weather disruption to live events, acquisition integration and funding, dependence on key personnel, regulatory requirements, floating-rate debt exposure and compliance with debt covenants. The company reported no material off-balance-sheet arrangements and did not expect ordinary-course legal matters to materially affect its financial position or results.
- FCC licenses and goodwill are significant assets; management reported no impairment in the 2013 annual tests but noted that deterioration in market conditions or operating performance could lead to future impairment charges.
- Subsequent event: on October 31, the company acquired substantially all assets of WE Fest for approximately $21.5 million, plus 100,000 Class A shares. Funding included a $10.0 million revolver draw and cash; this post-quarter transaction changed the September 30 liquidity picture.
- Management said disclosure controls were effective at September 30. The filing also notes that results for the interim periods are not necessarily indicative of full-year results.
Investor verification priorities
- Separate acquisition-driven growth from underlying performance; compare reported results with the filing’s pro forma revenue figures.
- Assess recurring profitability and cash conversion apart from the one-time IPO-related stock-compensation charge, including the effect of higher interest expense and working-capital movements.
- Reconcile debt figures and scheduled maturities, confirm covenant headroom and review the impact of the WE Fest purchase and revolver draw on liquidity.
- Evaluate potential dilution from warrants, options and multiple voting classes, and review the assumptions supporting FCC-license and goodwill valuations.