Townsquare Media, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; comparisons are with the corresponding 2016 periods. Townsquare operates radio, local digital marketing, live events, and music and lifestyle websites, principally in small and mid-sized U.S. markets. Results are unaudited and subject to seasonality.
Financial performance
| Metric | Q2 2017 | Q2 2016 | First half 2017 | First half 2016 |
|---|---|---|---|---|
| Revenue | $140.7 million | $137.2 million | $229.1 million | $231.6 million |
| Operating income | $17.4 million | $17.8 million | $20.7 million | $23.6 million |
| Net income | $5.6 million | $5.6 million | $2.6 million | $4.2 million |
| Net income per diluted share | $0.20 | $0.20 | $0.09 | $0.15 |
| Operating cash flow | Not separately stated | Not separately stated | $1.4 million | $13.4 million |
| Capital expenditures | Not separately stated | Not separately stated | $12.4 million | $12.4 million |
Q2 operating margin was approximately 12.4% versus 13.0%; first-half operating margin was approximately 9.0% versus 10.2%. First-half net margin was approximately 1.1% versus 1.8%. Net income is after interest and tax; the filing does not provide a single EBITDA measure in the presented data.
- Q2 revenue rose 2.6%. Local Marketing Solutions revenue grew 4.3% to $90.5 million, while Entertainment revenue slipped 0.5% to $50.2 million. Excluding political revenue, consolidated revenue increased 2.9%.
- First-half revenue fell 1.1%. Local Marketing Solutions grew 2.9% to $166.5 million; Entertainment fell 10.2% to $62.5 million. Excluding political revenue, consolidated revenue declined 0.5%.
- Q2 operating income declined 2.3% despite higher revenue, as direct operating costs rose 3.0% and depreciation and amortization increased 13.9%. First-half operating income declined 12.4%.
- Interest expense declined 10.0% in Q2 and 6.9% in the first half, reflecting debt repayments and the repricing of term loans. First-half net income fell 39.4%, partly because of lower operating income.
Cash, debt, and liquidity
- Cash was $31.1 million at June 30, 2017, down $20.5 million from year-end; this includes $0.9 million of restricted cash. Receivables were $66.5 million.
- Debt was $571.9 million before $7.5 million of deferred financing costs, or $564.4 million as presented on the balance sheet. This comprised $280.1 million of 6.5% senior notes due 2023 and $291.9 million of term loans. The $50 million revolving facility was undrawn.
- Management estimated approximately $30.9 million of debt service over the next 12 months and stated that cash, expected operating cash flow, and revolver availability should fund needs for at least one year. The company reported compliance with debt covenants.
- First-half operating cash flow fell to $1.4 million from $13.4 million, primarily due to changes in receivables and payables associated mainly with live events. Investing used $14.5 million, including a joint-venture payment; financing used $7.4 million, including a $6.7 million mandatory term-loan payment.
Changes, outlook, and risks
- Management attributed first-half Entertainment revenue weakness to lower live-event revenue, including the prior-year sale of certain events, and weaker national digital revenue. Local Marketing Solutions growth was driven by non-political revenue; political revenue was lower than in the 2016 election year.
- On February 8, 2017, the term-loan margin was reduced by 25 basis points to LIBOR plus 3.00%; at June 30, LIBOR of 1.30% produced a 4.30% rate. A 1% LIBOR increase would raise annual interest expense by approximately $3.1 million.
- The company issued 48,035 Class A shares and paid cash as part of a January joint-venture investment; the transaction added $2.3 million of goodwill. The management selldown agreement ended July 24, 2017.
- No specific revenue or earnings guidance was provided. Management noted that Q1 is typically the weakest revenue quarter, Q2 and Q3 generally strongest, and Entertainment revenue is concentrated in Q3 due to summer festivals and NAME operations. Political advertising is typically highest in Q4 of even-numbered years.
- Key exposures include advertising demand and competition, event attendance and weather, substantial leverage and floating-rate debt, Canadian-dollar translation exposure, customer collections, and potential impairment of goodwill and broadcast licenses. The filing lists $51.3 million of minimum operating lease payments and $22.2 million of minimum event-fee commitments, plus other broadcasting and platform commitments. Routine legal matters were not expected to materially affect results; no material off-balance-sheet arrangements were reported.
- Management said adoption of the new revenue-recognition standard was expected not to materially affect revenue recognition. Disclosure controls were assessed as effective; the WideOrbit billing and traffic system had been implemented in 41 of 66 markets.
Investor verification points
- Track whether Local Marketing Solutions growth can continue while its direct costs—up 8.2% in Q2—are controlled.
- Assess whether Entertainment revenue stabilizes after the first-half decline and how seasonality affects second-half cash generation.
- Monitor operating cash flow and working-capital movements, particularly receivables and live-event payables, against capital spending and scheduled debt service.
- Evaluate leverage, covenant headroom, and exposure to LIBOR changes; the filing does not state a specific covenant cushion.
- Review the performance and accounting implications of the joint venture and the company’s large goodwill and FCC-license balances.