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 as a result of the COVID-19
pandemic, (the extent of which will depend on future actions and outcomes that
are highly uncertain and cannot be predicted, including the scope, severity and
duration of the pandemic, the actions taken to contain the pandemic or mitigate
its impact, and the direct and indirect economic and financial market effects of
the pandemic, the containment measures and the pace of the economic and
financial market recovery), any civil unrest or violence, the impact of several
material weaknesses in internal control over financial reporting that have been
identified, which resulted in the restatement of certain of our Consolidated
Financial Statements and created additional risks and uncertainties, including
limiting our access to certain capital markets activities and increasing
litigation risk, 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 2020 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, digital marketing solutions and
radio company focused outside the Top 50 markets in the U.S. Our assets, as of
June 30, 2021, include a digital marketing subscription business (Townsquare
Interactive) providing websites, search engine optimization, social platforms
and online reputation management for approximately 24,950 small to medium sized
businesses, a proprietary digital programmatic advertising technology with an
in-house demand and data management platform (Townsquare Ignite), a portfolio of
322 local terrestrial radio stations in 67 U.S. markets with more than 330
corresponding local news and entertainment websites and apps, along with a
network of national music brands and websites. Many of our radio stations are
considered market leaders and we also participate in the digital, mobile, video
and social media arena. In addition, we create, promote and produce a diverse
range of live events, including, concerts, expositions and other experiential
events within and beyond our radio markets.
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Our integrated and diversified product and service offerings enable local,
regional and national advertisers to target audience engagement across multiple
platforms, including on-air, online and at live events. We believe our product
and service offerings, combined with our leading market position in small and
mid-sized markets, enable us to generate higher total net revenue per audience
member than radio station owners focused on larger markets.
The Company has identified three operating segments, which are Advertising,
including broadcast and digital advertising products and solutions, Townsquare
Interactive, our digital marketing solutions business and Live Events, including
concerts, expositions and other experiential events.
Advertising
Our Advertising segment includes the broadcast operations of our radio stations,
together with our owned and operated websites and the various digital
advertising solutions we offer, including Townsquare Ignite, our digital
programmatic advertising platform. Our primary sources of net revenue are the
sale of advertising on our radio stations, owned and operated websites, radio
stations' online streams and mobile applications. Additionally, we offer
precision customer targeting solutions to advertisers through Ignite. Combining
first and third-party audience and geographic location data, Ignite is able to
hyper-target audiences for our local, regional and national advertisers,
providing them the ability to reach a high percentage of their online audience.
Ignite delivers these solutions across desktop, mobile, connected TV, email,
paid search and social media platforms utilizing display, video and native
executions.
Our sales of advertisements are primarily affected by the demand for advertising
from local, regional and national advertisers and the advertising rates we
charge. Advertising demand and rates are based primarily on our ability to
attract audiences to our various products in the demographic groups targeted by
advertisers, as measured principally by various services on a periodic basis. We
endeavor to develop strong audience loyalty and believe that the diversification
of formats on our radio stations and websites helps to insulate our radio
stations and websites from the effects of changes in musical tastes of the
public with respect to any particular format. We believe that the sale of our
online and mobile advertisements, which currently have rates per advertisement
that are less than those of terrestrial radio advertisements, has not negatively
impacted our terrestrial radio advertising net revenue. Should a significant and
sudden shift in demand for these products toward online and mobile occur, there
could be a material adverse impact on our financial condition and results of
operations if we are unable to increase rates accordingly. However, we believe
that as a result of our strong brands and quality online and mobile offerings we
are well positioned to increase rates as demand increases for these products.
Townsquare Interactive
Townsquare Interactive offers digital marketing solutions, on a subscription
basis, to small and mid-sized local and regional businesses in small and
mid-sized markets across the United States, including but importantly not
limited to the markets in which we operate radio stations. Our primary source of
Townsquare Interactive net revenue is traditional and mobile-enabled website
development and hosting services, e-commerce solutions, search engine organic
traffic and online directory optimization services, online reputation
monitoring, social media management, appointment scheduling services, email
marketing services, and website retargeting often packaged together as a
comprehensive digital marketing solution.
