ITEM 1A. RISK FACTORS
An investment in Townsquare involves a variety of risks and uncertainties. The following are some of the more important factors that would affectand other factors discussed in this Annual Report could cause our business, financial condition andactual results of operations.
In addition, a significant percentage of our advertising revenue is generated from the sale of advertising and marketing solutions to the automotive, financial servicesentertainment, and retail industries. These industries, among others, have been adversely affected by prior downturns in the economy, and may be adversely affected by any future downturns in the economy, and a significant decrease in advertising revenue from advertisers in these industries in the future could have a material adverse effect on our business, financial condition and results of operations. Decisions by SMBs targeted by Townsquare Interactive, our digital marketing services business to delay or reduce their spending and their web presence based on economic conditions could slow our subscriber growth or increase our subscriber attrition.
We face intense competition in the live events industry, and we may not be able to maintain or increase our current revenue, which could adversely affect our business, financial condition and results of operations.
The live events industry is highly competitive, and we may not be able to maintain or increase our current revenue due to such competition. The live events industry competes with other forms of music and non-music entertainment for consumers’ discretionary spending and within this industry we compete with other venues to win contracts and book talent, and, in the markets in which we promote music concerts and festivals, we face competition from other promoters and venue operators. Our competitors compete with us for key employees who have existing talent relationships and that have a history of being able to book talent for concerts and tours. Our competitors may engage in more extensive development efforts, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to existing and potential clients, talent and venues. Our competitors may develop services, advertising options or venues that are equal or superior to those we provide or that achieve greater market acceptance and brand recognition than we achieve. In addition, although many live events formats are annual in nature, there is risk that they will reach the end of their product cycle lives as consumer tastes evolve and we will not be able to develop new events that cater to new consumer preferences. Finally, it is possible that new competitors may emerge and rapidly acquire significant market share.
Poor weather and personal injuries and accidents may adversely affect expenses and attendance at our live events, which could negatively impact our financial performance from period to period.
We produce, promote and/or ticket many live events. Weather conditions surrounding these events affect sales of tickets, concessions and merchandise, among other things, particularly at our outdoor live events. Poor weather conditions can have a material effect on our results of operations particularly because we produce, promote and/or ticket a finite number of events. Due to weather conditions, we may be required to cancel or reschedule an event to another available day or a different venue, which would increase our costs for the event and could negatively impact the attendance at the event, as well as food, beverage, ride and merchandise sales. Poor weather can affect current periods as well as successive events in future periods, any of which could adversely affect our business, financial condition and results of operations. For certain events, we have cancellation insurance policies in place to cover a portion of our losses but this coverage may not be sufficient and is subject to deductibles.
There are inherent risks involved with producing live events. As a result, personal injuries and accidents have, and may, occur from time to time, which could subject us to claims and liabilities for personal injuries. Incidents in connection with our live events at any of our venues or festival sites that we own or rent, or involving any of our owned or rented equipment could also result in claims, reducing operating income or reducing attendance at our events, which could cause a decrease in our revenue. While we maintain insurance policies that provide coverage within limits that are sufficient, in management’s judgment, to protect us from material financial loss for personal injuries sustained by persons at our venues or events or accidents in the ordinary course of business, there can be no assurance that such insurance will be adequate at all times and in all circumstances.
Our business could be negatively impacted if our ability to hire and retain certain NAME employees through temporary worker programs, including the U.S. H-2B visa program or the Canadian Temporary Foreign Worker Program, are reduced or otherwise limited.
A significant portion of the employees that staff our NAME fairs is composed of foreign nationals whose ability to work for us depends on obtaining the necessary U.S. H-2B visas and Canadian work visas. The H-2B visa category in the U.S., and the Canadian Temporary Foreign Worker Program in Canada, allow employers in the U.S. and Canada, respectively, to hire foreign nationals to perform services on a temporary or seasonal basis, subject to certain qualifications. Our ability to hire and retain these foreign nationals and their ability to remain and work in the United States and Canada are affected by various laws and regulations, including limitations on the number of available H-2B visas and Canadian work visas and our ability to get available visas, which typically changes from one season to the next and could change significantly. Changes in the laws or regulations affecting the availability, allocation and/or cost of H-2B visas or Canadian work visas, eligibility for H-2B visas or Canadian work visas, or otherwise affecting the admission or retention of foreign nationals for temporary or seasonal employment by U.S. or Canadian employers, or any increase in demand for H-2B visas or Canadian work visas relative to the limited supply of those visas, may adversely affect our ability to hire or retain foreign personnel for our NAME fairs and events and may, as a result, negatively affect our revenue and/or expenses and could have a material adverse effect on our business, financial condition and results of operations.
Our business, financial condition and results of operations may be adversely affected if we are unable to acquire certain broadcast rights or our broadcast rights contracts are not renewed on sufficiently favorable terms.
The acquisition of broadcast rights is highly competitive, and we may be adversely impacted by certain exclusive content rights held by our competitors. We sometimes enter into broadcast rights contracts in the ordinary course of business for both the acquisition and distribution of media content and products, including contracts for both the acquisition and distribution of content rights for sporting events and other programs, and contracts relating to content produced by third parties on our radio stations. If we are unable to renew these contracts, as they expire, on acceptable terms, we may lose these rights, the related content and the related revenue. Even if these contracts are renewed, the cost of obtaining content rights may increase (or increase at faster rates than in the past) or the revenue from distribution of content may be reduced (or increase at slower rates than in the past). The impact of broadcast rights contracts for the acquisition of content rights on our results overand the terms of the contracts on our results will depend on a number of factors beyond our control, including the strength of advertising markets, effectiveness of marketing efforts, the size of audiences, and the related contract expenses and costs. There can be no assurance that revenue from content based on these rights will exceed the cost of the rights plus the other costs of producing and distributing the content.
If we lose key members of our senior management team, our business could be disrupted and our financial performance could suffer. Our business depends upon the continued efforts, abilities and expertise of our senior management team.
We believe that the skills and experience of our senior management team would be difficult to replace, and the loss of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations, including impairing our ability to execute our business strategy. We believe that our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel.
We may lose key on-air talent to competing radio stations or other types of media competitors.
We compete for creative and performing on-air talent with other radio stations and radio station groups, radio networks, and other providers of syndicated content and other media such as broadcast television, cable television, satellite television, the internet and satellite radio. Our employees and other on-air talent are subject to change and may be lost to competitors or for other reasons. Any adverse changes in particular programs, formats or on-air talent could have a material adverse effect on our ratings and our ability to attract advertisers, which could negatively impact our business, financial condition or results of operations.
Our results are dependent on radioimpacted by political advertising revenue, which can vary from even to odd-numbered years based on the volatility and unpredictability of political advertising revenue.years.
Approximately 0.6%, 1.7% and 0.5%1.6% of our net revenue pro forma for the Transactions, for the years ended December 31, 2015, 20162023 and 2017,2022, respectively, consisted of political advertising revenue. Political advertising revenue from elections, which is generally greater in even-numbered years and especially the years in which the U.S. President is elected, has the potential to create fluctuations in our operating results on a year-to-year basis. For example, during 2015, we had political advertising revenue of $2.9 million compared to $9.0and $7.5 million, in 2016during 2023 and $2.4 million in 2017.2022, respectively. In addition, political advertising revenue is dependent on the level of political ad spend and competitiveness of local, state and national elections within each local market.
If fuel prices increase significantly, our results of operations could be adversely affected.
We are subject to risk with respect to purchases of fuel. Prices and availability of petroleum products are subject to political, economic and market factors that are generally outside our control. Political events, weather-related events and natural disasters, and current and future legislation (such as market-based (cap-and-trade) greenhouse gas emissions control mechanisms) may also cause the price of fuel to increase. Because certain of our operations, primarily our live events and logistics related thereto, are dependent upon diesel fuel, significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition if we are unable to pass increased costs on to customers through price increases.
We are exposed to foreign currency risks from our Canadian operations that could adversely affect our financial results.
A significant portion of the revenue and operating costs of our NAME operations are denominated in Canadian dollars. We are therefore exposed to fluctuations in the exchange rate between the US dollar and the Canadian dollar. We do not currently hedge, and have not historically hedged, our operational exposure to this foreign currency fluctuation. Our consolidated financial results are presented in US dollars and therefore, during times of a strengthening US dollar versus the Canadian dollar, our reported revenue and earnings that are generated in Canada will be reduced because the Canadian
dollar will translate into fewer US dollars. In addition, the assets and liabilities of our Canadian operations are translated into US dollars at the exchange rates in effect at the balance sheet date. Revenue and expenses are translated into US dollars at the average exchange rate for the period. Translation adjustments arising from the use of differing exchange rates from period to period are recorded in stockholders’ equity as an accumulated currency translation adjustment. Translation adjustments arising from intercompany receivables with our Canadian operations are generally recorded as a component of other comprehensive loss, before tax. Accordingly, changes in currency exchange rates will cause our revenue, operating costs, comprehensive income and shareholders’ equity to fluctuate, and such fluctuations may have an adverse effect on our financial condition and results of operations.
The rates we charge for in-stream and mobile advertisements are currently less than those we charge for terrestrial radio advertisements.
The rates we charge for in-stream and mobile advertisements are currently less than those we charge for terrestrial radio advertisements. Listeners are increasingly shifting toward online radio streams and mobile applications. If we are unable to sufficiently increase the rates we charge for in-stream and mobile advertisements, a significant shift in listeners could have a material adverse impact on our business, financial condition and results of operations.
The failure or destruction of transmitter and other facilities that we depend upon to distribute our content could materially adversely affect our business, financial condition and results of operations.
We use studios, satellite systems, transmitter facilities and the internet to originate and/or distribute our content. We rely on third-party contracts and services to operate our origination and distribution facilities. These third-party contracts and services include, but are not limited to, electrical power, satellite downlinks, telecom circuits and internet connectivity. Distribution may be disrupted due to one or more third parties losing their ability to provide particular services to us, which could adversely affect our distribution capabilities. A disruption can be caused as a result of any number of events such as local disasters (accidental or environmental), various acts of terrorism, power outages, major telecom and internet connectivity failures or satellite failures. Our ability to distribute content to radio station audience and/or network affiliates may be disrupted for an undetermined period of time until alternate facilities are engaged and put on-line. Furthermore, until we fix issues that arise or third-party services resume when applicable, the inability to originate or distribute content could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to retain our digital audience, our business willmay be adversely affected.
The increasing number of digital media options available on the internet, through social networking toolsplatforms and through mobile and other devices distributing news and other content is expanding consumer choice significantly. Faced with a multitude of media choices and a dramatic increase in accessible information, consumers may place greater value on when, where, how and at what price they consume digital content than they do on the source or reliability of such content. The increasing popularity of news aggregation websites, and customized news feeds (often free to users), and AI driven content, may reduce our traffic levels by creating a disincentive for the audience to visit our websites or use our mobile applications. In addition, the undifferentiated presentation of some of our content in aggregation with other content may lead audiences to fail to distinguish our content from the content of other providers. Our reputation for quality journalism and content are important in competing for revenue in this environment and are based on consumer and advertiser perceptions. If consumers fail to differentiate our content from other content providers in digital media, or if the quality of our journalism or content is perceived as less reliable, we may not be able to increase our online traffic sufficiently or retain a base of frequent visitors to our local and national digital properties.
Online traffic is also driven by internet search results,and social media referrals, including search results provided by Google, the primary search engine directing traffic to our websites, and links from Facebook, the primary social media platform directing traffic to our websites. Search engines and social platforms frequently update and change the methods and algorithms for directing search queriestraffic to websites, or change methodologies or metrics for valuing the quality and performance of internet traffic on delivering cost-per-click advertisements. Any such changes could decrease the amount of revenue that we generate from online advertisements. The failure to successfully manage search engine optimization efforts across our business could result in a significant decrease in traffic to our various websites, which could result in substantial decreases in conversion rates and repeat business, as well as increased costs if we were to replace free traffic with paid traffic, any or all of which would adversely affect our business, financial condition and results of operations.
If traffic levels stagnate or decline, we
We may not be able to create sufficient advertiser interest in our digital properties or to maintain or increase the advertising rates of the inventory on our digital properties. Even if we maintain traffic levels,
the market position of our brands may not be enough to counteract a significant downward pressure on advertising ratesrates.
To remain competitive, we must respond to changes in technology, services and standards that characterize our industry.
The radio broadcasting and digital advertising industries are subject to technological change, evolving industry standards and the emergence of new media technologies and trends. We may not have the resources to acquire new technologies or to introduce new services that could compete with these new technologies and may allow us to adapt to new trends. Various media technologies and services have been or are being developed or introduced, including:
•satellite-delivered digital audio radio service, which resulted in subscriber-based satellite radio services with numerous niche formats;
•audio content by cable systems, direct-broadcast satellite systems, personal communications systems, content available over the internet and other digital audio broadcast formats;
•in-band on-channel digital radio, which provides multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services;
•Low-Power FM radio stations, which are non-commercial FM radio broadcast outlets, that serve small, localized areas;
•applications that permit users to listen to programming on a time-delayed basis and to fast-forward through programming and/or advertisements (e.g., podcasts);
•iPhone/iPad and similar mobile devices, gaming consoles, in-home entertainment and enhanced automotive platforms, voice activated smart speakers, and streaming internet services such as a resultNetflix, Spotify, and Pandora, all of a significant increasewhich provide access to audio and other entertainment content to consumers.
In addition, some automobile manufacturers have removed AM radio functionality from their vehicles. Although Congress is considering legislation to maintain AM radio in inventory.
Ifvehicles, we fail to increase the number of subscribers or retain existing subscribers at Townsquare Interactive, our revenue and businesscannot predict whether these legislative efforts will be harmed.successful, or their impact on our business.
The ability to grow Townsquare Interactive depends in large part
Further, we cannot predict the effect, if any, that competition arising from new technologies may have on maintainingthe radio broadcasting and expanding our subscriber base. To do so, we must convince prospective subscribers of the benefits of our technology platform and existing subscribers of the continuing value of our products and services. The digital marketing solutions sector is highly competitive with many competitors in which our customers have many competing alternatives. We believe our solutions are well positioned to serve the SMBs in the small and mid-sized markets we upon which we focus. However, if our subscribers cancel their subscriptions with us,advertising industries or if we are unable to attract new subscribers in numbers greater than the number of subscribers that we lose, our subscriber base will decrease andon our business, financial condition and operating results willof operations, some of which could result in the imposition of significant costs and expenses not previously part of our business operations.
The failure or destruction of transmitter and other facilities that we depend upon to distribute our content could materially adversely affect our business, financial condition and results of operations.
We use studios, satellite systems, transmitter facilities and the internet to originate and/or distribute our content. We rely on third-party contracts and services to operate our origination and distribution facilities. These third-party contracts and services include, but are not limited to, electrical power, satellite uplinks, telecom circuits and internet connectivity. Distribution may be disrupted due to one or more third parties losing their ability to provide particular services to us, which could adversely affected.affect our distribution capabilities. A disruption can be caused as a result of any number of events such as local disasters (accidental or environmental), weather events or wildfires (which may increase in frequency due to climate change), various acts of terrorism, war or armed conflict, power outages, major telecom and internet connectivity failures or satellite failures. Our ability to distribute content to our radio station audience and/or network affiliates may be disrupted for an undetermined period of time until alternate facilities are engaged and put on-line. Furthermore, until we fix issues that arise or third-party services resume when applicable, the inability to originate or distribute content could have a material adverse effect on our business, financial condition and results of operations.
Our digital businesses
We are dependent on technologykey personnel.
The leadership, skills and technicalexperience of our senior management team are critical to our operations, and sales talent.the loss of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations, including impairing our ability to execute and evolve our business strategy. We believe that our future success will depend greatly on our continued ability to attract, retain and motivate highly skilled and qualified personnel.
Future success and growth in our digital businesses will dependdepends upon our continued ability to develop and maintain technology and identify, hire, develop, motivate and retain highly skilled technical and sales talent. Competition for employees with these skill sets is intense and our continued ability to compete effectively depends, in part, upon our ability to attract new employees. We will also need to be able to balance the costs of recruiting and retaining these employees with profitable growth. If we are unable to do so, our business, financial condition or results of operations may be adversely affected.
New
The success of our radio stations is significantly impacted by our on-air talent, and we compete for on-air talent with other radio stations and radio station groups, radio networks, and other providers of syndicated content and other media such as broadcast television, cable television, satellite television, the internet and satellite radio. Our employees and other on-air talent are subject to change and may be lost to competitors or for other reasons, and the contracts we have with certain talent generally are limited in duration. Any adverse changes in particular programs or on-air talent in a particular market could have a negative impact on our ratings and generally could have a material adverse effect on our ability to attract advertisers, which could negatively impact our business, financial condition or results of operations. In addition, the FTC proposed rules that, if adopted, would ban most post-termination non-compete clauses and require employers to rescind existing ones. If adopted, these new rules could have a material adverse impact on our ability to retain key personnel.
Artificial intelligence-based platforms present new risks and challenges to our business.
