Townsquare Media, Inc. — Q3 2023 Form 10-Q
Business context and period. Townsquare is a local media and digital marketing company operating 354 radio stations in 74 U.S. markets, alongside subscription digital marketing and digital advertising businesses. This unaudited report covers the three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $115.1 million | $120.6 million | $339.4 million | $342.8 million |
| Operating income (loss) | $(10.7) million | $14.5 million | $(11.2) million | $47.2 million |
| Net income (loss) | $(36.5) million | $2.8 million | $(41.1) million | $10.5 million |
| Basic EPS | $(2.27) | $0.13 | $(2.52) | $0.52 |
| Operating margin (approx.) | (9.3)% | 12.0% | (3.3)% | 13.8% |
Cash flow and liquidity. Nine-month operating cash flow was $39.0 million, versus $32.1 million; capital expenditures were $11.4 million, versus $13.1 million. Investing activities used $0.4 million, compared with $35.4 million in 2022. Financing activities used $44.0 million, including debt and share repurchases and dividends. Cash and cash equivalents were $38.0 million at September 30, down from $43.4 million at December 31, 2022; restricted cash was $0.5 million. Current assets were $113.3 million and current liabilities $64.0 million.
Debt. Debt carrying value, net of deferred financing costs, was $499.1 million; principal outstanding on the 2026 Notes was $503.6 million. The company repurchased $27.1 million principal amount below par during the first nine months and reported covenant compliance at quarter-end. Management estimated approximately $34.6 million of debt service over the following 12 months and said cash and expected operating cash flows should cover requirements for at least one year.
Material changes versus prior periods
- Q3 revenue fell 4.6%. Broadcast Advertising declined $5.1 million (8.6%) and Subscription Digital Marketing Solutions fell $2.9 million (12.6%); Digital Advertising grew $2.0 million (5.5%).
- For the first nine months, revenue declined 1.0%. Digital Advertising increased $10.5 million (10.1%), but Broadcast Advertising decreased $10.7 million (6.5%) and subscription revenue fell $4.9 million (7.3%).
- Operating results were sharply lower, principally due to impairment charges: total impairment expense was $31.0 million in Q3 and $65.7 million year to date, versus $10.3 million and $20.2 million, respectively, in 2022.
- Q3 impairments included $23.6 million for FCC licenses, $2.8 million for goodwill, and $4.4 million for investments. Year-to-date FCC license impairments were $48.4 million across 32 of 74 markets; the Local Advertising reporting unit’s goodwill was fully impaired.
- Stock-based compensation rose to $2.4 million in Q3 and $6.2 million year to date. Corporate expenses increased 15% in Q3 and 19% year to date.
Management commentary, risks, and unusual items
- Management cited sustained inflation, rising interest rates, and supply-chain disruption as risks to advertising demand, subscriber additions, and costs. It may respond to revenue pressure with wage reductions and limits on nonessential capital spending.
- FCC license valuation depends on broadcast revenue expectations, discount rates, and other assumptions. The filing quantifies sensitivity to further unfavorable assumptions and warns that additional impairments could be material.
- The nine-month results included a $5.2 million gain on an investment sale, a $0.8 million gain on sale of digital assets, $0.7 million in insurance recoveries, and a $1.2 million gain on debt repurchases. These items partly offset expenses and losses.
- The income tax provision was $17.5 million in Q3 and $9.4 million year to date, despite pretax losses. Management attributed the unusual effective tax rates mainly to noncash impairments and related valuation allowances on deferred tax assets.
- The company declared quarterly dividends of $0.1875 per share; the November 2023 declaration is payable February 1, 2024. It also paid $14.6 million to repurchase 1.5 million Class C shares from MSG and repurchased about 0.2 million Class A shares under its plan.
- No specific financial guidance was provided. Management’s liquidity statement is an expectation, not a guarantee; future funding needs depend on operating performance, advertising demand, and other conditions. The filing reports no material pending litigation and no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether broadcast advertising and subscription digital marketing revenue stabilize, and whether digital advertising growth continues.
- Whether FCC license valuations withstand changes in broadcast forecasts, discount rates, and capital-cost assumptions—and whether further impairments occur.
- The company’s cash generation, dividend and repurchase commitments, covenant headroom, and ability to address the $503.6 million principal due in 2026.
- The causes and future implications of the large tax provision and deferred-tax valuation allowance.
- How results compare with any subsequent company guidance or commentary; this filing itself provides no numerical outlook.