Townsquare Media, Inc. — Q3 2022 Form 10-Q
Business and period: Community-focused digital media, marketing and local radio company operating in U.S. markets primarily outside the top 50. This unaudited filing covers the three and nine months ended September 30, 2022; financial figures below are in millions unless noted.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $120.6 | $111.3 | $342.8 | $307.4 |
| Operating income | $14.5 | $23.0 | $47.2 | $55.6 |
| Operating margin | 12.0% | 20.7% | 13.8% | 18.1% |
| Net income | $2.8 | $12.9 | $10.5 | $16.9 |
| Diluted EPS | $0.13 | $0.64 | $0.48 | $0.71 |
| Cash provided by operating activities | Not provided for quarter | $32.1 | $38.1 |
- Q3 revenue rose 8.4%; nine-month revenue rose 11.5%. Digital Advertising led growth, with revenue up 21.3% in both periods. Subscription Digital Marketing Solutions rose 9.7% in Q3 and 12.7% year to date; Broadcast Advertising rose 3.4% and 3.8%, respectively.
- Revenue growth did not translate into higher operating profit: direct operating expenses grew 10.9% in Q3 and 14.0% year to date, outpacing revenue growth. The operating-margin figures above are calculated from reported operating income and revenue.
- At September 30, cash and cash equivalents were $27.0, down from $50.5 at year-end 2021; receivables were $61.7. Total current assets were $101.4 and current liabilities $65.9.
- Long-term debt, net of financing costs, was $523.9, consisting of 2026 Notes with $530.8 principal outstanding. The company repurchased $19.2 of principal during the first nine months and reported compliance with the notes’ covenants. Management estimated $36.5 of debt service over the next 12 months.
Material changes, outlook and risks
- Operating income fell 36.8% in Q3 and 15.1% year to date. Results included $10.3 of Q3 impairment charges and $20.2 for the nine months, principally FCC broadcast licenses. The nine-month total also included digital-asset, investment and property impairments.
- Cash from operations declined to $32.1 from $38.1 year to date. Investing used $35.4, including the $18.4 Cherry Creek Broadcasting acquisition, higher capital spending and digital-asset purchases. Financing used $20.2, principally for debt repurchases. Cash and restricted cash decreased $23.5.
- Cherry Creek was acquired on June 17, 2022. Its preliminary allocation included $8.4 of goodwill; the purchase-price allocation remained subject to finalization. Six Missoula stations were sold due to FCC ownership limits, and a Tri-Cities station was acquired in July.
- Management said operating cash flow and cash on hand should meet working-capital, capital-expenditure and debt-service needs for at least 12 months. No numerical earnings or revenue guidance is provided in the filing.
- Management cited inflation, labor shortages, possible recession, advertising-spending changes, competition, interest rates and leverage among risks. Further FCC-license impairments could result if broadcast outlook or valuation assumptions worsen; a 100-basis-point increase in the discount rate, holding other assumptions constant, was estimated to reduce license fair values by $51.8 and imply a $25.6 impairment.
- Disclosure controls were reported ineffective at quarter-end due to a previously disclosed material weakness involving documentation of software-functionality testing and controls over completeness and accuracy of information from an automation-system log. Management reported remediation progress, with work continuing into Q4 2022.
- No material pending litigation or material off-balance-sheet arrangements were reported. The filing identifies no material legal proceeding expected to adversely affect financial position or results.
Key facts for investors to verify
- Whether digital-segment growth can continue while expense growth is controlled.
- Whether broadcast performance and valuation assumptions stabilize, limiting further license impairments.
- Cash generation, liquidity and ability to service or refinance the 2026 Notes as they approach maturity.
- Final Cherry Creek purchase-price allocation and acquisition integration costs.
- Completion and effectiveness of remediation of the material weakness in internal controls.