Townsquare Media, Inc. quarterly report, Q1 FY2020

Townsquare Media, Inc. — Q1 2020 Form 10-Q

Reporting period: Three months ended March 31, 2020. Townsquare operates radio stations and digital media, subscription digital marketing, and live events across U.S. small and mid-sized markets. The quarter’s results began to reflect COVID-19 disruptions in early March; management said the more severe revenue effects occurred from mid-March onward.

Financial performance

Metric	Q1 2020	Q1 2019
Net revenue	$93.4 million	$93.7 million
Operating income (loss)	$(72.1) million	$11.9 million
Net income (loss)	$(59.6) million	$(4.6) million
Operating cash flow	$9.3 million	$5.9 million
Capital expenditures	$5.6 million	$5.0 million

• Operating margin was approximately negative 77% in Q1 2020, versus positive 13% in Q1 2019; the 2020 result principally reflects a $79.1 million non-cash impairment charge.
• Revenue by segment: Advertising $74.5 million, up 0.3%; Townsquare Interactive $16.5 million, up 16.3%; Live Events $2.4 million, down 54.1%. Political advertising was $1.3 million versus $0.3 million.
• Basic and diluted loss per common share from continuing operations was $3.27; continuing-operations income per share was $0.07 in Q1 2019.
• Cash and cash equivalents were $135.9 million at quarter-end, versus $84.7 million at December 31, 2019. The company had drawn $50.0 million on its revolver; excluding that borrowing, cash increased $1.2 million during the quarter.
• Total debt before deferred financing costs was $610.5 million; reported debt net of financing costs was $607.0 million. Long-term debt, net of financing costs, was $562.0 million. The company reported $9.1 million of accrued interest.
• Receivables were $57.9 million and current liabilities were $104.3 million at March 31, 2020. The filing does not provide a clear current ratio.

Material changes and unusual items

• COVID-19-related advertising cancellations and event cancellations or postponements drove a sharp decline in Live Events revenue. Management said Interactive growth reflected approximately 850 net subscriber additions.
• The company recorded $78.4 million of FCC license impairment across 46 of its 67 local markets and $0.6 million of long-lived asset impairment. Goodwill was not impaired in the quarter.
• Direct operating expenses rose 4.0% to $71.6 million. Business realignment costs were $1.7 million, primarily employee-related costs associated with workforce reductions; transaction costs were $1.0 million.
• Income tax benefit was $20.9 million. The 2019 comparison included a $7.0 million after-tax loss from discontinued operations; Q1 2020 had none.
• After quarter-end, the company paid a $9.9 million required excess-free-cash-flow term-loan payment on June 15 and repaid the $50.0 million revolver draw on June 5, restoring $50.0 million of availability. It also repurchased $4.5 million face value of 2023 Notes in May.

Outlook, liquidity, and risks

• Management expected Q2 2020 revenue to be lower than Q1 and said Q3 revenue could also be below Q1, citing continuing COVID-19 impacts on traditional broadcast advertising and live events. It gave no quantified revenue or earnings guidance.
• Management stated that COVID-19 effects had materially worsened in Q2 and that the full financial impact remained uncertain. Political advertising was expected to remain consistent with expectations and be weighted to the second half of 2020.
• Actions included reducing non-essential capital expenditures, terminating or laying off approximately 135 full-time employees, temporarily suspending the company retirement-plan match, and using eligible CARES Act tax deferrals and credits. The board ended quarterly cash dividends after the first-quarter dividend was paid May 15.
• At March 31, the company was in compliance with debt covenants, including the 3.75:1.00 first-lien leverage test triggered by the revolver borrowing. It stated that cash, operating cash flows, and available revolver capacity were expected to meet requirements for at least one year, while warning that COVID-19 could materially affect liquidity and performance.
• Disclosure controls were deemed ineffective due to unremediated material weaknesses in financial reporting controls, including impairment testing, revenue recognition, income taxes, IT access, period-end reporting, and cash disbursements. The filing also references prior financial-statement restatements and elevated litigation and capital-markets risks.
• The filing was submitted under extended SEC relief; the company cited pandemic-related disruption to its accounting, legal, and other reporting workflows.

Key facts for investors to verify

• Subsequent-quarter revenue, advertising cancellations, live-event activity, and the pace of recovery—particularly against management’s warning that Q2 would be weaker.
• Cash generation and liquidity after the revolver repayment and term-loan payment, including future debt service and covenant headroom.
• Whether broadcast revenue declines trigger further FCC license impairments, and the assumptions underlying impairment valuations.
• Progress in remediating material weaknesses and whether controls are tested and shown to operate effectively.
• Dividend policy following the suspension, and the continuing effects of workforce reductions and cost actions.