We are currently developing several artificial intelligence (“AI”) initiatives, both internally and with external partners. Our efforts to develop, acquire or integrate these technologies involve time, costs, and other resources. Issues relating to the use of new and evolving technologies such as AI and machine learning may cause us to experience brand or reputational harm, competitive harm, legal liability, and new or enhanced governmental or regulatory scrutiny, and we may incur additional costs to resolve such issues. As with many innovations, AI presents risks and challenges that could block our ads, which wouldundermine or slow its adoption, and therefore harm our business. Further, if our efforts to develop, acquire or integrate these technologies are unsuccessful, it may have a materially adverse impact on our business, future prospects and financial position.
Technologies
The use of AI systems by our business partners may lead to novel and urgent cybersecurity risks, which could have been developed that can blocka material adverse effect on our operations and reputation as well as the displayoperations of any of our adsbusiness partners. In addition, the legal and that provide toolsregulatory framework surrounding AI is developing rapidly, and new or changing standards may require significant resources to usersmodify and maintain business practices to opt outcomply with United States international laws concerning the use of AI, the nature of which cannot be determined at this time.
Our competitors may also be able to devote greater resources to the development, promotion, and sale of their software solutions and services. If our advertising products. Mostcompetitors’ products, services or platforms become more accepted than our solutions, if our competitors are able to respond more quickly and effectively to new or changing opportunities, technologies, or customer requirements, or if their products or services are more technologically capable than ours, it may have a material adverse effect on our business, results of operations, and financial condition.
Increases in or new royalties could adversely impact our revenue from our digital businessesbusiness, financial condition and results of operations.
We pay royalties to song composers and publishers through four performing rights organizations (“PROs”).Royalties are derived from feescurrently paid to us by advertisers in connection withBroadcast Music, Inc. (“BMI”), the displayAmerican Society of adsComposers, Authors and Publishers (“ASCAP”), SESAC, Inc. (“SESAC”) and Global Music Rights, Inc. (“GMR”), for the performance of musical compositions on web pagesour radio stations and websites. We also pay royalties to Sound Exchange for our users. As a result, such technologies and tools could adversely affect our operating results.the streaming of
To remain competitive, we must respond to changes in technology, services and standards that characterize our industry.
The radio broadcasting industry issound recordings. Royalty rates are subject to technological change, evolving industry standardsadjustment and the emergence of new media technologiesit is possible that our royalty rates associated with obtaining rights to use compositions and trends. We may not have the resources to acquire new technologies or to introduce new services thatsound recordings in our programming content could compete with these new technologies and may allow us to adapt to new trends.
Various new media technologies and services have been or are being developed or introduced, including:
satellite-delivered digital audio radio service, which has resulted in the introduction of subscriber-based satellite radio services with numerous niche formats;
audio content by cable systems, direct-broadcast satellite systems, personal communications systems, content available over the internet and other digital audio broadcast formats;
in-band on-channel digital radio, which provides multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services;
the FCC has authorized many new Low-Power FM radio stations which have resulted in additional FM radio broadcast outlets, although such radio stations are required to operate with very low power and on a non-commercial basis;
iPhone/iPod/iPad and similar mobile devices;
voice activated smart speakers; and
streaming internet services such as Spotify and Pandora.
The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, including the introduction of new technologies used in automobiles,increase as a result in part, of a growing population, greaterprivate negotiations, regulatory rate-setting processes, or administrative and court decisions. In addition, should one or more new PROs establish that we use compositions or sound recordings to which they have the rights, the royalties we pay could increase.
From time to time, Congress considers legislation that could require that radio broadcasters pay performance royalties to record labels, recording artists, and other copyright holders. The proposed legislation has been the subject of considerable debate and activity by the automobileradio broadcast industry and increased commuter times.other parties that could be affected. We cannot guarantee that this historical growthpredict whether any proposed legislation will continue. Some of the technologies, particularly satellite digital audio radio service and internet radio, compete
become law. The proposed legislation would add additional royalties to be paid, likely to Sound Exchange, for the consumer’s attention inbenefit of record labels (or other sound recording copyright holders) and artists. If adopted, this would increase the car, workplace, outdoorscost of music and elsewhere. In addition, we cannot predict the effect,other sound recordings. It is currently unknown what proposed legislation, if any, that competition arising from new technologies or regulatory changes maywill become law, however, such additional royalties could have on the radio broadcasting industry oran adverse effect on our business, financial condition and results of operations.
The DOJ, from time to time, considers whether to reform or terminate the long-standing antitrust consent decrees that govern music licensing by ASCAP and BMI. Any change to the consent decrees could lead to the increase of our royalty rates associated with obtaining rights to use musical compositions and sound recordings in our programming content.
The use of music other than in connection with our broadcast operations someand the streaming of our broadcast programming is not covered by our broadcast licenses with ASCAP, BMI, SESAC, GMR and Sound Exchange. In most cases, rights to use music on digital platforms requires direct negotiations with the copyright holders. There is no guarantee that rights to such music uses can be obtained at reasonable costs which could restrict our ability to monetize and grow our online operations.
Our substantial indebtedness could have an adverse impact on us.
We have a significant amount of indebtedness. As of December 31, 2023, we had $499.7 million of outstanding indebtedness, net of deferred financing costs of $4.0 million, with annual cash interest expense requirements of approximately $34.6 million. Our substantial level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. We may incur substantial additional amounts of indebtedness, as well as incur significant non-debt obligations, which could further exacerbate the risks associated with such indebtedness. Our substantial indebtedness could have other significant effects on our business.
For example, it could:
•increase our vulnerability to adverse changes in general economic, industry and competitive conditions;
•require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•restrict us from taking advantage of opportunities to grow our business;
•make it more difficult to satisfy our financial obligations;
•place us at a competitive disadvantage compared to our competitors that have less debt obligations; and
•limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, the execution of our own business strategy or other general corporate purposes on satisfactory terms or at all.
In addition, the agreements evidencing or governing our current indebtedness do contain, and the agreements evidencing or governing our future indebtedness may contain, restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interest.Our ability to comply with those covenants depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions, increases or decreases in advertising spending, changes in the highly competitive industry in which we operate, which may be rapid, and other factors, many of which are beyond our control. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the impositionacceleration of significant costs and expenses not previously partall of our business operations.indebtedness, which would have a material adverse effect on our business.
There are risks associated with
Interest is payable on our acquisition strategy.
We may continue$550.0 million aggregate principal amount of 6.875% senior secured notes due 2026 (the “2026 Notes”) semi-annually in cash in arrears on February 1st and August 1st of each year. Any failure to growmake payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in part by acquiring radio stations, digital properties, live events or other businesses in the future. Wea reduction of our credit rating, which could harm our ability to incur additional indebtedness. If we cannot predict whethermake scheduled payments on our indebtedness, we will be successful in pursuing thesedefault under one or more of the agreements governing our indebtedness, and, as a result, we could be forced into bankruptcy or liquidation.
Capital requirements necessary to operate our business or consummate acquisitions could pose risks.
Our business requires a certain level of capital expenditures. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could be forced to reduce or what the consequencesdelay investments and capital expenditures, adversely impacting our business, financial condition and results of these acquisitions will be. Any acquisitions in the futureoperations. In addition, we may be subjectrequired to various conditions,increase our debt and/or issue equity securities in order to consummate an acquisition, and we may not have sufficient cash flows and capital resources to consummate one or more acquisitions. In addition, our ability to obtain financing depends on a number of other factors, many of which are also beyond our control, such as complianceinterest rates and national and local business conditions. If the cost of obtaining needed financing is too high or the terms of such financing are otherwise unacceptable in relation to the acquisition opportunity we are presented with, FCCwe may decide to forego that opportunity. Additional indebtedness could increase our leverage and antitrust regulatory requirements. The FCC requirements include:
approval of license assignmentsmake us more vulnerable to economic downturns and transfers;
limits on the number of radio stations a broadcaster may own in a given local market; and
other rules and policies, such as the ownership attribution rules, that could limit our ability to acquire radio stationswithstand competitive pressures.
Risks Related to Our Industry and Competition
Our future revenue and earnings growth will be significantly impacted by our digital lines of business, which are subject to significant competition and rapidly changing technology.
We invest significant capital and employee resources in our digital businesses, including our subscription digital marketing solutions business, Townsquare Interactive, and our programmatic digital advertising business. These digital business lines are subject to significant competition, rapidly changing technology, and evolving standards. As we continue to grow these lines of business and expand into new markets, we will also face new sources of competition, including, in certain markets where one or more of our stockholders, officers or directors have other media interests.
The antitrust regulatory requirements include:
filings with the DOJ and the FTC under the HSR Act, where applicable;
expiration or termination of any applicable waiting period under the HSR Act; and
possible review by the DOJ or the FTC of antitrust issues under the HSR Act or otherwise.
Completion of any acquisition may also only be approved subject to our compliance with certain conditions. These conditions may be onerous, and may include the requirement that we divest certain assets, which may include radio stations we already own or we propose to acquire. We cannot be certain whether any of these conditionsmarkets, from companies with longer operating histories, established customer bases, greater brand recognition and more financial, technical, marketing, and related resources. We will need to cultivate new relationships with customers, third party providers and other partners in each of these markets. We may not be able to compete successfully against current and future competitors, and our business, results of operations and financial condition will be satisfied, the timing thereof, or the potential impact on us any such conditions may have.harmed if we fail to meet these competitive pressures. In addition, the FCC has in the past asserted the authority to review levels of local radio market concentration as part of its acquisition approval process, even where proposed assignments would comply with the numerical limits on local radio station ownership in the FCC’s rules and the Communications Act.
Our acquisition strategy involves numerous other risks, including risks associated with:
identifying acquisition candidates and negotiating definitive purchase agreements on satisfactory terms;
integrating operations and systems and managing a large and geographically diverse group of assets;
divertingthere can be no assurance that our management’s attention from other business concerns;
potentially losing key employees at acquired businesses; and
a diminishing number of properties available for sale in appropriately sized and located markets.
We cannotdigital technologies we use or develop will be certainadequate, or that we will be able to successfully integrate any acquisitions or manageestablish our proprietary right to the resulting business effectively, or that any acquisition will achievetechnologies we rely upon.
The ability to grow Townsquare Interactive depends in large part on maintaining and expanding our subscriber base. To do so, we must convince prospective subscribers of the benefits of our technology platform and existing subscribers of the continuing value of our products and services. Most of our contracts with subscribers are terminable upon short or no notice. The digital marketing solutions sector is highly competitive. We believe our solutions are well
positioned to serve the SMBs in markets outside the top 50 upon which we focus. However, if our net subscriber base decreases, our business, financial condition and operating results will be adversely affected.
We may lose audience ratings, market share and advertising revenue to competing radio stations or other types of media competitors.
We operate in a highly competitive industry. Our radio operations compete for audiences and advertising market share with other radio stations and radio station groups, radio networks, other syndicated content and other media such as broadcast television, newspapers, magazines, cable television, satellite television, the internet, internet radio, digital platforms and applications, satellite radio, outdoor advertising, mobile devices and other portable digital audio players. We also compete for advertising dollars with other large digital companies, such as Meta, Google and Amazon. Any adverse change in a particular market or in the relative market positions of the radio stations located in a particular market, or any adverse change in audiences’ preferences could have a material adverse effect on our ratings or revenue. Other radio broadcasting companies may enter the markets in which we operate or may operate in the future, offer syndicated content that competes with our content, or try to acquire distribution rights of media content and products or on-air talent that we anticipate. use or have under contract, and these companies may be larger and have more financial resources than we do.
In addition, we are not certain that we will be ablefrom time to acquire properties at valuationstime, other radio stations may change their format or content, or a radio station may adopt a format to compete directly with us for audiences and advertisers. These tactics could result in lower ratings, lower market share and lower advertising revenue or increased promotion and other expenses and, consequently, lower earnings and cash flow for us. Audience preferences as favorable as those of previous acquisitions. Depending upon the nature, size and timing of potential future acquisitions, weto format or content may be requiredalso shift due to raise additional financingdemographic changes, personnel or other content changes, a decline in order to consummate additional acquisitions. Our debt agreements, as may be in place at any time, may not permit us to consummate an acquisitionbroadcast listening trends or access the necessary additional financing because of certain covenant restrictions. Furthermore, we cannot be certain that additional financing will be available to us or, if available, that financing would be on terms acceptable to our management team.
Due to various market and financial conditions, weother reasons. We may not be able to successfully complete future acquisitionsadapt to these changes or future dispositionstrends, any of which could have a material adverse impact on our radio stations.
We pursue strategic acquisitions whenbusiness, financial condition and results of operations. If we elect to make significant changes to our format or content to respond to changes in audience preferences or competition in a number of markets, such acquisitions are strategicchanges could utilize significant management resources, capital and financially additive and meet our overall business needs. We engage in strategic sales of our assets from time to time,implement and our new format and content may not be successful.
Competition for advertising is generally based on audience levels and demographics, price, service and advertising results. It has intensified as it makes financial sense to do so and meets our overall business needs. We have also been required by the FCC to divest radio stations, which radio stations are now held in trust pending sale. However, in lighta result of the current financial and economic market conditions, both in the radio
industrycontinued development of digital media and in the overall U.S. economy,recent years, advertisers have shifted dollars toward digital, putting downward pressure on our consummationbroadcast revenue. If this trend continues, we may experience a decline in broadcast revenue as a result. In addition, competition from all of future acquisitionsthese media and services affects our ability to attract and retain advertisers and consumers and to maintain or dispositions, even those required radio station divestitures, is uncertain and may be difficult.increase our advertising rates.
Our success is dependent upon audience acceptance ofengagement with our content, particularly our radio programs and live events, which is difficult to predict.
Media
Digital media and radio content production and distribution is an inherently risky business because the revenue derived from the production and distribution of digital media content or a radio program, and the licensing of rights to the intellectual property associated with the content or program, depend primarily upon their acceptance by the public, which is difficult to predict. The commercial success of content or a program also depends upon the quality and acceptance of other competing programs released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions and other tangible and intangible factors, all of which are difficult to predict.
Ratings for broadcast radio stations and traffic or visitors to a particular website are also factors that are weighed when advertisers determine which outlets to use and in determining the advertising rates that the outlet receives. Poor ratings or traffic levels can lead to a reduction in pricing and advertising revenue. For example, if there is an event causing a change of programming at one of our radio stations, there could be no assurance that any replacement programming would generate the same level of ratings, revenue or profitability as the previous programming. In addition, changes in ratings methodology and technology could adversely impact our ratings and negatively affect our advertising revenue. Nielsen, the leading supplier of ratings data for U.S. radio markets, developed technology to passively collect data for its ratings service. The Portable People Meter™ (“PPM™”) is a small, pager-sized device that does not require any active manipulation by the end user and is capable of automatically measuring radio, television, internet, satellite radio and satellite television signals that are encoded for the service by the broadcaster. While our ratings are primarily measured by the traditional diary method (which involves individual surveys), certain of our market ratings are being measured by PPM™. In each market, there has been a compression in the relative ratings of all radio stations in the market, enhancing the competitive pressure within the market for advertising dollars. In addition, ratings for certain radio stations when measured by PPM™ as opposed to the traditional diary methodology can be materially different. PPM™ based ratings may be scheduled to be introduced in some of our other markets. Because of the competitive factors we face, and the introduction of PPM™, we cannot assure investors that we will be able to maintain or increase our current audience ratings and advertising revenue, which could have an adverse impact on our business, financial condition and results of operations.
Our live events business depends in part on our ability to anticipate the tastes of consumers and to offer events that appeal to them. Since we rely on unrelated parties to perform at certain of our live events, any lack of availability of popular artists could limit our ability to generate revenue. In addition, our live events business typically plans and makes certain commitments to future events up to 18 months in advance of the event, and often agrees to pay an artist or other service providers or venues a fixed guaranteed deposit amount prior to our receiving any revenue as is standard in the live events industry. Therefore, if the public is not receptive to the event, or we or an artist cancel the event, we may incur a loss for the event depending on the amount of the fixed guaranteed or incurred costs relative to any revenue earned, as well as revenue we could have earned at the event. For certain events, we have cancellation insurance policies in place to cover a portion of our losses but this coverage may not be sufficient and is subject to deductibles. Furthermore, consumer preferences change from time to time, and our failure to anticipate, identify or react to these changes could result in reduced demand for our live events, which would adversely affect our business, financial condition and results of operations.
Risks Related to Acquisitions
There are risks associated with our acquisition strategy.
We may continue to grow in part by acquiring radio stations, digital properties, live events or other businesses in the future. We cannot predict whether we will be successful in pursuing these acquisitions or what the consequences of these acquisitions will be. Any acquisitions in the future may be subject to various conditions, such as compliance with FCC and antitrust regulatory requirements.
The FCC requirements include:
•approval of license assignments and transfers;
•limits on the number of radio stations a broadcaster may own in a given local market; and
•other rules and policies, such as the ownership attribution rules, that could limit our ability to acquire radio stations in certain markets where one or more of our stockholders, officers or directors have other media interests.
