Townsquare Media(TSQ) - 2020 Q1 - Quarterly Report

EXPLANATORY NOTE Townsquare Media extended its Q1 2020 Form 10-Q filing to June 25, 2020, due to COVID-19 disruptions impacting financial and legal workflows - The Company extended its Q1 2020 Form 10-Q filing deadline to June 25, 2020, under SEC conditional regulatory relief[7] - The extension was due to the COVID-19 pandemic limiting normal interactions and workflows among accounting, financial, and legal personnel involved in report preparation[7] PART I FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's discussion and analysis for the reporting period Item 1. Financial Statements (Unaudited) Unaudited consolidated financial statements, including balance sheets, operations, equity, and cash flows, are presented with detailed notes Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 Total assets decreased by 4% to $845.4 million, liabilities increased by 3.7% to $724.0 million, and equity fell 33.5% to $121.3 million, driven by intangible asset impairment | Metric | March 31, 2020 (in Thousands) | December 31, 2019 (in Thousands) | Change (in Thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total assets | $845,378 | $880,399 | $(35,021) | -4.0% | | Total liabilities | $724,045 | $697,963 | $26,082 | 3.7% | | Total stockholders' equity | $121,333 | $182,436 | $(61,103) | -33.5% | | Cash and cash equivalents | $135,949 | $84,667 | $51,282 | 60.6% | | Accounts receivable, net | $57,944 | $67,463 | $(9,519) | -14.1% | | Intangible assets, net | $309,374 | $388,029 | $(78,655) | -20.3% | | Long-term debt, less current portion | $562,025 | $546,711 | $15,314 | 2.8% | | Current portion of long-term debt | $44,950 | $9,929 | $35,021 | 352.7% | Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 The company reported a significant net loss of $59.6 million for Q1 2020, a substantial increase from a $4.6 million net loss in Q1 2019, primarily driven by a $79.1 million impairment charge on intangible and long-lived assets, with net revenue remaining relatively flat at $93.4 million | Metric | Three Months Ended March 31, 2020 (in Thousands) | Three Months Ended March 31, 2019 (in Thousands) | Change (in Thousands) | % Change | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net revenue | $93,433 | $93,682 | $(249) | -0.3% | | Total operating costs and expenses | $165,544 | $81,759 | $83,785 | 102.5% | | Operating (loss) income | $(72,111) | $11,923 | $(84,034) | -704.8% | | Net (loss) income from continuing operations | $(59,577) | $2,384 | $(61,961) | ** | | Net loss | $(59,577) | $(4,578) | $(54,999) | ** | | Impairment of intangible and long-lived assets | $79,060 | $0 | $79,060 | ** | | Basic (loss) income per share (Continuing operations attributable to common shares) | $(3.27) | $0.07 | $(3.34) | ** | | Diluted (loss) income per share (Continuing operations) | $(3.27) | $0.07 | $(3.34) | ** | Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2020 and 2019 Total stockholders' equity decreased significantly from $182.4 million at January 1, 2020, to $121.3 million at March 31, 2020, primarily due to a net loss of $59.6 million and dividend declarations | Metric | January 1, 2020 (in Thousands) | March 31, 2020 (in Thousands) | Change (in Thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Total stockholders' equity | $182,436 | $121,333 | $(61,103) | -33.5% | | Accumulated Deficit | $(188,034) | $(250,286) | $(62,252) | 33.1% | | Net (loss) income | $(60,154) | $(60,154) | N/A | N/A | | Dividend declared | $(2,098) | $(2,098) | N/A | N/A | Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 Net cash provided by operating activities increased to $9.3 million in Q1 2020 from $5.9 million in Q1 2019, while net cash provided by financing activities significantly increased to $48.0 million in Q1 2020, primarily due to $50.0 million in borrowings under the revolving credit facility as a precautionary measure against COVID-19 | Metric | Three Months Ended March 31, 2020 (in Thousands) | Three Months Ended March 31, 2019 (in Thousands) | Change (in Thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Net cash provided by operating activities | $9,335 | $5,942 | $3,393 | | Net cash used in investing activities | $(6,024) | $(3,183) | $(2,841) | | Net cash provided by (used in) financing activities | $47,971 | $(3,347) | $51,318 | | Net increase (decrease) in cash and cash equivalents and restricted cash | $51,282 | $(588) | $51,870 | | Cash and cash equivalents (End of period) | $135,949 | $59,928 | $76,021 | - Borrowings under the revolving credit facility contributed $50.0 million to financing activities in Q1 2020[19] Notes to Unaudited Consolidated Financial Statements This section provides detailed disclosures and explanations supporting the unaudited consolidated financial statements Note 1. Organization and Basis of Presentation Townsquare Media, Inc. operates as a radio, digital media, entertainment, and digital marketing solutions company focused on small and mid-sized U.S. markets, with COVID-19 materially impacting operations, leading to advertising cancellations, live event postponements, a $79.1 million impairment charge, and subsequent cost-reduction measures - Townsquare Media operates 321 radio stations, over 330 local websites, a digital marketing solutions company (Townsquare Interactive) serving ~19,850 SMBs, a proprietary digital programmatic advertising platform (Townsquare Ignite), and numerous local live events[24] - The COVID-19 pandemic led to significant advertising cancellations, material declines in new advertising purchases, and further impairments to FCC license intangible assets[25] - The company canceled or postponed a large number of live events scheduled for 2020[25] - Immediate actions taken include significantly reducing non-essential capital expenditures, reducing workforce by approximately 135 full-time employees, instituting wage reduction efforts, temporarily suspending 401k match, deferring payroll taxes under