Townsquare Media, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022. Townsquare operates local radio stations and digital advertising and subscription marketing businesses, primarily in U.S. markets outside the top 50. Figures below are in millions except per-share data.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $103.1 | $100.2 | Up 2.9% |
| Operating income | $4.2 | $15.8 | Down 73.2% |
| Operating margin | 4.1% | 15.8% | Down 11.7 percentage points |
| Net income (loss) | $(1.9) | $2.7 | Declined $4.7 |
| Net income (loss) attributable to controlling interests | $(2.4) | $2.2 | |
| Basic and diluted EPS | $(0.14) | $0.13 basic; $0.11 diluted | |
| Cash from operating activities | $9.4 | $8.6 | Up $0.8 |
Direct operating expenses rose 6.2% to $78.3 million, faster than revenue. Operating costs and expenses increased 17.1% to $98.9 million, including $8.5 million of impairment charges, principally $8.2 million on FCC licenses. Net interest expense was $9.6 million, compared with $10.0 million.
Revenue by segment: Digital Advertising $33.7 million, up 15.4%; Subscription Digital Marketing Solutions $21.6 million, down 1.3%; Broadcast Advertising $45.9 million, down 4.8%; and Other, including live events, $1.9 million, up $1.0 million. Segment operating income was $9.9 million for Digital Advertising and $5.1 million for Subscription Digital Marketing Solutions; Broadcast Advertising recorded a $3.6 million operating loss.
At March 31, cash and cash equivalents were $41.8 million, accounts receivable $55.3 million, and current assets $109.5 million versus current liabilities of $63.6 million. Long-term debt, net of deferred financing costs, was $512.8 million; the $518.6 million principal balance of the 2026 Notes matures in 2026. The company repurchased $12.2 million principal amount of notes below par, reporting a $0.8 million gain. It reported compliance with note covenants and estimated $35.7 million of debt service over the next 12 months.
Cash used in investing activities was $0.2 million, including $3.6 million of property and equipment purchases and $3.0 million of proceeds from digital asset sales. Cash used in financing activities was $10.8 million, primarily for note repurchases. Cash, cash equivalents and restricted cash decreased $1.6 million to $42.3 million.
Material changes and unusual items
- Revenue growth was led by Digital Advertising, partly offset by lower Broadcast Advertising and subscription marketing revenue. Management attributed higher digital direct costs to inventory and staffing supporting growth.
- FCC-license impairment charges were driven by lower forecast broadcast revenue and a higher discount rate. The filing cites a 12.2% discount rate and 0.0% long-term revenue growth assumption. Management’s sensitivity analysis indicates further adverse assumption changes could lead to additional impairments.
- Other income included a $0.8 million gain on sale of digital assets and $0.4 million of insurance recovery gains; the company also recorded a $0.1 million unrealized investment loss. These items and the debt repurchase gain affected comparability.
- In April 2023, an investee was acquired in a private transaction; Townsquare expects to recognize a $4.8 million gain upon the transaction’s effective date.
- The board resumed a quarterly dividend of $0.1875 per share. The Q1 dividend of $3.3 million was paid May 1, 2023; a subsequent dividend was approved for payment August 1, 2023.
Outlook, commentary and risks
The filing provides no quantified revenue, earnings or cash-flow guidance. Management says Q1 is typically the company’s lowest-revenue quarter because advertising generally declines after the winter holidays. It believes cash on hand and expected operating cash flows will meet working-capital, capital expenditure, debt-service and other requirements for at least 12 months.
Management identifies sustained inflation, higher interest rates, supply-chain disruption, weaker advertising demand, customer credit losses, competition, and leverage and financing access as risks. It may respond to weaker revenue with wage reductions and controls on non-essential capital spending. Additional financing, if needed, may not be available on acceptable terms. The company reported no material off-balance-sheet arrangements, no current material pending litigation, and effective disclosure controls as of March 31, 2023.
Important facts for investors to verify
- Whether digital advertising growth can continue while controlling its rising direct costs, and whether broadcast revenue stabilizes.
- The valuation assumptions for FCC licenses and the potential for further material impairment charges.
- Cash generation, liquidity and ability to meet the 2026 Notes’ debt service and maturity obligations.
- The timing and realization of the expected $4.8 million gain on the investee transaction, and the sustainability of dividend payments.
- Exposure to advertising-market weakness, customer credit losses, inflation and interest-rate changes.