The antitrust regulatory requirements include:
•filings with the DOJ and the FTC under the HSR Act, where applicable;
•expiration or termination of any applicable waiting period under the HSR Act; and
•possible review by the DOJ or the FTC of antitrust issues under the HSR Act or otherwise.
Completion of any acquisition may be approved by regulatory authorities subject to our compliance with certain conditions. These conditions may be onerous, and may include the requirement that we divest certain assets, which may include radio stations we already own or we propose to acquire. We cannot be certain whether we would be willing to satisfy any of these conditions or whether they can be satisfied, the timing thereof, or the potential impact on us any such conditions may have. In addition, the FCC has in the past asserted the authority to review levels of local radio market concentration as part of its acquisition approval process, even where proposed assignments would comply with the numerical limits on local radio station ownership in the FCC’s rules and the Communications Act.
Ouracquisition strategy involves numerous other risks, including risks associated with:
•identifying acquisition candidates, competing for such acquisitions and negotiating definitive purchase agreements on satisfactory terms, and the related costs of these activities;
•integrating operations, systems, and other internal controls, and managing a large and geographically diverse group of assets;
•unsatisfactory returns on investment or an inability to achieve anticipated synergies on a timely basis or at all;
•diverting our management’s attention from other business concerns;
•entry into new markets and geographic areas where we have limited or no experience;
•retaining key employees, customers, suppliers or other third-party relationships of the acquired businesses;
•assumption of known and unknown liabilities, some of which may be difficult or impossible to quantify;
•non-cash impairment charges or other accounting charges relating to the acquired assets;
•tax costs or inefficiencies; and
•a diminishing number of properties available for sale in appropriately sized and located markets.
We cannot be certain that we will be able to successfully integrate any future acquisitions or manage the resulting business effectively, or that any acquisition will achieve the benefits that we anticipate. In addition, we are not certain that we will be able to acquire properties at valuations as favorable as those of previous acquisitions. Depending upon the nature, size and timing of potential future acquisitions, we may be required to raise additional financing or issue additional securities in order to consummate additional acquisitions. Our debt agreements, as may be in place at any time, may not permit us to consummate an acquisition or access the necessary additional financing because of certain covenant restrictions. Furthermore, we cannot be certain that additional capital will be available to us or, if available, that capital would be on terms acceptable to our management team.
Due to various market and financial conditions, we may not be able to successfully complete future acquisitions or future dispositions of our radio stations, or achieve the related benefits we anticipate.
We pursue acquisitions when such acquisitions are strategic and financially additive and meet our overall business needs. We engage in strategic sales of our assets from time to time, as it makes financial sense to do so and meets our overall business needs. We have also been required by the FCC to divest radio stations. However, due to financial and economic market conditions, both in the radio industry and in the overall U.S. economy, as well as antitrust, FCC and other regulatory requirements, our consummation of future acquisitions or dispositions, including those requiring radio station divestitures, is uncertain and may be difficult.In addition, we cannot be certain that we will be able to successfully integrate any recent or future acquisitions or manage the resulting business effectively, or that any acquisition or disposition will achieve the benefits that we anticipate.
Risks Related to Our Financial Reporting and Accounting
We have remediated several material weaknesses in our internal control over financial reporting in prior years. If we experience additional material weaknesses in the future, our business may be harmed.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on the effectiveness of our system of internal control. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. GAAP. As a public company, we are required to comply with the Sarbanes-Oxley Act and other rules that govern public companies. In particular, we are required to certify our compliance with Section 404 of the Sarbanes-Oxley Act, which requires us to furnish annually a report by management on the effectiveness of our internal control over financial reporting.
Remediation efforts, when necessary, place a significant burden on management and add increased pressure to our financial resources and processes. If we identify material weaknesses in our internal control over financial reporting in the future, our business may be harmed. Such harm may include: (i) failure to accurately report our financial results, to prevent fraud or to meet our SEC reporting obligations on a timely basis or at all; (ii) material misstatements in our Consolidated Financial Statements and harm to our operating results and investor confidence; and (iii) a material adverse effect on the trading price of our stock. In addition, the foregoing could subject us to sanctions or investigations by the NYSE, the SEC or other regulatory authorities, and result in the breach of covenants in our debt agreements, any of which could have a material adverse impact on our operations, financial condition, results of operations, liquidity and our stock’s trading price.
Further, there are inherent limitations in the effectiveness of any control system, including the potential for human error and the possible circumvention or overriding of controls and procedures. Additionally, judgments in decision-making can be faulty and breakdowns can occur because of a simple error or mistake. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies or procedures.
Future losses could be caused by future asset impairment of our FCC licenses and/or goodwill.
Under Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 350, “Intangibles-Goodwill and Other,” goodwill and indefinite-lived intangibles, including FCC licenses, are not amortized but instead are tested for impairment at least annually, or more frequently if events or circumstances indicate that there may be an impairment. Impairment is measured as the excess of the carrying value of the goodwill or intangible asset over its fair value. Intangible assets that have finite useful lives continue to be amortized over their useful lives and are also measured for impairment if events or circumstances indicate that they may be impaired. Impairment losses are recorded as operating expenses.
As of December 31, 2023, our FCC licenses and goodwill comprised approximately 27.8% and 24.1% of our consolidated total assets, respectively. The valuation of intangible assets is subjective and based on estimates rather than precise calculations. If actual future results are not consistent with the assumptions and estimates used, we may be exposed to impairment charges in the future. The fair value measurements for both our goodwill and indefinite-lived intangible assets use significant unobservable inputs which reflect our own assumptions about the estimates that market participants would use in measuring fair value including assumptions about risk.
Given the current economic environment and the potential negative impact on our business, there can be no assurance that our estimates and assumptions regarding our forecasts, made for the purpose of our non-amortizable intangible fair value estimates, will prove to be accurate.
Interim and/or annual impairment testing, as applicable, could result in future impairment losses. The fair value of FCC licenses and goodwill is primarily dependent on the expected future cash flows of our business. If actual market conditions and operational performance underlying the intangible assets were to deteriorate, or if facts and circumstances change that would more likely than not reduce the estimated fair value of the FCC licenses or goodwill below their adjusted carrying amounts, the Company may be required to recognize additional non-cash impairment charges in future periods, which could have a material impact on the Company’s business, financial condition and results of operations.
Refer to Note 6, Goodwill and Other Intangible Assets, Net for additional information.
Risks Related to Technology
New technologies could block our digital ads, and new restrictions on third-party cookies could harm our digital advertising business.
Technologies have been developed that can block the display of our ads and that provide tools to users to opt out of our advertising products. Most of our revenue from our digital advertising businesses are derived from fees paid to us by advertisers in connection with the display of ads on web pages for our users. As a result, such technologies and tools could adversely affect our operating results. In order to effectively target digital advertising campaigns, we use a combination of first and third-party data. Any restrictions that limit the use of third-party cookies could impact our ability to deliver effective digital advertising results which could adversely affect our operating results.
A security breach or a cyber-attack could adversely affect our business.
A security breach or cyber-attack of our computer systems could interrupt or damage our operations or harm our reputation. A security breach could occur both from external sources, including malicious attacks and third-party service provider vulnerabilities, as well as internal sources, such as employee error, failures in our security measures or vulnerabilities in our networks or code base. Any security breaches of our computer systems, including repeated or sustained attacks or disruptions, could interrupt delivery of services to customers, potentially increasing costs and reducing revenue. If third parties or our employees are able to penetrate our network security or otherwise misappropriate personal information or contact information of our customers, audience, business partners or advertisers, or if we give third parties or our employees improper access to such data, we could be subject to liability. This liability could include identity theft or other similar fraud-related claims. This liability could also include claims for other misuses or losses of personal information, including for unauthorized marketing purposes. Even in the absence of bad actors, unidentified vulnerabilities or glitches in our systems could result in loss of business-critical data or otherwise compromise the confidentiality, integrity or availability of such data. Other liabilities could include claims alleging misrepresentation of our privacy and data security practices. We could also be subject to regulatory or private rights of action in certain jurisdictions.
The number and scale of cyber-attacks causing significant business disruptions, such as global ransomware attacks, are increasing and could pose a risk to our ability to deliver our services and operate our business. Any future ransomware or other cyber-attack could disrupt our service delivery for an indeterminate period of time, as well as compromise or destroy personal and business-critical data and information within our control. Recovering from such an attack may require significant resources to restore business operations and our services, including personnel time and capital costs. In some cases, recovery of such data may not be possible. If a security breach results in the exposure or unauthorized disclosure of personal information, we could incur additional costs associated with data breach notification and remediation expenses, investigation costs, regulatory penalties and fines, and legal proceedings. Our insurance coverage may not be adequate to cover all the costs related to such breaches or attacks.
We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure online transmission of confidential consumer information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the algorithms that we use to protect sensitive customer transaction data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend capital and other resources to protect against such security breaches or cyber-attacks or to alleviate problems caused by such breaches or attacks. Our security measures are designed to protect against security breaches and cyber-attacks but may not be adequate, implemented properly, or appropriately complied with internally to prevent a security breach or cyber-attack. No network or system can ever be completely secure. Our failure to prevent such security breaches and cyber-attacks could subject us to liability, adversely affect our results of operations and damage our reputation.
Our engagement of third-party service providers increases our exposure to security and data privacy risks.
Select business operations, including online advertising, analytics engines and data storage, rely on partnerships with third party service providers, the operations, practices, and processes of which are outside our control. Despite due diligence in engaging these third parties and efforts to contractually protect our interests, we cannot guarantee that these third parties will adequately protect the personal information that we share with, or that is collected on our behalf by, such third parties or that such third parties will fully or sufficiently comply with all applicable data protection laws and contractual obligations. The failure of our third-party service providers to adequately protect the personal information we
process could result in a security breach of such personal information, potentially exposing us to the liability of a data breach or mishandling of personal information. Even where personal information is not involved, a successful cyber-attack on one of our third-party service providers could result in a disruption to our operations and impact revenues.
There have been recent developments in U.S. federal and state data protection laws that we may be required to comply with and which may impact our business. For example, the California Consumer Privacy Act (the “CCPA”), among other things, allows California consumers the right to opt out of the “sale” or “sharing” of their personal information, which includes any data transferred for the purpose of cross-contextual behavioral advertising. This opt-out right, and similar opt-out rights in other effective and proposed state privacy laws, may have an adverse effect on our business by decreasing the availability and increasing the cost of data. The CCPA and other state privacy laws also impose broader obligations on covered businesses such as transparency and information security requirements, and additional privacy rights such as rights to access and delete personal information. Enforcement of these laws may carry a variety of consequences, including civil penalties, litigation, private rights of action or damage to our reputation. In addition, if any of our third-party service providers fail to comply with applicable privacy laws, we may face additional exposure and liability on behalf of such providers. While we attempt to control against such outcomes through our vetting of third-party service providers and with appropriate contractual obligations, we cannot ensure our third-party service providers will fully comply with all such obligations. Moreover, the regulatory landscape is constantly evolving and subject to ongoing interpretations and guidance from regulatory authorities. The costs of compliance with, and other burdens imposed by CCPA and other privacy laws could have an adverse impact on our business, results of operations and financial condition.
We rely on third parties to provide the technologies necessary to deliver content, advertising and services to our audience, and any change in the licensing terms, costs, availability, or acceptance of these formats and technologies could adversely affect our business.
We rely on third parties to provide the technologies that we use to deliver content, advertising, and services to our audience.services. There can be no assurance that these providers will continue to license their technologies or intellectual property to us on reasonable terms, or at all. Providers may change the fees they charge users or otherwise change their business model in a manner that slows the widespread acceptance of their technologies. In order for our services to be successful, there must be a large base of users of the technologies necessary to deliver our content, advertising and services. We have limited or no control over the availability or acceptance of those technologies, and any change in the licensing terms, costs, availability, or user acceptance of these technologies could adversely affect our business.
Certain components of our onlinedigital business depend on continued and unimpeded access to the internet by us and our audience. Internet access providers may be able to block, degrade, or charge for access to certain of our products and services, which could lead to additional expenses and the loss of our audience and advertisers.
Certain of our products and services depend on the ability of our audience to access the internet, and certain of our products require significant bandwidth to work effectively. Currently, this access is provided by companies that have significant market power in the broadband and internet access marketplace, including incumbent telephone companies, cable companies, mobile communications companies and government-owned service providers. Some of these providers may take measures that could degrade, disrupt, or increase the cost of, access to certain of our products by restricting or prohibiting the use of their infrastructure to support or facilitate our offerings, or by charging increased fees to us or our audience to provide or access our offerings. Such interference could result in a loss of existing audience and advertisers, and increased costs, and could impair our ability to attract new audience and advertisers, thereby harming our revenue and growth.
A security breach or a cyber-attack could adversely affect our business.
A security breach or cyber-attack of our computer systems could interrupt or damage our operations or harm our reputation. If third parties or our employees are able to penetrate our network security or otherwise misappropriate personal information or contact information of our customers, listeners, business partners or advertisers, or if we give third parties or our employees improper access to our customers’ personal information or contract information, we could be subject to liability. This liability could include identity theft or other similar fraud-related claims. This liability could also include claims for other misuses or losses of personal information, including for unauthorized marketing purposes. Other liabilities could include claims alleging misrepresentation of our privacy and data security practices. We could also be subject to regulatory action in certain jurisdictions.
We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure online transmission of confidential consumer information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the algorithms that we use to protect sensitive customer transaction data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend capital and other resources to protect against such security breaches or cyber-attacks or to alleviate problems caused by such breaches or attacks and our insurance coverage may not be adequate to cover all the costs related to such breaches or attacks. Our security measures are designed to protect against security breaches and cyber-attacks, but our failure to prevent such security breaches and cyber-attacks could subject us to liability, adversely affect our results of operations and damage our reputation.
We may be adversely affected by the occurrence of extraordinary events, such as terrorist attacks or natural disasters.
The occurrence of extraordinary events, such as terrorist attacks, natural disasters, intentional or unintentional mass casualty incidents or similar events may substantially impact our operations in specific geographic areas, as well as nationally, and it may decrease the use of and demand for advertising, and the attendance at our live events, which may decrease our revenue or expose us to substantial liability. The September 11, 2001 terrorist attacks, for example, caused a nationwide disruption of commercial activities. The occurrence of future terrorist attacks, military actions by the U.S., contagious disease outbreaks or other unforeseen similar events cannot be predicted, and their occurrence can be expected to negatively affect the economies where we do business in general and specifically in the market for advertising. In addition, an act of God or a natural disaster could adversely impact any one or more of the markets where we do business, thereby impacting our business, financial condition and results of operations.
Capital requirements necessary to operate our business or implement acquisitions could pose risks.
Our business requires a certain level of capital expenditures. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face liquidity problems and could be forced to reduce or delay investments and capital expenditures, adversely impacting our business, financial condition and results of operations. We face competition from other media companies for acquisition opportunities. If the prices sought by sellers of these companies were to rise, we would find fewer acceptable acquisition opportunities. In addition, the purchase price of a possible acquisition could require additional debt or equity financing on our part. Since the terms and availability of this financing depend to a large degree upon general economic conditions and third parties over which we have no control, we can give no assurance that we will obtain the needed financing or that we will obtain such financing on attractive terms. In addition, our ability to obtain financing depends on a number of other factors, many of which are also beyond our control, such as interest rates
and national and local business conditions. If the cost of obtaining needed financing is too high or the terms of such financing are otherwise unacceptable in relation to the acquisition opportunity we are presented with, we may decide to forego that opportunity. Additional indebtedness could increase our leverage and make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures.
Our substantial indebtedness could have an adverse impact on us.
We have a significant amount of indebtedness. As of December 31, 2017, we had $565.1 million of outstanding indebtedness, net of deferred financing costs of $6.8 million, with annual interest expense requirements of approximately $31.0 million. On an as reported basis, interest expense for the year ended December 31, 2017 was $29.9 million, which represented 59.0% of cash flow from operating activities. Our substantial level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. Our substantial indebtedness could have other significant effects on our business.
For example, it could:
increase our vulnerability to adverse changes in general economic, industry and competitive conditions;
require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
restrict us from taking advantage of opportunities to grow our business;
make it more difficult to satisfy our financial obligations;
place us at a competitive disadvantage compared to our competitors that have less debt obligations; and
limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes on satisfactory terms or at all.
In addition, the agreements evidencing or governing our current indebtedness do contain, and the agreements evidencing or governing our future indebtedness may contain, restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness.
Risks Related to Governmental Regulation and Legislation
Future losses could be caused by future asset impairment of our FCC licenses and/or goodwill.
Under Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 350, “Intangibles—Goodwill and Other,” goodwill and indefinite-lived intangibles, including FCC licenses, are not amortized but instead are tested for impairment at least annually, or more frequently if events or circumstances indicate that there may be an impairment. Impairment is measured as the excess of the carrying value of the goodwill or intangible asset over its fair value. Intangible assets that have finite useful lives continue to be amortized over their useful lives and are also measured for impairment if events or circumstances indicate that they may be impaired. Impairment losses are recorded as operating expenses.
