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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2024
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to ______
Commission file number 001-36558
Townsquare Media, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 27-1996555 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
One Manhattanville Road |
Suite 202 |
Purchase, | New York | 10577 |
(Address of Principal Executive Offices, including Zip Code) |
(203) 861-0900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, $0.01 par value per share | TSQ | The New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☐ | | Accelerated filer | ☒ |
Non-accelerated filer | | ☐ | | Smaller reporting company | ☒ |
| | | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 6, 2024, the registrant had 15,120,983 outstanding shares of common stock consisting of: (i) 14,305,687 shares of Class A common stock, par value $0.01 per share and (ii) 815,296 shares of Class B common stock, par value $0.01 per share.
TOWNSQUARE MEDIA, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share and Per Share Data)
(unaudited)
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 56,600 | | | $ | 61,046 | |
Accounts receivable, net of allowance for credit losses of $4,156 and $4,041, respectively | 53,894 | | | 60,780 | |
Prepaid expenses and other current assets | 10,823 | | | 10,356 | |
| | | |
Total current assets | 121,317 | | | 132,182 | |
Property and equipment, net | 110,580 | | | 110,194 | |
Intangible assets, net | 197,168 | | | 200,306 | |
Goodwill | 157,270 | | | 157,270 | |
Investments | 3,309 | | | 3,542 | |
Operating lease right-of-use assets | 45,732 | | | 46,887 | |
Other assets | 819 | | | 1,165 | |
Restricted cash | 505 | | | 503 | |
Total assets | $ | 636,700 | | | $ | 652,049 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 4,545 | | | $ | 5,036 | |
Deferred revenue | 9,814 | | | 9,059 | |
Accrued compensation and benefits | 14,355 | | | 13,085 | |
Accrued expenses and other current liabilities | 25,293 | | | 25,112 | |
Operating lease liabilities, current | 9,549 | | | 9,376 | |
Accrued interest | 5,782 | | | 14,420 | |
Total current liabilities | 69,338 | | | 76,088 | |
Long-term debt, net of deferred finance costs of $3,513 and $3,960, respectively | 500,105 | | | 499,658 | |
Deferred tax liability | 11,864 | | | 11,856 | |
Operating lease liability, net of current portion | 41,089 | | | 41,437 | |
| | | |
Other long-term liabilities | 12,464 | | | 13,099 | |
Total liabilities | 634,860 | | | 642,138 | |
| | | |
Stockholders’ equity: | | | |
Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 16,431,150 and 14,023,767 shares issued and outstanding, respectively | 164 | | | 140 | |
Class B common stock, par value $0.01 per share; 50,000,000 shares authorized; 815,296 and 815,296 shares issued and outstanding, respectively | 8 | | | 8 | |
Class C common stock, par value $0.01 per share; 50,000,000 shares authorized; 0 and 1,961,341 shares issued and outstanding, respectively | — | | | 20 | |
Total common stock | 172 | | | 168 | |
Treasury stock, at cost; 580,527 and 183,768 shares of Class A common stock, respectively | (6,476) | | | (2,177) | |
Additional paid-in capital | 308,441 | | | 310,612 | |
Accumulated deficit | (304,215) | | | (302,193) | |
Non-controlling interest | 3,918 | | | 3,501 | |
Total stockholders’ equity | 1,840 | | | 9,911 | |
Total liabilities and stockholders’ equity | $ | 636,700 | | | $ | 652,049 | |
See Notes to Unaudited Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in Thousands, Except Per Share Data)
(unaudited)
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2024 | | 2023 |
Net revenue | | | | | $ | 99,633 | | | $ | 103,110 | |
| | | | | | | |
Operating costs and expenses: | | | | | | | |
Direct operating expenses, excluding depreciation, amortization, and stock-based compensation | | | | | 76,895 | | | 78,324 | |
Depreciation and amortization | | | | | 4,935 | | | 4,944 | |
Corporate expenses | | | | | 5,217 | | | 5,345 | |
Stock-based compensation | | | | | 2,870 | | | 1,772 | |
Transaction and business realignment costs | | | | | 1,444 | | | 292 | |
| | | | | | | |
Impairment of intangible and long-lived assets | | | | | 1,618 | | | 8,487 | |
| | | | | | | |
Net loss (gain) on sale and retirement of assets | | | | | 14 | | | (292) | |
Total operating costs and expenses | | | | | 92,993 | | | 98,872 | |
Operating income | | | | | 6,640 | | | 4,238 | |
Other expense (income): | | | | | | | |
Interest expense, net | | | | | 9,031 | | | 9,558 | |
Gain on repurchases of debt | | | | | — | | | (775) | |
Other income, net | | | | | (4,151) | | | (1,026) | |
Income (loss) from operations before tax | | | | | 1,760 | | | (3,519) | |
Income tax provision (benefit) | | | | | 207 | | | (1,578) | |
| | | | | | | |
| | | | | | | |
Net income (loss) | | | | | $ | 1,553 | | | $ | (1,941) | |
| | | | | | | |
Net income (loss) attributable to: | | | | | | | |
Controlling interests | | | | | $ | 1,136 | | | $ | (2,421) | |
Non-controlling interests | | | | | $ | 417 | | | $ | 480 | |
| | | | | | | |
Basic income (loss) per share | | | | | $ | 0.07 | | | $ | (0.14) | |
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Diluted income (loss) per share | | | | | $ | 0.06 | | | $ | (0.14) | |
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Weighted average shares outstanding: | | | | | | | |
Basic | | | | | 16,562 | | | 17,204 | |
Diluted | | | | | 18,762 | | | 17,204 | |
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See Notes to Unaudited Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in Thousands, Except Share Data)
(unaudited)
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| Shares of Common Stock | | | | Treasury Stock | | | | | | | | | | | | |
| Class A | | Class B | | Class C | | | | Class A | | | | | | | | | | | | |
| Shares | | Shares | | Shares | | | | Shares | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Non- Controlling Interest | | Total |
Balance at January 1, 2024 | 14,023,767 | | | 815,296 | | | 1,961,341 | | | | | 183,768 | | | $ | 168 | | | $ | (2,177) | | | $ | 310,612 | | | $ | (302,193) | | | $ | 3,501 | | | $ | 9,911 | |
Net income | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 1,136 | | | 417 | | | 1,553 | |
Conversion of common shares(1) | 1,961,341 | | | — | | | (1,961,341) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Settlement of options(2) | — | | | — | | | — | | | | | — | | | — | | | — | | | (6,902) | | | — | | | — | | | (6,902) | |
Dividends declared ($0.1975 per share) | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (3,158) | | | — | | | (3,158) | |
Stock-based compensation | — | | | — | | | — | | | | | — | | | — | | | — | | | 2,162 | | | — | | | — | | | 2,162 | |
Treasury stock acquired at cost(3) | — | | | — | | | — | | | | | 396,759 | | | — | | | (4,299) | | | — | | | — | | | — | | | (4,299) | |
Common stock issued under exercise of stock options | 263,053 | | | — | | | — | | | | | — | | | 3 | | | — | | | 2,202 | | | — | | | — | | | 2,205 | |
ESPP shares issued | 42,360 | | | — | | | — | | | | | — | | | — | | | — | | | 403 | | | — | | | — | | | 403 | |
Issuance of restricted stock (4) | 143,737 | | | — | | | — | | | | | — | | | 1 | | | — | | | (1) | | | — | | | — | | | — | |
Shares withheld to satisfy tax withholdings | (3,108) | | | — | | | — | | | | | — | | | — | | | — | | | (35) | | | — | | | — | | | (35) | |
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Balance at March 31, 2024 | 16,431,150 | | | 815,296 | | | — | | | | | 580,527 | | | $ | 172 | | | $ | (6,476) | | | $ | 308,441 | | | $ | (304,215) | | | $ | 3,918 | | | $ | 1,840 | |
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(1) During the three months ended March 31, 2024, direct holders of Class C Common Stock converted approximately 2.0 million shares into an equal number of Class A Common Stock. Except as expressly provided in our certificate of incorporation, the Class A common stock, Class B common stock and Class C common stock have equal economic rights and rank equally, share ratably and are identical in all respects as to all matters. Class C common stock is not redeemable, but is convertible 1:1 (including automatically upon certain transfers) into Class A common stock.
(2) During the three months ended March 31, 2024, the Company launched a program that offered certain holders a cash settlement of options. Refer to Note 9, Stockholders' Equity, in the accompanying Notes to Consolidated Financial Statements for additional information related to the settlement.
(3) Represents shares repurchased under the terms of the Company's stock repurchase plan pursuant to which the Company is authorized to repurchase up to $50 million of the Company’s issued and outstanding Class A common stock over a three-year period, the "2021 Stock Repurchase Plan." Refer to Note 9, Stockholders' Equity, in the accompanying Notes to Consolidated Financial Statements for additional information related to the stock repurchases.
(4) Refer to Note 9, Stockholders' Equity, in the accompanying Notes to Consolidated Financial Statements for additional information related to shares issued.