Live Events
Our primary source of Live Events net revenue is ticket sales. Our Live Events
also generate substantial net revenue through the sale of sponsorships, food and
other concessions, merchandise and other ancillary products and services. Live
Event ticket pricing is based on consumer demand for each event and the
geographic location and target audience demographic of each event. Unforeseen
events such as inclement weather conditions can have an adverse impact on our
net revenue. In certain cases, we mitigate this risk with insurance policies,
which cover a portion of lost revenue as a result of unforeseen events including
inclement weather. Legislative and regulatory responses to the COVID-19 pandemic
required us to cancel nearly all live events beginning in March 2020. We have
resumed certain live events in the second quarter of 2021, however there
continues to be uncertainty surrounding the scheduling of live events in light
of the COVID-19 pandemic.
Overall
We strive to maximize our net revenue by managing our advertising inventory and
adjusting prices based on supply and demand, and by broadening our base of
advertisers and subscribers. Our selling and pricing activities are based on
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demand for our advertising inventory and, in general, we respond to this demand
by varying prices rather than by varying our target inventory levels. The
optimal number of advertisements available for sale depends on the platform and
in the case of our radio stations, their online streams and mobile applications,
the programming format of a particular radio station. Each of our advertising
products has a general target level of available inventory. We seek to broaden
our base of advertisers in each of our markets by providing a wide array of
audience demographic segments across our platforms, thereby providing each of
our potential advertisers with an effective means of reaching a targeted
demographic group.
Our advertising contracts are generally short-term. In the media industry,
companies, including ours, sometimes utilize barter agreements that exchange
advertising time for goods or services such as travel or lodging, instead of
cash.
Our most significant expenses are sales, 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, as well as certain programming costs, such
as music license fees, and certain costs related to production. Marketing and
promotions expenses are discretionary and are primarily incurred in an effort to
maintain and/or increase our audience share. Other programming, digital,
engineering and general and administrative expenses are primarily fixed costs.
Seasonality
Our net revenue varies throughout the year. Historically, our first calendar
quarter produces the lowest net revenue for the year, as advertising
expenditures generally decline following the winter holidays. However, due to
the COVID-19 pandemic, the seasonality of our net revenue for the year ended
December 31, 2020 was materially impacted and our second quarter produced our
lowest net revenue for 2020. 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. Declines in
forecasted traditional broadcast revenue in the markets in which we operate, the
impact of the COVID-19 pandemic on market and economic conditions, and the
corresponding impacts to our risk premium, contributed to approximately
$107.1 million impairments to the carrying values of our FCC license intangible
assets during the first half of 2020, of which $28.7 million and $78.4 million
was recognized during the three months ended June 30, 2020 and March 31, 2020,
respectively. Additionally, we canceled nearly all live events beginning in
March 2020. At the end of the first quarter of 2020, we reduced our workforce
through the termination or layoff of approximately 135 full-time employees.
As local public health conditions have begun to improve, we experienced a
recovery in advertising revenue, following the sequential improvements we
observed during each of the third and the fourth quarters of 2020. However,
revenue continues to remain below the levels we experienced during the same
period in 2019, with the exception of our Townsquare Interactive segment. Net
revenue for the Townsquare Interactive segment has increased $9.7 million, or
33%, as compared to the first half of 2019 due to continuing to achieve net
subscriber growth throughout the COVID-19 pandemic. While we resumed certain
live events during the second quarter of 2021, there continues to be uncertainty
surrounding the scheduling of live events.
During the first six months of 2021, we continued to maintain the precautionary
measures that were instituted in 2020 to address the potential impact to our
consolidated financial position, consolidated results of operations, and
liquidity, including wage reduction efforts such as the temporary suspension of
the Company's match on employee contributions to the Company's defined
contribution plan, the deferral of the payment of certain payroll taxes until
December 31, 2021 and 2022 under the Coronavirus Aid, Relief, and Economic
Security Act ("CARES Act") and controlling non-essential capital
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expenditures. Additionally, our board of directors determined to cease payment
of quarterly cash dividends, following the payment of our 2020 first quarter
dividend of $2.1 million, paid on May 15, 2020.
The full extent of the COVID-19 pandemic impact will depend on future actions
and outcomes, all of which remain fluid and cannot be predicted with confidence,
including the scope, severity and duration of the pandemic, the short-term and
long-term economic impacts of the COVID-19 pandemic (including the continued
effect on advertising activity, consumer discretionary spending and our
employees in the markets in which we operate), further actions taken to mitigate
the impact of the pandemic, and the pace of continued economic and financial
market recovery when the COVID-19 pandemic subsides, among others.