As of December 31, 2017, our FCC licenses and goodwill comprised approximately 68.9% of our consolidated total assets. The valuation of intangible assets is subjective and based on estimates rather than precise calculations. If actual future results are not consistent with the assumptions and estimates used, we may be exposed to impairment charges in the future. The fair value measurements for both our goodwill and indefinite-lived intangible assets use significant unobservable inputs which reflect our own assumptions about the estimates that market participants would use in measuring fair value including assumptions about risk.
Given the current economic environment and the potential negative impact on our business, there can be no assurance that our estimates and assumptions regarding the period and strength of the current economic recovery, made for the purpose of our non-amortizable intangible fair value estimates, will prove to be accurate.
Interim and/or annual impairment testing, as applicable, could result in future impairment losses. The fair value of FCC licenses and goodwill is primarily dependent on the expected future cash flows of our business. If actual market conditions and operational performance underlying the intangible assets were to deteriorate, or if facts and circumstances change that would more likely than not reduce the estimated fair value of the FCC licenses or goodwill below their adjusted carrying amounts, the Company may be required to recognize additional non-cash impairment charges in future periods, which could have a material impact on the Company’s business, financial condition and results of operations.
At December 31, 2017 the Company performed its annual impairment test which resulted in impairment charges of $2.9 million on its FCC licenses and $48.9 million on goodwill. Refer to Note 6 for additional information.
Our business depends upon licenses issued by the FCC, and if licenses wereare not renewed or we were to beare out of compliance with FCC regulations and policies, our business could be materially impaired.
The radio industry is subject to extensive regulation by the FCC under the Communications Act. Our radio stations depend upon maintaining their broadcasting licenses issued by the FCC, which are currently issued for a
maximum term of eight years and are renewable. Interested parties may challenge a renewal application. On rare occasions, the FCC has revoked licenses, not renewed them, or renewed them with significant qualifications, including renewals for less than a full term of eight years. In the last renewal cycle, the FCC granted all of the license renewal applications that were filed for our radio stations. However, westations for full eight-year terms. The next license renewal cycle begins in 2027. We cannot be certain that our future license renewal applications will be approved, or that the renewals will not include conditions or qualifications that could adversely affect our business, financial condition and results of operations, result in material impairment andor adversely affect our liquidity and financial condition. If any of our FCC licenses are not renewed, it would prevent us from operating the affected radio station and generating revenue from it. Further, the FCC has a general policy restricting the transferability of a radio station license while a renewal application for that radio station is pending. In addition, we must comply with extensive FCC regulations and policies governing the ownership and operation of our radio stations. FCC regulations limit the number of radio stations that a licensee can own in a market, which could restrict our ability to consummate future transactions. The FCC’s rules governing our radio station operations impose costs on our operations and changes in those rules could have an adverse effect on our business. The FCC also requires radio stations to comply with certain technical requirements to limit interference between two or more radio stations. If the FCC relaxes these technical requirements, it could impair the signals transmitted by our radio stations and could have a material adverse effect on our business. Moreover, governmental regulations and policies may change over time, and the changes may have a material adverse impact upon our business, financial condition and results of operations. For further details on federal regulation of radio broadcasting, see “Business—Federal“Business-Federal Regulation of Radio Broadcasting.”
Proposed legislation requires radio broadcasters to pay royalties to record labels and recording artists.
LegislationThe FCC has been introduced that would require radio broadcasters to pay royalties to record labels and performing artists for exhibition or use of the over the air broadcast of their recorded songs. Currently, we pay royalties to song composers and publishers through Broadcast Music, Inc., the American Society of Composers, Authors and Publishers, SESAC, Inc. and Global Music Rights, Inc. The proposed legislation would add an additional layer of royalties to be paid directly to the record labels and artists. It is currently unknown what proposed legislation, if any, will become law, and what significance this royalty would have on our business, financial condition and results of operations.
We may be adversely affected by the FCC’svigorous in its enforcement of its rules and regulations, including its indecency regulations against the broadcast industry as well as by the increased amountsand sponsorship identification rules, violations of the potential fines.which could have a material adverse effect on our business.
The FCC’s rules prohibit the broadcast of obscene material at any time and indecent material between the hours of 6 a.m. and 10 p.m. Broadcasters risk violating the prohibition against broadcasting indecent material because of the vagueness of the FCC’s definition of indecent material, coupled with the spontaneity of live content. The FCC vigorously enforces its indecency rules against the broadcasting industry as a whole and violations of these rules may result in fines or, in some instances, revocation of an FCC license. The FCC’s focus on the indecency regulatory scheme, against the broadcast industry generally, may encourage third parties to oppose our license renewal applications.
Furthermore, in recent years the FCC alsohas increased its enforcement of regulations requiring a radio station to include an on-air announcement which identifies the sponsor of all advertisements and other matter broadcast by any radio station for which any money, service or other valuable consideration is received. Fines for such violations can impose separate fines for each allegedly indecent “utterance” within radio content. In addition, in 2006 Congress increasedbe substantial as they are dependent on the maximum forfeiture fornumber of times a single indecency violation to $325,000, with a maximum forfeiture exposure of $3,000,000 for any continuing violation arising from a single actparticular advertisement or failure to act. other material is broadcast.
We cannot predict whether Congress will consider or adopt further legislation in this area. In the ordinary course of business, we or the FCC may receive complaints about whether certain ofand we may become subject to FCC inquiries or proceedings related to our radio stations have broadcast indecent content. To the extent these complaintsstations’ broadcasts or other proceedings by the FCC result in the imposition ofoperations, and any resulting settlement with or fines a settlement withfrom the FCC, revocation of any of our radio station licenses or denials of license renewal applications, could have a material adverse effect on our business, financial condition and results of operations could be materially adversely affected.operations.
We are required to obtain prior federal approval for each station acquisition, which approvals may be subject to our compliance with certain conditions, possibly including asset divestitures, which may be material.
Acquisitions have been and may continue to be, a criticalan important component of our overall strategy. The acquisition of a radio station requires the prior approval of the FCC and may require approvals by other governmental agencies, such as the DOJ or the FTC. To obtain that approval, a proposed acquirer is required to file a transfer of control or assignment of license application with the FCC. The Communications Act and FCC rules allow members of the public and other interested parties to file petitions to deny or other objections to the FCC with respect to the grant of any transfer or assignment application. The FCC could rely on those objections or its own initiative to deny a transfer or assignment application or to require changes in the transaction, including the divestiture of radio stations and other assets, as a condition to having the application granted. Although we do not currently expect such divestitures to be material to our financial position or results of operations, no assurances can be provided that we would not be required to divest additional radio stations in connection with obtaining such approval, or that any such required divestitures would not be
material to our financial position or results of operations. The FCC could also change its existing rules and policies to reduce the number of radio stations that we would be permitted to acquire in some markets. For these and other reasons, there can be no assurance that the FCC will approve potential future acquisitions that we deem material to our business. See “-There are risks associated with our acquisition strategy” for additional information regarding FCC and other regulatory approvals required for acquisitions.
We may be adversely affected by the FCC’s actions with respect to Revitalization of AM Radio.
In October 2015, the FCC released a First ReportThe information we collect and Order and Further Notice of Proposed Rulemaking titled “Revitalization of AM Radio Service,” enacting several modifications to its technical rules for AM radio stations. Included in the orderprocess is the elimination of a rule which requires certain AM stations to reduce nighttime interference when seeking to modify their facilities. Also included is a relaxation of the FCC’s requirements for AM stations to provide their communities of license with a specific level of signal coverage, with the intended purpose of permitting AM stations to change the locations of their transmitting facilities. As a result of these rule changes, it is possible that some of our stations may experience increased nighttime interference from other stations in connection with facility modifications. It is also possible that stations owned by others and not serving our markets could move into our markets and become new competitors and cause interference to our stations or translators. Another aspect of the FCC’s revitalization order is exclusive AM filing windows in 2016 to allow AM stations to move a FM translator up to 250 miles to rebroadcast that AM station’s signal, and windows in 2017 and 2018 exclusively for AM stations to apply for a new FM translator construction permit. The filing windows for applications for new FM translators to operate as companions to AM stations were July 26 through August 2, 2017 for certain AM stations and January 18 through January 31, 2018, for certain other AM stations. Although these windows may have the effect of increasing competition from other radio stations in our markets, we cannot predict at this time to what extent, if any, the impact of thebusiness importance and new FM translator stations will have on our Company.
New or changing federal, state or international privacy legislation or regulation create uncertainty for our continued use of the information we collect and process.
In the course of our ordinary business operations, we may collect personal information and non-personal information that is critical or commercially-useful to our business, including personal information related to our employees, audience, advertisers, contractors, and customers. As a result of our digital expansion efforts and third-party partnerships, the volume, sensitivity, and business importance of the information we collect and use is increasing. We collect this information directly from individuals, through passive tracking technology such as “cookies” and indirectly through third parties engaged to provide services on our behalf. In addition to the risk that a security breach may compromise this information, this information may include personal information such as names, contact information, credit card information, geolocation and demographic information that is subject to specific data protection and privacy laws.
We are subject to federal and state data protection and privacy laws and regulations that require us to comply with specific consumer protection, information security and data protection and privacy requirements. The legal and regulatory landscape continues to evolve, with new laws being enacted or coming into force. Additionally, we are required to comply with the CCPA, which requires us to update both our internal and external policies and procedures to meet our compliance obligations under CCPA. Compliance with CCPA may require that we change or amend activities that involve personal information, which may impact business operations or our ability to effectively use personal information in our control. Furthermore, as mentioned under “Our engagement of third-party service providers increases our exposure to security and data privacy risks” above, such requirements include allowing consumers to limit our use of their personal information, or delete it entirely.
Regulatory enforcement actions and interpretations of new data protection and privacy laws and regulations may change how these requirements apply to our business and collection, use, storage, and disclosure of personal information, creating uncertainty regarding the continued viability of information-reliant business activities. Certain interpretations or implementation of new data protection and privacy laws, as well as the evolving legal and regulatory landscape, could harm our business, including negatively impacting the cost of doing business or our ability to engage in certain business practices. Furthermore, recent disclosures of major data breaches and company data collection, use and disclosure practices to which large segments of the consumer population have objected may result in both increased interest in U.S. federal data privacy legislation as well as changes to consumer privacy expectations and demands. Such shifts may restrict our ability to collect and/or process personal information in a particular way or derive economic value from personal, and even non-personal, information.
We have implemented and are implementing policies and procedures to comply with applicable data protection and privacy laws and regulations, but such measures may not always be effective, particularly as the legal landscape continues to evolve, and regulatory guidance is often ambiguous or inconsistent. Some of our internal processes are manual and rely on employees to follow and adhere to our policies and procedures, which can result in employee error and internal compliance failures. Any failure or perceived failure by us to comply with our policies or applicable data protection and privacy laws and regulations could result in regulatory enforcement actions against us, proceedings by governmental entities, consumers or others (including our contractual third parties), and loss in brand value and reputation. Such results could possibly require us to incur costs for defending against proceedings or paying regulatory fines or penalties and responding to such outcomes could consume considerable management focus and internal resources, decrease demand for our services, or increase the costs of, or otherwise limit, our ability to do business.
New or changing privacy legislation or regulation could hinder the growth of our internetdigital properties.
A variety of federal and state laws govern the collection, use, retention, sharing and security of consumer data that our internetdigital properties use to operate certain services and to deliver certain advertisements to its customers, as well as the technologies used to collect such data. Not only are existing privacy-related laws in these jurisdictions evolving and subject to potentially disparate interpretation by governmental entities, new legislative proposals affecting privacy are now pending at both the federal and state level in the U.S. Changes to the interpretation of existing law or the adoption of new privacy-related requirements could hinder the growth of our internetdigital presence. Also, a failure or perceived failure to comply with such laws or requirements or with our own policies and procedures could result in significant liabilities, including a possible loss of consumer or investor confidence or a loss of customers or advertisers, and could adversely affect our business, financial condition and results of operations. Furthermore, the oversight required to monitor and adapt to the ever-changing regulatory landscape could consume considerable management focus and internal resources, or increase the costs of, or otherwise limit, our ability to do business.
Risks Related to Ownership of Our Class A Common StockSmaller Reporting Company Status
As an “emerging growth company” under the JOBS Act we are eligible to take advantage of certain exemptions from various reporting requirements.
We are an “emerging growtha smaller reporting company” and intend to avail ourselves of certain reduced disclosure requirements applicable to smaller reporting companies, which could make our common stock less attractive to investors.
We are a smaller reporting company, as defined in the JOBSExchange Act, and we are eligibleintend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”applicable to smaller reporting companies, including but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote of stockholders on executive compensation and stockholder approval of any golden parachute payments not previously approved. Somecompensation. We cannot predict if investors maywill find our securitiescommon stock less attractive because we may rely on these exemptions. TheIf some investors find our common stock less attractive as a result, there may be a less active trading market for our securitiescommon stock and our security pricesstock price may be more volatile.
We intend to take advantage of certain of these reporting exemptions until we are no longer a smaller reporting company. We will remain an “emerging growth company”a smaller reporting company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of our initial public offering in July 2014, (ii) the last day of the first fiscal year in which our annual gross revenue exceed $1.07 billion, (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur on the last day of the fiscal year when theaggregate market value of our outstanding common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter is $250 million or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period. Assuming we do not surpass one of the financial thresholds in clauses (ii) through (iv) above, our status as an “emerging growth company” will end on December 31, 2019.more.
We are classified as a “controlled company” and, as a result, we qualify for, and rely on, exemptions from certain corporate governance requirements of the New York Stock Exchange. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Certain funds managed by Oaktree continue to control a majority of the voting power of our common stock. As a result, we are a “controlled company” within the meaning of the applicable stock exchange corporate governance standards. Under the rules of the New York Stock Exchange (“NYSE”), a company of which more than 50% of the outstanding voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain stock exchange corporate governance requirements, including:General Risk Factors
the requirement that the board of directors have a majority of independent directors;
the requirement that nominating and corporate governance matters be decided solely by independent directors; and
the requirement that employee and officer compensation matters be decided solely by independent directors.
We intend to continue to utilize these exemptions. As a result, we may not have a majority of independent directors and our nominating and corporate governance and compensation functions may not be decided solely by independent directors. Accordingly, you would not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.
The public market for our Class A Common Stock may be volatile.
We cannot assure you that the market price of our Class A common stock will not fluctuate significantly in response to a number of factors, many of which we cannot control, including those described under “Risks Related to Economic Conditions and Our Business” and the following:
•our announcement of earnings or operational guidance or changes to such guidance;
•changes in financial estimates by any securities analysts who follow our Class A common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our Class A common stock;
•publications of research reports about us or the industries in which we compete, and downgrades by any securities analysts who follow our Class A common stock;stock or such industries;
•future sales or buybacks of our common stock;stock by us, significant stockholders or our other affiliates;
•market conditions or trends in our industry or the economy as a whole and, in particular, in the advertising sales environment;
•investors’ perceptions of our prospects;
•announcements by us or our competitors of significant contracts, acquisitions, joint ventures or capital commitments; and
•changes in key personnel.
Many of the factors above are beyond our control and may cause the market price of our common stock to decline, regardless of our financial performance and condition and prospects. Declines in our stock price may limit our ability to use our common stock as consideration in acquisitions, or our interest or ability to consummate a public equity offering.
In addition, the stock markets havemarket has experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs, and our resources and the attention of management could be diverted from our business.
Our majority stockholder has the ability
We are subject to control significantrisks related to corporate activities and our majority stockholder’s interests may not coincide with yours.social responsibility.
Certain funds managed by Oaktree beneficially own approximately 1.6 million shares of our Class A common stock, 2.2 million shares of our Class B common stock and approximately 8.8 million shares of our Class A common stock underlying warrants, which together represent approximately 52.5% of the voting power of our common stock. Pursuant to a Stockholders’ Agreement entered into by and between Oaktree, FiveWire Media Ventures LLC (“FiveWire”) (an entity formed for the purpose of investing in the Company by certain members of management, including Dhruv Prasad, Steven Price, Stuart Rosenstein and certain other individuals (together, the “FiveWire Holders”)) and the FiveWire Holders (the “Stockholders’ Agreement”), Oaktree controls approximately 72.4% of the voting power on matters presented
We are facing increasing scrutiny related to our stockholders.environmental, social and governance (“ESG”) practices and requested disclosures by investors who are increasing using ESG screening criteria in making investment decisions. Our disclosures on these issues or a failure to satisfy evolving shareholder expectations for ESG practices and reporting may impact our reputation and relationships with investors. As a result of its ownership, Oaktree, so long as it holds a majority of the voting power on matters presented to our stockholders, will have the ability to control the outcome of matters submitted to a vote of stockholdersESG best practices, reporting standards, and through our Board of Directors, the ability to control decision-making with respect to our business direction and policies. Pursuant to the Stockholders’ Agreement, each FiveWire Holder granted to Oaktree an irrevocable proxy to vote their shares of Class B common stock, which shall remain in effect for so long as Oaktree beneficially owns at least 50% of the number of shares of common stock held immediately following our initial public offering. In addition, pursuant to the Stockholders’ Agreement, until Oaktree ceases to beneficially own at least 33.3% of the number of shares of common stock held immediately following our initial public offering, Oaktree has the right to designate three directors to our board of directors, each of whom will have, until Oaktree ceases to beneficially own at least 70.0% of the number of shares of common stock held immediately following our initial public offering, two votes on each matter. Matters over which Oaktree, directly or indirectly, exercises control include:
the election of our board of directors and the appointment and removal of our officers;
mergers and other business combination transactions, including proposed transactions that would result in our stockholders receiving a premium price for their shares;
other acquisitions or dispositions of businesses or assets;
incurrence of indebtedness, the issuance of equity securities, and the declaration of dividends;
repurchase of stock and payment of dividends; and
the issuance of shares to management under our equity incentive plans.