the CARES Act, and ceasing quarterly cash dividends[26] Note 2. Summary of Significant Accounting Policies This note outlines the company's significant accounting policies, noting no material changes since December 31, 2019, except for the adoption of ASU 2018-15 and ASU 2018-13 effective January 1, 2020, neither of which had a material impact, while the company assesses other recently issued standards - Adopted ASU 2018-15 (Internal-Use Software) and ASU 2018-13 (Fair Value Measurements) effective January 1, 2020, with no material impact on consolidated financial statements[33][34] - Assessing the impact of ASU 2020-04 (Reference Rate Reform) and ASU 2019-12 (Income Taxes); ASU 2020-01 (Equity Securities) is not expected to have a material impact[35][36][37] Note 3. Revenue Recognition The company disaggregates revenue by segment (Advertising, Townsquare Interactive, Live Events) and political sources, recognizing revenue as performance obligations are satisfied, with Q1 2020 net revenue at $93.4 million, showing Townsquare Interactive growth and significant Live Events decline due to COVID-19 | Segment | Q1 2020 Net Revenue (in Thousands) | Q1 2019 Net Revenue (in Thousands) | Change (in Thousands) | % Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Advertising | $74,536 | $74,315 | $221 | 0.3% | | Townsquare Interactive | $16,527 | $14,208 | $2,319 | 16.3% | | Live Events | $2,370 | $5,159 | $(2,789) | -54.1% | | Political | $1,328 | $298 | $1,030 | 345.6% | | Total Net Revenue | $93,433 | $93,682 | $(249) | -0.3% | - Revenue from broadcast commercials and digital advertisements is recognized as delivered; digital subscription revenue is recognized ratably over time; live event revenue is recognized as events are conducted[44][46][47] | Metric | March 31, 2020 (in Thousands) | December 31, 2019 (in Thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Receivables | $57,944 | $67,463 | | Short-term contract liabilities (deferred revenue) | $8,795 | $8,086 | | Contract Acquisition Costs | $4,186 | $4,037 | Note 4. Divestitures and Discontinued Operations In Q1 2019, the company exited its Music Festivals business and sold its Arizona Bridal Shows, resulting in a $10.0 million impairment charge for Music Festivals and a $1.4 million gain from the Bridal Shows sale, with no net revenues or operating costs from discontinued operations in Q1 2020 - Exited Music Festivals business (sold May 2019 for $10.0 million) and Arizona Bridal Shows (sold March 2019 for $2.0 million)[54][55] - Q1 2019 included a $10.0 million impairment charge against Music Festivals assets and a $1.4 million gain from the Arizona Bridal Shows sale[54][55] | Metric | Three Months Ended March 31, 2020 (in Thousands) | Three Months Ended March 31, 2019 (in Thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net revenue (Discontinued Operations) | $0 | $8 | | Net income (loss) from discontinued operations, net of income taxes | $0 | $(6,962) | Note 5. Property and Equipment Net property and equipment remained relatively stable at $114.6 million as of March 31, 2020, with depreciation and amortization expense decreasing to $5.1 million in Q1 2020, and $0.6 million in non-cash impairment charges recorded for long-lived assets | Metric | March 31, 2020 (in Thousands) | December 31, 2019 (in Thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Total property and equipment, net | $114,613 | $114,142 | - Depreciation and amortization expense decreased to $5.1 million in Q1 2020 from $5.8 million in Q1 2019[58] - Recorded $0.6 million in non-cash impairment charges to long-lived assets in Q1 2020[58] Note 6. Goodwill and Other Intangible Assets The company recognized a significant impairment charge of $78.4 million for FCC licenses in 46 of its 67 local markets as of March 31, 2020, due to declines in traditional broadcast revenues exacerbated by the COVID-19 pandemic, though the fair value of all reporting units still exceeded their carrying amounts, and goodwill remained unchanged at $157.9 million - Incurred an impairment charge of $78.4 million for FCC licenses in 46 of 67 local markets due to declining traditional broadcast revenues, amplified by the COVID-19 pandemic[61] - The fair value of all reporting units (National Digital, Townsquare Ignite, AnalyticOwl, Townsquare Interactive, and Live Events) exceeded their respective carrying amounts as of March 31, 2020[59] | Metric | March 31, 2020 (in Thousands) | December 31, 2019 (in Thousands) | Change (in Thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | FCC licenses | $305,308 | $383,738 | $(78,430) | -20.4% | | Total Intangible Assets, Net | $309,374 | $388,029 | $(78,655) | -20.3% | | Goodwill | $157,947 | $157,947 | $0 | 0.0% | Note 7. Investments The company holds minority investments in synergistic companies, accounted for at cost minus impairment, making $1.4 million in non-cash investments and an additional $0.4 million cash investment in Q1 2020, with no impairment charges or upward adjustments recorded in Q1 2020 or Q1 2019 - Made $1.4 million in non-cash investments in two small businesses and an additional $0.4 million investment in an existing investee during Q1 2020[66] - Investments are minority holdings in synergistic companies, measured at cost minus impairment[65] - No impairment charges or upward adjustments were recorded for investments in Q1 2020 or Q1 2019[67] Note 8. Long-Term Debt Total debt outstanding increased to $607.0 million at March 31, 2020, from $556.6 million at December 31, 2019, primarily due to a $50.0 million borrowing under the Revolving Credit Facility as a precautionary measure against COVID-19, with the company in compliance with all debt covenants and subsequently repaying the Revolving Credit Facility in June 2020 | Debt Type | March 31, 2020 (in Thousands) | December 31, 2019 (in Thousands) | Change (in Thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | 2023 Notes | $278,148 | $278,148 | $0 | 0.0% | | Term Loans | $282,332 | $282,332 | $0 | 0.0% | | Revolver | $50,000 | $0 | $50,000 | ** | | Total Debt (before deferred financing costs) | $610,480 | $560,480 | $50,000 | 8.9% | | Total Debt (net of deferred financing costs) | $606,975 | $556,640 | $50,335 | 9.0% | - Borrowed $50.0 million under the Revolving Credit Facility on March 17, 2020, as a precautionary measure due to COVID-19[73] - Repaid all outstanding amounts under the Revolving Credit Facility on June 5, 2020, restoring $50.0 million of available borrowing capacity[73] - Required to make a $9.9 million excess free cash flow payment on Term Loans based on 2019 results, which was made on June 15, 2020[74] - Was in compliance with all covenants under the 2023 Notes indenture and Senior Secured Credit Facility as of March 31, 2020[75] Note 9. Income Taxes The company recognized an income tax benefit of $20.9 million for Q1 2020, with an effective tax rate of approximately 26.0%, compared to a provision of $0.9 million and an effective rate of 27.6% in Q1 2019, with the difference from the federal statutory rate primarily due to non-deductible items, state/local taxes, and valuation allowances | Metric | Three Months Ended March 31, 2020 (in Thousands) | Three Months Ended March 31, 2019 (in Thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | (Benefit) provision for income taxes | $(20,890) | $911 | | Effective tax rate | 26.0% | 27.6% | Note 10. Stockholders' Equity As of March 31, 2020, the company had 14.3 million Class A, 3.0 million Class B, and 1.6 million Class C common shares outstanding, along with 9.0 million warrants to purchase Class A common stock, with total authorized common stock at 400 million shares | Security Type | Number Outstanding (as of March 31, 2020) | Voting Rights | | :-------------------------- | :------------------------------------------ | :------------ | | Class A common stock | 14,330,220 | One vote per share | | Class B common stock | 3,011,634 | 10 votes per share | | Class C common stock | 1,636,341 | No votes | | Warrants (exercisable for Class A) | 8,977,676 | N/A (upon exercise) | | Total | 27,955,871 | | - Each of the shares of common stock, including Class A shares issuable upon warrant exercise, have equal economic rights[79] Note 11. Net Income (Loss) Per Share The company reported a basic and diluted loss per share from continuing operations of $(3.27) for Q1 2020, a significant decline from income per share of $0.07 in Q1 2019, primarily due to the net loss attributable to controlling interests, with warrants treated as participating securities under the two-class method | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Basic (loss) income per share (Continuing operations attributable to common shares) | $(3.27) | $0.07 | | Diluted (loss) income per share (Continuing operations) | $(3.27) | $0.07 | | Net (loss) income from continuing operations attributable to controlling interest (in Thousands) | $(60,154) | $1,937 | | Weighted average basic common shares outstanding (in Thousands) | 18,582 | 18,478 | | Weighted average diluted common shares outstanding (in Thousands) | 18,582 | 27,456 | - Warrants are considered participating securities, and the two-class method is used for EPS calculation[83] - Stock options (9.2 million) and restricted stock (0.4 million) were anti-dilutive in Q1 2020 and thus excluded from diluted EPS computation[85] Note 12. Segment Reporting Townsquare Media operates three reportable segments: Advertising (broadcast and digital advertising), Townsquare Interactive (digital marketing solutions), and Live Events, with segment operating income excluding unallocated corporate expenses and non-cash impairment charges - The Company has identified three reportable operating segments: Advertising, Townsquare Interactive, and Live Events[87] - Segment operating income excludes unallocated corporate expenses and the impact of certain items not directly attributable to segment performance, such as transaction costs and non-cash impairment charges[88] | Segment | Q1 2020 Net Revenue (in Thousands) | Q1 2019 Net Revenue (in Thousands) | Q1 2020 Operating (Loss) Income (in Thousands) | Q1 2019 Operating Income (in Thousands) | | :-------------------- | :----------------------------- | :----------------------------- | :------------------------------------------ | :------------------------------------------ | | Advertising | $74,536 | $74,315 | $(65,495) | $15,565 | | Townsquare Interactive | $16,527 | $14,208 | $4,390 | $4,225 | | Live Events | $2,370 | $5,159 | $381 | $1,078 | | Corporate and Other | $0 | $0 | $(11,387) | $(8,945) | | Total | $93,433 | $93,682 | $(72,111) | $11,923 | Note 13. Related Party Transactions The company has a strategic partnership with a venture studio affiliated with two of its directors, providing professional and administrative services for a monthly fee of $15,000 and direct expense reimbursement, with payments received approximately $0.1 million in both Q1 2020 and Q1 2019 - The Company has a strategic partnership and services agreement with a venture studio affiliated with two of its directors[92] - Under the agreement, the Company provides professional and administrative services (IT, accounting, HR, business development, engineering, consulting) for a monthly service fee of $15,000 and direct expense reimbursement[92] - Received approximately $0.1 million in payments for services in both the three months ended March 31, 2020, and 2019[92] Note 14. Subsequent Events Subsequent to Q1 2020, the company paid a $2.1 million dividend on May 15, 2020, repurchased and canceled $4.5 million of its 2023 Notes on May 19, 2020, repaid the $50.0 million borrowed under the Revolving Credit Facility on June 5, 2020, and made a $9.9 million excess free cash flow payment on Term Loans on June 15, 2020 - Approved and paid a dividend of $0.075 per share ($2.1 million total) on May 15, 2020[93] - Voluntarily repurchased and canceled $4.5 million of its 2023 Notes at a market price below par on May 19, 