OVERVIEW OF OUR PERFORMANCE
Changes in our Business
Recent Developments
On January 6, 2021, the Company completed the private offering and sale of
$550.0 million aggregate principal amount of 6.875% senior secured notes due
2026 (the "2026 Notes") at an issue price of 100.0%. The net proceeds from the
2026 Notes, together with cash on hand, were used to repay: (i) all outstanding
borrowings under the 2015 senior secured credit facility, which included a seven
year $275.0 million term loan facility (the "Term Loans") with $272.4 million
principal amount outstanding and $2.1 million in accrued interest, (ii) all of
the outstanding $273.4 million of principal amount of 6.5% Unsecured Senior
Notes due in 2023 (the "2023 Notes"), a prepayment premium of $4.4 million, and
$5.1 million in accrued interest, and (iii) fees and expenses related thereto.
The Company also terminated its revolving credit facility and all other
obligations thereunder were repaid effective January 6, 2021.
The Company incurred approximately $13.6 million of fees and expenses in
connection with the issuance of the 2026 Notes, of which approximately
$9.4 million were capitalized and are being amortized over the remaining term of
the 2026 Notes using the effective interest method. The Company recognized a
$4.9 million loss on the early extinguishment of debt during the three months
ended March 31, 2021, due to a $3.1 million portion of the 2023 Notes prepayment
premium and the write-off of $1.8 million of unamortized debt discount and
deferred financing fees previously capitalized in connection with the senior
secured credit facility and 2023 Notes. The Company recognized a $1.1 million
loss on the modification of Terms Loans and 2023 Notes during the three months
ended March 31, 2021, which is primarily related to a portion of fees and
expenses incurred related to the issuance of the 2026 Notes.
Refer to Note 7, Long-term Debt, in the accompanying Notes to Consolidated
Financial Statements for additional information related to our 2026 Notes.
Stock Repurchase
On January 24, 2021, the Company entered into a stock repurchase agreement with
certain affiliates of Oaktree Capital Management L.P. ("Oaktree") to repurchase
606,484 shares of the Company's Class A common stock, 2,151,373 shares of the
Company's Class B common stock and 7,242,143 warrants to purchase Class A Common
Stock, or such greater number of securities as the Company may elect. On March
9, 2021, the repurchase was consummated and the Company elected to repurchase
all of the outstanding securities held by Oaktree, including 1,595,224 shares of
Class A Common Stock, 2,151,373 shares of Class B Common Stock and 8,814,980
warrants for an aggregate purchase price of $80.4 million, or $6.40 per
security.
In connection with the closing under the stock repurchase agreement, on March 8,
2021, the Company and Oaktree entered into a settlement agreement (the
"Settlement Agreement"), pursuant to which, among other things, the Company
agreed to pay $4.5 million to Oaktree as follows: (i) $1.5 million on April 1,
2021; (ii) $1.0 million on July 1, 2021; (iii) $1.0 million on October 1, 2021;
and (iv) $1.0 million on November 10, 2021. The Settlement Agreement also
includes customary mutual releases from claims, demands, and damages related to
the stock repurchase agreement.
Refer to Note 9, Stockholders' Equity, in the accompanying Notes to Consolidated
Financial Statements for additional information related to the stock repurchase.
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Highlights of Our Financial Performance
Certain key financial developments in our business for the three months ended
June 30, 2021 as compared to the same period in 2020 are summarized below:
•Net revenue increased $33.3 million, or 44.9%, primarily driven by a $28.8
million increase in our Advertising net revenue as a result of increases in the
purchase of new advertising by our clients, an increase of $3.3 million in our
Townsquare Interactive net revenue as a result of additional subscribers, and an
increase of $1.2 million in our Live Events net revenue as we resumed certain
live events.
•Excluding revenue related to political advertising of $0.8 million and $0.9
million and Live Events net revenue of $1.2 million and $32.0 thousand for each
of the three months ended June 30, 2021 and 2020, respectively, net revenue for
the three months ended June 30, 2021 as compared to the same period in 2020,
increased $32.2 million or 44.1% to $105.4 million.