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| Shares of Common Stock | | Treasury Stock | | | | | | | | | | | | |
| Class A | | Class B | | Class C | | Class A | | | | | | | | | | | | |
| Shares | | Shares | | Shares | | Shares | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Non- Controlling Interest | | Total |
Balance at January 1, 2023 | 12,964,312 | | | 815,296 | | | 3,461,341 | | | — | | | $ | 173 | | | $ | — | | | $ | 309,645 | | | $ | (244,298) | | | $ | 3,559 | | | $ | 69,079 | |
Net (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,421) | | | 480 | | | (1,941) | |
Dividends declared ($0.1875 per share) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,343) | | | — | | | (3,343) | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | 1,772 | | | — | | | — | | | 1,772 | |
Common stock issued under exercise of stock options | 5,000 | | | — | | | — | | | — | | | — | | | — | | | 31 | | | — | | | — | | | 31 | |
ESPP shares issued | 65,732 | | | — | | | — | | | — | | | — | | | — | | | 430 | | | — | | | — | | | 430 | |
Issuance of restricted stock (4) | 82,263 | | | — | | | — | | | — | | | 1 | | | — | | | (1) | | | — | | | — | | | — | |
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Balance at March 31, 2023 | 13,117,307 | | | 815,296 | | | 3,461,341 | | | — | | | $ | 174 | | | $ | — | | | $ | 311,877 | | | $ | (250,062) | | | $ | 4,039 | | | $ | 66,028 | |
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See Notes to Unaudited Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands)
(unaudited)
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| Three Months Ended March 31, |
| 2024 | | 2023 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | 1,553 | | | $ | (1,941) | |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 4,935 | | | 4,944 | |
Amortization of deferred financing costs | 447 | | | 425 | |
Non-cash lease expense | 1 | | | 41 | |
Net deferred taxes and other | 8 | | | (1,766) | |
Allowance for credit losses | 1,260 | | | 1,323 | |
Stock-based compensation expense | 2,870 | | | 1,772 | |
Gain on repurchases of debt | — | | | (775) | |
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Trade and barter activity, net | (195) | | | (454) | |
Impairment of intangible and long-lived assets | 1,618 | | | 8,487 | |
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Realized gain on sale of digital assets | — | | | (839) | |
Gain on sale of investment | (4,009) | | | — | |
Unrealized loss on investment | 233 | | | 134 | |
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Amortization of content rights | 1,222 | | | 1,200 | |
Change in content rights liabilities | (1,200) | | | 258 | |
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Other | 1,210 | | | (555) | |
Changes in assets and liabilities, net of acquisitions: | | | |
Accounts receivable | 5,390 | | | 5,058 | |
Prepaid expenses and other assets | 71 | | | 4,465 | |
Accounts payable | (513) | | | (22) | |
Accrued expenses | (4,589) | | | (3,134) | |
Accrued interest | (8,638) | | | (9,258) | |
Other long-term liabilities | (3) | | | (8) | |
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Net cash provided by operating activities | 1,671 | | | 9,355 | |
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Cash flows from investing activities: | | | |
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Purchase of property and equipment | (4,428) | | | (3,639) | |
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Proceeds from sale of digital assets | — | | | 2,975 | |
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Proceeds from sale of assets and investment related transactions | 4,147 | | | 493 | |
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Net cash used in investing activities | (281) | | | (171) | |
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Cash flows from financing activities: | | | |
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Repurchases of 2026 Notes | — | | | (11,248) | |
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Dividend payments | (3,248) | | | — | |
Proceeds from stock options exercised | 1,990 | | | 31 | |
Shares withheld in lieu of employee tax withholding | (35) | | | — | |
Withholdings for shares issued under the ESPP | 403 | | | 430 | |
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Repurchases of stock | (4,299) | | | — | |
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Repayments of capitalized obligations | (645) | | | (45) | |
Net cash used in financing activities | (5,834) | | | (10,832) | |
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Cash and cash equivalents and restricted cash: | | | |
Net decrease in cash, cash equivalents and restricted cash | (4,444) | | | (1,648) | |
Beginning of period | 61,549 | | | 43,913 | |
End of period | $ | 57,105 | | | $ | 42,265 | |
See Notes to Unaudited Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in Thousands)
(unaudited)
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| Three Months Ended March 31, |
| 2024 | | 2023 |
Supplemental Disclosure of Cash Flow Information: | | | |
Cash payments: | | | |
Interest | $ | 17,638 | | | $ | 18,728 | |
Income taxes | 12 | | | 4 | |
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Supplemental Disclosure of Non-cash Activities: | | | |
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Dividends declared, but not paid during the period | $ | 3,158 | | | $ | 3,343 | |
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Property and equipment acquired in exchange for advertising (1) | 404 | | | 98 | |
Accrued capital expenditures | 107 | | | 89 | |
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Supplemental Disclosure of Cash Flow Information relating to Leases: | | | |
Cash paid for amounts included in the measurement of operating lease liabilities, included in operating cash flows | $ | 3,026 | | | $ | 3,029 | |
Right-of-use assets obtained in exchange for operating lease obligations | 2,140 | | | 1,309 | |
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Reconciliation of cash, cash equivalents and restricted cash | | | |
Cash and cash equivalents | $ | 56,600 | | | $ | 41,768 | |
Restricted cash | 505 | | | 497 | |
| $ | 57,105 | | | $ | 42,265 | |
(1) Represents total advertising services provided by the Company in exchange for property and equipment during each of the three months ended March 31, 2024 and 2023, respectively.
See Notes to Unaudited Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Description of the Business
Townsquare is a community-focused digital media and digital marketing solutions company with market leading local radio stations, principally focused outside the top 50 markets in the U.S. Our integrated and diversified products and solutions enable local, regional and national advertisers to target audiences across multiple platforms, including digital, mobile, social, video, streaming, e-commerce, radio and events. Our assets include a subscription digital marketing solutions business (“Townsquare Interactive”), providing website design, creation and hosting, search engine optimization, social platforms and online reputation management for approximately 23,300 small to medium sized businesses; a robust digital advertising division (“Townsquare Ignite,” or “Ignite”), a powerful combination of a) an owned and operated portfolio of more than 400 local news and entertainment websites and mobile apps along with a network of leading national music and entertainment brands, collecting valuable first party data and b) a proprietary digital programmatic advertising technology stack with an in-house demand and data management platform; and a portfolio of 349 local terrestrial radio stations in 74 U.S. markets strategically situated outside the Top 50 markets in the United States. Our portfolio includes local media brands such as WYRK.com, WJON.com and NJ101.5.com, and premier national music brands such as XXLmag.com, TasteofCountry.com, UltimateClassicRock.com, and Loudwire.com.
Current economic challenges, including high and sustained inflation and interest rates have caused and could continue to cause economic uncertainty and volatility. These factors could result in advertising and subscription digital marketing solutions cancellations, declines in the purchase of new advertising by our clients, declines in the addition of new digital marketing solutions subscribers, and increases to our operating expenses. We monitor economic conditions closely, and in response to observed or anticipated reductions in revenue, we may institute precautionary measures to address the potential impact to our consolidated financial position, consolidated results of operations, and liquidity, including wage reduction efforts and controlling non-essential capital expenditures.
The extent of the impact of current economic conditions will depend on future actions and outcomes, all of which remain fluid and cannot be predicted with confidence (including effects on advertising activity, consumer discretionary spending and our employees in the markets in which we operate).
Basis of Presentation
The accompanying Unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes thereto included in the Company's Annual Report on Form 10-K (the "2023 Annual Report on Form 10-K"). The accompanying unaudited interim Consolidated Financial Statements include the consolidated accounts of the Company and its wholly-owned subsidiaries, with all significant intercompany balances and transactions eliminated in consolidation. These financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. All adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of results of operations and financial condition as of the end of the interim periods have been included. The results of operations for the three months ended March 31, 2024, cash flows for the three months ended March 31, 2024, and the Company’s financial condition as of such date are not necessarily indicative of the results of operations or cash flows that can be expected for, or the Company’s financial condition as of, any other interim period or for the fiscal year ending December 31, 2024. The Consolidated Balance Sheet as of December 31, 2023 is derived from the audited Consolidated Financial Statements at that date.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, the Company evaluates its significant estimates, including those related to assumptions used in determining the fair value of assets and liabilities acquired in a business combination, impairment testing of intangible assets, valuation and impairment testing of long-lived tangible assets and investments, the present value of leasing arrangements, share-based payment expense and the calculation of allowance for credit losses and income taxes. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the result of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual amounts and results may differ materially from these estimates under different assumptions or conditions.
Note 2. Summary of Significant Accounting Policies
There have been no significant changes in the Company’s accounting policies since December 31, 2023. For the Company's detailed accounting policies please refer to the Consolidated Financial Statements and related notes thereto included in the Company's 2023 Annual Report on Form 10-K.
Recently Issued Standards That Have Not Yet Been Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting – Improvements to Reportable Segments Disclosures, which enhances disclosures of significant segment expenses by requiring to disclose significant segment expenses regularly provided to the chief operating decision maker, extends certain annual disclosures to interim periods, and permits more than one measure of segment profit or loss to be reported under certain conditions. The amendments are effective for the Company in fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption of the amendment is permitted, including adoption in any interim periods for which financial statements have not been issued. The adoption of this standard is not expected to have a significant impact on the Consolidated Financial Statements. The Company is currently assessing the impact of the new requirements on the Consolidated Financial Statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires additional categories of information about federal and state income taxes in the rate reconciliation table and to provide more details about reconciling items in some categories if items meet a quantitative threshold. The guidance also requires the disclosure of income taxes paid, net of refunds, disaggregated by federal (national) and state taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the guidance and the adoption of this standard is not expected to have a significant impact on the Consolidated Financial Statements.