2020[93] - Repaid all $50.0 million outstanding under the Revolving Credit Facility on June 5, 2020, restoring full available borrowing capacity[94] - Made a $9.9 million excess free cash flow payment on outstanding Term Loans on June 15, 2020, based on 2019 results[95] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the company's financial condition, results of operations, cash flows, and management's analysis of industry trends, risks, and opportunities, with a particular focus on the significant impact of the COVID-19 pandemic on its business Note About Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, including the impact of general economic conditions, the COVID-19 pandemic, internal control weaknesses, industry competition, and debt-related factors, with past performance not indicative of future results - The report includes forward-looking statements subject to risks such as general economic conditions, the COVID-19 pandemic, internal control weaknesses, industry competition, and debt-related factors[98] - Past financial performance should not be relied on as an indication of future performance[98] - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law[98] Format of Presentation Townsquare Media is an integrated radio, digital media, entertainment, and digital marketing solutions company focused on small and mid-sized U.S. markets, operating through three segments: Advertising, Townsquare Interactive, and Live Events Advertising The Advertising segment includes broadcast radio, owned websites, and digital advertising solutions like Townsquare Ignite, generating revenue from local, regional, and national advertisers, with demand and rates driven by audience attraction to various platforms and demographic targeting - The Advertising segment includes broadcast operations of radio stations, owned and operated websites, and digital advertising solutions, including Townsquare Ignite[102] - Primary sources of net revenue are the sale of advertising on radio stations, owned/operated websites, online streams, and mobile applications[102] - Townsquare Ignite offers precision customer targeting solutions to advertisers using first and third-party audience and geographic location data[102] Townsquare Interactive Townsquare Interactive provides subscription-based digital marketing solutions to small and mid-sized local businesses, including website development, e-commerce platforms, SEO, online reputation monitoring, and social media management - Townsquare Interactive offers subscription-based digital marketing solutions to small and mid-sized local and regional businesses[104] - Services include website development/hosting, e-commerce platforms, search engine/online directory optimization, online reputation monitoring, and social media management[104] Live Events The Live Events segment generates revenue primarily from ticket sales, sponsorships, and concessions for concerts, expositions, and other experiential events, with pricing based on consumer demand and unforeseen events like weather potentially impacting revenue, though some risks are mitigated by insurance - Primary source of Live Events net revenue is ticket sales, also generating substantial revenue from sponsorships, food/concessions, and merchandise[105] - Unforeseen events like inclement weather can adversely impact net revenue, with some risks mitigated by insurance policies[105] Overall The company aims to maximize net revenue by managing advertising inventory, adjusting prices based on supply and demand, and broadening its advertiser base across diverse platforms, with key expenses controlled through local market monitoring and centralized functions - Strives to maximize net revenue by managing advertising inventory, adjusting prices based on supply and demand, and broadening its advertiser base[106] - Most significant expenses include sales, programming, digital, marketing, promotional, engineering, and general and administrative expenses[108] - Expenses are controlled through close monitoring of local markets, efficiencies from centralized functions, and negotiating favorable vendor rates[108] Seasonality Historically, the first calendar quarter has the lowest net revenue, but due to the COVID-19 pandemic, Q2 and potentially Q3 2020 are expected to be lower, with even-numbered years typically seeing increased political advertising, highest in Q4 - Historically, the first calendar quarter produces the lowest net revenue, but due to COVID-19, Q2 and potentially Q3 2020 net revenues are expected to be lower[110] - During even-numbered years, net revenue generally includes increased political advertising expenditures, typically highest during the fourth quarter[110] Macroeconomic Indicators The COVID-19 pandemic has materially and adversely impacted the U.S. economy and the company's operations since early March 2020, leading to significant advertising cancellations and declines in Live Events revenue, though Townsquare Interactive continued revenue growth, and the company has taken proactive measures to preserve liquidity and mitigate impacts - The COVID-19 pandemic has materially and adversely impacted the U.S. economy and the company's operations since early March 2020[111][112] - Significant advertising cancellations and a material decline in new advertising purchases have materially impacted net revenues since mid-March, particularly for Advertising and Live Events[112] - Townsquare Interactive has continued its revenue growth despite the pandemic[112] - Borrowed $50.0 million under the Revolving Credit Facility on March 17, 2020, as a precautionary measure, and was in compliance with the first lien leverage ratio requirement[114][115] - Instituted immediate actions including significantly reducing non-essential capital expenditures, reducing workforce by approximately 135 full-time employees, and implementing wage reduction efforts[116] - Plans to avail itself of all applicable credits and deferrals under the CARES Act, including