•Excluding revenue related to political advertising of $0.8 million and $0.9
million for the three months ended June 30, 2021 and 2020, respectively, net
revenue for the three months ended June 30, 2021 as compared to the same period
in 2020 increased $33.4 million, or 45.7% to $106.6 million and Advertising net
revenue increased $28.9 million, or 51.4%, to $85.2 million.
•Operating income increased $57.5 million from an operating loss of $33.7
million for the three months ended June 30, 2020 to operating income of
$23.8 million for the three months ended June 30, 2021. Operating income
increased due to an increase in net revenue of $33.3 million; $28.7 million as a
result of impairment charges incurred during the three months ended June 30,
2020, primarily pertaining to FCC licenses in 35 of our 67 local markets that
were not repeated in 2021; and $2.1 million as a result of lower corporate
expenses primarily due to lower professional fees, partially offset by a $7.2
million increase in direct operating expenses. Our Advertising segment reported
operating income of $25.7 million which represents an increase of $53.5 million
as compared to an operating loss of $27.8 million for the three months ended
June 30, 2020, primarily due to a $28.8 million increase in net revenue and
$28.7 million as a result of impairment charges incurred during the three months
ended June 30, 2020 that were not repeated in 2021, partially offset by $4.2
million increase in direct operating expenses. Townsquare Interactive's
operating income for the three months ended June 30, 2021 was $5.7 million, an
increase of $0.7 million from the same period in 2020, primarily due to growth
in net subscribers. Our Live Events segment reported operating income of
$0.5 million, as compared to an operating loss of $0.2 million for the three
months ended June 30, 2020, an increase of $0.6 million due to the scheduling
live events.
Certain key financial developments in our business for the six months ended June
30, 2021, as compared to the same period in 2020 are summarized below:
•Net revenue for the six months ended June 30, 2021 as compared to the same
period in 2020, increased $28.6 million, or 17.1%, primarily driven by an
increase of $24.0 million in our Advertising net revenue as a result of an
increase in the purchase of new advertising by our clients, an increase of
$5.8 million in our Townsquare Interactive net revenue due to additional net
subscribers, partially offset by $1.2 million decrease in our Live Events net
revenue as a result of fewer live events during the first six months of 2021 as
compared to the same period in 2020, due to the COVID-19 pandemic.
•Excluding revenue related to political advertising of $1.2 million and
$2.2 million and Live Events net revenue of $1.2 million and $2.4 million for
each of the six months ended June 30, 2021 and 2020, respectively, net revenue
for the six months ended June 30, 2021 as compared to the same period in 2020
increased $30.8 million, or 18.9%, to $193.7 million.
•Excluding revenue related to political advertising of $1.2 million and
$2.2 million for the six months ended June 30, 2021 and 2020, respectively, net
revenue for the six months ended June 30, 2021 as compared to the same period in
2020 increased $29.6 million, or 17.9% to $194.9 million and Advertising net
revenue increased $25.0 million, or 19.3%, to $154.5 million.
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•Operating income increased $138.4 million as compared to an operating loss of
$105.8 million for the six months ended June 30, 2020 to operating income of
$32.6 million for the six months ended June 30, 2021. Operating income increased
for the six months ended June 30, 2021 due to an increase of $28.6 million in
net revenue as discussed above; a decrease of $107.6 million of total impairment
charges; and $4.4 million as a result of lower corporate expenses primarily due
to lower professional fees. Our Advertising segment reported operating income of
$40.4 million which represents an increase of $133.7 million from the six months
ended June 30, 2020 due to a $24.0 million increase in net revenue as discussed
above; total impairment charges of $107.7 million in 2020 that did not repeat in
2021; and a decrease in direct operating expenses of $2.1 million. Townsquare
Interactive's operating income for the six months ended June 30, 2021 was $11.0
million, an increase of $1.7 million from the same period in 2020 due to net
subscriber growth. Our Live Events segment reported operating income of $0.3
million, an increase of $0.1 million from the six months ended June 30, 2020.
•Cash and cash equivalents decreased $58.1 million from $83.2 million as of
December 31, 2020 to $25.1 million as of June 30, 2021. Excluding the
$80.4 million in cash consideration paid for the repurchase of the Oaktree
securities, cash and cash equivalents increased $22.3 million at June 30, 2021,
as compared to December 31, 2020.
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