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, including the COVID-19 pandemic, 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 2021 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 services 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 29,000 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 356 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.
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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 primary source of Broadcast Advertising net revenue is the sale of
advertising on our local radio stations to local, regional and national spot
advertisers, 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. Due to the COVID-19 pandemic we cancelled the majority of
scheduled live events in 2020, and operated a significantly reduced schedule in
2021. We are operating more events in 2022, however, we are still below
historical levels.
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.
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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
The U.S. economy and financial markets may continue to experience volatility due
to the COVID-19 pandemic, including as a result of the development of COVID-19
variants, vaccination rates and government legislative and regulatory responses.
The effects of the COVID-19 pandemic began to impact our operations in early
March 2020, and included significant advertising cancellations and material
declines in the purchase of new advertising by our clients, impairments to the
carrying values of our FCC licenses and the cancellation of live events. As
local public health conditions improved, our advertising revenue also improved.
The continued impact of the COVID-19 pandemic, including any increases in
infection rates, new variants, further actions taken to mitigate the impact of
the pandemic and the pace of continued economic recovery cannot be estimated.
OVERVIEW OF OUR PERFORMANCE
Changes in our Business
Acquisition of Cherry Creek
On March 24, 2022, the Company executed an asset purchase agreement to acquire
Cherry Creek Broadcasting LLC ("Cherry Creek"). Following regulatory approval,
the acquisition was completed on June 17, 2022 for a cash purchase price of
$18.4 million, net of closing adjustments. The results of Cherry Creek's
operations have been included in our Unaudited Consolidated Financial
Statements, following the closing of the acquisition on June 17, 2022. Pro forma
information has not been presented because the effect of the acquisition is not
material. For further discussion on the Cherry Creek acquisition, see Note 4,
Acquisitions and Divestitures in the Notes to Unaudited Consolidated Financial
Statements.
Highlights of Our Financial Performance
Certain key financial developments in our business for the three months ended
June 30, 2022 as compared to the same period in 2021 are summarized below:
•Net revenue increased $14.6 million, or 13.6%, primarily driven by a $7.5
million increase in our Digital Advertising net revenue, a $2.8 million increase
in our Subscription Digital Marketing Solutions net revenue as a result of
additional subscribers, and a $3.7 million increase in our Other net revenue due
to live events held during the period.
•Operating income decreased $7.0 million, or 29.2%, for the three months ended
June 30, 2022. Operating income decreased due to higher direct operating
expenses to support the growth of our digital segments and total non-cash
impairment charges in the amount of $9.4 million. These decreases were offset by
a $14.6 million increase in net revenue.
•The Digital Advertising segment reported operating income of $10.9 million for
the three months ended June 30, 2022, which represents an increase of $1.1
million, as compared to operating income of $9.8 million for the same period in
2021. The increase is primarily due to an increase in net revenue of $7.5
million, partially offset by an increase of $6.4 million in direct operating
expenses. Subscription Digital Marketing Solutions reported operating income of
$6.2 million, an increase of $0.6 million from the three months ended June 30,
2021, primarily due to growth in net subscribers. Increases in operating income
were offset by a decrease in Broadcast Advertising operating income of $5.9
million, primarily due to non-cash impairment charges to our FCC licenses.
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Certain key financial developments in our business for the six months ended June
30, 2022, as compared to the same period in 2021 are summarized below:
•Net revenue for the six months ended June 30, 2022 as compared to the same
period in 2021, increased $26.1 million, or 13.3%, primarily driven by a $11.7
million increase in our Digital Advertising net revenue, an increase of
$5.6 million in our Subscription Digital Marketing Solutions net revenue as a
result of additional subscribers, an increase of $4.7 million in our Other net
revenue due to live events held during the period, and a $4.1 million increase
in our Broadcast Advertising net revenue.
•Operating income increased $0.1 million, or 0.2%, for the six months ended June
30, 2022. Operating income increased due to an increase in net revenue of
$26.1 million and a decrease in transaction and business realignment costs of
$4.1 million, partially offset by a $21.5 million increase in direct operating
expenses and an increase in impairment charges of $9.8 million.
•Cash and cash equivalents decreased $27.7 million from $50.5 million as of
December 31, 2021 to $22.8 million as of June 30, 2022, primarily due to the
acquisition of Cherry Creek for a cash purchase price of $18.4 million, net of
closing adjustments, and total repurchases of $19.2 million of our 2026 Notes,
at or below par, during the second quarter of 2022.
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