Townsquare Media, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016; unaudited. Townsquare operates radio, local and national digital media, live events, and digital marketing businesses, primarily in small and mid-sized U.S. markets. It reported two segments: Local Marketing Solutions and Entertainment.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $165.8M | $129.6M | $397.3M | $328.2M |
| Operating income | $38.9M | $36.8M | $62.5M | $71.1M |
| Net income | $15.9M | $16.5M | $20.1M | $7.9M |
| Diluted EPS | $0.58 | $0.60 | $0.74 | $0.28 |
| Operating cash flow | Not stated for quarter | $40.2M | $14.0M |
Q3 revenue rose 27.9%, but pro forma revenue—adjusting for the NAME acquisition and 2015 tower sale—declined 0.2%. Nine-month reported revenue grew 21.1%; pro forma revenue grew 2.2%, or 1.5% excluding political advertising. Calculated operating margin was 23.5% in Q3 2016 versus 28.4% in Q3 2015, and 15.7% for the first nine months of 2016 versus 21.7% in 2015. Prior-period margins benefited from a substantial tower-sale gain.
Q3 Local Marketing Solutions revenue increased 3.6% to $89.0M; Entertainment revenue rose 76.0% to $76.8M, primarily reflecting NAME. On a pro forma basis, Q3 Local Marketing Solutions revenue increased 3.8%, while Entertainment declined 4.5%. For the first nine months, those segments generated $250.9M and $146.4M, respectively; pro forma Entertainment revenue fell 2.4%.
Cash, debt and liquidity
- Cash was $38.4M at September 30, 2016, up from $33.3M at year-end 2015. Net cash from operations was $40.2M; investing used $16.7M and financing used $17.7M. Capital expenditures were $16.8M.
- Long-term debt carrying value was $572.8M, net of deferred financing costs; debt before those costs was $581.3M, including $282.1M of 2023 Notes and $298.5M of term loans. No revolver borrowings were outstanding; $50.0M remained available.
- Management estimated approximately $31.5M of debt service over the next 12 months and stated cash, operating cash flow and revolver capacity should meet funding needs for at least that period. The company reported compliance with debt covenants.
- Current assets were $117.4M and current liabilities $60.9M. The filing reported no material off-balance-sheet arrangements.
Changes, outlook and risks
- NAME, acquired in September 2015, drove most of the reported Entertainment growth. Management attributed the Q3 pro forma Entertainment decline chiefly to inclement weather affecting NAME events. Nine-month pro forma revenue growth was led by Local Marketing Solutions, including digital products and political advertising.
- Operating income declined 12.1% year over year for the first nine months, partly because 2015 included an $11.9M net gain on asset sales; 2016 recorded a $0.3M net loss on asset sales. Q3 2016 also included a $4.2M impairment of an investment and a $3.5M investment in an online-services business.
- Management provided no specific earnings or revenue guidance. It described normal seasonality: first-quarter revenue is generally lowest; second and third quarters are generally strongest, and political spending tends to peak in fourth quarters of election years.
- Risks highlighted include advertising and economic conditions, competition and shifts in media consumption, weather-related event disruption, acquisition execution, regulation, and Canadian-dollar exposure. The company had not historically hedged its Canadian-dollar exposure. A 1% LIBOR increase was estimated to raise annual interest expense by approximately $1.2M.
- Other obligations include $50.5M of minimum operating-lease payments, $8.1M under Nielsen agreements, and $19.9M of minimum event-fee commitments for contracts with terms over one year. Ordinary-course legal matters were not expected to materially affect results or financial condition.
Key facts for investors to verify
- Whether underlying revenue trends persist after separating NAME acquisition effects, political advertising, and seasonal event revenue.
- Whether Entertainment recovers from the weather-related pro forma decline and how event attendance and costs develop.
- The sustainability of operating cash flow, capital spending needs, and the capacity to service approximately $581M of debt.
- Potential further impairment of the investment or FCC licenses, and sensitivity to interest rates and foreign exchange.
- The impact of debt covenants, lease and event commitments, and future regulatory or competitive changes.