Townsquare Media, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; unaudited. Amounts are in U.S. dollars. The company operates radio, digital media, digital marketing and live-events businesses, with 321 radio stations, more than 330 local websites across 67 U.S. markets, and Townsquare Interactive serving approximately 18,150 businesses.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net revenue | $112.6m | $106.0m | $319.3m | $299.3m |
| Operating income | $21.1m | $21.8m | $54.9m | $55.4m |
| Income from continuing operations | $9.1m | $9.5m | $21.2m | $21.6m |
| Net income (loss), including discontinued operations | $8.8m | $9.7m | $13.8m | ($15.3m) |
| Net cash provided by operating activities | Not provided for quarter | Not provided for quarter | $25.4m | $11.2m |
- Q3 revenue grew 6.2%; excluding political revenue, it rose 7.9%. Operating income declined 3.3%, and net income declined 9.1%. Operating margin was approximately 18.7%, versus 20.5% a year earlier.
- For the first nine months, revenue increased 6.7% (5.4% pro forma for the 2018 Princeton acquisition). Operating income slipped 0.9%; continuing-operations income declined 1.8%. The swing to positive total net income primarily reflects a smaller discontinued-operations loss than in 2018.
- Revenue by segment: Q3 Advertising rose 5.2% to $93.1m; Townsquare Interactive rose 26.0% to $15.9m; Live Events fell 27.3% to $3.6m. Nine-month changes were +5.1%, +29.3% and −15.9%, respectively. Management attributed digital growth mainly to larger customer and subscriber bases, and Live Events declines to eliminated events.
- Q3 direct operating expenses rose 6.2%; depreciation and amortization increased 47.3% to $6.8m, primarily from amortization of capitalized software costs. Nine-month depreciation and amortization rose 53.0% to $20.6m. No EBITDA figure is provided in the filing text.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $74.2m, compared with $60.5m at year-end 2018. Restricted cash was $0.9m. Current assets were $152.5m and current liabilities $60.6m.
- Debt before deferred financing costs was $560.5m: $278.1m of 6.5% senior notes due 2023 and $282.3m of term loans due 2022. Balance-sheet long-term debt, net of financing costs, was $555.8m. The term-loan rate was 5.04%; no revolver borrowings were outstanding, leaving $50m available.
- Management estimated approximately $34.3m in debt-service requirements over the next 12 months and stated that cash, operating cash flow and revolver availability should fund requirements for at least one year. The company reported compliance with debt covenants.
- Nine-month operating cash flow was $25.4m; investing activities used $3.9m and financing activities used $7.9m. The operating cash flow increase versus 2018 was primarily attributed to reduced discontinued-operations cash use. Capital expenditures were $14.5m.
- Adoption of lease accounting resulted in $45.7m of operating lease right-of-use assets and approximately $48.7m of total lease liabilities at quarter-end. These are separate from reported debt.
Material changes, outlook and risks
- The company sold its Music Festivals business to a Live Nation subsidiary for $10.0m in May 2019 and continued operating the 2019 festivals under a production-services agreement. The Arizona Bridal Shows were sold for $2.0m in March. Discontinued operations recorded a $7.4m net loss for the first nine months of 2019, including a $10.0m impairment charge; comparable 2018 discontinued-operations loss was $36.8m.
- The filing provides no specific revenue or earnings guidance. Management cited seasonality, with first-quarter revenue generally lowest, and political advertising typically strongest in the fourth quarter of even-numbered years. It identified economic and advertising trends, competition, digital execution and talent, leverage and interest rates, and acquisition financing as risks.
- The company corrected prior-period accounting for software depreciation and earnings per share, and identified an error in lease-renewal-option assessments that increased lease assets and liabilities by $3.7m. Management said prior-period impacts were not material. The EPS presentation was revised to reflect warrants as participating securities under the two-class method.
- Disclosure controls were deemed ineffective at September 30, 2019 because of three material weaknesses: EPS calculations, communication of when internal-use software is placed in service, and assessment of lease renewal options. Remediation was underway but not complete; management stated there was no assurance that further steps would not be needed. The filing also notes the company expected to cease qualifying as an emerging growth company by December 31, 2019, bringing an auditor attestation requirement for year-end 2019.
- After quarter-end, the board approved a $0.075-per-share dividend, estimated at $2.1m, payable February 14, 2020 to holders of record December 27, 2019.
Key facts for investors to verify
- Whether digital and Interactive revenue growth can continue while related staffing costs rise and operating margins remain under pressure.
- Progress and testing results for remediation of all three material weaknesses, including the effect of the expected auditor attestation.
- Cash generation, covenant compliance, floating-rate exposure and the capacity to service debt and dividends, given $560.5m of gross debt.
- The ongoing contribution and cash obligations associated with discontinued businesses and the post-sale festival services agreement.
- Effects of the software-depreciation correction and lease-accounting adjustments on future reported expenses and comparability.