Townsquare Media, Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Townsquare operates radio, local and national digital media, and live events; at quarter-end it owned about 310 radio stations and served 66 U.S. markets.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $129.6m | $94.7m | $328.2m | $280.2m |
| Operating income (loss) | $36.8m | $(15.5)m | $71.1m | $20.6m |
| Net income (loss) | $16.5m | $(33.6)m | $7.9m | $(22.0)m |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $14.0m | $35.2m |
Margins: Reported operating margin was approximately 28.4% in Q3 and 21.7% for the nine-month period; net margin was approximately 12.7% and 2.4%, respectively. Q3 and year-to-date 2015 operating income included an $11.9m gain on asset sales. The prior-year 2014 comparison included a one-time $37.6m Q3 stock-compensation charge ($37.7m for nine months), largely related to the IPO.
- Revenue mix: Q3 Local Advertising revenue was $79.6m, Live Events $38.3m, and Other Media and Entertainment $11.7m. Year-to-date amounts were $223.2m, $76.1m, and $28.9m, respectively.
- Growth comparability: Reported revenue rose 36.8% in Q3 and 17.1% year to date, primarily reflecting acquisitions, especially Heartland and WE Fest. On a pro forma basis including acquisitions and the tower divestiture, revenue increased 4.2% in Q3 and 5.3% year to date. Local Advertising was nearly flat on this basis; digital-related Other Media and Entertainment and Live Events grew.
- Cash and liquidity: September 30 cash was $28.1m; accounts receivable was $66.3m; current assets were $105.6m and current liabilities $63.8m. The company reported $50.0m available on its undrawn revolver and estimated next-12-month debt service of $32.8m.
- Debt: Total debt was $598.8m, versus $539.7m at year-end 2014. It comprised $300m of 6.5% notes due 2023 and approximately $298.5m of term loans; the $50m revolving facility was undrawn. The term-loan rate was 4.25% initially and is LIBOR-linked.
- Cash flows: Nine-month investing cash use was $65.0m, including $74.1m of net acquisition payments, partly offset by asset-sale proceeds. Financing provided $54.7m. Management said operating cash flow excluding the $27.7m debt-redemption premium would have been $41.8m.
Material changes and unusual items
- Acquired Heartland on September 1 for approximately $70m cash plus 481,948 Class A shares; the preliminary purchase allocation included $42.5m goodwill. The company said it expected to finalize the allocation in Q4 2015.
- Refinanced debt on April 1 with $300m of 6.5% notes due 2023 and a new secured term loan and revolver. It redeemed the former 9% notes due 2019 and repaid the prior credit facility, paying $27.7m in redemption premiums. Nine-month debt-extinguishment loss was $30.3m; Q3 loss was $0.3m, principally related to a voluntary $20m term-loan prepayment.
- Sold 43 broadcast towers and entered into a tower marketing arrangement with Vertical Bridge, receiving $21.6m net proceeds. The transaction generated an $11.5m gain; the company leased back space for its antennas under a long-term arrangement.
- Q3 Live Events direct expenses rose substantially alongside revenue, reflecting acquisitions and increased investment in new and existing events. Q3 digital-related revenue also increased; Local Advertising revenue was essentially unchanged year over year.
Outlook, risks, and commitments
- No quantified revenue or earnings guidance was provided. Management stated that cash, operating and other cash flows, and revolver availability should cover working capital, capital spending, debt service, and other needs for at least the next 12 months.
- Key risks include advertising-market and economic weakness, competition and changes in radio audience or advertising demand, successful integration of acquisitions, event attendance and weather disruptions, and compliance with debt covenants. Floating LIBOR exposure on the term loans is a principal interest-rate risk.
- Revenue is seasonal: management expects Q1 to be weakest and Q2/Q3 generally strongest; Live Events are particularly seasonal, with Q3 typically strongest. Political advertising can lift even-year revenue, particularly in Q4.
- Commitments included $51.6m of minimum operating lease payments and approximately $14.4m remaining under Nielsen agreements. The filing describes ordinary-course litigation and states it does not expect resolution to materially affect financial position, results, or cash flows.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. FCC license and goodwill values remain sensitive to future market conditions and operating performance; the 2014 annual impairment tests had found no impairment.
Most important facts for investors to verify
- How much of reported growth and profitability is repeatable after separating acquisitions, the $11.5m tower-sale gain, and prior-year IPO-related stock compensation.
- Whether pro forma growth in Live Events and digital operations persists, given the sharp increase in event expenses and continued investment needs.
- Debt-service capacity, covenant headroom, and exposure to LIBOR changes, especially with debt of $598.8m and cash of $28.1m.
- Completion of Heartland’s purchase-price allocation and the resulting goodwill, deferred-tax, and future amortization effects.
- Cash conversion and liquidity trends: operating cash flow was $14.0m for nine months, while management’s $41.8m adjusted comparison excludes the $27.7m redemption premium.