Note 3. Revenue Recognition
The following tables present a disaggregation of our revenue by reporting segment and revenue from political sources and all other sources (in thousands) for the three months ended March 31, 2024 and 2023:
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| Three Months Ended March 31, 2024 | | |
| Subscription Digital Marketing Solutions | | Digital Advertising | | Broadcast Advertising | | Other | | Total | | | | | | | | | | |
Net Revenue (ex Political) | $ | 18,253 | | | $ | 34,084 | | | $ | 44,467 | | | $ | 1,769 | | | $ | 98,573 | | | | | | | | | | | |
Political | — | | | 72 | | | 988 | | | — | | | 1,060 | | | | | | | | | | | |
Net Revenue | $ | 18,253 | | | $ | 34,156 | | | $ | 45,455 | | | $ | 1,769 | | | $ | 99,633 | | | | | | | | | | | |
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| | | Three Months Ended March 31, 2023 |
| | | | | | | | | | | Subscription Digital Marketing Solutions | | Digital Advertising | | Broadcast Advertising | | Other | | Total |
Net Revenue (ex Political) | | | | | | | | | | | $ | 21,561 | | | $ | 33,692 | | | $ | 45,725 | | | $ | 1,919 | | | $ | 102,897 | |
Political | | | | | | | | | | | — | | | 15 | | | 198 | | | — | | | 213 | |
Net Revenue | | | | | | | | | | | $ | 21,561 | | | $ | 33,707 | | | $ | 45,923 | | | $ | 1,919 | | | $ | 103,110 | |
Revenue from contracts with customers is recognized as an obligation until the terms of a customer contract are satisfied; this occurs with the transfer of control as we satisfy contractual performance obligations. Our contractual performance obligations include the performance of digital marketing solutions, placement of internet-based advertising campaigns, broadcast of commercials on our owned and operated radio stations, and the operation of live events. Revenue is measured at contract inception as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Our contracts are at a fixed price at inception and do not include any variable consideration or financing components by normal course of business practice. Sales, value add, and other taxes that are collected concurrently with revenue producing activities are excluded from revenue.
The primary sources of net revenue are the sale of digital and broadcast advertising solutions on our owned and operated websites, radio stations’ online streams, and mobile applications, radio stations, and on third-party websites through our in-house digital programmatic advertising platform. Through our digital programmatic advertising platform, we are able to hyper-target audiences for our local, regional and national advertisers by combining first and third-party audience and geographic location data, providing them the ability to reach a high percentage of their online audience. We deliver these solutions across desktop, mobile, connected TV, email, paid search and social media platforms utilizing display, video and native executions. We also offer subscription digital marketing solutions under the brand name Townsquare Interactive to small and mid-sized local and regional businesses in markets outside the top 50 across the United States, including the markets in which we operate radio stations. Townsquare Interactive offers traditional and mobile-enabled website development and hosting services, e-commerce platforms, search engine and online directory optimization services, online reputation monitoring, social media management, and website retargeting.
Political net revenue includes the sale of advertising for political advertisers. Contracted performance obligations under political contracts consist of the broadcast and placement of digital advertisements. Management views political revenue separately based on the episodic nature of election cycles and local issues calendars.
Net revenue from digital subscription-based contractual performance obligations is recognized ratably over time as our performance obligations are satisfied. Subscription-based service fees are typically billed in advance of the month of service at a fixed monthly fee that is contractually agreed upon at contract inception. The measure of progress in such arrangements is the number of days of successful delivery of the contracted service.
Our advertising contracts are short-term (less than one year) and payment terms are generally net 30-60 days for traditional customer contracts and net 60-90 days for national agency customer contracts. Our billing practice is to invoice customers on a monthly basis for services delivered to date (representing the right to invoice). Our contractual arrangements do not include rights of return and do not include any significant judgments by nature of the products and services.
Net revenue from digital subscription-based contractual performance obligations is recognized ratably over time as our performance obligations are satisfied. Subscription-based service fees are typically billed in advance of the month of service at a fixed monthly fee that is contractually agreed upon at contract inception. The measure of progress in such arrangements is the number of days of successful delivery of the contracted service.
For all customer contracts, we evaluate whether we are the principal (i.e., report revenue on a gross basis) or the agent (i.e., report revenue on a net basis). Generally, we report revenue for advertising placed on Townsquare properties on a gross basis (the amount billed to our customers is recorded as revenue, and the amount paid to our publishers is recorded as a cost of revenue). We are the principal because we control the advertising inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising inventory, being primarily responsible to our customers, having discretion in establishing pricing, or a combination of these factors. We also generate revenue through agency relationships in which revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for advertisers that use agencies.
The following tables provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
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| | March 31, 2024 | | December 31, 2023 |
Accounts Receivable | | $ | 53,894 | | | $ | 60,780 | |
Short-term contract liabilities (deferred revenue) | | $ | 9,814 | | | $ | 9,059 | |
Contract Acquisition Costs | | $ | 5,190 | | | $ | 5,175 | |
We receive payments from customers based upon contractual billing schedules; contract receivables are recognized in the period the Company provides services when the Company’s right to consideration is unconditional. Payment terms vary by the type and location of our customer and the products or services offered. Payment terms for amounts invoiced are typically net 30-60 days.
Our contract liabilities include cash payments received or due in advance of satisfying our performance obligations and digital subscriptions in which payment is received in advance of the service and month. These contract liabilities are recognized as revenue as the related performance obligations are satisfied. As of March 31, 2024, and December 31, 2023, the balance in the contract liabilities was $9.8 million and $9.1 million, respectively. The increase in the contract liabilities balance at March 31, 2024 is primarily driven by cash payments received or due in advance of satisfying our performance obligations offset by $5.8 million of recognized revenue for the three months ended March 31, 2024. For the three months ended March 31, 2023, we recognized $7.3 million of revenue that was previously included in our deferred revenue balance. No significant changes in the time frame of the satisfaction of contract liabilities have occurred during the three months ended March 31, 2024.
Our capitalized contract acquisition costs include amounts related to sales commissions paid for signed contracts with perceived durations exceeding one year. We defer the related sales commission costs and amortize such costs to expense in a manner that is consistent with how the related revenue is recognized over the duration of the related contracts. We have evaluated the average customer contract duration (initial term and any renewals) to determine the appropriate amortization period for these contractual arrangements. Capitalized contract acquisition costs are recognized in prepaid expenses and other current assets in the accompanying consolidated balance sheets. As of March 31, 2024 and December 31, 2023, we had a balance of $5.2 million and $5.2 million, respectively, in capitalized contract acquisition costs and recognized $1.5 million and $1.6 million of amortization for the three months ended March 31, 2024 and 2023, respectively. No impairment losses have been recognized or changes made to the time frame for performance of the obligations related to deferred contract assets during the three months ended March 31, 2024 and 2023.
Arrangements with Multiple Performance Obligations
In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract inception. When multiple performance obligations are identified, we identify how control transfers to the customer for each distinct contract obligation and determine the period when the obligations are satisfied. If obligations are satisfied in the same period, no allocation of revenue is deemed to be necessary. In the event performance obligations within a bundled contract do not run concurrently, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers. Performance obligations that are not distinct at contract inception are combined.
Performance Obligations
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. Amounts related to performance obligations with expected durations of greater than one year are at a fixed price per unit and do not include any upfront or minimum payments requiring any estimation or allocation of revenue.
Allowance for Credit Losses
The Company maintains an allowance for credit losses, which represents the portion of accounts receivable that is not expected to be collected over the duration of its contractual life. Credit losses are recorded when the Company believes a customer, or group of customers, may not be able to meet their financial obligations. Account balances are charged off against the allowance when it is probable the receivable will not be recovered.
The change in the allowance for credit losses for the three months ended March 31, 2024 was as follows (in thousands):
| | | | | | | | |
Balance at December 31, 2023 | | $ | 4,041 | |
Provision for credit losses | | 1,260 | |
Amounts written off against allowance, net of recoveries | | (1,145) | |
Balance at March 31, 2024 | | $ | 4,156 | |
Note 4. Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Land and improvements | $ | 19,309 | | | $ | 19,320 | |
Buildings and leasehold improvements | 58,616 | | | 58,302 | |
Broadcast equipment | 108,500 | | | 107,663 | |
Computer and office equipment | 25,733 | | | 25,097 | |
Furniture and fixtures | 22,448 | | | 22,384 | |
Transportation equipment | 18,838 | | | 18,573 | |
Software development costs | 47,134 | | | 45,347 | |
Total property and equipment, gross | 300,578 | | | 296,686 | |
Less accumulated depreciation and amortization | (189,998) | | | (186,492) | |
Total property and equipment, net | $ | 110,580 | | | $ | 110,194 | |
Depreciation and amortization expense for property and equipment was $4.3 million for each of the three months ended March 31, 2024 and 2023, respectively.
During the three months ended March 31, 2024, the Company recognized $0.3 million in impairment charges related to ROU assets associated with tower and land leases in 3 local markets.
During the three months ended March 31, 2023, the Company recognized $0.3 million in impairment charges related to certain long-lived assets sold for immaterial amounts in 5 local markets.
The Company had no material right of use assets related to its finance leases as of March 31, 2024 and December 31, 2023.
Note 5. Goodwill and Other Intangible Assets
Indefinite-lived intangible assets
Indefinite-lived assets consist of FCC broadcast licenses, goodwill and investment in digital assets.
FCC Broadcast Licenses
FCC licenses represent a substantial portion of the Company’s total assets. The FCC licenses are renewable in the ordinary course of business, generally for a maximum of eight years. The fair value of FCC licenses is primarily dependent
on the future cash flows of the radio markets and other assumptions, including, but not limited to, forecasted revenue growth rates, profit margins and a risk-adjusted discount rate. The Company has selected December 31st as the annual testing date.