Even if the voting power of certain funds managed by Oaktree falls below a majority and those funds no longer have the right to designate directors to our board of directors pursuant to the Stockholders’ Agreement, they maydisclosure requirements continue to be able to strongly influence or effectively control our decisions. Under our certificate of incorporation, Oaktree and its affiliates do not have any obligation to present to us, and Oaktree may separately pursue, corporate opportunities of which they become aware, even if those opportunities are ones that we would have pursued if granted the opportunity.
The interests of Oaktree could conflict with your interests in material respects. Furthermore, Oaktree is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us, as well as businesses that represent major customers of our business. Oaktree may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as Oaktree continues to own a significant amount of our outstanding capital stock, they will continue to be able to strongly influence or effectively control our decisions.
Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.
Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our Class A common stock and could impair our ability to raise capital through the sale of additional shares. As of March 10, 2018 we have 13,837,676 shares of Class A common stock outstanding, outstanding warrants to purchase 8,977,676 shares of Class A common stock, 3,022,484 shares of Class B common stock outstanding and 1,636,341 shares of Class C common stock outstanding. The shares of Class A common stock are freely tradable without restriction under the Securities Act, except for any shares of our Class A common stock that may be held or acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, which are restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.
Holders of approximately 18.8 million shares of our Class A common stock (including shares underlying outstanding warrants and assuming the conversion of all shares of Class B and Class C common stock into shares of Class A common stock, each on a one-for-one basis) have the right to require us to register the sales of their shares under the Securities Act, under the terms of registration agreements between us and the holders of these securities.
In the future,evolve, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock.
Failureincur increasing costs related to comply with requirements to design, implementESG monitoring and maintain effective internal controls could have a material adverse effect on our business and stock price.reporting.
We are not required to comply with Section 404(b) of the Sarbanes-Oxley Act for the annual reporting period ended December 31, 2017, and therefore our auditors are not required to make a formal assessment of the effectiveness of our internal controls for that purpose. Being a public company, we have significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to accurately report our financial results, fail to meet our reporting obligations on a timely basis, result in material misstatements in our Consolidated Financial Statements and harm our operating results. Testing and maintaining internal controls may also divert our management’s attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act or, if applicable, our independent registered public accounting firm may not issue an unqualified opinion. If either we are unable to conclude that we have effective internal control over financial reporting or, if applicable, our independent registered public accounting firm is unable to provide us with an unqualified report, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our stock.
Our independent registered public accounting firm will not be required to attest formally to the effectiveness of our internal control over financial reporting until the Annual Report required to be filed with the SEC following the date we are no longer an emerging growth company.
We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal controls in the future.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our by-laws, or (iv) any other action asserting a claim against us that is governed by the internal affairs doctrine. This provision is not intended to apply to claims arising under the Securities Act and the Exchange Act. To the extent the provision could be construed to apply to such claims, there is uncertainty as to whether a court would enforce the provision in such respect, and our stockholders will not be deemed to have waived compliance with federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our Class A common stock or publishes inaccurate or unfavorable research about our business or industry, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our Class A common stock could decrease, which could cause our stock price and trading volume to decline.
We have not historically paid anybegan paying quarterly cash dividends in 2023, although any future cash dividends will be at the discretion of our board of directors and youother factors. You may not receive any return on investment unless you are able to sell your Class A common stock for a price greater than your purchase price.
On March 12, 20186, of 2023, the Boardboard of Directorsdirectors approved a quarterly dividend of $0.1875 per share for holders of record as of March 27, 2023. On February 28, 2024, the board of directors increased the quarterly dividend to $0.1975 per share. We previously paid a quarterly dividend of $0.075 per share. We have not historically paid any cash dividends on sharesshare starting in 2018, which was ceased in 2020 as a result of our Class A common stock.uncertainty created by the COVID-19 pandemic. Any determination to continue to pay dividends in the future will be at the discretion of our Boardboard of Directorsdirectors and will depend upon results of operations, financial condition, contractual restrictions, including agreements governing our indebtedness, any potential indebtedness we may incur, restrictions imposed by applicable law and other factors our Boardboard of Directorsdirectors deems relevant. Accordingly, if you purchase shares, realization of a gain on your investment may depend on the appreciation of the price of our Class A common stock, which may never occur.
Provisions of our certificate of incorporation could have the effect of preventing the Company from having the benefit of certain business opportunities that it may otherwise be entitled to pursue.
Our certificate of incorporation provides that certain funds managed by Oaktree and its affiliates are not required to offer corporate opportunities of which they become aware to us and could, therefore, offer such opportunities instead to other companies, including affiliates of Oaktree. In the event that Oaktree obtains business opportunities from which we might otherwise benefit but chooses not to present such opportunities to us, these provisions of our certificate of incorporation could have the effect of preventing us from pursuing transactions or relationships that would otherwise be in the best interests of our stockholders.
Anti-takeover provisions in our certificate of incorporation or bylaws may delay, discourage or prevent a change in control.
Our certificate of incorporation and bylaws contain provisions that may delay, discourage or prevent a merger or acquisition that a shareholderstockholder may consider favorable. As a result, shareholdersstockholders may be limited in their ability to obtain a premium for their shares.
Item 1B. Unresolved Staff Comments
Not applicable.
Not applicable.
The Company has implemented and continues to enhance a comprehensive set of cybersecurity measures based on industry best practices that are meant to protect confidential information, minimize vulnerabilities and intrusions, and maximize detection and response and restoration capabilities. Key components of our strategy include employee training, identity management, multi-factor authentication, endpoint security, detection and response SOCs, privileged access and endpoint management, network traffic inspection, email security, local and cloud-based backups, and third party vulnerability testing and remediation.
Our strategy, results of operations and financial condition have not been materially affected by risks from cybersecurity threats, including as a result of previously identified cybersecurity incidents, but we cannot provide assurance that they will not be materially affected in the future by such risks or any future material incidents. For more information on our cybersecurity related risks, see Item 1A Risk Factors in this Annual Report.
Item 2. Properties
The types of properties required to support our business include offices, radio station studios as well as transmitter and tower sites. In each of our Local Marketing Solutions markets our radio station studios and offices are generally co-located. Transmitter and tower sites are also generally co-located. The location of our towers is generally chosen so as to provide optimal signal coverage, within the confines of FCC broadcast rules.
As of December 31, 2017,2023, we owned 4652 facilities containing broadcast studios and 283278 towers in our 67 Local Marketing Solutions74 markets. Where we do not own studios or towers, we lease these facilities. In addition, we lease various office facilities across the U.S. for our corporate, digital marketing solutions, and e-commerce operations, including spacesa space in Greenwich, Connecticut and White Plains,Purchase, New York for our principal corporate offices.office. We also lease venues to host our live events from time to time.
We do not anticipate any difficulties in renewing any facility leases or in leasing alternative or additional space, if required. We own or lease substantially all of our other equipment, consisting principally of transmitting antennae, transmitters, studio equipment, ride equipment, certain live event production equipment and general office equipment. Where we do not own necessary equipment, we lease that equipment. In some cases, we lease the equipment in addition to our owned equipment.
No single property is material to our operations.
We believe that our properties are generally in good condition and suitable for our operations; however, we continually look for opportunities to upgrade our operations. We continuously evaluate how to optimize our capital allocation as it relates to our properties.
Item 3. Legal Proceedings
There is no current material pending litigation to which we are a party and no material legal proceedings were terminated, settled or otherwise resolved during the fourth quarter of the year ended December 31, 2023. In the normal course of business, the Company is subject to various regulatory proceedings, lawsuits, claims and other matters related to intellectual property, personal injury, employee, or other matters. These matters are subject to many uncertainties and outcomes are not predictable with assurance. However, we do not believe that the ultimate resolution of these matters will have a material adverse effect on our financial position or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Shares of our Class A common stock, par value $0.01 per share, trade under the symbol “TSQ” on the NYSE. There is no established public trading market for our Class B common stock or our Class C common stock. The initial public offering price for our Class A common stock was $11.00 per share. The following table sets forth, for the periods indicated, the high and low sales price per share of our Class A common stock as reported on the NYSE.
|
| | | | | | | |
| | High | | Low |
| 2016: | | | |
| First quarter | $ | 11.95 |
| | $ | 8.64 |
|
| Second quarter | $ | 11.25 |
| | $ | 7.30 |
|
| Third quarter | $ | 9.84 |
| | $ | 7.65 |
|
| Fourth quarter | $ | 10.62 |
| | $ | 8.12 |
|
| | | | |
| 2017: | | | |
| First quarter | $ | 13.01 |
| | $ | 9.48 |
|
| Second quarter | $ | 12.24 |
| | $ | 9.69 |
|
| Third quarter | $ | 11.63 |
| | $ | 9.49 |
|
| Fourth quarter | $ | 10.50 |
| | $ | 7.00 |
|
Holders
On March 1, 201812, 2024 the Company had 170126 Class A common stockholders 8of record and 4 Class B common stockholders of record. A substantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers and 2 Class C common stockholders.other financial institutions.
Dividend Policy
As
In 2018 the Company paid its first cash dividend of December 31, 2017, we did not pay any$0.075 per share, and paid equivalent dividends on a quarterly basis through the second quarter of 2020. Each quarterly dividend payment was approximately $2.1 million in the aggregate. The final dividend payment was made to shareholders of record as of April 2, 2020 on May 15, 2020. Due to the economic circumstances and uncertainty created by the COVID-19 pandemic, our board of directors determined to cease payment of quarterly cash dividends.dividends following the May 2020 dividend payment. On March 12, 20186, 2023, the Boardboard of Directorsdirectors approved a quarterly dividend of $0.075$0.1875 per share and subsequently paid equivalent dividends in the second, third and fourth quarters of 2023, and the first quarter of 2024. Each quarterly dividend payment was approximately $3 million in the aggregate. On February 28, 2024, the board of directors approved a quarterly dividend of $0.1975 per share. The dividend will be paid to holders of record of our common stock and warrants as of April 2, 2018. The estimated $2.1 million dividend will be paid5, 2024 on May 15, 2018. 1, 2024.
Any future determination to pay dividends will be at the discretion of our Boardboard of Directors,directors, subject to compliance with covenants in our current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our Boardboard of Directorsdirectors deems relevant.
In addition, since we are a holding company, substantially all of the assets shown on our Consolidated Balance Sheets are held by our subsidiaries. Accordingly, our earnings, cash flow and ability to pay dividends largely depend upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us.
Securities Authorized for Issuance Under Equity Compensation Plan
The following table summarizes information, as of December 31, 2017, relating to equity compensation plans of the Company (including individual compensation arrangements) pursuant to which equity securities of the Company are authorized for issuance.
|
| | | | | | |
| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) (c) |
| Equity compensation plans approved by shareholders | | 8,544,225 | | $9.50 | | 3,407,697 |
| Equity compensation plans not approved by shareholders | | N/A | | N/A | | N/A |
| Total | | 8,544,225 | | $9.50 | | 3,407,697 |
Recent Sale of Unregistered Securities
None.
None.
Issuer Purchase of Equity Securities
None.
Performance Graph
OurThere were no repurchases of our common stock began tradingduring the quarter ended December 31, 2023.
Securities Authorized for Issuance under Equity Compensation Plans
For information on the NYSEsecurities authorized for issuance under the symbol “TSQ” on July 24, 2014. Prior to that time, there was no public market for our common stock.Company’s equity compensation plan, see "Item 12 - Security Ownership of Certain Beneficial Owners and Related Stockholder Matters."
The following graph compares total shareholder returns for the period July 24, 2014 (the date our Class A common stock commenced trading on the New York Stock Exchange) through December 31, 2017, to the Standard & Poor’s 500 Stock Index (“S&P 500”), the Russell 2000 Index (“Russell 2000”) and a peer group (“Peer Group”) comprised of radio broadcast and media companies (see note (1) below). The price of the Company’s Class A common stock on July 24, 2014 at its initial public offering (on which the graph is based) was $11.00. The total return calculation set forth below assumes $100 invested on July 24, 2014, with reinvestment of dividends into additional shares of the same class of securities at the frequency with, and in the amounts on, which dividends were paid on such securities through December 31, 2017. The past shareholder return shown on the following graph is not necessarily indicative of future performance.
Comparison of Cumulative Total Return
|
| | | | | | | | | | | |
| | July 24, 2014 | | December 31, 2015 | | December 31, 2016 | | December 31, 2017 |
| Townsquare | 100.00 |
| | 108.73 |
| | 94.64 |
| | 69.82 |
|
| S&P 500 | 100.00 |
| | 105.98 |
| | 118.65 |
| | 144.55 |
|
| Russell 2000 | 100.00 |
| | 100.21 |
| | 121.56 |
| | 139.36 |
|
Peer Group (1) | 100.00 |
| | 55.89 |
| | 75.90 |
| | 59.05 |
|
(1) The Peer Group consists of the following companies: Cumulus Media Inc., Beasley Broadcast Group, Inc., iHeartmedia, Inc. (formerly Clear Channel Holdings, Inc.), Emmis Communications Corporation, Entercom Communications Corp., Radio One, Inc. and Saga Communications, Inc.
Item 6. Selected Financial Data[Reserved]
The following tables set forth our selected historical consolidated financial information for the five years ended December 31, 2017. The selected historical financial data for the years ended December 31, 2015, 2016 and 2017 and as of December 31, 2016 and 2017 have been derived from our audited Consolidated Financial Statements and related notes, which are included elsewhere in this Annual Report on Form 10-K. The selected historical financial data for the years ended December 31, 2013 and 2014 and as of December 31, 2013, 2014 and 2015 have been derived from our audited Consolidated Financial Statements not included in this Annual Report on Form 10-K.
The following selected historical financial information should be read in conjunction with the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the related notes thereto included elsewhere in this Annual Report.
|
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 |
| (in thousands, except per share data) | | | | | | | | | |
| Net revenue | $ | 268,578 |
| | $ | 373,892 |
| | $ | 441,222 |
| | $ | 515,995 |
| | $ | 507,434 |
|
| Operating costs and expenses: | | | | | | | | | |
| Direct operating expenses, excluding depreciation, amortization and stock-based compensation | 187,148 |
| | 253,440 |
| | 317,789 |
| | 383,994 |
| | 384,412 |
|
| Depreciation and amortization | 15,189 |
| | 16,878 |
| | 17,577 |
| | 23,971 |
| | 25,683 |
|
| Corporate expenses | 19,190 |
| | 24,996 |
| | 25,458 |
| | 25,370 |
| | 25,828 |
|
Stock-based compensation (1) | — |
| | 37,739 |
| | 4,278 |
| | 4,253 |
| | 748 |
|
| Transaction costs | 2,001 |
| | 217 |
| | 1,739 |
| | 844 |
| | 1,175 |
|
| Business realignment costs | — |
| | — |
| | — |
| | — |
| | 6,204 |
|
| Goodwill and other intangible impairment charges | — |
| | — |
| | 1,680 |
| | — |
| | 51,848 |
|
| Change in fair value of contingent consideration | (1,100 | ) | | — |
| | — |
| | — |
| | — |
|
| Net (gain) loss on sale and retirement of assets | (36 | ) | | 90 |
| | (12,029 | ) | | 282 |
| | 397 |
|
| Total operating costs and expenses | 222,392 |
| | 333,360 |
| | 356,492 |
| | 438,714 |
| | 496,295 |
|
| Operating income | 46,186 |
| | 40,532 |
| | 84,730 |
| | 77,281 |
| | 11,139 |
|
| | | | | | | | | | |
| Other expense (income): | | | | | | | | | |
| Interest expense, net | 35,620 |
| | 46,502 |
| | 35,979 |
| | 34,072 |
| | 32,753 |
|
| Impairment on investment | — |
| | — |
| | — |
| | 4,236 |
| | — |
|
| Cancellation and (repurchase) of debt | — |
| | — |
| | 30,305 |
| | (546 | ) | | — |
|
| Other expense (income), net | 115 |
| | 111 |
| | 276 |
| | (665 | ) | | 288 |
|
| Income (loss) from continuing operations before income taxes | 10,451 |
| | (6,081 | ) | | 18,170 |
| | 40,184 |
| | (21,902 | ) |
| Provision (benefit) from income taxes | 340 |
| | 10,872 |
| | 7,924 |
| | 16,982 |
| | (13,027 | ) |
| Net income (loss) from continuing operations | 10,111 |
| | (16,953 | ) | | 10,246 |
| | 23,202 |
| | (8,875 | ) |
| Net income (loss) from discontinued operations, net of income taxes | — |
| | — |
| | — |
| | 91 |
| | (1,398 | ) |
| Net income (loss) | $ | 10,111 |
| | $ | (16,953 | ) | | $ | 10,246 |
| | $ | 23,293 |
| | $ | (10,273 | ) |
| Basic income (loss) per share: | | | | | | | | | |
| Continuing operations | * |
| | $ | (1.41 | ) | | $ | 0.58 |
| | $ | 1.28 |
| | $ | (0.48 | ) |
| Discontinued operations | * |
| | — |
| | — |
| | — |
| | (0.08 | ) |
| | | | $ | (1.41 | ) | | $ | 0.58 |
| | $ | 1.28 |
| | $ | (0.56 | ) |
| Diluted income (loss) per share: | | | | | | | | | |
| Continuing operations | * |
| | $ | (1.41 | ) | | $ | 0.37 |
| | $ | 0.85 |
| | $ | (0.48 | ) |
| Discontinued operations | * |
| | — |
| | — |
| | — |
| | (0.08 | ) |
| | | | $ | (1.41 | ) | | $ | 0.37 |
| | $ | 0.85 |
| | (0.56 | ) |
| Pro forma C Corporation data (unaudited) | | | | | | | | | |
| Historical income (loss) before income taxes | $ | 10,451 |
| | $ | (6,081 | ) | | * |
| | * |
| | * |
|
| Pro forma income tax expense (benefit) | 4,118 |
| | (2,396 | ) | | * |
| | * |
| | * |
|
| Pro forma net income (loss) | $ | 6,333 |
| | $ | (3,685 | ) | | * |
| | * |
| | * |
|
| Pro forma net income (loss) per share: | | | | | | | | | |
| Basic | $ | 0.84 |
| | $ | (0.31 | ) | | * |
| | * |
| | * |
|
| Diluted | $ | 0.37 |
| | $ | (0.31 | ) | | * |
| | * |
| | * |
|
| | | | | | | | | | |
| Weighted average shares outstanding: | Pro Forma | | Pro Forma | | Actual | | Actual | | Actual |
| Basic | 7,569 |
| | 12,013 |
| | 17,537 |
| | 18,255 |
| | 18,459 |
|
| Diluted | 17,078 |
| | 12,013 |
| | 27,724 |
| | 27,313 |
| | 18,459 |
|
(1) In connection with the 2014 conversion from a limited liability company to a Delaware corporation, the Company recorded a one-time charge for share-based compensation of $37.6 million.