payroll tax deferrals[117] Highlights of Our Financial Performance For Q1 2020, net revenue decreased slightly by 0.3% YoY, primarily due to a $2.8 million decline in Live Events revenue (COVID-19 related), offset by a 16.3% increase in Townsquare Interactive revenue and a slight increase in Advertising revenue, while operating loss significantly widened to $72.1 million from income of $11.9 million, mainly due to $79.1 million in impairment charges, and cash and cash equivalents increased by $51.3 million, largely due to the $50.0 million Revolving Credit Facility borrowing | Metric | Q1 2020 (in Millions) | Q1 2019 (in Millions) | Change (in Millions) | % Change | | :------------------------------------------ | :-------------------- | :-------------------- | :------------------- | :------- | | Net revenue | $93.4 | $93.7 | $(0.2) | -0.3% | | Operating (loss) income | $(72.1) | $11.9 | $(84.0) | -704.8% | | Impairment charges (intangible/long-lived assets) | $79.1 | $0 | $79.1 | ** | | Townsquare Interactive net revenue increase | $2.3 | N/A | N/A | 16.3% | | Live Events net revenue decrease | $(2.8) | N/A | N/A | -54.1% | | Cash and cash equivalents increase | $51.3 | N/A | N/A | 60.6% | - Pro forma net revenue for Q1 2020 increased $0.5 million (0.5%) to $93.4 million, with pro forma Townsquare Interactive net revenue increasing 16.3% and pro forma Live Events net revenue decreasing 46.5%[119] Consolidated Results of Operations This section provides a detailed table of the company's consolidated statement of operations for the three months ended March 31, 2020, compared to the same period in 2019, highlighting the significant increase in total operating costs and expenses due to impairment charges, leading to a substantial operating loss and net loss | Statement of Operations Data (in Thousands) | March 31, 2020 | March 31, 2019 | $ Change | % Change | | :------------------------------------------ | :------------- | :------------- | :------- | :------- | | Net revenue | $93,433 | $93,682 | $(249) | (0.3)% | | Direct operating expenses | $71,550 | $68,768 | $2,782 | 4.0 % | | Depreciation and amortization | $5,284 | $6,046 | $(762) | (12.6)% | | Corporate expenses | $6,390 | $5,737 | $653 | 11.4 % | | Stock-based compensation | $524 | $876 | $(352) | (40.2)% | | Transaction costs | $1,027 | $148 | $879 | ** | | Business realignment costs | $1,711 | $165 | $1,546 | ** | | Impairment of intangible and long-lived assets | $79,060 | $— | $79,060 | ** | | Total operating costs and expenses | $165,544 | $81,759 | $83,785 | 102.5 % | | Operating (loss) income | $(72,111) | $11,923 | $(84,034) | (704.8)% | | Net (loss) income from continuing operations | $(59,577) | $2,384 | $(61,961) | ** | | Net loss | $(59,577) | $(4,578) | $(54,999) | ** | Segment Results This section details the net revenue and direct operating expenses by segment for Q1 2020 and Q1 2019, highlighting the significant decline in Live Events revenue and expenses due to COVID-19, the continued growth in Townsquare Interactive, and the impact of impairment charges on the Advertising segment's operating loss Net Revenue Net revenue for Q1 2020 decreased by 0.3% YoY to $93.4 million, primarily due to a 54.1% decline in Live Events revenue ($2.8 million) caused by COVID-19 event cancellations, partially offset by a 16.3% increase in Townsquare Interactive revenue ($2.3 million) from subscriber growth, while Advertising net revenue remained flat - Net revenue for Q1 2020 decreased $0.2 million (0.3%) YoY to $93.4 million[123] - Live Events segment revenue decreased $2.8 million (54.1%) due to COVID-19 event cancellations or postponements[123] - Townsquare Interactive net revenue increased $2.3 million (16.3%) due to the addition of approximately 850 net subscribers[123] - Advertising net revenue increased $0.2 million (0.3%), essentially flat, due to order cancellations by customers from COVID-19 impact[123] Direct Operating Expenses Direct operating expenses increased by $2.8 million (4.0%) YoY to $71.6 million in Q1 2020, driven by higher headcount-related expenses for digital programmatic business and Townsquare Interactive growth, and increased music license fee accruals in Advertising, partially offset by a $2.1 million decrease in Live Events expenses due to event cancellations - Direct operating expenses increased by $2.8 million (4.0%) YoY[124] - Advertising direct operating expenses increased $2.7 million (4.9%) due to headcount for digital programmatic business and increased music license fees[124] - Townsquare Interactive direct operating expenses increased $2.2 million (21.9%) due to headcount supporting revenue growth[124] - Live Events direct operating expenses decreased $2.1 million (52.7%) due to event cancellations/postponements from COVID-19[124] Depreciation and Amortization Depreciation and amortization expense decreased by $0.8 million (12.6%) YoY to $5.3 million in Q1 2020, primarily due to the timing of capitalized software development project launches in the prior year - Depreciation and amortization expense decreased $0.8 million (12.6%) YoY[125] - The decrease is primarily related to amortization of capitalized software development costs, influenced by the timing of project launches in the comparable prior period[125] Corporate Expenses Corporate expenses increased by $0.7 million (11.4%) YoY to $6.4 million in Q1 2020, mainly due to an increase in professional fees - Corporate expenses increased $0.7 million (11.4%) YoY to $6.4 million[126] - The increase was primarily due to an increase in professional fees[126] Stock-based Compensation Stock-based compensation expense decreased by $0.4 million (40.2%) YoY to $0.5 million in Q1 2020, resulting from options that vested in January 2019 - Stock-based compensation expense decreased $0.4 million (40.2%) YoY to $0.5 million[127] - The decrease was a result of options that vested in January 2019[127] Transaction Costs Transaction costs significantly increased by $0.9 million in Q1 