The Company evaluates its FCC licenses for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Due to changes in forecasted traditional broadcast revenues in the markets in which we operate, the Company quantitatively evaluated the fair value of its FCC licenses at March 31, 2024.
The key assumptions used in applying the direct valuation method are summarized as follows:
| | | | | | | | |
| March 31, 2024 |
Discount Rate | 13.7% |
Long-term Revenue Growth Rate | 0.0% |
| Low | High |
Mature Market Share* | 22.0% | 73.0% |
Operating Profit Margin | 23.1% | 46.7% |
* Market share assumption used when reliable third-party data is available. Otherwise, Company results and forecasts are utilized.
Based on the results of interim impairment assessments of our FCC licenses, as of March 31, 2024 we incurred a $1.3 million impairment charge for FCC licenses in one of our 74 local markets for the three months ended March 31, 2024. The Company recorded an impairment charge of $8.2 million for FCC licenses in 15 of our 74 local markets for the three months ended March 31, 2023.
Unfavorable changes in key assumptions utilized in the impairment assessment of our FCC licenses may affect future testing results. For example, keeping all other assumptions constant, a 100-basis point increase in the weighted average cost of capital as of the date of our last quantitative assessment would cause the estimated fair values of our FCC licenses to decrease by $29.5 million which would have resulted in an impairment charge of $4.6 million as of March 31, 2024. Further, a 100-basis point decline in the long-term revenue growth rate would cause the estimated fair values of our FCC licenses to further decrease by $15.4 million which would have resulted in an impairment charge of $5.7 million as of March 31, 2024. Assumptions used to estimate the fair value of our FCC licenses are also dependent upon the expected performance and growth of our traditional broadcast radio operations. In the event broadcast radio revenue experiences actual or anticipated declines, such declines will have a negative impact on the estimated fair value of our FCC licenses, and the Company could recognize additional impairment charges, which could be material.
Goodwill
For goodwill impairment testing, the Company has selected December 31st as the annual testing date. In addition to the annual impairment test, the Company regularly assesses whether a triggering event has occurred, which would require interim impairment testing. As of December 31, 2023, the fair values of our National Digital, Townsquare Ignite, Analytical Services, and Townsquare Interactive reporting units were in excess of their respective carrying values by approximately 117%, 41%, 157%, and 147%, respectively. The Local Advertising and Amped reporting unit had no goodwill as of December 31, 2023.
The Company considered whether any events have occurred or circumstances have changed from the last quantitative analysis performed as of December 31, 2023 that would indicate that the fair value of the Company's reporting units may be below their carrying amounts. Based on such analysis, the Company determined that there have been no indicators that the fair value of its reporting units may be below their carrying amounts as of March 31, 2024.
Digital Assets
During the first quarter of 2022, the Company invested an aggregate of $5.0 million in digital assets. They were accounted for as indefinite-lived intangible assets in accordance with ASC 350, Intangibles - Goodwill and Other, included as a component of intangible assets, net on the Consolidated Balance Sheet. Any decrease in the digital assets' fair values below our carrying values at any time subsequent to acquisition was recognized as an impairment charge. No upward revisions for any market price increases were recognized.
In early March 2023, the Company sold its digital assets with a carrying value of $2.1 million, recognizing a gain on the sale of $0.8 million, which was included as a component of Other (income) expense, net on the Consolidated Statements of Operations.
Definite-lived intangible assets
The Company’s definite-lived intangible assets were acquired primarily in various acquisitions as well as in connection with the acquisition of software and music licenses.
The following tables present details of our intangible assets as of March 31, 2024 and December 31, 2023, respectively (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| Weighted Average Useful Life (in Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intangible Assets: | | | | | | | |
FCC licenses | Indefinite | | $ | 179,936 | | | $ | — | | | $ | 179,936 | |
| | | | | | | |
Content rights and other intangible assets | 3 - 9 | | 32,630 | | | (15,398) | | | 17,232 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total | | | $ | 212,566 | | | $ | (15,398) | | | $ | 197,168 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Weighted Average Useful Life (in Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intangible Assets: | | | | | | | |
FCC licenses | Indefinite | | $ | 181,236 | | | $ | — | | | $ | 181,236 | |
| | | | | | | |
Content rights and other intangible assets | 3 - 9 | | 32,630 | | | (13,560) | | | 19,070 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total | | | $ | 213,866 | | | $ | (13,560) | | | $ | 200,306 | |
Amortization of definite-lived intangible assets was $1.8 million for the three months ended March 31, 2024 and 2023, respectively.
Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of March 31, 2024 is as follows (in thousands):
| | | | | |
2024 (remainder) | $ | 5,476 | |
2025 | 3,600 | |
2026 | 3,188 | |
2027 | 1,978 | |
2028 | 1,880 | |
Thereafter | 1,110 | |
| $ | 17,232 | |
Note 6. Investments
Long-term investments consist of minority holdings in various companies. As management does not exercise significant influence over operating and financial policies of the investees, the investments are not consolidated or accounted for under the equity method of accounting. The initial valuation of equity securities is based upon an estimate of market value at the time of investment, or upon a combination of valuation analyses using both observable and unobservable inputs categorized as Level 2 and Level 3 within the ASC 820 framework.
In accordance with ASC 321, Investments - Equity Securities, the Company measures its equity securities at cost minus impairment, as their fair values are not readily determinable and the investments do not qualify for the net asset value per share practical expedient. The Company monitors its investments for any subsequent observable price changes in orderly transactions for the identical or a similar investment of the same investee, at which time the Company would adjust the then current carrying values of the related investment. Additionally, the Company evaluates its investments for any indicators of impairment.
Equity securities measured at cost minus impairment
During the three months ended March 31, 2023 and 2024, there were no impairment charges or observable price changes in orderly transactions for the Company's investees.
In February of 2024, one of the Company’s investees announced the completion of its acquisition in a private transaction. The Company recognized a $4.0 million gain on the transaction during the three months ended March 31, 2024, based on total cash consideration received in the amount of $4.0 million.
Equity securities measured at fair value
On July 2, 2021, one of the Company's investees completed its registration with the SEC and became a publicly traded company. Based on the market price of the investee's common stock as of March 31, 2024, the fair value of the Company's investment in the common stock of the investee was approximately $0.6 million. As a result, the Company recorded an unrealized loss of $0.2 million during the three months ended March 31, 2024.
Unrealized gains and losses are included as a component of other expense (income) on the Unaudited Consolidated Financial Statements. The market price of the investee's common stock is categorized as Level 1 within the ASC 820 framework.
Note 7. Long-Term Debt
Total debt outstanding is summarized as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
2026 Notes | $ | 503,618 | | | $ | 503,618 | |
| | | |
| | | |
| | | |
Deferred financing costs | (3,513) | | | (3,960) | |
| | | |
| | | |
Total long-term debt | $ | 500,105 | | | $ | 499,658 | |
The 2026 Notes indenture contains certain covenants that may limit, among other things, our ability to; incur additional indebtedness, declare or pay dividends, redeem stock, transfer or sell assets, make investments or agree to certain restrictions on the ability of restricted subsidiaries to make payments to the Company. Certain of these covenants will be suspended if the 2026 Notes are assigned an investment grade rating by Standard & Poor’s Investors Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. and no event of default has occurred and is continuing.
The Company was in compliance with its covenants under the 2026 Notes indenture as of March 31, 2024.
As of March 31, 2024, based on available market information, the estimated fair value of the 2026 Notes was $491.0 million. The Company used Level 2 measurements under the fair value measurement hierarchy established under Fair Value Measurement (Topic 820).
Annual maturities of the Company's long-term debt as of March 31, 2024 are as follows (in thousands):
| | | | | |
2024 (remainder) | $ | — | |
2025 | — | |
2026 | 503,618 | |
2027 | — | |
2028 | — | |
Thereafter | — | |
| $ | 503,618 | |
Note 8. Income Taxes
The Company's effective tax rate for the three months ended March 31, 2024 and 2023 was approximately 11.8% and 44.8%, respectively. The decrease in the effective tax rate for the three months ended March 31, 2024, is primarily driven by discrete items for the period, including gain on sale of investment.
The effective tax rate may vary significantly from period to period, and can be influenced by many factors. These factors include, but are not limited to, changes to the statutory rates in the jurisdictions where the Company has operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 21% primarily relates to certain non-deductible items, state and local income taxes and the valuation allowance for deferred tax assets.
Note 9. Stockholders' Equity
Stock Options
During the three months ended March 31, 2024, eligible option holders tendered 263,053 options to purchase 263,053 shares of Townsquare common stock.
During the three months ended March 31, 2024, the Company granted 68,093 and 45,000 options with grant date fair values of $2.95 and vesting periods of three-years and four-years, respectively, each with ten-year terms. The Company also granted 73,738 options with grant date fair values of $2.68 to $2.86, respectively. The options contain market conditions whereby the options will vest and become exercisable subject to the achievement of a specified volume weighted average trading price ("VWAP") over a specified period and continued employment through the performance period each as observed and summarized below, respectively:
| | | | | | | | | | | | |
VWAP over 20 consecutive trading days of the three-year performance period | | |
VWAP | | Number of Options that Vest | | | | |
$12.40 | | 24,577 | | | | |
$14.40 | | 24,577 | | | | |
$16.40 | | 24,584 | | | | |
| | 73,738 | | | | |
| | | | | | |
| | | | | | |
No portion of the grants will vest unless the VWAP targets are achieved during the respective performance periods.
