Townsquare Media, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Townsquare operates local radio stations, digital advertising properties and a subscription digital marketing business, primarily in U.S. markets outside the top 50.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net revenue | $100.2 million | $88.8 million |
| Operating income | $15.8 million | $8.8 million |
| Operating margin | 15.8% | 9.9% |
| Net income (loss) | $2.7 million | $(6.1) million |
| Diluted earnings (loss) per share | $0.11 | $(0.35) |
| Cash provided by operating activities | $8.6 million | $19.4 million |
| Cash and cash equivalents, March 31 | $50.9 million | $20.1 million |
Revenue rose 12.9%. Subscription Digital Marketing Solutions revenue was $21.9 million, up 15.0%; Digital Advertising was $29.2 million, up 16.6%; and Broadcast Advertising was $48.1 million, up 7.7%. Management attributed subscription growth partly to approximately 1,050 net additional subscribers in the quarter. Segment operating income was $6.0 million for Subscription Digital Marketing Solutions, $8.1 million for Digital Advertising and $8.7 million for Broadcast Advertising.
Operating expenses increased 5.6% to $84.4 million, including a $9.2 million increase in direct operating expenses, primarily from headcount and compensation. Operating income benefited from higher revenue and transaction costs falling to $0.4 million from $4.7 million, largely because Q1 2021 included a $4.5 million Oaktree settlement payment. The filing does not present a company-wide gross margin or EBITDA measure.
Cash, debt and liquidity
- Operating cash flow was $8.6 million, down from $19.4 million. Management cited increased interest payments, including the February 2026 Notes coupon payment, and period-over-period working-capital changes.
- Investing activities used $8.8 million, including $5.0 million to purchase Bitcoin, $1.7 million in acquisition-related payments and $2.8 million of property and equipment purchases. Financing activities provided $0.6 million.
- Long-term debt was $550.0 million principal, or $541.9 million net of deferred financing costs, consisting of 6.875% senior secured notes due 2026. Cash was $50.9 million; the company reported $37.8 million of expected debt service over the next 12 months. The company said it was in compliance with note covenants at quarter-end.
- Management stated that cash and expected cash flows should fund working capital, capital expenditures and debt service for at least 12 months. It also noted that future financing needs and covenant compliance depend on operating performance, advertising demand and economic conditions.
Material changes, outlook and risks
- On March 24, the company agreed to acquire Cherry Creek Broadcasting for $18.8 million, subject to regulatory approval and expected to close in Q2 or Q3 2022. The transaction involves adding 35 stations in nine markets, with six Missoula stations to be divested and two Tri-Cities stations placed in a divestiture trust to address FCC ownership limits.
- After quarter-end, on April 29, the company repurchased and canceled $9.3 million principal of its 2026 Notes at par plus accrued interest.
- The company invested $5.0 million in Bitcoin during the quarter. Its March 31 carrying value was $4.6 million after $0.4 million of impairment charges; the filing estimated that a sale at quarter-end would have yielded approximately $6.2 million. Under the accounting policy described, price declines can trigger impairment, while subsequent price recoveries are not recognized until sale.
- An investee’s publicly traded shares generated a $1.5 million unrealized loss, included in other expense. Management cited this and other discrete items as factors in the 34.7% effective tax rate, versus 12.8% in Q1 2021.
- The company quantitatively tested FCC broadcast licenses after changes in forecast traditional broadcast revenue. It reported that a 100-basis-point increase in the discount rate, with other assumptions unchanged, would reduce estimated license fair values by $72.8 million and have resulted in a $5.7 million impairment. Further broadcast declines or unfavorable valuation assumptions could lead to additional, potentially material, impairment charges.
- No formal financial guidance was provided. Management described Q1 as typically the lowest-revenue quarter because advertising spending often declines after the winter holidays; political advertising can increase in even-numbered election years and is typically strongest in Q4. Risks discussed include economic conditions, inflation, labor shortages, advertising demand, competition, COVID-19 effects, leverage and interest rates, and acquisition execution and integration.
- No material pending litigation was reported. Management stated that disclosure controls were effective at March 31, 2022; it reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth and subscriber gains continued, and whether operating expenses grew faster than revenue.
- Cash generation after interest payments, the timing and funding of the Cherry Creek acquisition, and the impact of the post-quarter note repurchase on liquidity and debt service.
- Bitcoin and investee valuation changes, related impairment or unrealized losses, and the sensitivity of FCC license valuations to broadcast performance and discount-rate assumptions.
- Advertising demand and macroeconomic conditions, including political revenue seasonality, as well as compliance with debt covenants and the company’s stated 12-month liquidity expectations.