2020, primarily due to fees incurred for amending the Term Loans credit agreement to waive a default related to delayed financial statement delivery - Transaction costs for Q1 2020 increased $0.9 million[128] - This increase includes fees incurred related to the amendment of the Company's Term Loans credit agreement[128] Business Realignment Costs Business realignment costs increased by $1.5 million in Q1 2020, primarily due to employee-related costs from headcount reductions implemented in response to the COVID-19 pandemic - Business realignment costs for Q1 2020 increased $1.5 million YoY[130] - This increase was primarily a result of employee-related costs incurred due to headcount reductions in response to the COVID-19 pandemic[130] Impairment of Intangible and Long-Lived Assets The company recorded $78.4 million in impairment charges for FCC licenses in Q1 2020, compared to none in Q1 2019, driven by declines in advertising purchases due to COVID-19, with an additional $0.6 million impairment recorded for long-lived assets, and future declines in broadcast revenues potentially leading to further impairment charges - Impairment charges pertaining to FCC licenses for Q1 2020 were $78.4 million, compared to no impairment charges in Q1 2019[131] - The impairment was due to declines in advertising purchases by clients as a result of the COVID-19 pandemic[131] - The Company also recorded impairment charges related to long-lived assets of $0.6 million in Q1 2020[131] - Further actual or anticipated declines in broadcast revenues could lead to additional impairment charges on FCC licenses[132] Other Expense Net interest expense decreased by $0.5 million (5.4%) YoY to $8.1 million in Q1 2020, primarily due to lower interest on Term Loans | Metric (in Thousands) | March 31, 2020 | March 31, 2019 | | :-------------------- | :------------- | :------------- | | Interest expense, net | $8,129 | $8,595 | | Unsecured Senior Notes | $4,520 | $4,519 | | Term Loans | $3,490 | $3,975 | Benefit from income taxes The company recognized an income tax benefit of $20.9 million for Q1 2020, with an effective tax rate of approximately 26.0%, compared to a provision of $0.9 million and an effective rate of 27.6% in Q1 2019, with the difference from the federal statutory rate primarily due to non-deductible items, state/local taxes, and valuation allowances | Metric (in Thousands) | March 31, 2020 | March 31, 2019 | | :-------------------- | :------------- | :------------- | | (Benefit) provision for income taxes | $(20,890) | $911 | | Effective tax rate | 26.0% | 27.6% | Net loss from discontinued operations, net of tax There was no net loss from discontinued operations in Q1 2020, compared to a $7.0 million net loss in Q1 2019, which included results from the music festival and bridal show businesses prior to their sales | Metric (in Thousands) | March 31, 2020 | March 31, 2019 | | :------------------------------------------ | :------------- | :------------- | | Net loss from discontinued operations, net of income taxes | $— | $(6,962) | Supplemental Pro Forma Net Revenue On a pro forma basis (excluding Arizona Bridal Show divestment), net revenue for Q1 2020 increased by $0.5 million (0.5%) YoY to $93.4 million, driven by an increase in Townsquare Interactive subscribers and political advertising, partially offset by a reduction in live events due to COVID-19 | Metric (in Thousands) | March 31, 2020 | March 31, 2019 (Pro Forma) | | :-------------------- | :------------- | :------------------------- | | Total Pro forma net revenue | $93,433 | $92,956 | - On a pro forma basis, net revenue increased by $0.5 million (0.5%) YoY, driven by an increase in Townsquare Interactive customer/subscriber base and political advertising, offset by reduced live events[137] Liquidity and Capital Resources The company funds its working capital through operating, investing, and financing activities, expecting sufficient liquidity for at least one year, with total debt outstanding at $607.0 million as of March 31, 2020, and anticipated debt service of $31.0 million over the next twelve months, while cash and cash equivalents increased to $135.9 million, largely due to a precautionary $50.0 million Revolving Credit Facility borrowing in response to COVID-19 COVID-19 Response In response to COVID-19, the company borrowed $50.0 million from its Revolving Credit Facility as a precautionary measure (repaid in June 2020), reduced non-essential capital expenditures, implemented workforce reductions and wage cuts, and plans to utilize CARES Act benefits - Borrowed $50.0 million under the Revolving Credit Facility on March 17, 2020, as a precautionary measure (repaid on June 5, 2020)[144] - Reduced non-essential capital expenditures, workforce by approximately 135 full-time employees, and instituted wage reduction efforts[145] - Expects to benefit from all applicable credits and deferrals under the CARES Act, including payroll tax deferrals[146] Operating Activities Net cash provided by operating activities increased to $9.3 million in Q1 2020 from $5.9 million in Q1 2019, driven by favorable changes in working capital (increases in accrued expenses, decreases in accounts receivable and prepaid expenses), partially offset by cash used in discontinued operations | Metric (in Thousands) | March 31, 2020 | March 31, 2019 | | :-------------------- | :------------- | :------------- | | Net cash provided by operating activities | $9,335 | $5,942 | - Increase primarily related to changes in working capital, including increases in accrued expenses and decreases in accounts receivable and prepaid expenses[147] Investing Activities Net cash used in investing activities increased to $6.0 million in Q1 2020 from $3.2 million in Q1 2019, primarily due to cash provided by discontinued operations in Q1 2019 from the sale of Arizona bridal shows, which was not present in Q1 2020 | Metric (in Thousands) | March 31, 2020 | March 31, 2019 | | :-------------------- | :------------- | :------------- | | Net