The grant date fair value of stock options with market conditions is estimated using the Monte Carlo option pricing model, while stock options containing only service conditions is estimated using the Black-Scholes option pricing model. Each model requires an estimate of the expected term of the option, the expected volatility of the Company’s common stock price, dividend yield and the risk-free interest rate. The below table summarizes the assumptions used to estimate the fair value of the equity options granted:
| | | | | | | | | | | | | |
| Monte Carlo Model | | Black-Scholes Model | | |
| | | | | |
Expected volatility | 53.0 | % | | 52% | | |
Expected term | 5.33 years | | 6.01 - 6.38 years | | |
Risk free interest rate | 4.03% | | 4.05% - 4.18% | | |
Expected dividend yield | 7.14 | % | | 7.14% - 7.22% | | |
For options only containing service conditions, the expected term was calculated using the simplified method, defined as the midpoint between the vesting period and the contractual term of each award, due to the lack of sufficient and meaningful historical exercise data. For options with market-based conditions, the expected term was estimated based on when the options are expected to be exercised. The expected volatility was based on market conditions of the Company. The risk-free interest rate was based on the U.S. Treasury yield curve in effect on the date of grant which most closely corresponds to the expected term of the option.
The following table summarizes all option activity for the three months ended March 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (years) | | Aggregate Intrinsic Value (in thousands) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Outstanding at December 31, 2023 | 11,056,324 | | | $ | 7.74 | | | 4.82 | | $ | 31,221 | |
Granted - service conditions | 113,093 | | | 10.58 | | | | | |
Granted - market conditions | 73,738 | | | 10.50 | | | | | |
Exercised | (263,053) | | | 8.38 | | | | | 665 | |
Forfeited and expired | (39,382) | | | 7.31 | | | | | |
Outstanding at March 31, 2024 | 10,940,720 | | | $ | 7.77 | | | 4.69 | | $ | 35,117 | |
| | | | | | | |
Exercisable at March 31, 2024 | 7,312,657 | | | $ | 7.88 | | | 3.01 | | $ | 22,634 | |
The maximum contractual term of stock options is 10 years.
Restricted Stock Awards
During the three months ended March 31, 2024, the Company granted 61,905 shares to non-employee directors with a vesting period of one year and 8,985 shares with a vesting period of three years. The fair value of the restricted stock awards is equal to the closing share price on the date of grant.
The following table summarizes restricted stock activity for the three months ended March 31, 2024:
| | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted Average Fair Value | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Non-vested balance at January 1, 2024 | 125,145 | | $ | 8.54 | | | | | | | |
Shares granted | 70,890 | | | 10.58 | | | | | | | |
Shares vested | (79,358) | | | 7.79 | | | | | | | |
| | | | | | | | | |
Non-vested balance at March 31, 2024 | 116,677 | | $ | 10.28 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Restricted Stock Units
The following table summarizes restricted stock unit activity for the three months ended March 31, 2024:
| | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted Average Fair Value | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Non-vested balance at January 1, 2024 | 873,265 | | $ | 7.69 | | | | | | | |
Shares granted - service conditions | — | | | — | | | | | | | |
Shares granted - market conditions | — | | | — | | | | | | | |
Shares vested | (72,847) | | | 7.55 | | | | | | | |
| | | | | | | | | |
Non-vested balance at March 31, 2024 | 800,418 | | $ | 7.71 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
The Company did not grant any stock units during the three months ended March 31, 2024.
Employee Stock Purchase Plan
During the three months ended March 31, 2024, a total of 42,360 shares of Class A common stock were issued under the 2021 Employee Stock Purchase Plan (the "ESPP").
For the three months ended March 31, 2024 and 2023, the Company recognized approximately $2.9 million and $1.8 million, respectively, of stock-based compensation expense with respect to options, restricted stock awards, restricted stock units and the ESPP.
As of March 31, 2024, total unrecognized stock-based compensation expense related to our stock options and restricted stock was $7.9 million and $6.2 million, respectively, and is expected to be recognized over a weighted average period of 2.2 years and 2.3 years, respectively.
Dividends Declared
On February 28, 2024, the board of directors approved a dividend of $0.1975 per share. The dividend of $3.0 million was paid to holders of record as of April 5, 2024 on May 1, 2024.
On April 30, 2024 the board of directors approved a dividend of $0.1975 per share. The dividend will be paid to holders of record as of July 15, 2024 on August 1, 2024.
Stock Repurchase
On April 1, 2024, the Company repurchased 1.5 million shares of the Company’s Class A common stock from MSG National Properties, LLC (“MSG”) for total consideration in the aggregate amount of $14.6 million, or $9.76 per share. The shares were retired upon repurchase.
Stock Repurchase Plan
On December 16, 2021, the board of directors approved a stock repurchase plan, pursuant to which the Company is authorized to repurchase up to $50 million of the Company’s issued and outstanding Class A common stock over a thirty-six month period (the "2021 Stock Repurchase Plan"). Repurchases of common stock under the repurchase plan may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. Any such repurchases may be executed using open market purchases, privately negotiated agreements or other transactions, and may be funded from cash on hand, available borrowings or proceeds from potential debt or other capital markets sources.
During the three months ended March 31, 2024 a total of 396,759 shares of Class A common stock were repurchased. As of March 31, 2024, a total of 606,150 shares were repurchased under the 2021 Stock Repurchase Plan.
Option Settlement
In late March of 2024, the Company launched a program that offered certain holders a cash settlement of options that were granted in July 2014 following the completion of the Company's initial public offering. These options were approaching their expiration date in July 2024. The cash settlement amount to be paid to each holder was indexed to the closing price of the Company's Class A common stock, as reported on the New York Stock Exchange consolidated tape, as of the date prior to each respective cash settlement election date, less the respective option grant price. A total of $11.4 million was paid in connection with the cash settlement of 3.2 million options in April of 2024.
Note 10. Net Income (Loss) Per Share
Basic earnings per common share (“EPS”) is generally calculated as income available to common shareholders divided by the weighted average number of common shares outstanding. Diluted EPS is generally calculated as income available to common shareholders divided by the weighted average number of common shares outstanding plus the dilutive effect of common share equivalents. Stock-based compensation awards that are out-of-the-money and stock options and restricted stock units in which the market-based performance criteria have not been met as of the end of the respective reporting period are omitted from the calculation of Diluted EPS.
The following table sets forth the computations of basic and diluted net income (loss) per share for the three months ended March 31, 2024 and 2023 (in thousands, except per share data):
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2024 | | 2023 |
| | | | | | | |
Numerator: | | | | | | | |
Net income (loss) | | | | | $ | 1,553 | | | $ | (1,941) | |
Net income from non-controlling interest | | | | | 417 | | | 480 | |
Net income (loss) attributable to controlling interest | | | | | $ | 1,136 | | | $ | (2,421) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted average shares of common stock outstanding | | | | | 16,562 | | | 17,204 | |
Effect of dilutive common stock equivalents | | | | | 2,200 | | | — | |
Weighted average diluted common shares outstanding | | | | | 18,762 | | | 17,204 | |
| | | | | | | |
Basic income (loss) per share | | | | | $ | 0.07 | | | $ | (0.14) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diluted income (loss) per share | | | | | $ | 0.06 | | | $ | (0.14) | |
| | | | | | | |
The Company had the following dilutive securities that were not included in the computation of diluted net (loss) income per share as they were considered anti-dilutive (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2024 | | 2023 |
Stock options | | | | | 109 | | | 9,586 | |
Stock options with unsatisfied market conditions | | | | | 1,187 | | | 1,008 | |
Restricted stock units | | | | | — | | | 177 | |
Restricted stock units with unsatisfied market conditions | | | | | 437 | | | 177 | |
Restricted stock awards | | | | | 7 | | | 121 | |
Shares expected to be issued under the 2021 Employee Stock Purchase Plan | | | | | — | | | 49 | |
Note 11. Segment Reporting
Operating segments are organized internally by type of products and services provided. Based on the information reviewed by the Company's CEO in his capacity as Chief Operating Decision Maker ("CODM"), the Company has identified three segments: Subscription Digital Marketing Solutions, Digital Advertising and Broadcast Advertising. The remainder of our business is reported in the Other category.
The Company operates in one geographic area. The Company's assets and liabilities are managed within markets outside the top 50 across the United States where the Company conducts its business and are reported internally in the same manner as the Consolidated Financial Statements; thus, no additional information regarding assets and liabilities of the Company’s reportable segments is produced for the Company's CEO or included in these Consolidated Financial Statements. Intangible assets consist principally of FCC broadcast licenses and other definite-lived intangible assets and primarily support the Company’s Broadcast Advertising segment. For further information see Note 5, Goodwill and Other Intangible Assets. The Company does not have any material inter-segment sales.
The Company's management evaluates segment operating income (loss), which excludes unallocated corporate expenses and the impact of certain items that are not directly attributable to the reportable segments' underlying operating performance, and primarily includes expenses related to corporate stewardship and administration activities, transaction related costs and non-cash impairment charges.
