Townsquare Media, Inc. — FY2017 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2017; it also reports quarterly results, including Q4. Townsquare operates 317 radio stations and more than 325 local websites across 67 U.S. markets, alongside digital marketing and advertising platforms, national digital properties, and live events. Its two reportable segments are Local Marketing Solutions and Entertainment.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Net revenue | $507.4 million | $516.0 million |
| Operating income | $11.1 million | $77.3 million |
| Operating margin | 2.2% | 15.0% |
| Net income (loss) | $(10.3) million | $23.3 million |
| Cash provided by operating activities | $50.7 million | $59.8 million |
| Capital expenditures | $23.5 million, including discontinued operations | $20.7 million |
| Cash and restricted cash | $65.3 million | $51.5 million |
| Working capital | $65.1 million | $57.5 million |
| Total debt, net of deferred financing costs | $565.1 million | $571.2 million |
FY2017 reported diluted loss per share was $0.56. Cash flow from operations less reported purchases of property and equipment was approximately $27.9 million; this is a simple calculation, not a company-reported free-cash-flow measure. Cash included $0.9 million of restricted funds.
At year-end, debt comprised $280.1 million of 6.5% senior notes due 2023 and $291.9 million of term loans, with no revolver borrowings and $50 million of available revolver capacity. The term loan rate was 4.42%. The company reported $32.8 million of net interest expense and approximately $29.9 million of cash interest paid. Management estimated next-12-month debt service of approximately $40.5 million, including a $9.5 million excess-cash-flow payment due in Q1 2018. The company stated it was in compliance with debt covenants.
Material changes and unusual items
- Revenue declined $8.6 million, or 1.7%. Local Marketing Solutions revenue rose $6.5 million (1.9%), while Entertainment revenue fell $15.0 million (8.6%). The local segment’s $13.1 million increase in non-political revenue was partly offset by a $6.6 million decline in political revenue. Entertainment weakness reflected lower national digital and certain live-event revenue.
- Operating income fell $66.1 million. FY2017 included $51.8 million of impairment charges: $48.9 million of Entertainment goodwill and $2.9 million of FCC licenses. It also included $6.2 million of business realignment costs, including costs related to discontinued or streamlined operations. These items materially affected reported operating results.
- In Q4 2017, revenue was $114.3 million versus $118.7 million in Q4 2016; operating loss was $42.8 million versus operating income of $14.8 million, and net loss was $27.1 million versus net income of $3.2 million. The annual goodwill and FCC-license impairments were recognized in Q4.
- The company discontinued its Premium Music and Holiday live-event verticals and initiated a search for a buyer for certain Entertainment businesses. Related FY2017 discontinued operations produced a $1.4 million net loss.
- The effective tax benefit was $13.0 million. It included a $19.2 million benefit from remeasuring deferred taxes following the U.S. corporate tax rate reduction to 21%, partly offset by $13.9 million of tax expense related to nondeductible goodwill impairment.
Outlook, risks, and other disclosures
No specific revenue or earnings guidance is provided. Management said cash on hand, operating cash flows, and available revolver capacity were expected to cover working capital, capital expenditures, debt service, dividends, and other funding needs for at least one year from the report date, subject to business and market conditions. Management cited continuing development of digital products, revenue diversification, operating efficiencies, and disciplined acquisitions as strategic priorities.
Key risks include dependence on advertising and local economic conditions; competition and audience shifts across radio and digital media; event attendance, weather, safety, fuel costs, and seasonal labor availability; and the ability to retain digital subscribers and monetize online audiences. Leverage and floating-rate debt are significant risks: the company estimated a 1 percentage-point rise in LIBOR would add about $2.9 million to annual interest expense. Goodwill and FCC-license valuations depend on assumptions about future cash flows; together, those assets represented about 68.9% of total assets. Foreign-exchange movements also affect Canadian operations, and the company does not hedge that operating exposure.
Oaktree-controlled funds held approximately 52.5% of voting power and, under the stockholders’ agreement, controlled approximately 72.4% of votes on matters submitted to stockholders. The board approved a $0.075-per-share dividend on March 12, 2018, estimated at $2.1 million, with payment scheduled for May 15, 2018; the company expected similar dividends in the following three quarters, subject to applicable restrictions. Ordinary-course legal proceedings were disclosed, with management not expecting their resolution to materially adversely affect financial position or results. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an ICFR opinion because the company was not required to obtain an auditor attestation.
Most important facts for investors to verify
- Whether the Entertainment revenue decline and reported impairment reflect continuing operating weakness, and how discontinued businesses affect future comparisons.
- Cash generation, capital spending, and covenant headroom relative to the $565.1 million net debt balance, upcoming debt service, and planned dividends.
- The assumptions and sensitivity underlying the $48.9 million goodwill and $2.9 million FCC-license impairment charges, including the remaining carrying values.
- Whether growth in Local Marketing Solutions’ non-political and digital revenue can offset lower political advertising and Entertainment results.
- The status and terms of the proposed WOUR-FM acquisition announced in February 2018, and whether planned dividends remain consistent with debt agreements and liquidity needs.