Townsquare Media, Inc. — Q2 2020 Form 10-Q
Business and period: Townsquare operates radio stations, local websites, digital advertising and marketing businesses, and live events, primarily in small and mid-sized U.S. markets. This unaudited report covers the three and six months ended June 30, 2020; comparisons are to the same 2019 periods. Management attributed substantial operating disruption to COVID-19.
Financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $74.1m | $113.1m | $167.5m | $206.8m |
| Operating income (loss) | $(33.7)m | $22.2m | $(105.8)m | $34.1m |
| Net income (loss) | $(26.8)m | $9.9m | $(86.4)m | $5.4m |
| Operating margin | Approximately (45.4)% | Approximately 19.6% | Approximately (63.1)% | Approximately 16.5% |
| Net cash from operating activities | Six-month figure: $11.7m | $11.7m | $3.4m |
Margins are calculated from reported revenue and operating or net results. Q2 net loss per diluted share was $1.46; six-month net loss per diluted share was $4.73. The six-month income tax benefit was $33.5m.
Revenue by segment
- Q2: Advertising revenue fell 37.5% to $57.1m; Townsquare Interactive grew 10.5% to $16.9m; Live Events declined 99.5% to $0.03m.
- First half: Advertising revenue fell 20.6% to $131.7m; Townsquare Interactive grew 13.3% to $33.4m; Live Events fell 79.1% to $2.4m.
Liquidity, debt and cash flow
- At June 30, cash and cash equivalents were $70.0m, down from $84.7m at year-end 2019; restricted cash was $0.5m. The company reported $126.4m of current assets and $56.8m of current liabilities.
- Debt was $545.8m before $3.1m of deferred financing costs, or $542.7m net. This comprised $273.4m of 6.5% notes due 2023 and $272.4m of term loans due 2022. The $50m revolving facility was undrawn at quarter-end.
- Six-month operating cash flow was $11.7m; investing activities used $7.5m and financing activities used $18.9m. Cash and restricted cash decreased $14.7m. Capital expenditures were $8.3m.
- The company repaid a required $9.9m term-loan prepayment and repurchased $4.7m principal of notes below par, recording a $1.2m gain. It drew the full $50m revolver in March as a precaution, then repaid it in June.
- Management estimated approximately $29.1m of debt service over the next 12 months and said cash, operating cash flows and available revolver capacity should fund requirements for at least one year, while cautioning that COVID-19 could affect liquidity and operating performance.
Material changes and unusual items
- Q2 revenue declined $39.0m, or 34.5%, chiefly from advertising cancellations and weaker new ad purchases, alongside event cancellations or postponements. Interactive revenue growth partly offset these declines.
- Operating results included $28.7m of Q2 impairment charges, primarily for FCC licenses in 35 markets. First-half impairment charges totaled $107.7m, including $107.1m for FCC licenses and $0.6m for long-lived assets. The company cited pandemic-related revenue weakness and higher valuation discount rates; additional impairment could be material.
- Direct operating expenses fell, but not enough to offset lost revenue. The company also recorded $2.2m of first-half business realignment costs and $2.2m of transaction costs.
- Accounts receivable collection time increased to approximately 71 days from a historical average of about 60 days; the company increased its doubtful-account provision.
- The board ceased quarterly cash dividends after the $2.1m first-quarter dividend was paid in May. The filing reports $0.075 per share declared for the first half, with no Q2 dividend.
Outlook, risks and controls
- The filing provides no formal revenue or earnings guidance. Management expected political advertising to remain consistent with expectations and to be weighted toward the second half of 2020. It said it did not expect the usual first-quarter revenue seasonality in 2020 because of the pandemic.
- COVID-19 impacts included significant ad cancellations, event disruptions, employee layoffs or terminations affecting approximately 135 full-time employees, reduced nonessential capital spending, wage measures, and deferral of certain payroll taxes under the CARES Act. The company said the pandemic’s duration, economic effects and recovery pace were highly uncertain.
- FCC-license valuations are sensitive to assumptions: management estimated that a 100-basis-point increase in the weighted average cost of capital, all else equal, would reduce estimated license fair value by $37.1m. Further broadcast declines could prompt additional material impairment.
- The company was in compliance with debt covenants at June 30. It amended its credit agreement to extend the deadline for audited 2019 financial statements and waive a related delivery default; the 2019 Form 10-K was filed June 9, 2020.
- Disclosure controls were deemed ineffective at quarter-end because material weaknesses in internal control over financial reporting remained unremediated. Areas included entity-level controls, impairment testing, IT access, revenue recognition, income taxes, period-end reporting, cash disbursements, software capitalization, lease renewals and EPS. Remediation was ongoing; management stated the weaknesses would not be considered remediated until controls had operated effectively and been tested.
- No material pending litigation was reported. The filing also identifies material-weakness-related restatement and litigation risks.
Investor verification priorities
- Track advertising demand, event activity and Interactive subscriber growth, including whether political advertising materializes in the second half.
- Review cash generation, receivable aging and bad-debt allowances, available revolver capacity, debt service and covenant compliance.
- Assess FCC-license impairment assumptions and any further charges as market conditions and broadcast revenue change.
- Monitor progress in remediating internal-control weaknesses and the reliability of future financial reporting.
- Confirm the effects of dividend suspension, cost reductions and deferred payroll taxes on liquidity and operating capacity.