Townsquare Media, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Amounts are U.S. dollars; financial figures are in millions unless noted. This is an annual filing, not a standalone fourth-quarter report.
Business context
Townsquare is a local media and digital marketing company focused mainly on U.S. markets outside the top 50. Its businesses are subscription digital marketing (Townsquare Interactive), digital advertising (Townsquare Ignite), broadcast advertising and live events. At year-end, it operated 357 radio stations in 74 markets and reported approximately 30,650 Interactive subscribers. Management describes its strategy as “Digital First.” Digital revenue totaled $230.8 million, or about 50% of 2022 revenue.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Net revenue | $463.1 | $418.0 |
| Operating income | $55.6 | $74.5 |
| Operating margin | 12.0% | 17.8% |
| Net income | $14.4 | $18.8 |
| Diluted EPS | $0.68 | $0.79 |
| Cash from operating activities | $50.2 | $61.1 |
| Capital expenditures | $15.8 | $12.4 |
| Cash and cash equivalents, year-end | $43.4 | $50.5 |
| Long-term debt, net of financing costs, year-end | $524.4 | $541.5 |
Net revenue grew 10.8%. Revenue less political advertising was $455.6 million, up 9.9% from $414.5 million. Operating margin and net income margin (about 3.1%, versus 4.5% in 2021) contracted. Operating cash flow less capital expenditures was approximately $34.4 million, a derived figure, versus $48.7 million in 2021.
Revenue by segment and material changes
| Segment | 2022 revenue | Change vs. 2021 | 2022 segment operating income |
|---|---|---|---|
| Subscription Digital Marketing Solutions | $90.4 | +10.5% | $24.4 |
| Digital Advertising | $140.4 | +20.2% | $42.2 |
| Broadcast Advertising | $223.8 | +3.8% | $27.5 |
| Other, primarily live events | $8.4 | +$4.7 million | $0.5 |
Interactive added approximately 3,850 net subscribers during the year. Digital Advertising growth reflected stronger revenue, while Interactive growth was attributed primarily to subscriber additions. Broadcast revenue benefited partly from higher client spending and political advertising. Political revenue was $7.5 million, versus $3.5 million in 2021. Live-event revenue increased as more events were held.
Operating income fell 25.4%, primarily because direct operating expenses rose $36.6 million (12.7%) and impairment charges increased. Total impairment charges were $31.1 million, compared with $1.9 million in 2021; $26.1 million related to FCC licenses in nine markets. Management cited higher valuation discount rates and estimated initial capital costs. Digital Advertising and Interactive segment operating income increased, while Broadcast Advertising segment operating income declined from $52.5 million to $27.5 million, including the FCC-license impairment impact.
Liquidity, debt and capital allocation
Year-end current assets were $120.7 million and current liabilities were $71.7 million; customer receivables were $61.2 million. Cash declined $7.1 million year over year. Investing cash use was $37.8 million, including $18.5 million for the Cherry Creek acquisition, $15.8 million of capital expenditures and $5.0 million invested in digital assets. Financing cash use was $19.5 million, primarily reflecting $18.9 million paid to repurchase 2026 Notes.
The company had $530.8 million principal amount of 6.875% senior secured notes due February 2026 ($524.4 million net carrying value) and reported compliance with indenture covenants at year-end. Management estimated approximately $36.1 million of debt-service requirements over the following 12 months. Cash interest paid in 2022 was $38.6 million. Management believed cash and expected cash flows would meet requirements for at least one year from the filing date, while noting performance depends on advertising demand and other conditions.
Cherry Creek was acquired on June 17, 2022 for approximately $18.5 million. The company sold six Missoula stations to comply with FCC ownership limits and later acquired a Tri-Cities station. The board approved a quarterly dividend of $0.1875 per share in March 2023, payable May 1, 2023; future dividends remain discretionary and subject to debt restrictions. No common stock repurchases occurred in the fourth quarter of 2022.
Outlook, risks and unusual items
- Outlook: No specific revenue or earnings guidance is provided. Management plans to prioritize investment in digital businesses, content, sales and technology, and to pursue acquisitions selectively. It identifies digital as the expected growth engine.
- Macro and advertising exposure: Inflation, rising interest rates, supply-chain disruption, economic weakness and reduced client advertising could pressure revenue and expenses. Management specifically noted weaker mortgage advertising tied to higher rates and continuing automotive supply constraints. Political advertising is cyclical and generally stronger in even-numbered election years.
- Impairment sensitivity: FCC-license valuations depend on assumptions including revenue growth and discount rates. Management estimated that a 50-basis-point increase in the discount rate could have produced an additional $5.7 million impairment, and a 100-basis-point decline in long-term revenue growth an additional $9.0 million, based on the year-end analysis. Goodwill was not impaired in 2022.
- Other unusual items: The company recorded $2.9 million of digital-asset impairment and $1.2 million of investment impairment; digital assets had a $2.1 million carrying value at year-end. The 2022 income tax benefit was $0.6 million, versus $10.4 million of tax expense in 2021, primarily reflecting NOL utilization and changes in valuation allowances.
- Other risks: The filing highlights substantial leverage and the 2026 maturity, intense competition and technological change, dependence on digital audience and talent, privacy and cybersecurity exposure, music royalty costs, FCC license renewal and regulation, and acquisition integration risks. The next FCC renewal cycle begins in 2027. No material pending litigation was reported.
- Controls: Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2022. A material weakness concerning documentation and testing of automation systems, reported for 2021, was described as remediated during 2022.
Important facts for investors to verify
- Reconcile reported revenue growth with the political-advertising-adjusted comparison and assess how much growth is organic versus acquisition-related.
- Track digital subscriber retention and revenue quality: the reported subscriber count includes promotional-period and certain past-due customers.
- Review cash generation, working-capital movements, cash interest and the company’s ability to refinance or repay the 2026 Notes.
- Monitor FCC-license valuation assumptions and any further impairments, especially if broadcast revenue weakens or discount rates rise.
- Confirm dividend capacity under debt covenants and evaluate the announced dividend against liquidity and competing capital needs.
- Assess whether the remediated financial-reporting controls remain effective and whether cybersecurity, privacy and third-party risks are changing.