The following tables present the Company's reportable segment results for the three months ended March 31, 2024 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Subscription Digital Marketing Solutions | | Digital Advertising | | Broadcast Advertising | | Other | | Corporate and Other Reconciling Items | | Total |
Net revenue | $ | 18,253 | | | $ | 34,156 | | | $ | 45,455 | | | $ | 1,769 | | | $ | — | | | $ | 99,633 | |
Direct operating expenses, excluding depreciation, amortization and stock-based compensation | 13,197 | | | 27,100 | | | 35,270 | | | 1,328 | | | — | | | 76,895 | |
Depreciation and amortization | 614 | | | 181 | | | 2,864 | | | 33 | | | 1,243 | | | 4,935 | |
Corporate expenses | — | | | — | | | — | | | — | | | 5,217 | | | 5,217 | |
Stock-based compensation | 154 | | | 148 | | | 189 | | | 4 | | | 2,375 | | | 2,870 | |
Transaction and business realignment costs | — | | | — | | | 18 | | | 6 | | | 1,420 | | | 1,444 | |
| | | | | | | | | | | |
Impairment of long-lived assets | — | | | — | | | 1,618 | | | — | | | — | | | 1,618 | |
| | | | | | | | | | | |
Net loss on sale and retirement of assets | — | | | — | | | 14 | | | — | | | — | | | 14 | |
Operating income (loss) | $ | 4,288 | | | $ | 6,727 | | | $ | 5,482 | | | $ | 398 | | | $ | (10,255) | | | $ | 6,640 | |
The following table presents the Company's reportable segment results for the three months ended March 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Subscription Digital Marketing Solutions | | Digital Advertising | | Broadcast Advertising | | Other | | Corporate and Other Reconciling Items | | Total |
Net revenue | $ | 21,561 | | | $ | 33,707 | | | $ | 45,923 | | | $ | 1,919 | | | $ | — | | | $ | 103,110 | |
Direct operating expenses, excluding depreciation, amortization and stock-based compensation | 15,962 | | | 23,613 | | | 37,365 | | | 1,384 | | | — | | | 78,324 | |
Depreciation and amortization | 328 | | | 164 | | | 3,600 | | | 36 | | | 816 | | | 4,944 | |
Corporate expenses | — | | | — | | | — | | | — | | | 5,345 | | | 5,345 | |
Stock-based compensation | 128 | | | 45 | | | 164 | | | 2 | | | 1,433 | | | 1,772 | |
Transaction and business realignment costs | — | | | — | | | 193 | | | 11 | | | 88 | | | 292 | |
| | | | | | | | | | | |
Impairment of intangible and long-lived assets | — | | | — | | | 8,487 | | | — | | | — | | | 8,487 | |
Net gain on sale and retirement of assets | — | | | — | | | (292) | | | — | | | — | | | (292) | |
Operating income (loss) | $ | 5,143 | | | $ | 9,885 | | | $ | (3,594) | | | $ | 486 | | | $ | (7,682) | | | $ | 4,238 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis is intended to provide the reader with an overall understanding of our financial condition, results of operations, cash flows and sources and uses of cash. This section also includes general information about our business and a discussion of our management’s analysis of certain trends, risks and opportunities in our industry. In addition, we also provide a discussion of accounting policies that require critical judgments and estimates. This discussion should be read in conjunction with our Unaudited Consolidated Financial Statements and related notes appearing elsewhere in this quarterly report.
Note About Forward-Looking Statements
This report includes estimates, projections, statements relating to our business plans, objectives and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements often discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “believe,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include the impact of general economic conditions in the United States, or in the specific markets in which we currently do business including supply chain disruptions, inflation, labor shortages and the effect on advertising activity, industry conditions, including existing competition and future competitive technologies, the popularity of radio as a broadcasting and advertising medium, cancellations, disruptions or postponements of advertising schedules in response to national or world events, our ability to develop and maintain digital technologies and hire and retain technical and sales talent, our dependence on key personnel, our capital expenditure requirements, our continued ability to identify suitable acquisition targets, and consummate and integrate any future acquisitions, legislative or regulatory requirements, risks and uncertainties relating to our leverage and changes in interest rates, our ability to obtain financing at times, in amounts and at rates considered appropriate by us, our ability to access the capital markets as and when needed and on terms that we consider favorable to us and other factors discussed in this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and under “Risk Factors” in our 2023 Annual Report on Form 10-K, as well as other risks discussed from time to time in our filings with the SEC. Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. The forward-looking statements included in this report are made only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Format of Presentation
Townsquare is a community-focused digital media and digital marketing solutions company with market leading local radio stations, principally focused outside the top 50 markets in the United States. Our integrated and diversified products and solutions enable local, regional and national advertisers to target audiences across multiple platforms, including digital, mobile, social, video, streaming, e-commerce, radio and events. Our assets include a subscription digital marketing solutions business (“Townsquare Interactive”), providing website design, creation and hosting, search engine optimization, social platforms and online reputation management as well as other monthly digital services for approximately 23,300 small to medium sized businesses; a robust digital advertising division (“Townsquare Ignite,” or “Ignite”), a powerful combination of a) an owned and operated portfolio of more than 400 local news and entertainment websites and mobile apps along with a network of leading national music and entertainment brands, collecting valuable first party data and b) a proprietary digital programmatic advertising technology stack with an in-house demand and data management platform; and a portfolio of 349 local terrestrial radio stations in 74 U.S. markets strategically situated outside the Top 50 markets in the United States. Our portfolio includes local media brands such as WYRK.com, WJON.com and NJ101.5.com, and premier national music brands such as XXLmag.com, TasteofCountry.com, UltimateClassicRock.com, and Loudwire.com.
We believe that our diversified product offering substantially differentiates us from our competition. This diversification allows us to provide superior solutions to our advertisers and engaging experiences for our audience, underpins our growth strategy and, we believe, helps to mitigate the risks associated with advertising revenue dependency.
The Company has identified three operating segments, which are Subscription Digital Marketing Solutions, Digital Advertising and Broadcast Advertising. The remainder of our business is reported in the Other category.
Subscription Digital Marketing Solutions
Our Subscription Digital Marketing Solutions segment encompasses Townsquare Interactive, our subscription digital marketing solutions business. Townsquare Interactive offers digital marketing solutions, on a subscription basis, to small and medium-sized business (“SMBs”) in markets outside the top 50 across the United States, including but importantly not limited to the markets in which we operate radio stations. We offer a variety of digital marketing solutions, which enables SMBs to choose the optimal features for their specific business.
Digital Advertising
Our Digital Advertising segment, marketed externally as Townsquare Ignite, is a combination of our owned and operated digital properties, our proprietary digital programmatic advertising platform, and an in-house demand and data management platform collecting valuable first party data.
Broadcast Advertising
Our Broadcast Advertising segment includes our portfolio of 349 local terrestrial radio stations. Our primary source of Broadcast Advertising net revenue is the sale of advertising on our local radio stations primarily to local and regional spot advertisers and, to a lesser extent, national spot and national network advertisers. We believe we are the largest and best-capitalized owner and operator of radio stations focused solely on markets outside the top 50 markets in the United States. Given the stability of radio’s audience, its broad reach and its relatively low cost as compared to competing advertising media such as television, we believe radio continues to offer an attractive value proposition to advertisers. The price point for radio advertising on a cost per thousand basis is lower than most other local media that deliver similar scale. This makes radio more affordable and accessible for the type of small and mid-sized businesses typically found in our local markets outside the top 50 markets in the U.S.
Other
We report the remainder of our revenue in the Other category, and it includes revenue from our live events. Our primary source of live events net revenue is ticket sales. Our live events also generate substantial revenue through the sale of sponsorships, food and other concessions, merchandise and other ancillary products and services.
Overall
We generate a majority of our advertising revenue by selling directly to local advertisers, as well as to local and regional advertising agencies which affords us the opportunity to better present our products, cross-sell products and more directly influence their advertising and marketing expenditure decisions. A significant percentage of our advertising revenue is generated from the sale of advertising to the automotive, financial services, health services, entertainment, and retail industries.
Our most significant expenses are sales personnel, programming, digital, marketing and promotional, engineering, and general and administrative expenses. We strive to control these expenses by closely monitoring and managing each of our local markets and through efficiencies gained from the centralization of finance, accounting, legal and human resources functions and management information systems. We also use our scale and diversified geographic portfolio to negotiate favorable rates with vendors where feasible.
A portion of our expenses are variable. These variable expenses primarily relate to sales costs, such as commissions and inventory costs, as well as certain programming costs, such as music license fees, and certain costs related to production. Other programming, digital, engineering and general and administrative expenses are primarily fixed costs.
Seasonality
Our revenue varies throughout the year. Typically, we expect that our first calendar quarter will produce the lowest net revenue for the year, as advertising expenditures generally decline following the winter holidays. During even-numbered years, net revenue generally includes increased advertising expenditures by political candidates, political parties and special interest groups. Political spending is typically highest during the fourth quarter. Our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on net revenue generation until future periods, if at all.
Macroeconomic Indicators
Current economic challenges, including high and sustained inflation and rising interest rates have caused and could continue to cause economic uncertainty and volatility. These factors could result in advertising and subscription digital marketing solutions cancellations, declines in the purchase of new advertising by our clients, declines in the addition of new digital marketing solutions subscribers, and increases to our operating expenses. We monitor economic conditions closely, and in response to observed or anticipated reductions in revenue, we may institute precautionary measures to address the potential impact to our consolidated financial position, consolidated results of operations, and liquidity, including wage reduction efforts and controlling non-essential capital expenditures.
The extent of the impact of current economic conditions will depend on future actions and outcomes, all of which remain fluid and cannot be predicted with confidence (including effects on advertising activity, consumer discretionary spending and our employees in the markets in which we operate).
OVERVIEW OF OUR PERFORMANCE
Highlights of Our Financial Performance
Certain key financial developments in our business for the three months ended March 31, 2024 as compared to the same period in 2023 are summarized below:
•Net revenue decreased $3.5 million, or 3.4%, primarily driven by a $3.3 million decrease in our Subscription Digital Marketing Solutions net revenue and a $0.5 million decrease in our Broadcast Advertising net revenue, partially offset by a $0.4 million increase in our Digital Advertising net revenue.
