Townsquare Media, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The unaudited comparative 2019 results reflect a restatement. Townsquare operates radio, digital media and marketing, and live-events businesses across 67 U.S. markets.
Key financial results
Amounts below are in millions, except per-share data and percentages.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $95.4 | $112.6 | $262.8 | $319.3 |
| Operating income (loss) | $9.5 | $20.2 | $(96.2) | $54.3 |
| Net income (loss) | $1.3 | $7.3 | $(85.1) | $12.6 |
| Operating margin | 10.0% | 17.9% | (36.6)% | 17.0% |
| Net cash from operating activities | Not separately provided for the quarter | $23.4 | $25.4 |
- Q3 revenue fell 15.3% year over year. Advertising revenue declined 17.2% to $77.1 million; Townsquare Interactive grew 14.5% to $18.2 million; Live Events revenue fell 98.2% to $0.1 million.
- Q3 net income attributable to controlling interests was $0.8 million; basic continuing-operations EPS attributable to common shares was $0.03, versus $0.29 a year earlier.
- Nine-month results include $109.1 million of impairment charges, principally $107.1 million for FCC licenses. Excluding no items, reported operating loss was $96.2 million. The impairment was non-cash.
- Nine-month investing cash use was $10.1 million, including $11.3 million of property and equipment purchases. Financing cash use was $18.9 million. Cash and restricted cash decreased $5.6 million to $79.6 million.
Balance sheet, debt and liquidity
- At September 30, cash and cash equivalents were $79.1 million; current assets were $143.8 million and current liabilities $67.6 million. Accounts receivable were $54.2 million; the company reported longer collection times during the pandemic, with average collection cycle rising from about 55 to 58 days.
- Debt before deferred financing costs was $545.8 million: $272.4 million of term loans due 2022 and $273.4 million of 6.5% senior notes due 2023. Reported debt net of financing costs was $543.1 million. The term-loan rate was 4.0% at quarter-end.
- The $50 million revolver was undrawn at quarter-end, leaving $50 million available. The company reported compliance with debt covenants and estimated approximately $28.9 million of debt service over the next 12 months.
- Management said available cash, operating cash flows and revolver capacity were expected to fund requirements for at least one year from the filing date, while cautioning that COVID-19 could affect those sources.
Changes, outlook and material risks
- Management reported some advertising recovery in Q3 from the declines late in Q1 and in Q2, but revenue remained materially below Q3 2019. Political revenue rose to $4.5 million from $0.6 million; political spending was expected to be weighted toward the second half of 2020. No numerical full-year earnings or revenue guidance is provided.
- COVID-19 drove advertiser cancellations and reduced new ad purchases, as well as cancellation of nearly all scheduled live events beginning in March. The company reduced non-essential capital spending, terminated or laid off about 135 full-time employees, implemented wage measures and suspended its dividend after paying the Q1 dividend.
- FCC license impairment estimates remain sensitive to assumptions: management said a 100-basis-point increase in the weighted-average cost of capital would reduce estimated license fair values by $37.1 million and could have resulted in additional impairment. Further broadcast-revenue declines could lead to material additional charges.
- Other notable items: the company repurchased $4.7 million principal amount of 2023 notes below par, recognizing a $1.2 million gain; a $33.0 million income-tax benefit was recorded for the nine-month period. A $0.4 million Duluth station acquisition closed October 9, 2020.
- Disclosure controls were judged ineffective at quarter-end because previously identified material weaknesses in internal control over financial reporting had not been fully remediated. Management said the financial statements fairly presented results in all material respects. The filing identifies pandemic uncertainty, leverage, advertising demand, impairment assumptions and control weaknesses among relevant risks.
Important facts for investors to verify
- Whether advertising recovery continued after Q3, and the extent of any renewed pandemic-related disruption to local advertising and live events.
- Progress in Townsquare Interactive subscriber and revenue growth, and whether that growth offsets pressure in broadcast advertising.
- FCC license valuations, key discount-rate and revenue assumptions, and any subsequent impairment indicators.
- Cash generation, receivable collections, debt-service capacity, revolver availability and ongoing covenant compliance.
- Remediation and testing of the disclosed material weaknesses, and any impact on the reliability of future reporting.