Townsquare Media, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019, compared with Q1 2018. Townsquare operates radio, digital advertising and marketing, and live-event businesses across 67 U.S. markets. It reported three segments: Advertising, Townsquare Interactive, and Live Events.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2019 |
|---|---|---|
| Net revenue | $88.0 million | $93.7 million |
| Operating income | $13.3 million | $11.9 million |
| Income from continuing operations | $3.5 million | $2.4 million |
| Net loss, including discontinued operations | $(26.6) million | $(4.8) million |
| Operating cash flow, consolidated | $(0.6) million | $5.9 million |
| Capital expenditures | $4.4 million | $5.0 million |
- Operating margin was approximately 12.7%, down from 15.1%. Net loss per diluted share was $0.17 in 2019, versus $0.97 in 2018; the improvement largely reflects lower discontinued-operations losses.
- Q1 2019 operating cash flow from continuing operations was $4.1 million, versus $4.6 million in Q1 2018. Consolidated operating cash flow improved mainly because of discontinued-operations cash flows and the timing of the NAME sale.
- At March 31, 2019, cash was $60.8 million and current assets and liabilities were $137.3 million and $68.1 million, respectively. Debt before deferred financing costs was $560.5 million; reported long-term debt, net of those costs, was $555.7 million. The company had no revolver borrowings and $50 million available.
- Q1 interest expense, net, was $8.6 million. Term Loans carried a 5.50% rate; the $278.1 million of 2023 Notes bear 6.5% interest. Management estimated $33.9 million of debt service over the next 12 months.
- The company declared a $0.075-per-share dividend for Q1 and approved another $0.075-per-share dividend on May 6, payable August 15, 2019.
Material changes versus Q1 2018
- Revenue grew 6.5%; excluding political revenue, it grew 7.0%. Advertising revenue increased 3.9%, primarily from digital programmatic growth; Townsquare Interactive grew 31.6% on a larger subscriber base. Live Events revenue declined 8.6%, largely due to eliminated events.
- On a pro forma basis including the Princeton radio acquisition in both periods, revenue rose 4.7%. Political revenue fell from $0.7 million to $0.3 million.
- Operating costs and expenses rose 9.4%, faster than revenue. Depreciation and amortization increased 48.5%, primarily from capitalized software development; stock-based compensation increased from $0.2 million to $0.9 million.
- The net loss narrowed from $26.6 million to $4.8 million. Discontinued-operations losses declined from $30.1 million to $7.2 million, but continuing-operations income also fell from $3.5 million to $2.4 million.
- Cash decreased $0.6 million during the quarter. Financing cash use included $2.1 million of dividends; there was no required excess-cash-flow loan payment in Q1 2019, compared with a $9.5 million payment in Q1 2018.
Outlook, management commentary, risks, and unusual items
- Management provided no quantitative earnings or revenue guidance. It expects Q1 generally to be the year’s lowest-revenue quarter because advertising tends to decline after the winter holidays; political spending is typically highest in Q4 of even-numbered years.
- Management said cash, operating cash flows, and revolver availability should cover working capital, capital expenditures, debt service, dividends, and other needs for at least one year from the filing date. This depends on operating performance, advertising demand, market conditions, and covenant compliance.
- The company adopted the new lease standard on January 1, 2019, recording approximately $48.4 million of lease liabilities and $45.4 million of right-of-use assets, plus a $0.8 million opening equity adjustment. These balance-sheet additions affect comparison with prior periods.
- Management decided to exit the music-festival business and seek a buyer. The related assets and liabilities were classified as held for sale/discontinued operations, and a $10.0 million long-lived-asset impairment was recorded. The quarter also included a $1.4 million gain on the sale of Arizona Bridal Shows for $2.0 million.
- On April 30, 2019, the company amended its credit agreement, extending the revolving facility maturity by two years to April 1, 2022, subject to a springing maturity provision. The company reported compliance with debt covenants at March 31.
- Key risks include high leverage and floating-rate exposure, competition and changes in radio-advertising demand, economic conditions, event cancellations or weather, and the ability to execute acquisitions or divestitures. The company reported no material pending litigation and said disclosure controls were effective.
Important facts for investors to verify
- Whether growth in digital advertising and Townsquare Interactive can continue, and whether their added operating costs translate into improved operating income.
- The remaining costs, sale timing, proceeds, and any further impairments associated with the music-festival exit and other discontinued operations.
- Debt service capacity and sensitivity to interest rates, covenant requirements, and the amended revolver’s maturity terms.
- The sustainability of dividends given cash generation, capital needs, and debt obligations.
- The effects of the new lease liabilities and the company’s seasonal revenue pattern when assessing liquidity and period-to-period performance.