•Operating income increased $2.4 million, or 56.7%, for the three months ended March 31, 2024. The increase was primarily due to a $6.9 million decrease in non-cash impairment charges and a $1.4 million decrease in direct operating expenses, partially offset by a $3.5 million decrease in net revenue, a $1.2 million increase in transaction and business realignment costs and a $1.1 million increase in stock-based compensation.
•Broadcast Advertising reported an operating income of $5.5 million, as compared to operating loss of $3.6 million for the three months ended March 31, 2023. The increase of $9.1 million is primarily due to a decrease in non-cash impairment charges of $6.9 million and a decrease in direct operating expenses of $2.1 million. The Digital Advertising segment reported operating income of $6.7 million for the three months ended March 31, 2024, which represents a decrease of $3.2 million, as compared to operating income of $9.9 million for the same period in 2023. The decrease is primarily due to an increase of $3.5 million in direct operating expenses. Subscription Digital Marketing Solutions reported operating income of $4.3 million, a decrease of $0.9 million from the three months ended March 31, 2023.
Consolidated Results of Operations
Three months ended March 31, 2024 compared to three months ended March 31, 2023
The following table summarizes our historical consolidated results of operations:
| | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, | | | | |
Statement of Operations Data: | 2024 | | 2023 | | $ Change | | % Change |
Net revenue | $ | 99,633 | | | $ | 103,110 | | | $ | (3,477) | | | (3.4) | % |
| | | | | | | |
Operating costs and expenses: | | | | | | | |
Direct operating expenses, excluding depreciation, amortization, and stock-based compensation | 76,895 | | | 78,324 | | | (1,429) | | | (1.8) | % |
Depreciation and amortization | 4,935 | | | 4,944 | | | (9) | | | (0.2) | % |
Corporate expenses | 5,217 | | | 5,345 | | | (128) | | | (2.4) | % |
Stock-based compensation | 2,870 | | | 1,772 | | | 1,098 | | | 62.0 | % |
Transaction and business realignment costs | 1,444 | | | 292 | | | 1,152 | | | 394.5 | % |
| | | | | | | |
Impairment of intangible and long-lived assets | 1,618 | | | 8,487 | | | (6,869) | | | (80.9) | % |
| | | | | | | |
Net loss (gain) on sale and retirement of assets | 14 | | | (292) | | | 306 | | | (104.8) | % |
Total operating costs and expenses | 92,993 | | | 98,872 | | | (5,879) | | | (5.9) | % |
Operating income | 6,640 | | | 4,238 | | | 2,402 | | | 56.7 | % |
Other expense (income): | | | | | | | |
Interest expense, net | 9,031 | | | 9,558 | | | (527) | | | (5.5) | % |
Gain on repurchases of debt | — | | | (775) | | | 775 | | | (100.0) | % |
Other income, net | (4,151) | | | (1,026) | | | (3,125) | | | 304.6 | % |
Income (loss) from operations before tax | 1,760 | | | (3,519) | | | 5,279 | | | ** |
Income tax provision (benefit) | 207 | | | (1,578) | | | 1,785 | | | ** |
| | | | | | | |
| | | | | | | |
Net income (loss) | $ | 1,553 | | | $ | (1,941) | | | $ | 3,494 | | | ** |
** not meaningful
Segment Results
The following table presents the Company's reportable segment net revenue and direct operating expenses for the three months ended March 31, 2024 and 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Revenue | | Direct Operating Expenses |
| Three Months Ended March 31, | | | | | | Three Months Ended March 31, | | | | |
| 2024 | | 2023 | | $ Change | | % Change | | 2024 | | 2023 | | $ Change | | % Change |
Subscription Digital Marketing Solutions | $ | 18,253 | | | $ | 21,561 | | | $ | (3,308) | | | (15.3) | % | | $ | 13,197 | | | $ | 15,962 | | | $ | (2,765) | | | (17.3) | % |
Digital Advertising | 34,156 | | | 33,707 | | | 449 | | | 1.3 | % | | 27,100 | | | 23,613 | | | 3,487 | | | 14.8 | % |
Broadcast Advertising | 45,455 | | | 45,923 | | | (468) | | | (1.0) | % | | 35,270 | | | 37,365 | | | (2,095) | | | (5.6) | % |
Other | 1,769 | | | 1,919 | | | (150) | | | (7.8) | % | | 1,328 | | | 1,384 | | | (56) | | | (4.0) | % |
Total | $ | 99,633 | | | $ | 103,110 | | | $ | (3,477) | | | (3.4) | % | | $ | 76,895 | | | $ | 78,324 | | | $ | (1,429) | | | (1.8) | % |
Net Revenue
Net revenue for the three months ended March 31, 2024 decreased $3.5 million, or 3.4%, as compared to the same period in 2023. Our Subscription Digital Marketing Solutions net revenue decreased $3.3 million, or 15.3%, as compared to the same period in 2023 due to a reduction in net subscribers. Our Broadcast Advertising net revenue decreased $0.5 million, or 1.0%, as compared to the same period in 2023, due to decreases in the purchase of advertising by our clients. These decreases were partially offset by an increase in our Digital Advertising net revenue of $0.4 million, or 1.3%, due to purchases of new advertising.
Direct Operating Expenses
Direct operating expenses for the three months ended March 31, 2024 decreased by $1.4 million, or 1.8%, as compared to the same period in 2023. Our Subscription Digital Marketing Solutions direct operating expenses decreased by $2.8 million, or 17.3% as compared to the same period in 2023 due to lower compensation and promotional costs. Our Broadcast Advertising direct operating expenses decreased $2.1 million, or 5.6%, primarily driven by lower compensation. These decreases were partially offset by a $3.5 million, or 14.8%, increase in our Digital Advertising direct operating expenses as compared to the same period in 2023 primarily driven by higher inventory costs and headcount related expenses.
Corporate Expenses
Corporate expenses are of a general corporate nature or managed on a corporate basis. These costs (net of allocations to the business segments) primarily represent corporate stewardship and administration activities. Corporate expenses for the three months ended March 31, 2024 decreased $0.1 million, or 2.4%, as compared to the same period in 2023, essentially flat.
Stock-based Compensation
Stock-based compensation expense for three months ended March 31, 2024 increased $1.1 million, or 62.0%, as compared to the same period in 2023, due to grants during the fourth quarter of 2023 and the first quarter of 2024 and $0.7 million in expense recognized related to the cash settlement of options. For further discussion, see Note 9, Stockholders' Equity, in the Notes to Unaudited Consolidated Financial Statements.
Transaction and Business Realignment Costs
Transaction and business realignment costs for the three months ended March 31, 2024 increased $1.2 million as compared to the same period in 2023, primarily due to local market operational cost reduction efforts.
Impairment of Intangible and Long-Lived Assets
The Company incurred a $1.3 million impairment charges related to FCC licenses in one of our 74 local markets during the three months ended March 31, 2024, as compared to impairment charges of $8.2 million in 15 of our 74 local markets in the same period a year ago.
Unfavorable changes in key assumptions utilized in the impairment assessment of our FCC licenses may affect future testing results. For example, keeping all other assumptions constant, a 100-basis point increase in the weighted average cost of capital as of the date of our last quantitative assessment would cause the estimated fair values of our FCC licenses to decrease by $29.5 million which would have resulted in an additional impairment charge of $4.6 million as of March 31, 2024. Further, a 100-basis point decline in the long-term revenue growth rate would cause the estimated fair values of our FCC licenses to further decrease by $15.4 million which would have resulted in a further impairment charge of $5.7 million as of March 31, 2024. Assumptions used to estimate the fair value of our FCC licenses are also dependent upon the expected performance and growth of our traditional broadcast operations. In the event broadcast revenue experiences actual or anticipated declines, such declines will have a negative impact on the estimated fair value of our FCC licenses, and the Company could recognize additional impairment charges, which could be material.
For further discussion, see Note 5, Goodwill and Other Intangible Assets, in the Notes to Unaudited Consolidated Financial Statements.
Interest Expense, net
The following table illustrates the components of our interest expense, net for the periods indicated (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| | | |
2026 Notes | $ | 8,674 | | | $ | 9,115 | |
| | | |
| | | |
| | | |
Capital leases and other | 333 | | | 373 | |
Deferred financing costs | 448 | | | 425 | |
Interest income | (424) | | | (355) | |
Interest expense, net | $ | 9,031 | | | $ | 9,558 | |
Gain on repurchase of debt
During the three months ended March 31, 2023, the Company voluntarily repurchased an aggregate $12.2 million principal amount of its 2026 Notes below par, plus accrued interest. The Company wrote-off approximately $0.1 million of unamortized deferred financing costs, recognizing a total net gain of $0.8 million in connection with the voluntary repurchases of its 2026 Notes during the three months ended March 31, 2023. The Company did not repurchase any of its 2026 Notes during the three months ended March 31, 2024.
Other income, net
During the three months ended March 31, 2024, the Company recognized a $4.0 million gain upon the acquisition of one of its investees in a private transaction. For further discussion, see Note 6, Investments, in the Notes to Unaudited Consolidated Financial Statements.
Provision (benefit) for income taxes
We recognized a provision for income taxes of $0.2 million for the three months ended March 31, 2024, as compared to an income tax benefit of $1.6 million for the same period in 2023. Our effective tax rate for the three months ended March 31, 2024 and 2023 was approximately 11.8% and 44.8%, respectively. The decrease in the effective tax rate for the three months ended March 31, 2024, is primarily driven by discrete items for the period, including gain on sale of investment.
