Townsquare Media, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Townsquare is a community-focused digital media, digital marketing and radio company operating primarily in U.S. markets outside the Top 50. Its segments are Advertising, Townsquare Interactive and Live Events.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $111.3m | $95.4m | $307.4m | $262.8m |
| Operating income (loss) | $23.0m | $9.5m | $55.6m | ($96.2m) |
| Net income (loss) | $12.9m | $1.3m | $16.9m | ($85.1m) |
| Operating margin | 20.6% | 10.0% | 18.1% | (36.6%) |
| Net cash from operations | Not separately stated for the quarter | Not separately stated for the quarter | $38.2m | $23.4m |
Margins are calculated from reported revenue and operating income or loss. Q3 diluted EPS was $0.64 versus $0.03; nine-month diluted EPS was $0.71 versus a loss of $4.68. Nine-month results in 2020 included $109.1m of impairment charges, principally FCC broadcast licenses.
Q3 revenue growth was led by Advertising ($87.4m, up 13.3%), Townsquare Interactive ($21.1m, up 16.2%) and Live Events ($2.7m versus $0.1m). For the first nine months, segment revenue was $243.1m for Advertising, $60.3m for Interactive and $3.9m for Live Events. Management attributed growth to increased advertiser spending, subscriber additions and resumed events. Interactive added about 1,000 net subscribers in Q3 and 3,200 in the first nine months.
Cash, debt and liquidity
- Cash and cash equivalents were $31.3m at September 30, 2021, down $51.9m from year-end 2020. The decline included $80.4m paid to repurchase Oaktree securities; excluding that payment, cash increased $28.5m, per management.
- Operating cash flow was $38.2m; investing activities used $6.1m, including $7.8m of property and equipment purchases; financing activities used $84.0m.
- Long-term debt was $550.0m principal, or $540.9m net of deferred financing costs. The company issued $550.0m of 6.875% senior secured notes due 2026 in January, repaid its term loans and 2023 notes, and terminated its revolver. Reported nine-month net interest expense rose to $29.8m from $23.7m.
- Current assets were $99.8m and current liabilities $64.7m. Management estimated approximately $37.8m of debt service over the next 12 months and stated it expects available cash and operating cash flow to cover needs for at least a year. It reported compliance with note covenants.
Material changes, outlook and risks
- Revenue increased 16.7% in Q3 and 16.9% in the first nine months year over year. Advertising recovery and the Interactive subscription business supported growth; management said revenue remained below 2019 levels except for Townsquare Interactive.
- Operating results improved substantially versus the first nine months of 2020, but the comparison is heavily affected by prior-year impairment charges. Q3 interest expense increased 27.6% to $9.8m.
- Other income included a $2.9m unrealized gain on an investee whose shares began trading in an observable market; the investment’s reported fair value was approximately $6.1m at quarter-end.
- The company provided no specific financial guidance. It described continued uncertainty around COVID-19, advertising demand, consumer spending and live-event scheduling, and maintained precautionary cost and capital-spending measures. Quarterly dividends remained suspended after the 2020 first-quarter payment.
- FCC licenses are a significant asset and remain sensitive to broadcast revenue forecasts and valuation assumptions. Management estimated that a 100-basis-point increase in the discount rate, holding other assumptions constant, would have reduced estimated license fair values by $55.1m and produced a $5.6m impairment charge.
- Disclosure controls were not effective as of September 30, 2021 because previously identified material weaknesses had not been fully remediated. The weaknesses included IT access controls, revenue-recognition controls, income-tax controls and period-end financial reporting review controls. Management said remediation was underway.
- Management cited COVID-19 and economic conditions, competitive and technology changes, leverage and financing access, and potential further FCC-license impairment as risks. It reported no current material pending litigation and no material off-balance-sheet arrangements.
Key facts for investors to verify
- Whether advertising recovery and Interactive subscriber growth continued after Q3, and how revenue compared with 2019 levels.
- Cash generation, cash balance and capacity to meet interest and other obligations on the $550m notes.
- FCC-license valuation assumptions and whether subsequent broadcast performance or discount-rate changes trigger impairment.
- Progress and independent testing of remediation for the disclosed material weaknesses in financial reporting controls.
- The sustainability of earnings excluding the investee’s unrealized gain, prior-year impairment comparisons and refinancing-related costs.