At first glance, one may be disappointed with the third quarter financial report issued early Thursday by “digital first” media and digital advertising sales-focused Townsquare Media. The company swung to a net loss of $36.5 million from net income of $2.8 million. However, when examining the results on an adjusted basis, the owner of radio stations in markets such as Trenton, N.J.; Buffalo; Fort Collins, Colo.; and El Paso, Tex., experienced a small net income dip to $8.25 million ($0.46 per diluted share) from $8.3 million ($0.47). Given the poor year-over-year comps thanks to a bonanza of political dollars one year ago, investors may consider the Q3 results from Townsquare a success.
For the three analysts who cover Townsquare, the EPS consensus estimate was $0.32.
But, Townsquare fell short of their revenue estimate, with a consensus figure of $116.18 million presented by the analysts polled by Yahoo! Finance. Townsquare’s actual Q3 revenue came in at $115.1 million, down 4.6% from $120.64 million. On an ex-political basis, net revenue fell 3.8%, to $114.48 million from $119.05 million.
On an adjusted basis, Operating Income slipped to $33.78 million from $36.65 million. Adjusted EBITDA came in at $27.18 million, down from $30.91 million in Q3 2022.
One reason the adjusted results are key to understanding the fiscal health of Townsquare during Q3 2023 concerns impairment charges. As CEO Bill Wilson has explained in previous quarters, the decision of companies to take them may negatively impact the results. However, it is a non-cash line-item bookkeeping maneuver designed to reflect a reduction in the carrying value of its broadcast assets.
One can debate the continued practice of impairment charges, and how an investor may frown on putting money into an industry with long-term station valuation trends that continue to point downward. For Townsquare, a $30.97 million impairment charge is on the books for Q3 2023; in Q2 2022, even with robust political dollars for broadcast media, a $10.3 million charge was taken.
A ‘RESET YEAR’ FOR TOWNSQUARE INTERACTIVE
Speaking on the company’s earnings call, challenges at its Townsquare Interactive arm were addressed by Wilson, with “important changes to optimize and improve its customer service model,” moving to a pooled model, among the enhancements seen in recent weeks.
This, he said, led to favorable ratings of four stars on Google reviews.
Long-term growth and success is anticipated, thanks to “careful expense management,” Wilson added.
Looking at the three revenue segments in-depth for Townsquare:
- “Subscription Digital Marketing Solutions” revenue declined by 12.6%, to $20.26 million from $23.2 million.
- Digital Advertising, therefore, is the growth engine for Townsquare, with 5.5% year-over-year growth putting the Q3 number at $39 million, rising from $36.99 million.
- Broadcast Advertising fell by 8.6%, to $54.18 million from $59.29 million, but the “steep decline” in National advertising had less of an impact on Townsquare’s radio stations than its peers, Wilson noted on the call.
Political advertising dollars were down 60.5% to $627,000, from $1.59 million in Q3 2022.
CASH IS KING
In prepared comments ahead of its now-traditional sunrise-hour earnings call for analysts and shareholders, Wilson remarked that Townsquare’s Q3 results met its previously issued guidance. He also took note of Townsquare’s strong cash position. Yes, cash and cash equivalents, however, slipped to $38 million as of the end of Q3 from $43.42 million at the close of 2022. But, Wilson explained, “We were able to repurchase and retire approximately $14 million of our Unsecured Senior Notes at a discount during the third quarter, bringing our year-to-date total bond repurchases to $27 million.” In addition, Townsquare repurchased approximately 94,000 Class A shares in the third quarter as the company has
repurchased 1.7 million shares year-to-date.
Wilson also noted how, unlike its audio content creation and distribution company peers, Townsquare continues to pay “a high-yielding dividend” while also investing in its business. For the current quarter, Townsquare’s Board of Directors approved a quarterly cash dividend of $0.1875 per share, payable on February 1, 2024 to shareholders of record as of the close of business on January 2, 2024.
A QUESTIONABLE FOURTH QUARTER FOR TOWNSQUARE?
Looking ahead, Q4 net revenue is expected to be between $110.6 million and $112.6 million; the consensus estimate of the 4 analysts polled by Yahoo! Finance is $116.76 million. Adjusted EBITDA is expected to be between $24.8 million and $25.8 million, Townsquare said.
As of September 30, Townsquare Media had a total of $38 million of cash and cash equivalents and $503.6 million of outstanding indebtedness, representing 4.86x and 4.49x gross and net leverage, respectively, based on Adjusted EBITDA for the twelve
months ended September 30, 2023, of $103.6 million.