Our effective tax rate may vary significantly from period to period and can be influenced by many factors. These factors include, but are not limited to, changes to statutory rates in the jurisdictions where we have operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 21%, primarily relates to certain non-deductible items, state and local income taxes and the valuation allowance for deferred tax assets.
Liquidity and Capital Resources
The following table summarizes our change in cash and cash equivalents (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
Cash and cash equivalents | $ | 56,600 | | | $ | 41,768 | |
Restricted cash | 505 | | | 497 | |
| | | |
Cash provided by operating activities | 1,671 | | | 9,355 | |
Cash used in investing activities | (281) | | | (171) | |
Cash used in financing activities | (5,834) | | | (10,832) | |
Net decrease in cash and cash equivalents and restricted cash | $ | (4,444) | | | $ | (1,648) | |
Operating Activities
Net cash provided by operating activities was $1.7 million for the three months ended March 31, 2024, as compared to $9.4 million for the same period in 2023. This decrease was primarily due to changes in working capital balances particularly prepaid and accrued expenses.
Investing Activities
Net cash used in investing activities was $0.3 million for the three months ended March 31, 2024 as compared to $0.2 million for the same period in 2023. The increase in net cash used in investing activities was primarily due to cash proceeds of $3.0 million related to the sales of digital assets in 2023 that did not reoccur in 2024 and a $0.8 million increase in purchases of property and equipment, partially offset by a $3.7 million increase in proceeds from sale of assets and investment related transactions.
Financing Activities
Net cash used in financing activities was $5.8 million for the three months ended March 31, 2024, as compared to $10.8 million for the same period in 2023. The increase in net cash used in financing activities was primarily due to $3.2 million in dividend payments, and $4.3 million for repurchases of common stock during the three months ended March 31, 2024, partially offset by $11.2 million in voluntary repurchases of our 2026 Notes in 2023, as compared to no repurchases during the three months ended March 31, 2024. Additionally, proceeds from the exercise of stock options increased $2.0 million for the three months ended March 31, 2024, as compared to the same period a year ago.
Sources of Liquidity and Anticipated Cash Requirements
We fund our working capital requirements through a combination of cash flows from our operating, investing, and financing activities. Based on current and anticipated levels of operations and conditions in our markets and industry, we believe that our cash on hand and cash flows from our operating, investing, and financing activities will enable us to meet our working capital, capital expenditures, debt service, and other funding requirements for at least one year from the date of this report. Future capital requirements may be materially different than those currently planned in our budgeting and forecasting activities and depend on many factors, some of which are beyond our control. We have focused on and will continue to monitor our liquidity in response to current and future economic challenges and uncertainty.
As of March 31, 2024, we had $500.1 million of outstanding indebtedness, net of deferred financing costs of $3.5 million.
Based on the terms of our 2026 Notes, as of March 31, 2024, we expect our debt service requirements to be approximately $34.6 million over the next twelve months. See Note 7, Long-Term Debt, in our Notes to Consolidated Financial Statements for additional information related to our 2026 Notes.
As of March 31, 2024 we had $56.6 million of cash and cash equivalents, and $53.9 million of receivables from customers, which historically have had an average collection cycle of approximately 55 days. We had restricted cash of $0.5 million at March 31, 2024 and December 31, 2023, that was held as collateral in connection with certain agreements. From time to time, such restricted funds could be returned to us or we could be required to pledge additional cash.
On February 28, 2024, the board of directors approved a dividend of $0.1975 per share. The $3.0 million dividend was paid on May 1, 2024. On April 30, 2024 the board of directors approved a dividend of $0.1975 per share. The dividend will be paid to holders of record as of July 15, 2024 on August 1, 2024.
On April 1, 2024, the Company repurchased 1.5 million shares of the Company’s Class A common stock in the aggregate amount of $14.6 million from MSG National Properties, LLC (“MSG”). The shares were retired upon repurchase.
In late March of 2024, the Company launched a program that offered certain holders a cash settlement of options that were granted in July 2014 following the completion of the Company's initial public offering. These options were approaching their expiration date in July 2024. The cash settlement amount to be paid to each holder was indexed to the closing price of the Company's Class A common stock, as reported on the New York Stock Exchange consolidated tape, as of the date prior to each respective cash settlement election date less the respective option grant price. A total of $11.4 million was paid in connection with the cash settlement of 3.2 million options in April of 2024.
Our anticipated uses of cash in the near term include working capital needs, interest payments, dividend payments, share repurchases, other obligations, and capital expenditures. The Company believes that the cash generated by its operations should be sufficient to meet its liquidity needs for at least the next 12 months. However, our ability to fund our working capital needs, debt payments, dividend payments, other obligations, capital expenditures, and to comply with financial covenants under our debt agreements, depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions, increases or decreases in advertising spending, changes in the highly competitive industry in which we operate, which may be rapid, and other factors, many of which are beyond our control. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders, while the incurrence of debt financing would result in debt service obligations. Such debt instruments also could introduce covenants that might restrict our operations. We cannot assure you that we could obtain additional financing on favorable terms or at all.
Additionally, on a continuing basis, we evaluate and consider strategic acquisitions and divestitures to enhance our strategic and competitive position as well as our financial performance. Any future acquisitions, joint ventures or other similar transactions may require additional capital, which may not be available to us on acceptable terms, if at all.
We closely monitor the impact of capital and credit market conditions on our liquidity as it relates to our debt. We also routinely monitor the changes in the financial condition of our customers and the potential impact on our results of operations.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements or transactions.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our significant estimates, including those related to determining the fair value of assets and liabilities acquired in a business combination, impairment testing of intangible assets, valuation and impairment testing of long-lived tangible assets, the present value of leasing arrangements, share-based payment expense and the calculation of allowance for doubtful accounts and income taxes. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the result of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our estimates may change, however, as new events occur and additional information is obtained, and any such changes will be recognized in the Consolidated Financial Statements. Actual results could differ from such estimates, and any such differences may be material to our financial statements.
We believe the accounting policies and estimates discussed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report on Form 10-K reflects our more significant judgments and estimates used in the preparation of the Consolidated Financial Statements. There have been no material changes to the critical accounting policies and estimates as filed in such report.
Recent Accounting Standards
For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please refer to Note 2, Summary of Significant Accounting Policies of the Notes to Unaudited Consolidated Financial Statements included under Item 1.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), with the assistance of other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Our disclosure controls and procedures are intended to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based on this review, our CEO and CFO have concluded that the disclosure controls and procedures were effective as of March 31, 2024.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect every misstatement. An evaluation of effectiveness is subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may decrease over time.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the three months ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
There are inherent limitations in the effectiveness of any control system, including the potential for human error and the possible circumvention or overriding of controls and procedures. Additionally, judgments in decision-making can be faulty and breakdowns can occur because of a simple error or mistake. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Accordingly, the management of the Company, including its Chief Executive Officer and Chief Financial Officer, does not expect that the control system can prevent or detect all error or fraud. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies or procedures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There is no current material pending litigation to which we are a party and no material legal proceedings were terminated, settled or otherwise resolved during the three months ended March 31, 2024. In the normal course of business, the Company is subject to various regulatory proceedings, lawsuits, claims and other matters related to intellectual property, personal injury, employee, or other matters. These matters are subject to many uncertainties and outcomes are not predictable with assurance. However, we do not believe that the ultimate resolution of these matters will have a material adverse effect on our financial position or results of operations.
Item 1A. Risk Factors
Please refer to Part I, Item 1A, “Risk Factors,” in our 2023 Annual Report on Form 10-K for information regarding known material risks that could affect our results of operations, financial condition and liquidity. In addition to these risks, other risks that we presently do not consider material, or other unknown risks, could materially adversely impact our business, financial condition and results of operations in a future period.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
2021 Share Repurchase Program
In December 2021, our Board of Directors approved a 3-year share repurchase program for up to $50 million. The following table provides certain information with respect to the Company's purchases of its common shares during the three months ended March 31, 2024:
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Period | Total Number of Shares Purchased(1) | | Average Price Paid per Share | | | | Approximate dollar value of shares that may yet be purchased under the plan (in thousands) |
Jan 1, 2024 through Jan 31, 2024(2) | 108,066 | | | $ | 10.68 | | | | | $ | 46,532 | |
February 1, 2024 through February 29, 2024 | 138,835 | | | $ | 10.92 | | | | | $ | 45,016 | |
March 1, 2024 through March 31, 2024 | 152,966 | | | $ | 10.79 | | | | | $ | 43,365 | |
Total | 399,867 | | | $ | 10.80 | | | | | $ | 43,365 | |
(1) This column represents the total number of shares purchased as part of publicly announced plans.
(2) Includes 396,759 shares purchased under the stock repurchase program, as well as 3,108 shares repurchased to satisfy withholding tax obligations due upon the vesting of stock-based awards.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarter ended March 31, 2024.
Item 6. Exhibits
See Exhibit Index.
EXHIBIT INDEX
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Exhibit | | Description |
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31.1* | | |
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31.2* | | |
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32.1** | | |
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32.2** | | |
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101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith
** Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| TOWNSQUARE MEDIA, INC. |
Date: May 9, 2024 | |
By: | /s/ Stuart Rosenstein |
| Name: Stuart Rosenstein |
| Title: Executive Vice President & Chief Financial Officer |
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By: | /s/ Robert Worshek |
| Name: Robert Worshek |
| Title: Senior Vice President, Chief Accounting Officer |