cash used in investing activities | $(6,024) | $(3,183) | - The increase in net cash used was primarily due to cash provided by discontinued operations during Q1 2019 (proceeds from Arizona bridal shows sale) not recurring in Q1 2020[148] Financing Activities Net cash provided by financing activities was $48.0 million in Q1 2020, a significant increase from $3.3 million used in Q1 2019, primarily driven by the $50.0 million borrowing under the Revolving Credit Facility | Metric (in Thousands) | March 31, 2020 | March 31, 2019 | | :------------------------------------------ | :------------- | :------------- | | Net cash provided by (used in) financing activities | $47,971 | $(3,347) | - Net cash provided by financing activities during Q1 2020 includes $50.0 million borrowed under the Revolving Credit Facility[149] Financing Facilities This section details the company's long-term debt, including the 2023 Unsecured Senior Notes, Term Loans, and Revolving Credit Facility, highlighting the $50.0 million borrowing from the Revolving Credit Facility in Q1 2020 as a precautionary measure, which was subsequently repaid in June 2020 2023 Unsecured Senior Notes The company has $278.1 million outstanding of 6.5% Unsecured Senior Notes due in 2023, with $4.5 million of these notes repurchased and canceled subsequent to Q1 2020, and the company in compliance with all covenants as of March 31, 2020 - $278.1 million of 6.5% Unsecured Senior Notes due April 1, 2023, were outstanding as of March 31, 2020[155] - On May 19, 2020, the Company voluntarily repurchased and canceled $4.5 million of its 2023 Notes[151] - The Company was in compliance with all covenants under the 2023 Notes indenture as of March 31, 2020[155] Senior Secured Credit Facility The Senior Secured Credit Facility includes a Term Loan facility and a Revolving Credit Facility, containing covenants limiting additional indebtedness, liens, dividends, and other actions, and includes a first lien leverage ratio requirement if the Revolving Credit Facility is drawn above 30% - The Senior Secured Credit Facility includes a Term Loan facility and a Revolving Credit Facility[156] - Contains covenants limiting additional indebtedness, liens, mergers, asset sales, dividends, acquisitions, and other actions[73][154] - Requires a first lien leverage ratio of no greater than 3.75:1.00 if at least $15 million of the Revolving Credit Facility commitments are drawn[73] Term Loans The company has $282.3 million outstanding under its Term Loans, maturing on April 1, 2022, with an interest rate of 4.0% as of March 31, 2020, and a $9.9 million excess free cash flow payment made on June 15, 2020 - The balance of the Term Loans was $282.3 million as of March 31, 2020, maturing on April 1, 2022[158] - The interest rate on the Term Loans was 4.0% as of March 31, 2020 (LIBOR plus 300 basis points with a 1.0% LIBOR floor)[72][158] - An excess free cash flow payment of $9.9 million on the Term Loans was made on June 15, 2020[158] Revolving Credit Facility The $50.0 million Revolving Credit Facility matures on April 1, 2022, with the company borrowing the full $50.0 million on March 17, 2020, as a precautionary measure, which subjected it to a first lien leverage ratio covenant, and this amount was fully repaid on June 5, 2020, restoring available borrowing capacity - The $50.0 million Revolving Credit Facility matures on April 1, 2022[159] - The Company borrowed the entire $50.0 million under the Revolving Credit Facility on March 17, 2020, as a precautionary measure due to COVID-19[160] - This borrowing subjected the Company to a first lien leverage ratio covenant (no greater than 3.75:1.00), which it was in compliance with as of March 31, 2020[73][115] - The Company repaid all $50.0 million outstanding under the Revolving Credit Facility on June 5, 2020, restoring full available borrowing capacity[160] Off-Balance Sheet Arrangements The company has no material off-balance sheet arrangements or transactions - The Company has no material off-balance sheet arrangements or transactions[163] Critical Accounting Policies and Estimates The preparation of financial statements requires management to make significant estimates and judgments, including those related to fair value of acquired assets/liabilities, impairment testing of intangible and long-lived assets, leasing arrangements, share-based payment expense, and income taxes, which are subject to change and may differ materially from actual results - Management makes significant estimates and judgments for fair value of acquired assets/liabilities, impairment testing of intangible and long-lived assets, leasing arrangements, share-based payment expense, and income taxes[164] - Estimates are based on historical experience and assumptions, but actual amounts and results may differ materially under different assumptions or conditions[164] Recent Accounting Standards This section refers to Note 2 for a discussion of recently adopted and issued accounting standards, including ASU 2018-15 and ASU 2018-13 (adopted Q1 2020 with no material impact) and ASU 2020-04, ASU 2020-01, ASU 2019-12, and ASU 2016-13 (under assessment) - Refer to Note 2, Summary of Significant Accounting Policies, for a discussion of accounting standards updates that have been adopted or will be adopted in the future[166] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2020, due to identified material weaknesses in internal control over financial reporting Evaluation of Disclosure Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of March 31, 2020, due to material weaknesses in internal control over financial reporting - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were not effective as of March 31, 2020[168] - Ineffectiveness was due to material weaknesses in internal control over financial reporting[168] Material Weakness The company identified several material weaknesses in internal control over financial reporting, including ineffective