Townsquare Media, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This annual filing also provides unaudited quarterly results, including Q4 2019. The filing was signed June 9, 2020 and restates prior-period financial information.
Business context
Townsquare operates 321 radio stations and more than 330 local websites in 67 U.S. markets, Townsquare Interactive, a digital marketing subscription business serving approximately 19,000 small and midsized businesses, the Townsquare Ignite advertising platform, e-commerce, and local live events. Its three reportable segments are Advertising, Townsquare Interactive, and Live Events.
Key financial metrics
| Metric | FY 2019 | FY 2018, restated |
|---|---|---|
| Net revenue | $431.4 million | $407.9 million |
| Operating income (loss) | $(37.1) million | $17.8 million |
| Net loss from continuing operations | $(57.5) million | $(48.0) million |
| Net loss, including discontinued operations | $(65.7) million | $(97.3) million |
| Net cash provided by operating activities | $40.0 million | $34.8 million |
| Capital expenditures | $19.7 million | $18.1 million |
| Cash and cash equivalents at year-end | $84.7 million | $60.5 million |
| Debt, before deferred financing costs | $560.5 million | $560.5 million |
Direct operating expenses were approximately 70% of revenue in both years. FY 2019 interest expense, net, was $33.9 million; cash interest paid was $33.5 million. Year-end total assets were $880.4 million and total liabilities were $698.0 million. Adoption of lease accounting added operating lease liabilities; at year-end, reported operating lease liabilities totaled approximately $52.6 million.
Q4 2019: Revenue was $112.1 million; operating loss was $91.4 million; continuing-operations net loss was $78.2 million; and total net loss was $78.3 million. The quarter included $69.0 million of goodwill impairment and $39.4 million of impairment charges on FCC licenses for the full year (the latter was not all confined to Q4).
FY 2019 segment revenue: Advertising $352.8 million; Townsquare Interactive $61.5 million; Live Events $17.1 million. Segment operating results were an $11.3 million loss, $18.6 million income, and $2.8 million income, respectively; corporate and other reconciling items were a $47.2 million loss.
Material changes versus prior periods
- Revenue grew 5.8% year over year; excluding political advertising, it grew 7.6%. Advertising revenue increased $13.8 million and Interactive revenue increased $12.9 million, while Live Events revenue declined $3.2 million.
- Operating results deteriorated from $17.8 million of income to a $37.1 million loss, principally reflecting the $69.0 million goodwill impairment. FCC license impairment was $39.4 million in 2019 versus $48.2 million in 2018.
- Interactive revenue growth reflected a larger subscriber base; related direct expenses also increased with staffing. Advertising growth was attributed primarily to digital programmatic products, partly offset by lower political revenue. Fewer events reduced Live Events revenue.
- The company sold its Music Festivals business for $10.0 million and Arizona Bridal Shows for $2.0 million in 2019. These and other exited businesses are reflected in discontinued operations.
Restatement, outlook, risks, and unusual items
- Restatement: The filing restates 2018 and 2017 annual statements and quarterly data for the first three quarters of 2019 and all quarters of 2018. Adjustments include FCC-license impairment calculations, tax valuation allowances and deferred tax assets, the tax treatment of the NAME sale, and earnings-per-share calculations involving warrants. Investors are cautioned not to rely on previously issued financial statements for affected periods.
- The restatement includes an additional $28.3 million of FCC-license impairment for 2018 and $3.8 million for 2017, a $42.9 million adjustment related to the valuation allowance on federal loss carryforwards, and a $5.9 million write-off of stock-compensation deferred tax assets for 2018. Management said the restatement adjustments did not affect the timing of income-tax cash payments.
- 2019 impairments were non-cash: $69.0 million for goodwill and $39.4 million for FCC licenses. Management cited the change in reporting units following the 2019 segment reorganization as a primary factor in the goodwill impairment. Further impairments remain possible if operating performance or assumptions weaken.
- COVID-19, disclosed after year-end: Management reported material revenue pressure beginning in mid-March 2020, worsening in Q2, advertising cancellations, and numerous live-event cancellations or postponements. Interactive continued to grow. Political advertising was expected to be consistent with expectations but weighted to the second half of 2020. The filing provides no quantified full-year 2020 guidance.
- The company drew the full $50.0 million revolving facility on March 17, 2020 as a precaution, then repaid it on June 5, leaving $50.0 million available. It also reduced non-essential capital spending, laid off or terminated approximately 135 full-time employees, reduced senior management base salaries by 10%, and suspended the company match on retirement contributions.
- The board discontinued quarterly cash dividends after the $0.075-per-share dividend paid May 15, 2020. The company was required to make a $9.9 million excess-cash-flow payment on term loans, expected before June 15, 2020.
- Debt included $278.1 million of 6.5% notes due 2023 and $282.3 million of term loans due April 2022; the revolving facility had a springing maturity six months earlier. Borrowings are subject to restrictive covenants. A first-lien leverage covenant applies when revolver borrowings meet the specified threshold. The company reported covenant compliance at December 31, 2019.
- Management and the auditor concluded internal control over financial reporting was ineffective at year-end due to multiple material weaknesses, including controls over impairment, income taxes, revenue, IT access, EPS, leases, software capitalization, period-end reporting, and cash disbursements. The auditor issued an adverse opinion on internal control, while issuing an unqualified opinion on the 2019 financial statements.
- The filing describes substantial leverage, exposure to advertising and event demand, competition and digital transition, FCC licensing and regulatory requirements, refinancing needs, and uncertainty from COVID-19. No material pending litigation was reported.
Most important facts for investors to verify
- Review the restated statements and quarterly data, particularly the impairment and tax adjustments, and confirm comparisons use the restated figures.
- Assess whether cash generation can support debt service and the 2022 term-loan/revolver maturity, including covenant headroom under current operating conditions.
- Track post-year-end advertising trends, event activity, Interactive subscriber growth, and the timing and realization of political advertising.
- Monitor the status and testing of remediation plans for material weaknesses; management stated weaknesses would not be considered remediated until controls operated effectively for a sufficient period.
- Confirm subsequent dividend decisions, any required term-loan payments, and the continuing availability and terms of revolving credit.