|
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in thousands, except share and per share data) | 2013 | | 2014 | | 2015 | | 2016 | | 2017 |
| Selected Balance Sheet Data (at end of period): | | | | | | | | | |
| Cash | $ | 45,467 |
| | $ | 24,462 |
| | $ | 33,298 |
| | $ | 51,540 |
| | $ | 65,295 |
|
| Working capital | 58,486 |
| | 39,106 |
| | 41,123 |
| | 57,475 |
| | 65,099 |
|
| Total assets | 939,203 |
| | 937,312 |
| | 1,060,711 |
| | 1,080,705 |
| | 1,056,358 |
|
| Total debt, including current maturities | 653,472 |
| | 530,040 |
| | 588,828 |
| | 571,216 |
| | 565,142 |
|
| Stockholders’ and Members’ equity: | | | | | | | | | |
Class A common stock, par value $0.01 per share; 300,000,000 shares authorized, 9,946,354, 13,735,690 and 13,819,639 shares issued and outstanding at December 31, 2015, 2016 and 2017 | * |
| | 95 |
| | 100 |
| | 137 |
| | 138 |
|
Class B common stock, par value $0.01 per share; 50,000,000 shares authorized, 3,022,484 shares issued and outstanding at December 31, 2015, 2016 and 2017 | * |
| | 30 |
| | 30 |
| | 30 |
| | 30 |
|
Class C common stock, par value $0.01 per share; 50,000,000 shares authorized, 4,894,480, 1,636,341 and 1,636,341 shares issued and outstanding at December 31, 2015, 2016 and 2017 | * |
| | 49 |
| | 49 |
| | 17 |
| | 17 |
|
| Additional paid-in capital | — |
| | 351,984 |
| | 361,186 |
| | 365,434 |
| | 367,041 |
|
| Retained earnings (deficit) | 234,039 |
| | (8,439 | ) | | 1,391 |
| | 24,450 |
| | 13,265 |
|
| Accumulated other comprehensive income (loss) | — |
| | — |
| | 44 |
| | (722 | ) | | (532 | ) |
| Noncontrolling interest | 492 |
| | 443 |
| | 640 |
| | 705 |
| | 1,121 |
|
* Does not apply to the period indicated.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis (“MD&A”) 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 Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K.Report. The following discussion contains forward-looking statements and our actual results could differ materially from those discussed in the forward-looking statements as a result of a number of factors, including those set forth in the sections entitled “Risk Factors” and “Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K.Report.
We use
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 term “Transactions”meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements often discuss our current expectations and projections relating to referour 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 all material acquisitions and divestitures that were completed from January 1, 2015 to December 31, 2017. The Transactions are described in more detail in our Consolidated Financial Statements included elsewhere inhistorical or current facts. See the section of this Annual Report on Form 10-K. We use the term “pro forma” in this section to refer to results that include the Transactions as if they had been completed on January 1, 2015.titled, “Forward-Looking Statements” for further information regarding forward-looking statements.
Discontinued Operations
During the fourth quarter of 2017, we undertook a corporate strategic review of the Company’s operations and concluded the Company should exit certain Entertainment businesses and that two live event verticals, Premium Music and Holiday, would be discontinued. The assets, liabilities and results of operations of these businesses have been reclassified as discontinued operations. Refer to Note 13 in the accompanying Consolidated Financial Statements for additional information.OUR BUSINESS
Format of Presentation
Townsquare is a radio,community-focused digital media entertainment and digital marketing solutions company with market leading local radio stations, principally focused on beingoutside the premier local advertising and marketing solutions platformtop 50 markets in small and mid-sized markets across the United States. Our assets include market leading radio stations, live events, and digital, mobile, video and social media properties.U.S. Our integrated and diversified productproducts and service offerings, which we refer to as Townsquare Everywhere,solutions enable local, regional and national advertisers to target audience engagementaudiences across multiple platforms, including on-air,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 and at live events. We believe our reputation management as well as other monthly digital services for approximately 24,000 small to medium sized businesses; a robust digital advertising division (“Townsquare Everywhere capabilities, 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.
Our discussion is presented on bothIgnite,” or “Ignite”), a consolidated and segment basis. We have two reportable segments, Local Marketing Solutions, which provides broadcast and digital products and solutions to advertisers and businesses within our local markets, and Entertainment, which provides live event experiences and music and lifestyle content directly to consumers, and promotion, advertising and product activations to local and national advertisers.
Local Marketing Solutions
Our Local Marketing Solutions segment is composedpowerful combination of 317(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 350 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.comand over 325NJ101.5.com, and premier national music brands such as XXLmag.com, TasteofCountry.com, UltimateClassicRock.com, and Loudwire.com.
Our primary sources of net revenue are the sale of digital and broadcast advertising solutions on our owned and operated local websites serving 67 small and mid-sized markets, a digital marketing solutions company, a digital programmatic advertising platform and an e-commerce product offering. Almost all of our radio stations have local companion websites that utilize the station brands and are populated with original content created or curated by our local media personalities.
Our primary source of Local Marketing Solutions net revenue is the sale of advertising on our radio stations, local companion websites, radio stations’ online streams and mobile applications. applications, and on third party websites through our in-house digital programmatic advertising platform. Through our digital programmatic advertising platform, we are able to hyper-target audiences for our local, regional and national advertisers by combining first and third party audience and geographic location data, providing them the ability to reach a high percentage of their online audience. We deliver these solutions across desktop, mobile, connected TV, email, paid search and social media platforms utilizing display, video and native executions. We also offer subscription digital marketing solutions through Townsquare Interactive to small and medium-sized local and regional businesses in markets outside the top 50 across the United States, including, but not limited to the markets in which we operate radio stations. Our digital marketing solutions include traditional and mobile-enabled website development and hosting services, e-commerce platforms, search engine and online directory optimization services, online reputation monitoring and social media management.
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 original, local content on our websites, and the employment of local personalities on our radio stations contribute to our ability to retain and grow our audience.In addition, we believe that the diversification of formats on our radio stations and websites helps to insulate our radio stations and websiteslocal media assets from the effects of changes in musical tastes of the public with respect to any particular format. We believe that
Advertising revenue is highly correlated to changes in gross domestic product (“GDP”) as dollars spent on advertising has historically trended in line with, and in our experience often lags, changes in GDP. According to the saleU.S. Department of our online and mobile advertisements, which currently have rates per advertisement that are less than thoseCommerce estimate as of terrestrial radio advertisements, has not negatively impacted our terrestrial radioJanuary 25, 2024, U.S. GDP increased 2.5% for the year ended December 31, 2023.
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.
Within our Local Marketing Solutions segment we offer 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 the markets in which we operate radio stations. Our digital marketing solutions, offered under the brand name Townsquare Interactive, include traditional and mobile-enabled website development and hosting services, e-commerce platforms, search engine and online directory optimization services, online reputation management and social media management.
We strive to maximize Local Marketing Solutionsour net revenue by managing our digital and broadcast advertising inventory time and adjusting prices based on supply and demand and by broadening our base of advertisers and subscribers. Our selling and pricing activity is based on 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, and 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 local 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.
In addition, we offer precision customer targetingdigital and broadcast solutions to advertisers through Townsquare Ignite, our digital programmatic advertising platform. Combining firsthelp clients grow their business 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 ofachieve 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.goals.
Our Local Marketing Solutionsadvertising 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. Barter revenue was $16.4 million, $24.4 million and $27.7 million for the years ended December 31, 2015, 2016 and 2017, respectively. Barter expense was $14.2 million, $14.7 million and $15.9 million for the years ended December 31, 2015, 2016 and 2017, respectively.
Other sources of revenue within our Local Marketing Solutions segment include tower and other miscellaneous revenue. We generate revenue from leasing space on our owned tower facilities to communications companies and local authorities, as well as from other miscellaneous revenue sources. As a result of the September 1, 2015 sale of 43 towers (see Note 5 of the Notes to the Consolidated Financial Statements), tower lease revenue is no longer a significant contributor to other revenue.
Our most significant Local Marketing Solutions 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 Local Marketing Solutions 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.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.
Entertainment
Our Entertainment segment is composed of a diverse range of live events, which we create, promote and produce. This includes festivals, fairs, concerts, expositions and other experiential events within and beyond our markets. It is also composed of music and lifestyle content that is distributed through our owned, operated and affiliated national websites.
Our primary source of Entertainment net revenue is from ticket sales for our live events. Our live events also generate substantial net revenue throughbusiness enjoys strong cash flow generation owing to the sale of sponsorships, ride tickets, 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 Entertainment 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.
Another source of Entertainment net revenue is national digital advertising, primarily display advertisements on our owned and operated music and entertainment websites. Our national digital assets are subject to general advertising trends as well as advertisers’ perception and demand for our products. A downturn in advertising spending or the economy could have an adverse effect on this net revenue.
Certain expenses in our Entertainment segment are variable, including sales commissions, certain costs related to production and certain revenue sharing agreements with partners. A portionrelatively limited capital needs of our revenue and expenses related to our NAME operations are denominated in Canadian dollars and expose us to translational foreign currency risk. We have not historically hedged our exposure to this risk.
Seasonality
Our net revenue varies throughout the year. 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, and the second and third calendar quarters will generally produce the highest net revenue for the year.operations. 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. In addition to advertising revenue seasonality, our Entertainment net revenue exhibits seasonality resulting in the third quarter being the highest revenue period, followed by the second, then fourth, then first quarter. Large drivers of this seasonality are our multi-day music festivals and NAME’s revenue which is concentrated in the third 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
Our advertising revenue for our businesses is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with, and in our experience often lags, changes in GDP. According to the U.S. Department of Commerce estimate as of February 28, 2018, U.S. GDP growth for the year ended December 31, 2017 was 2.3%.2023, we recorded $15.0 million of capital expenditures, which represented 3.3% of net revenue during the same period. In addition, we benefit from certain tax attributes that generate tax deductions which have historically limited the amount of cash taxes we pay.
Emerging Growth
OVERVIEW OF OUR PERFORMANCE
Changes in our Business
Acquisition of Cherry Creek
On June 17, 2022, the Company acquired Cherry Creek Broadcasting LLC (“Cherry Creek”) for a total cash purchase price of $18.5 million, net of closing adjustments. The results of Cherry Creek's operations have been included in our 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 the Consolidated Financial Statements.
Macroeconomic Indicators
Current economic challenges, including high and sustained inflation and interest rates have caused and could continue to cause economic uncertainty and volatility. These factors could result in advertising and subscription digital marketing solutions cancellations, declines in the purchase of new advertising by our clients, declines in the addition of new digital marketing solutions subscribers, and increases to our operating expenses. We monitor economic conditions closely, and in response to observed or anticipated reductions in revenue, we may institute precautionary measures to address the potential impact to our consolidated financial position, consolidated results of operations, and liquidity, including wage reduction efforts and controlling non-essential capital expenditures.
The Company is an “emerging growth company,” as definedextent of the impact of current economic conditions will depend on future actions and outcomes, all of which remain fluid and cannot be predicted with confidence (including effects on advertising activity, consumer discretionary spending and our employees in the JOBS Act, and may take advantagemarkets in which we operate).
Highlights of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements of Sections 14A(a) and (b) of the Securities Exchange Act to hold a non-binding advisory vote of stockholders on executive compensation and any golden parachute payments not previously approved.Our Financial Performance
Executive Summary
TheCertain key financial developments in our business for the year ended December 31, 20172023 as compared to 20162022 are summarized below:
| |
▪ | 2017 net revenue decreased $8.6 million, or 1.7%. |
| |
▪ | Local Marketing Solutions net revenue increased $6.5 million, or 1.9%. |
| |
▪ | Entertainment net revenue decreased $15.0 million, or 8.6%. |
•Excluding revenue related to political advertising of $2.9 million and $7.5 million for the years ended December 31, 2023 and 2022, respectively, net revenue decreased $4.2 million, or 0.9% to $451.3 million. Broadcast Advertising net revenue decreased $7.8 million, or 3.6%, to $209.0 million and Digital Advertising net revenue increased $10.2 million, or 7.3%, to $150.1 million.
•Operating income decreased $74.7 million to an operating loss of $19.1 million for the year ended December 31, 2023, as compared to operating income of $55.6 million for the year ended December 31, 2022. Operating income decreased due to an increase in total non-cash impairment charges of $59.5 million, the $8.8 million decrease in net revenue as discussed above, an increase in stock-based compensation of $4.2 million and an increase in direct operating expenses of $4.3 million. These increases were partially offset by a $3.3 million decrease in transaction and business realignment costs.
•Our Broadcast Advertising segment reported an operating loss of $33.8 million, compared to operating income of $27.6 million for the year ended December 31, 2022, due to an increase in total non-cash impairment charges of $47.5 million and the $12.2 million decrease in net revenue. Our Subscription Digital Marketing Solutions segment reported operating income of $21.3 million, a decrease of $3.0 million from 2022, due to the $8.2 million decrease in net revenue, partially offset by a $5.3 million decrease in direct operating expenses. Our Digital Advertising segment reported operating income of $44.9 million, an increase of $2.8 million from 2022, due to the $9.9 million increase in net revenues, partially offset by a $6.7 million increase in direct operating expenses.