entity-level controls, control activities (goodwill/intangibles impairment, IT general controls, revenue recognition, income tax, period-end financial reporting), and lack of approval over cash disbursements, which could lead to material misstatements - Identified material weaknesses in internal control over financial reporting, including ineffective entity-level controls impacting the control environment, risk assessment, and monitoring[169] - Specific control activity deficiencies include ineffective annual goodwill/intangibles impairment assessment, ineffective IT general controls, ineffective detective controls over revenue recognition, inadequate income tax design/controls, ineffective period-end financial reporting controls, and lack of approval over cash disbursements[169][170][171][172][173] - Also noted ineffective controls over internally developed software and lease renewal options (previously disclosed)[174][175] - These material weaknesses, individually or in aggregate, could result in material misstatements of interim or annual financial statements[177] Remediation Plans Management is actively implementing remediation plans to address the identified material weaknesses, including enhancing reporting structures, increasing qualified resources, establishing formal risk assessment procedures, improving controls over impairment assessments, IT general controls, revenue recognition, internally developed software, lease renewal options, income tax, period-end financial reporting, and cash disbursements - Management is actively implementing remediation plans to address the identified material weaknesses[178] - Remediation actions include enhancing entity-level controls, improving goodwill/intangibles impairment controls, strengthening IT general controls, redesigning revenue controls, enhancing internally developed software procedures, establishing formal lease renewal assessment, improving income tax review, redesigning period-end financial reporting controls, and strengthening cash disbursement approvals[178][179][180][181][182][183] - Material weaknesses were not fully remediated as of March 31, 2020, and remediation will continue until controls operate effectively[184] Changes in Internal Control Over Financial Reporting Except for the material weaknesses and remediation plans discussed, there were no other changes in internal control over financial reporting during Q1 2020 that materially affected or are reasonably likely to materially affect the company's internal control - No other material changes in internal control over financial reporting occurred during Q1 2020, apart from the identified material weaknesses and remediation efforts[186] Inherent Limitations on Effectiveness of Controls The effectiveness of any control system has inherent limitations, such as human error, circumvention, or overriding of controls, meaning it can only provide reasonable, not absolute, assurance, and projections of control effectiveness to future periods are subject to risks of inadequacy due to changes in the operating environment or compliance deterioration - Control systems have inherent limitations, including human error and the potential for circumvention or overriding of controls, providing only reasonable, not absolute, assurance[187] - Projections of control effectiveness to future periods are subject to risks that controls may become inadequate due to changes in the operating environment or deterioration in compliance[187] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The company has no current material pending litigation and no material legal proceedings were terminated, settled, or resolved in Q1 2020, with the ultimate resolution of routine legal matters not expected to have a material adverse effect on financial position or results of operations - No current material pending litigation or material legal proceedings were terminated, settled, or resolved during Q1 2020[190] - The ultimate resolution of routine legal matters is not expected to have a material adverse effect on the Company's financial position or results of operations[190] Item 1A. Risk Factors This section refers readers to the "Risk Factors" in the 2019 Annual Report on Form 10-K for known material risks, noting that other currently immaterial or unknown risks could also adversely impact the business in the future - Refers to Part I, Item 1A, "Risk Factors," in the 2019 Annual Report on Form 10-K for information regarding known material risks[191] - Other risks not currently considered material, or unknown risks, could materially adversely impact the business, financial condition, and results of operations in a future period[191] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report - None[192] Item 3. Defaults upon Senior Securities No defaults upon senior securities to report - None[193] Item 4. Mine Safety Disclosures No mine safety disclosures to report - None[194] Item 5. Other Information The company has scheduled its 2020 Annual Meeting of Stockholders for August 6, 2020, and has revised the deadline for stockholder proposals under Rule 14a-8 to June 25, 2020, due to the change in meeting date - The Company has scheduled its 2020 Annual Meeting of Stockholders for August 6, 2020[195] - The deadline for stockholder proposals under Rule 14a-8 for the 2020 Annual Meeting has been revised to June 25, 2020[196] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including Amendment No. 5 to the Credit Agreement, certifications of the CEO and CFO, and XBRL-related documents - Exhibits include Amendment No. 5 to the Credit Agreement, certifications of the Chief Financial Officer and Chief Executive Officer, and various XBRL taxonomy documents[199] SIGNATURES The report is duly signed by the Executive Vice President & Chief Financial Officer on behalf of Townsquare Media, Inc - The report was signed by Stuart Rosenstein, Executive Vice President & Chief Financial Officer, on behalf of Townsquare Media, Inc. on June 18, 2020[203]