Townsquare Media, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. Townsquare operates local radio, digital marketing and advertising businesses, and live entertainment. Its portfolio included 317 radio stations, more than 325 local websites and operations in 67 U.S. markets.
Financial results
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Net revenue | $94.2 million | $88.4 million |
| Operating income (loss) | ($32.8 million) | $3.4 million |
| Net loss | ($26.6 million) | ($3.0 million) |
| Basic and diluted loss per share | ($1.44) | ($0.16) |
| Cash provided by (used in) operations | ($0.8 million) | $4.0 million |
| Cash used in investing activities | $5.9 million | $7.4 million |
| Cash used in financing activities | $9.5 million | $7.5 million |
Revenue increased 6.6% year over year. Local Marketing Solutions revenue rose 5.9% to $80.6 million; Entertainment revenue rose 10.8% to $13.7 million. The filing attributes Entertainment growth primarily to the timing of a live event. Direct operating expenses increased 5.8% to $77.1 million. The filing does not provide a reported EBITDA measure or an overall operating margin.
The $38.0 million impairment charge, recorded in Entertainment, drove the operating loss; it comprised $25.6 million for property and equipment and $12.4 million for intangible assets. Excluding the impairment, reported operating costs and expenses were $89.1 million, versus revenue of $94.2 million; this is a simple subtraction, not a company-reported adjusted profit measure. Net interest expense was $8.4 million, up 2.1%, largely reflecting higher LIBOR, partly offset by lower term debt.
Financial position, debt and liquidity
- At March 31, cash and restricted cash was $49.1 million, down $16.2 million from year-end. Accounts receivable was $53.8 million.
- Total debt before deferred financing costs was $562.4 million; reported debt net of financing costs was $556.1 million. The company had no revolver borrowings and $50 million of available capacity. Term-loan borrowings were $282.3 million, at a 4.88% interest rate; the $280.1 million 2023 Notes carry a 6.5% coupon.
- Management estimated debt service of approximately $32.2 million over the next 12 months and stated that cash, operating cash flows and revolver availability should cover funding needs for at least one year. The company reported compliance with debt covenants.
- Operating cash flow fell by $4.7 million year over year, with the company citing reductions in accounts payable and accrued expenses. Investing outflows included $7.1 million of capital expenditures, partly offset by $1.3 million in asset-sale proceeds. Financing outflows included a $9.5 million excess-cash-flow term-loan payment.
- Current assets were $119.7 million and current liabilities $61.5 million. These balances include deferred revenue and other operating items.
Material changes, outlook and other items
- Compared with Q1 2017, revenue grew in both segments, but earnings deteriorated sharply because of the impairment. Local Marketing Solutions expenses rose 6.6%, with higher headcount-related costs, salaries, commissions and benefits supporting local digital growth.
- The company says Q1 is normally its lowest-revenue quarter; Entertainment revenue is typically strongest in Q3. Even-numbered years can bring increased political advertising, generally highest in Q4. No specific full-year revenue or earnings guidance is provided.
- Management cited advertising demand and economic conditions, competition and changing media technologies, event disruptions and weather, acquisition execution, leverage, interest-rate exposure and financing access among risks. A 1 percentage-point increase in LIBOR would increase annual interest expense by approximately $2.8 million, based on the term-loan balance at quarter-end.
- The company discontinued its Premium Music and Holiday live-event verticals following a strategic review; Q1 2018 results show no discontinued-operations loss, compared with a $0.1 million loss in Q1 2017. A $0.3 million gain on asset sales and retirements partially offset expenses.
- The company adopted revenue-recognition Topic 606 on January 1, 2018. Adoption increased opening retained earnings by $2.3 million; the reported Q1 impact was approximately $15,000 of additional operating expense and net loss. Management expects ongoing net-income impact to be immaterial.
- The board declared a $0.075-per-share dividend during Q1, approximately $2.1 million, payable May 15, 2018. A further $0.075-per-share dividend was approved May 7, payable August 15, 2018.
- After quarter-end, the company entered an agreement to acquire three Trenton, New Jersey radio stations for $17.3 million, expected to be funded with cash on hand and to close in late Q2 or early Q3, subject to conditions and regulatory approvals.
- Management reported effective disclosure controls as of March 31, 2018. The filing says ordinary-course legal and regulatory matters are not expected to have a material adverse effect; it reports no material off-balance-sheet arrangements.
Important facts for investors to verify
- Impairment assumptions and the risk of further write-downs, particularly given the Entertainment segment's $44.5 million operating loss after impairment.
- Underlying segment trends, including whether revenue growth persists and whether local digital-related cost increases yield improved profitability.
- Cash generation, debt-service capacity, covenant headroom and sensitivity to rising LIBOR.
- The funding and expected return of the proposed $17.3 million station acquisition alongside debt obligations and dividend payments.
- Seasonality and event timing when comparing Q1 with later quarters; Q1 results are not necessarily indicative of full-year performance.