Consolidated Results of Operations
Year Endedended December 31, 2016 2023compared to Year Endedyear ended December 31, 20172022
The following table summarizes our historical consolidated results of operations:
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | |
| ($ in thousands) | 2016 | | 2017 | | $ Change | | % Change |
| Statement of Operations Data: | | | | | | | |
| Local Marketing Solutions net revenue | $ | 342,191 |
| | $ | 348,660 |
| | $ | 6,469 |
| | 1.9 | % |
| Entertainment net revenue | 173,804 |
| | 158,774 |
| | (15,030 | ) | | (8.6 | )% |
| Net revenue | 515,995 |
| | 507,434 |
| | (8,561 | ) | | (1.7 | )% |
| Operating costs and expenses: | | | | | | | |
| Local Marketing Solutions direct operating expenses | 223,286 |
| | 234,524 |
| | 11,238 |
| | 5.0 | % |
| Entertainment direct operating expenses | 160,708 |
| | 149,888 |
| | (10,820 | ) | | (6.7 | )% |
| Direct operating expenses, excluding depreciation, amortization and stock-based compensation | 383,994 |
| | 384,412 |
| | 418 |
| | 0.1 | % |
| Depreciation and amortization | 23,971 |
| | 25,683 |
| | 1,712 |
| | 7.1 | % |
| Corporate expenses | 25,370 |
| | 25,828 |
| | 458 |
| | 1.8 | % |
| Stock-based compensation | 4,253 |
| | 748 |
| | (3,505 | ) | | (82.4 | )% |
| Transaction costs | 844 |
| | 1,175 |
| | 331 |
| | 39.2 | % |
| Business realignment costs | — |
| | 6,204 |
| | 6,204 |
| | 100 | % |
| Goodwill and other intangible impairment charges | — |
| | 51,848 |
| | 51,848 |
| | 100 | % |
| Net loss on sale and retirement of assets | 282 |
| | 397 |
| | 115 |
| | 40.8 | % |
| Total operating costs and expenses | 438,714 |
| | 496,295 |
| | 57,581 |
| | 13.1 | % |
| Operating income | 77,281 |
| | 11,139 |
| | (66,142 | ) | | (85.6 | )% |
| Other expense (income): | | | | | | | |
| Interest expense, net | 34,072 |
| | 32,753 |
| | (1,319 | ) | | (3.9 | )% |
| Impairment on investment | 4,236 |
| | — |
| | (4,236 | ) | | (100 | )% |
| Repurchase of debt | (546 | ) | | — |
| | 546 |
| | 100 | % |
| Other (income) expense, net | (665 | ) | | 288 |
| | 953 |
| | (143.3 | )% |
| Total other expense | 37,097 |
| | 33,041 |
| | (4,056 | ) | | (10.9 | )% |
| Income (loss) from continuing operations before income taxes | 40,184 |
| | (21,902 | ) | | (62,086 | ) | | (154.5 | )% |
| Provision (benefit) from income taxes | 16,982 |
| | (13,027 | ) | | (30,009 | ) | | (176.7 | )% |
| Net income (loss) from continuing operations | 23,202 |
| | (8,875 | ) | | (32,077 | ) | | (138.3 | )% |
| Net income (loss) from discontinued operations, net of income taxes | 91 |
| | (1,398 | ) | | (1,489 | ) | | ** |
|
| Net income (loss) | $ | 23,293 |
| | $ | (10,273 | ) | | $ | (33,566 | ) | | (144.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | Year Ended December 31, | | | | |
| Statement of Operations Data: | 2023 | | 2022 | | $ Change | | % Change |
| | | | | | | |
| Net revenue | $ | 454,231 | | | $ | 463,077 | | | $ | (8,846) | | | (1.9) | % |
| | | | | | | |
| Operating costs and expenses: | | | | | | | |
| Direct operating expenses, excluding depreciation, amortization, and stock-based compensation | 329,197 | | | 324,931 | | | 4,266 | | | 1.3 | % |
| Depreciation and amortization | 19,200 | | | 19,044 | | | 156 | | | 0.8 | % |
| Corporate expenses | 25,023 | | | 24,428 | | | 595 | | | 2.4 | % |
| Stock-based compensation | 8,033 | | | 3,797 | | | 4,236 | | | 111.6 | % |
| Transaction and business realignment costs | 1,169 | | | 4,448 | | | (3,279) | | | (73.7) | % |
| | | | | | | |
| | | | | | | |
| Impairment of intangible assets, investments, goodwill, and long-lived assets | 90,578 | | | 31,114 | | | 59,464 | | | 191.1 | % |
| | | | | | | |
| Net loss (gain) on sale and retirement of assets | 170 | | | (275) | | | 445 | | | ** |
| Total operating costs and expenses | 473,370 | | | 407,487 | | | 65,883 | | | 16.2 | % |
| Operating (loss) income | (19,139) | | | 55,590 | | | (74,729) | | | (134.4) | % |
| | | | | | | |
| Other expense (income): | | | | | | | |
| Interest expense, net | 37,249 | | | 39,828 | | | (2,579) | | | (6.5) | % |
| | | | | | | |
| Gain on repurchases of debt | (1,249) | | | (108) | | | (1,141) | | | ** |
| Other (income) expense, net | (5,975) | | | 2,044 | | | (8,019) | | | ** |
| (Loss) income from operations before tax | (49,164) | | | 13,826 | | | (62,990) | | | (455.6) | % |
| Income tax benefit | (6,142) | | | (564) | | | (5,578) | | | ** |
| | | | | | | |
| | | | | | | |
| Net (loss) income | $ | (43,022) | | | $ | 14,390 | | | $ | (57,412) | | | (399.0) | % |
**Percent change not meaningful.
Segment Results
The following table presents the Company's reportable segment net revenue and direct operating expenses for each of the years ended December 31, 2023 and 2022, respectively (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Revenue | | Direct Operating Expenses | | | | | |
| For the Year Ended
December 31, | | | | | | For the Year Ended
December 31, | | | | | | | | | |
| 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | | | | | |
| Subscription Digital Marketing Solutions | $ | 82,220 | | | $ | 90,402 | | | $ | (8,182) | | | (9.1) | % | | $ | 58,973 | | | $ | 64,282 | | | $ | (5,309) | | | (8.3) | % | | | | | |
| Digital Advertising | 150,276 | | | 140,355 | | | 9,921 | | | 7.1 | % | | 104,381 | | | 97,661 | | | 6,720 | | | 6.9 | % | | | | | |
| Broadcast Advertising | 211,725 | | | 223,879 | | | (12,154) | | | (5.4) | % | | 156,056 | | | 155,355 | | | 701 | | | 0.5 | % | | | | | |
| Other | 10,010 | | | 8,441 | | | 1,569 | | | 18.6 | % | | 9,787 | | | 7,633 | | | 2,154 | | | 28.2 | % | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total | $ | 454,231 | | | $ | 463,077 | | | $ | (8,846) | | | (1.9) | % | | $ | 329,197 | | | $ | 324,931 | | | $ | 4,266 | | | 1.3 | % | | | | | |
Net Revenue
Net revenue for the year ended December 31, 20172023 decreased by $8.6 million, or 1.7%, as compared to 2016. The decrease was driven primarily by a decrease in Entertainment net revenue of $15.0 million partially offset by an increase in Local Marketing Solutions net revenue of $6.5 million.
Local Marketing Solutions net revenue for the year ended December 31, 2017 increased $6.5$8.8 million, or 1.9%, as compared to 2016. The increase was driven by an increasethe same period in non-political2022. Our Broadcast Advertising net revenue decreased $12.2 million, or 5.4%, due to decreases in the purchases of $13.1 million partially offsetadvertising by a decrease in politicalour clients. Our Subscription Digital Marketing Solutions net revenue of $6.6 million.
Entertainment net revenue fordecreased $8.2 million, or 9.1% as compared to the year ended December 31, 2017 decreased $15.02022, due to a reduction of net subscribers. These
decreases were partially offset by a $9.9 million, or 8.6%7.1%, as compared to 2016. The decrease was a result of revenue declinesincrease in our national digital businessDigital Advertising net revenue due to purchases of new advertising and certaina $1.6 million, or 18.6%, increase in our Other net revenue due to an increase in live events.events held during 2023.
Direct Operating Expenses
Direct operating expenses for the year ended December 31, 20172023 increased by $0.4$4.3 million, or 0.1%1.3%, aswhen compared to 2016. The increase waswith the same period in 2022. Our Digital Advertising direct operating expenses increased $6.7 million, or 6.9%, primarily driven by higher inventory costs and headcount related expenses to support revenue growth. Other direct operating expense increased $2.2 million, or 28.2%, due to an increase in Locallive events held during 2023. Our Subscription Digital Marketing Solutions direct operating expenses of $11.2decreased $5.3 million, partially offsetor 8.3%, as compared to the same period in 2022. The decrease was primarily driven by a decrease in Entertainment direct operating expenses of $10.8 million.
Local Marketing Solutionslower compensation and sales expenses. Our Broadcast Advertising direct operating expenses for the year ended December 31, 20172023 increased $11.2$0.7 million, or 5.0%0.5%, as compared to 2016. The increase was primarily a result of higher costs in headcount-related expenses including salaries, sales commissions and benefits, to support growth within our digital businesses.2022.
Entertainment direct operating expenses for the year ended December 31, 2017 decreased $10.8 million, or 6.7%, as compared to 2016. This decrease was primarily related to a decrease in variable costs associated with the aforementioned revenue declines, partially offset by higher costs at our NAME business.
Depreciation and Amortization
Depreciation and amortization expense for the year ended December 31, 2017 increased $1.7 million, or 7.1%, as compared to 2016 primarily related to an increase in amortization of capitalized software development costs.
Corporate Expenses
Corporate expenses for the year ended December 31, 2017 increased $0.5 million, or 1.8%, as compared to 2016 primarily related to additional installation and training costs related to the transition of our local traffic and billing system.
Stock-based Compensation
Stock-based compensation expense for the year ended December 31, 2017 decreased $3.52023 increased $4.2 million, or 111.6%, as compared to 2016. The decrease primarily relatesthe same period in 2022, due to a one-time $3.4 million stock option repricing expense ingrants during the fourth quarter of 2016 that was not repeated2022 and the first quarter of 2023. For further discussion, see Note 11, Stockholders' Equity, in 2017.the Notes to the Consolidated Financial Statements.
Transaction and Business Realignment Costs
Transaction and business realignment costs for the year ended December 31, 2017 were $1.22023 decreased $3.3 million, or 73.7%, as compared to $0.8 million in 2016.
Business Realignment Costs2022, primarily due to the Cherry Creek acquisition during 2022.
Business realignment costs
Impairment of $6.2 million in 2017 represent the costs associated with discontinuing two music festivals and streamlining the operations of our national digital business and certain live event verticals.
Intangible Assets, Investments, Goodwill and Other Intangible Impairment ChargesLong-Lived Assets
Based on the results of the Company’s 2017 annual impairment evaluations, the
The Company recorded total impairment charges aggregating $51.8 million. Forof $90.6 million related to intangible assets, investments, goodwill, and long-lived assets during the year ended December 31, 2017, $48.92023. We recorded total impairment charges of $70.9 million of the impairment pertained to goodwill in our Entertainment segment, which was recorded in connection with our strategic review and restructuring of that segment, and $2.9 million of the impairment pertainedrelated to FCC licenses in 36 of our Rochester and Wichita Falls markets. No such impairment was recorded in 2016.
Net Loss on Sale and Retirement of Assets
Net loss on sale and retirement of assets for74 local markets during the year ended December 31, 2017, increased $0.1 million,2023, as compared to 2016.$26.1 million of impairment charges related to FCC licenses in nine of our 74 local markets during the year ended December 31, 2022. The net lossimpairment charges were primarily driven by an increase in 2017 primarily relatesthe discount rate applied in the valuation of our FCC licenses due to retirementan increase in the weighted average cost of certain assets. The net losscapital, decreases in 2016third-party forecasts of broadcast revenues and an increase in the estimate of initial capital costs due to rising prices.
Unfavorable changes in key assumptions utilized in the impairment assessment of our FCC licenses may affect future testing results. For example, keeping all other assumptions constant, a 50-basis point increase in the weighted average cost of capital as of the date of our last quantitative assessment performed as of December 31, 2023 would have caused the estimated fair values of our FCC licenses to decrease by $13.0 million which would have resulted in an additional impairment charge of $9.9 million. Further, a 100-basis point decline in the long-term revenue growth rate would cause the estimated fair values of our FCC licenses to further decrease by $17.1 million which would have resulted in a further impairment charge of $14.0 million as of December 31, 2023. Assumptions used to estimate the fair value of our FCC licenses are also dependent upon the expected performance and growth of our traditional broadcast operations. In the event broadcast revenue experiences actual or anticipated declines, such declines will have a negative impact on the estimated fair value of our FCC licenses, and the Company could recognize additional impairment charges, which could be material.
During the fourth quarter of 2023, the Company revised its near-term revenue and operating margin expectations for the Live Events reporting unit in consideration of the performance of events during the period. As a result, the Company determined that the fair value of the Live Events reporting unit was primarily comprisedless than its carrying amount resulting in the recognition of a $1.0non-cash goodwill impairment charge of $1.4 million.
During the third quarter of 2023, in connection with an interim goodwill impairment assessment, the Company concluded that the carrying amount of the Local Advertising reporting unit exceeded its fair value, resulting in the
recognition of a non-cash goodwill impairment charge of $2.8 million. An interim impairment assessment was considered necessary as a result of declines in traditional broadcast revenue and an increase in the weighted average cost of capital. Following the non-cash goodwill impairment charge, the Local Advertising reporting unit had no remaining goodwill.
Unfavorable changes in certain key assumptions utilized in determining the fair values of each of our reporting units, may affect future testing results. For example, keeping all other assumptions constant, a 100-basis point increase in the weighted average cost of capital assumption for each of our reporting units would cause the estimated fair values of our National Digital, Townsquare Ignite, Analytical Service, Townsquare Interactive and Live Events reporting units to decline, resulting in a decrease in the fair value in excess of their respective carrying values by approximately 6%, 5%, 8%, 9%, and 4%, respectively. Further, keeping all other assumptions constant, a 10% decline in the estimated fair value of each reporting unit, due to other changes in assumptions, including forecasted future cash flows, would have resulted in an incremental goodwill impairment charge of approximately $0.3 million loss onfor the sale of certain live events, which was partially offset by a $0.8 million gain from an earnout payment relatedLive Events reporting unit.
For further discussion, see Note 6, Goodwill and Other Intangible Assets in the Notes to the sale of certain towers.Consolidated Financial Statements.
Impairment on Investment
During the year ended December 31, 2016, there was objective evidence2023, the Company recorded an impairment charge of $14.5 million related to indicate certain events had adversely impacted estimated future cash flows forof its equity securities, which are measured at cost minus impairment. The Company recorded an impairment charge of $1.2 million related to one of our investments and as a result we recorded a $4.2 million impairment charge forduring the year ended December 31, 2016. No such2022. For further discussion, see Note 7, Investments, in the Notes to Consolidated Financial Statements.
We recorded $2.9 million in impairment was recorded in 2017.
Other Expense (Income)
Interest expense, net is the major recurring component of other expense (income). Interest expense, net decreased $1.3 million, or 3.9%, inlosses during the year ended December 31, 2017 as compared to 2016. This decrease was primarily2022 due to changes in the repayment of debt in 2016 and 2017, and a decrease in interest rate as a resultfair value of the repricing of our Term LoansCompany's digital assets. For further discussion, see Note 6, Goodwill and Other Intangible Assets in 2017.the Notes to Consolidated Financial Statements.
Interest Expense, net
The following table illustrates the components of our interest expense, net for the periods indicated.indicated (in thousands):
| | | | | | | | | | | |
| Year Ended
December 31, |
| 2023 | | 2022 |
| 2026 Notes | $ | 35,534 | | | $ | 36,999 | |
| | | |
| | | |
| | | |
| Capital leases and other | 1,350 | | | 1,140 | |
| Deferred financing costs | 2,086 | | | 1,879 | |
| Interest income | (1,721) | | | (190) | |
| Interest expense, net | $ | 37,249 | | | $ | 39,828 | |
Gain on Repurchase of Debt
During the year ended December 31, 2023, the Company voluntarily repurchased an aggregate $27.1 million principal amount of its 2026 Notes at or below par, plus accrued interest. The Company wrote-off approximately $0.3 million of unamortized deferred financing costs, recognizing a total net gain of $1.2 million in connection with the voluntary repurchases of its 2026 Notes. The repurchased notes were canceled by the Company.
Other (Income) Expense, Net
Realized Gain on Investment
|
| | | | | | | |
| | Year Ended December 31, |
| (in thousands) | 2016 | | 2017 |
| Unsecured Senior Notes | $ | 18,836 |
| | $ | 18,199 |
|
| Term Loans | 13,238 |
| | 12,816 |
|
| Capital leases and other | 42 |
| | 9 |
|
| Loan origination cost | 1,956 |
| | 1,729 |
|
| Interest expense, net | $ | 34,072 |
| | $ | 32,753 |
|
Provision (Benefit)
Sale of Digital Assets
During the year ended December 31, 2023, the Company sold its digital assets with a carrying value of $2.1 million, recognizing a gain on the sale of $0.8 million. For further discussion, see Note 6, Goodwill and Other Intangible Assets in the Notes to Consolidated Financial Statements.
Unrealized Loss on Investment
Other (income) expense, net includes unrealized losses related to measuring the fair value of one of the Company's investees. During the year ended December 31, 2023, the Company recorded a total unrealized net loss of $0.4 million, as compared to $2.1 million during 2022. See Note 7, Investments, in our Notes to Consolidated Financial Statements for further discussion related to this investment.
Benefit from Income Taxesincome taxes
The
We recognized an income tax benefit of $6.1 million for the year ended December 31, 2017 was $13.02023 as compared to $0.6 million at anfor the same period in 2022. Our effective tax rate ofwas approximately 59.5% compared to an income tax provision of $17.0 million at an effective tax rate of approximately 42.2%12.5% for the year ended December 31, 2016. 2023 as compared to (4.1)% for the year ended December 31, 2022. The increase in the effective tax rate is primarily driven by an increase in the valuation allowance for interest expense carryforward.
