Townsquare Media, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Townsquare is a community-focused digital media, digital marketing and radio company operating primarily in smaller U.S. markets. Its businesses include Advertising, Townsquare Interactive and Live Events.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $107.3 million | $74.1 million | $196.1 million | $167.5 million |
| Operating income (loss) | $23.8 million | ($33.7 million) | $32.6 million | ($105.8 million) |
| Net income (loss) | $10.1 million | ($26.8 million) | $4.0 million | ($86.4 million) |
| Diluted earnings (loss) per share | $0.50 | ($1.46) | $0.13 | ($4.73) |
| Operating margin | 22.2% | (45.4%) | 16.6% | (63.1%) |
Revenue by segment: Q2 Advertising revenue rose 50.4% to $85.9 million, Townsquare Interactive rose 19.7% to $20.2 million, and Live Events increased to $1.2 million from $32,000. For the first half, Advertising grew 18.2% to $155.7 million and Interactive grew 17.4% to $39.2 million; Live Events declined 50.0% to $1.2 million.
Cash flow and liquidity: First-half operating cash flow was $31.2 million, versus $11.7 million a year earlier. Investing activities used $4.1 million, including $4.8 million of property and equipment purchases; financing activities used $85.2 million. Cash and cash equivalents were $25.1 million at June 30, down from $83.2 million at year-end, principally reflecting the Oaktree securities repurchase and debt refinancing. The company reported $54.7 million of receivables and $0.5 million of restricted cash. Management believes available liquidity and cash flows are sufficient for at least one year.
Debt: Principal debt outstanding was $550.0 million, represented by 6.875% senior secured notes due February 2026; the balance-sheet carrying amount, net of deferred financing costs, was $540.5 million. The notes refinanced the former term loans and 2023 notes, and the revolving credit facility was terminated. The company estimated approximately $37.8 million of debt service over the next 12 months and reported compliance with note covenants at June 30.
Other metrics: Q2 direct operating expenses increased 11.2% to $71.6 million, slower than revenue growth. First-half transaction costs were $5.1 million, including $4.5 million under the Oaktree settlement. No dividend was declared in the periods shown for 2021.
Material changes versus the prior comparable periods
- Revenue and operating results recovered sharply against 2020, when COVID-19 curtailed advertising and live events. Q2 operating income also benefited from the absence of the $28.7 million FCC-license impairment recorded in Q2 2020. First-half operating results benefited from $107.7 million of impairment charges in the 2020 comparison period that did not recur materially in 2021.
- Management attributed advertising growth to increased client purchases; Interactive growth to subscriber additions (about 1,350 in Q2 and 2,200 in the first half); and higher Q2 Live Events revenue to the resumption of some events. Management said revenue remained below 2019 levels except for Townsquare Interactive, whose first-half revenue was 33% above first-half 2019.
- First-half interest expense rose to $20.0 million from $16.0 million, and the refinancing generated $6.0 million of debt extinguishment and modification losses. The 2021 first-half net income was therefore modest despite the return to operating profitability.
- In March, the company spent $80.4 million to repurchase Oaktree-affiliated shares and warrants. It also agreed to a $4.5 million settlement, with $2.0 million remaining payable after June 30 under the stated schedule.
Outlook, risks and unusual items
- Outlook: The filing provides no numerical revenue or earnings guidance. Management cited continuing uncertainty from COVID-19, including variants, advertising demand and the scheduling of live events, but said it expected current liquidity and operating cash flows to cover requirements for at least one year.
- FCC-license valuation: The company recorded no material impairment in the first half of 2021, but reported that a 100-basis-point increase in the discount rate used in its March analysis would have reduced estimated license fair values by $55.1 million and produced a $5.6 million impairment. Further broadcast revenue declines could lead to additional, potentially material, charges.
- Internal controls: Disclosure controls were not effective at June 30 due to previously reported material weaknesses involving IT access controls, revenue-recognition controls, income-tax accounting and period-end financial reporting. Remediation was ongoing and the weaknesses had not been fully remediated.
- Other items: A Boise property classified as held for sale at June 30 was sold in July at approximately carrying value. After quarter-end, an investee’s shares became publicly registered; the company said it would measure that investment at fair value prospectively in Q3. Its July 28 market-based fair value was approximately $5.3 million versus a June 30 carrying value of $3.2 million.
- The company reported no material pending litigation and no material off-balance-sheet arrangements. The 2026 notes impose restrictive covenants, including limits on additional debt, dividends, investments and asset transactions.
Important facts for investors to verify
- Whether the advertising recovery continued and how revenue compares with pre-pandemic 2019 levels, particularly in broadcast and live events.
- Cash generation, cash balances and the ability to meet the estimated $37.8 million of next-12-month debt service and remaining settlement payments.
- FCC-license impairment assumptions and any changes in broadcast forecasts, discount rates or market conditions.
- Progress in remediating the material weaknesses and whether control testing supports management’s conclusions in later filings.
- The Q3 fair-value accounting and realized value of the investee, along with the effects of the Oaktree repurchase, employee equity awards and outstanding options on ownership and dilution.