Townsquare Media, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing; it does not provide a clear standalone fourth-quarter income statement. Townsquare operates radio and local websites, live events, and digital marketing and national digital businesses, principally in small and mid-sized U.S. markets.
Financial performance
| Metric | 2015 | 2014 |
|---|---|---|
| Net revenue | $441.2 million | $373.9 million |
| Operating income | $84.7 million | $40.5 million |
| Net income (loss) | $10.2 million | ($17.0 million) |
| Operating cash flow | $25.9 million | $45.3 million |
| Capital expenditures | $14.7 million | $13.5 million |
| Cash at year-end | $33.3 million | $24.5 million |
- Reported revenue rose 18.0% year over year. The filing attributes $39.8 million of the increase to acquisitions and $27.5 million to organic growth. On a pro forma basis, including the Transactions as if completed at the start of 2013, revenue increased 5.4% to $501.9 million; at constant currency, it increased 6.4%.
- Operating margin was approximately 19.2%; net margin was approximately 2.3%. Operating income included a $12.0 million net gain on asset sales, principally the tower transaction, and a $1.7 million FCC-license impairment charge.
- Net income included $30.3 million of loss on extinguishment of debt, largely related to refinancing. Interest expense fell 22.6% to $36.0 million. The 2014 comparison included a $37.7 million stock-based compensation charge, mostly a one-time charge from the LLC conversion and IPO.
- Cash flow from operations less capital expenditures was approximately $11.2 million. Operating cash flow declined from 2014; management cited working-capital movements, including increased prepaid expenses and lower accrued interest.
Segments and material changes
- Local Advertising: Revenue was $303.1 million, up 0.2% reported and pro forma. A $5.7 million increase in non-political revenue was largely offset by a $5.2 million decline in political revenue. Excluding political advertising, pro forma revenue increased 1.9%.
- Live Events: Revenue was $97.7 million, up 138.5% reported, chiefly reflecting acquisitions, including NAME. Pro forma revenue increased 10.1% to $159.3 million, or 13.9% at constant currency, primarily from higher attendance and revenue per attendee. Segment direct expenses also rose substantially, reflecting acquisition effects and investment in infrastructure and events.
- Other Media and Entertainment: Revenue was $40.4 million, up 33.4% reported. Pro forma revenue increased 36.3%, driven mainly by digital marketing solutions and national digital assets, partly offset by lower tower-related revenue.
- The September 2015 acquisition of North American Midway Entertainment (NAME) added mobile amusement operations and Canadian currency exposure. Townsquare also sold 43 towers for $21.6 million net proceeds and recorded an $11.5 million gain on that sale.
Debt, liquidity and outlook
- At December 31, 2015, gross debt was approximately $598.8 million, including $300.0 million of 6.5% senior notes due 2023 and $298.5 million of term loans due 2022. The balance-sheet carrying amount was $588.8 million after deferred financing costs. The $50 million revolving facility had no borrowings outstanding.
- The company refinanced substantially all prior debt in April 2015; it paid $27.7 million in redemption premiums. It made a $20 million voluntary term-loan prepayment in September. Annual debt service was approximately $32.4 million expected over the next 12 months; the filing also reports $39.0 million of debt-service cash payments during 2015.
- Management said cash, operating cash flow and available revolver capacity should fund operations, debt service and strategy for at least the next 12 months. The company reported compliance with debt covenants at year-end. A 1 percentage-point increase in LIBOR was estimated to raise annual interest expense by about $1.3 million.
- No specific financial guidance was provided. Management expects seasonal revenue patterns: first-quarter revenue generally lowest, second and third quarters generally highest, with live events and NAME activity concentrated in the third quarter. The filing describes continued investment in digital products and live events and a disciplined acquisition strategy.
Risks, contingencies and unusual items
- High leverage makes cash generation, refinancing terms and covenant compliance important; 2015 debt service represented 150% of operating cash flow, as reported in the risk discussion.
- Results are exposed to advertiser spending and local economic conditions, audience and advertising competition, event attendance and weather, fuel costs, and Canadian-dollar movements. The company does not hedge its Canadian operating exposure.
- FCC licenses and goodwill are significant assets; the company recorded a $1.7 million license impairment in two markets and warns that future impairment charges are possible. Broadcast licensing, ownership restrictions and regulatory changes may affect operations and acquisitions.
- Live-event operations carry cancellation, injury and liability risks. The company reports that ordinary-course legal and regulatory matters are not expected to have a material adverse effect, but outcomes are not certain.
- Oaktree controls significant voting power. The company also reported no cash-dividend plans for the foreseeable future. It is an emerging growth company and a controlled company, and uses exemptions from certain governance and reporting requirements.
Important facts for investors to verify
- Reconcile reported revenue growth with the pro forma and constant-currency measures, and assess organic growth by segment.
- Review the sustainability of operating income after excluding the tower-sale gain, and assess the causes of lower operating cash flow.
- Confirm debt balances, interest-rate exposure, required payments, covenant headroom and refinancing or acquisition capacity.
- Evaluate NAME integration, event profitability and seasonality, including the effect of Canadian-dollar movements.
- Assess digital marketing subscriber growth and profitability, FCC-license valuation assumptions, and any subsequent developments in litigation or regulation.