Our effective tax rate may vary significantly from yearperiod to year and can be influenced by many factors. These factors include, but are not limited to, changes to statutory rates in the jurisdictions where we have operations, certain expenses that are not deductible for tax purposes and changes in the valuation of deferred tax assets and liabilities. The effective tax rate for the year ended December 31, 2017 reflects a $19.1 million benefit primarily due to a change in the federal tax rate from 35% to 21% under the Tax Cuts and Jobs Act and a $13.9 million expense for nondeductible goodwill impairment. The difference between the effective tax rate and the federal statutory rate of 35% for the year ended December 31, 2017 primarily relates to state, local and foreign income taxes.
Net income (loss) from Discontinued Operations, net of income taxes
During the year ended December 31, 2017, we discontinued the operations of two live event verticals, Premium Music and Holiday. The operations and related expenses of these verticals are presented as net income (loss) from discontinued operations. Net income from discontinued operations was $0.1 million for the year ended December 31, 2016 and a net loss of $1.4 million for the year ended December 31, 2017.
Year Ended December 31, 2015 compared to Year Ended December 31, 2016
The following table summarizes our historical consolidated results of operations:
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | |
| ($ in thousands) | 2015 | | 2016 | | $ Change | | % Change |
| Statement of Operations Data: | | | | | | | |
| Local Marketing Solutions net revenue | $ | 326,646 |
| | $ | 342,191 |
| | $ | 15,545 |
| | 4.8 | % |
| Entertainment net revenue | 114,576 |
| | 173,804 |
| | 59,228 |
| | 51.7 | % |
| Net revenue | 441,222 |
| | 515,995 |
| | 74,773 |
| | 16.9 | % |
| Operating costs and expenses: | | | | | | | |
| Local Marketing Solutions direct operating expenses | 212,110 |
| | 223,286 |
| | 11,176 |
| | 5.3 | % |
| Entertainment direct operating expenses | 105,679 |
| | 160,708 |
| | 55,029 |
| | 52.1 | % |
| Direct operating expenses, excluding depreciation, amortization and stock-based compensation | 317,789 |
| | 383,994 |
| | 66,205 |
| | 20.8 | % |
| Depreciation and amortization | 17,577 |
| | 23,971 |
| | 6,394 |
| | 36.4 | % |
| Corporate expenses | 25,458 |
| | 25,370 |
| | (88 | ) | | (0.3 | )% |
| Stock-based compensation | 4,278 |
| | 4,253 |
| | (25 | ) | | (0.6 | )% |
| Transaction costs | 1,739 |
| | 844 |
| | (895 | ) | | (51.5 | )% |
| Goodwill and other intangible impairment charges | 1,680 |
| | — |
| | (1,680 | ) | | (100 | )% |
| Net (gain) loss on sale and retirement of assets | (12,029 | ) | | 282 |
| | 12,311 |
| | ** |
|
| Total operating costs and expenses | 356,492 |
| | 438,714 |
| | 82,222 |
| | 23.1 | % |
| Operating income | 84,730 |
| | 77,281 |
| | (7,449 | ) | | (8.8 | )% |
| Other expense (income): | | | | | | | |
| Interest expense, net | 35,979 |
| | 34,072 |
| | (1,907 | ) | | (5.3 | )% |
| Impairment on investment | — |
| | 4,236 |
| | 4,236 |
| | ** |
|
| Cancellation and (repurchase) of debt | 30,305 |
| | (546 | ) | | (30,851 | ) | | ** |
|
| Other expense (income), net | 276 |
| | (665 | ) | | (941 | ) | | ** |
|
| Total other expense | 66,560 |
| | 37,097 |
| | (29,463 | ) | | (44.3 | )% |
| Income from continuing operations before income taxes | 18,170 |
| | 40,184 |
| | 22,014 |
| | 121.2 | % |
| Provision for income taxes | 7,924 |
| | 16,982 |
| | 9,058 |
| | 114.3 | % |
| Net income from continuing operations | 10,246 |
| | 23,202 |
| | 12,956 |
| | 126.4 | % |
| Net income from discontinued operations, net of income taxes | — |
| | 91 |
| | 91 |
| | ** |
|
| Net income | $ | 10,246 |
| | $ | 23,293 |
| | $ | 13,047 |
| | 127.3 | % |
**Percent change not meaningful.
Net Revenue
Net revenue for the year ended December 31, 2016 increased by $74.8 million, or 16.9%, as compared to 2015. The increase was driven by increases in Local Marketing Solutions net revenue of $15.5 million and Entertainment net revenue of $59.2 million.
Local Marketing Solutions net revenue for the year ended December 31, 2016 increased $15.5 million or 4.8%, as compared to 2015. The increase was driven by an increase in political net revenue of $6.1 million and non-political net revenue of $9.4 million.
Entertainment net revenue for the year ended December 31, 2016 increased $59.2 million or 51.7%, as compared to 2015. The increase was driven by $63.1 million of growth from the acquisition of NAME on September 1, 2015, including its subsequent performance from the date of acquisition, offset by a decrease of $3.9 million from our existing business.
Direct Operating Expenses
Direct operating expenses for the year ended December 31, 2016 increased by $66.2 million, or 20.8%, as compared to 2015. The increase was driven by increases in Local Marketing Solutions direct operating expenses of $11.2 million and Entertainment direct operating expenses of $55.0 million.
Local Marketing Solutions direct operating expenses for the year ended December 31, 2016 increased $11.2 million, or 5.3%, as compared to 2015. The increase was primarily a result of (i) higher costs in headcount-related expenses including salaries and benefits, to support the growth of our digital marketing solutions offering and (ii) increases in costs associated with a new product which launched in the second half of 2015.
Entertainment direct operating expenses for the year ended December 31, 2016 increased $55.0 million, or 52.1%, as compared to 2015. The increase in Entertainment direct operating expenses was primarily related to NAME, which we acquired on September 1, 2015.
Depreciation and Amortization
Depreciation and amortization expense for the year ended December 31, 2016 increased $6.4 million, or 36.4%, as compared to 2015 primarily related to depreciation on property and equipment acquired through the acquisition of NAME and amortization of capitalized software development costs.
Corporate Expenses
Corporate expenses were approximately flat for the year ended December 31, 2016 as compared to 2015.
Stock-based Compensation
Stock-based compensation expense was approximately flat for the year ended December 31, 2016 as compared to 2015. The stock-based compensation expense in 2016 was related to (i) the grant of stock options in the first quarter that vest over a period, of four years and (ii) a one-time $3.4 million stock option repricing expense in the fourth quarter. The stock-based compensation expense in 2015 was related to a stock option grant that provided for immediate vesting.
Transaction Costs
Transaction costs for the year ended December 31, 2016 were $0.8 million as compared to $1.7 million in 2015. The fluctuation in transaction costs primarily relates to costs associated with the NAME acquisition, which closed on September 1, 2015.
Goodwill and Other Intangible Impairment Charges
Based on the results of the Company’s 2015 annual impairment evaluations, the Company recorded impairment charges aggregating $1.7 million pertaining to FCC licenses in our Quad Cities and Grand Junction markets in the year ended December 31, 2015. No such impairment was recorded in 2016.
Net (Gain) Loss on Sale and Retirement of Assets
Net (gain) loss on sale and retirement of assets for the year ended December 31, 2016, increased $12.3 million, as compared to 2015. The net gain in 2015 primarily resulted from the Tower Sale. The net loss in 2016 was primarily composed of a $1.0 million loss on the sale of certain live events, which was partially offset by a $0.8 million gain from earn-out payments related to the Tower Sale.
Impairment on Investment
During the year ended December 31, 2016, there was objective evidence to indicate certain events had adversely impacted estimated future cash flows for one of our investments and as a result we recorded a $4.2 million impairment charge for the year ended December 31, 2016. No such impairment was recorded in 2015.
Other Expense (Income)
Interest expense, net is the major recurring component of other expense (income). Interest expense, net decreased $1.9 million, or 5.3%, in the year ended December 31, 2016 as compared to 2015, primarily due to the refinancing of our outstanding indebtedness at more favorable rates on April 1, 2015, and the repayment of debt in 2016.
On April 1, 2015, the Company issued $300.0 million of 6.5% Unsecured Senior Notes due in 2023 (the "2023 Notes") and entered into a Senior Secured Credit Facility, including a seven year, $275.0 million term loan facility (the "Term Loans") and a five year, $50.0 million revolving credit facility (the "Revolver" and together with the Term Loans, the "Senior Secured Credit Facility"). The proceeds from the 2023 Notes and Term Loans were used to repay substantially all of our previous long-term borrowings. We recognized a $30.0 million net loss on debt extinguishment in connection with these repayments. See "Liquidity and Capital Resources" for information on the recent repricing of our Senior Secured Credit Facility.
The following table illustrates the components of our interest expense, net for the periods indicated.
|
| | | | | | | |
| | Year Ended December 31, |
| (in thousands) | 2015 | | 2016 |
| Unsecured Senior Notes | $ | 23,447 |
| | $ | 18,836 |
|
| Term Loans | 10,757 |
| | 13,238 |
|
| Capital leases and other | 55 |
| | 42 |
|
| Loan origination cost | 1,720 |
| | 1,956 |
|
| Interest expense, net | $ | 35,979 |
| | $ | 34,072 |
|
Provision for Income Taxes
The income tax provision for the year ended December 31, 2016 was $17.0 million at an effective tax rate of approximately 42.2% compared to $7.9 million at an effective tax rate of approximately 43.6% for the year ended December 31, 2015. Our effective tax rate may vary significantly from year to year, and can be influenced by many factors. These factors include, but are not limited to, changes to statutory rates in the jurisdictions where we have operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 35%21%, primarily relates to certain non-deductible items, state and local income taxes, and the valuation allowance for deferred tax assets.
Liquidity and Capital Resources
| | | | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| (in thousands) | | 2023 | | 2022 | | |
| Cash and cash equivalents | | $ | 61,046 | | | $ | 43,417 | | | |
| Restricted cash | | 503 | | | 496 | | | |
| | | | | | |
| Cash provided by operating activities | | $ | 67,827 | | | $ | 50,185 | | | |
| Cash used in investing activities | | (3,569) | | | (37,764) | | | |
| Cash used in financing activities | | (46,622) | | | (19,507) | | | |
| | | | | | |
| Net increase (decrease) in cash and cash equivalents | | $ | 17,636 | | | $ | (7,086) | | | |
Operating Activities
Net cash provided by operating activities was $67.8 million for the year ended December 31, 20162023, as compared to $50.2 million for the same period in 2022. This increase was primarily relatesrelated to state, locallower prepaid expenses and foreign income taxes.accounts receivable, as well as higher accounts payable and accrued expenses due to the timing of payments.
Investing Activities
Net Income from Discontinued Operations, net of income taxes
Duringcash used in investing activities was $3.6 million for the year ended December 31, 2017, we discontinued2023, as compared to $37.8 million for the operationssame period in 2022. The decrease in net cash used in investing activities was primarily due to the payment for the Cherry Creek acquisition of Premium Music$18.5 million and Holiday. The operations and related expensesthe purchase of these verticals are presented as net income (loss) from discontinued operations. Net income from discontinued operations was $0.1digital assets of $5.0 million during 2022 that did not reoccur in 2023. Additionally, during the year ended December 31, 2016. There were no discontinued operations in 2015.
Supplemental Pro Forma Net Revenue
For comparative purposes2023, the Company received cash proceeds of $7.7 million and to enable the reader to adequately compare prior year results with current year results, the following discussion and tables present net revenue for Townsquare, pro forma for the Transactions disclosed in more detail in our Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K. The following tables present our pro forma results, which include the results of acquisitions and exclude the results of divestitures prior$3.0 million related to the transaction dates. Also provided are constant currency adjustments which aim to normalize the effectsales of fluctuationsassets and investment related transactions and digital assets, respectively.
Financing Activities
Net cash used in the Canadian-US dollar exchange rate, and its effect on our Canadian-based NAME business over time.
The following table summarizes our pro forma, constant currency net revenue for the years ended December 31, 2016 and 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | $ | | % | | Constant Currency Year Ended
December 31, | | $ | | % |
| ($ in thousands) | 2016 | | 2017 | | Change | | Change | | 2016(1) | | 2017 | | Change | | Change |
| Local Marketing Solutions net revenue | $ | 342,191 |
| | $ | 348,660 |
| | $ | 6,469 |
| | 1.9 | % | | $ | 342,191 |
| | $ | 348,660 |
| | $ | 6,469 |
| | 1.9 | % |
| Entertainment net revenue | 173,804 |
| | 158,774 |
| | (15,030 | ) | | (8.6 | )% | | 174,497 |
| | 158,774 |
| | (15,723 | ) | | (9.0 | )% |
| Net revenue | $ | 515,995 |
| | $ | 507,434 |
| | $ | (8,561 | ) | | (1.7 | )% | | $ | 516,688 |
| | $ | 507,434 |
| | $ | (9,254 | ) | | (1.8 | )% |
(1) 2016 constant currency adjustment was calculated using prevailing 2017 rates. | | | | | | |
On a pro forma consolidated basis, net revenuefinancing activities was $46.6 million for the year ended December 31, 2017 decreased by $8.6 million, or 1.7%,2023, as compared to 2016.$19.5 million for the same period in 2022. The decrease resulted fromincrease in net cash used in financing activities was primarily due to a decrease$16.4 million increase in Entertainment net revenuestock repurchases, $6.8 million of $15.0incremental repurchases of 2026 Notes in 2023 as compared to 2022, and dividend payments of $9.3 million or 8.6%,in 2023, partially offset by an increase in proceeds from stock options exercised.
Sources of $6.5 million, or 1.9%, in Local Marketing Solutions net revenue. Adjusted for the effects of fluctuations in the Canadian dollar to U.S. dollar exchange rate, net revenue for the year ended December 31, 2016 decreased by $9.3 million, or 1.8%.
The increase in Local Marketing Solutions net revenue was driven by an increase in non-political net revenue of $13.1 million partially offset by a decrease in political net revenue of $6.6 million.
The decrease in Entertainment net revenue was primarily the result of declines in revenue in our national digital business and certain live events. On a constant currency basis, Entertainment net revenue decreased by $15.7 million, or 9.0%, as compared to $15 million, the difference attributable to changes in the Canadian dollar to U.S. dollar exchange rate.
The following table summarizes our pro forma, constant currency net revenue for the years ended December 31, 2015 and 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | $ | | % | | Constant Currency Year Ended December 31, | | $ | | % |
| ($ in thousands) | 2015 | | 2016 | | Change | | Change | | 2015(1) | | 2016(1) | | Change | | Change |
| Local Marketing Solutions net revenue | $ | 325,685 |
| | $ | 342,191 |
| | $ | 16,506 |
| | 5.1 | % | | $ | 325,685 |
| | $ | 342,191 |
| | $ | 16,506 |
| | 5.1 | % |
| Entertainment net revenue | 176,237 |
| | 173,804 |
| | (2,433 | ) | | (1.4 | )% | | 176,783 |
| | 174,497 |
| | (2,286 | ) | | (1.3 | )% |
| Net revenue | $ | 501,922 |
| | $ | 515,995 |
| | $ | 14,073 |
| | 2.8 | % | | $ | 502,468 |
| | $ | 516,688 |
| | $ | 14,220 |
| | 2.8 | % |
(1) 2015 and 2016 constant currency adjustments were calculated using prevailing 2017 rates. | | | | | | |
On a pro forma consolidated basis, net revenue for the year ended December 31, 2016 increased by $14.1 million, or 2.8%, as compared to 2015. The increase resulted from an increase of $16.5 million, or 5.1%, in Local Marketing Solutions net revenue, offset by a decrease in Entertainment net revenue of $2.4 million or 1.4%. Adjusted for the effects of fluctuations in the Canadian dollar to U.S. dollar exchange rate, net revenue for the year ended December 31, 2016 increased by $14.2 million, or 2.8%.
The increase in Local Marketing Solutions net revenue was driven by an increase in political net revenue of $6.1 million and non-political net revenue of $10.4 million.
The decrease in Entertainment net revenue was primarily the result of inclement weather, specifically for our NAME events, and reduced revenue from our music festivals. On a constant currency basis, Entertainment net revenue decreased by $2.3 million, or 1.3%, the difference attributable to changes in the Canadian dollar to U.S. dollar exchange rate.
Liquidity and Capital ResourcesAnticipated Cash Requirements
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| (in thousands) | | 2015 | | 2016 | | 2017 |
| Cash | | $ | 33,298 |
| | $ | 51,540 |
| | $ | 65,295 |
|
| Cash provided by operating activities | | 25,943 |
| | 59,797 |
| | 50,684 |
|
| Cash used in investing activities | | (71,777 | ) | | (20,963 | ) | | (28,930 | ) |
| Cash provided by (used in) financing activities | | 54,431 |
| | (19,715 | ) | | (7,954 | ) |
| Net effect of foreign currency exchange rate changes | | 239 |
| | (877 | ) | | (45 | ) |
| Net increase in cash and restricted cash | | $ | 8,836 |
| | $ | 18,242 |
| | $ | 13,755 |
|
We fund our working capital requirements through a combination of cash flows from our operating, investing, and financing activities. Based on current and anticipated levels of operations and conditions in our markets and industry, we believe that our cash on hand and cash flows from our operating, investing, and financing activities together with funds available under our revolving credit facility, will enable us to meet our working capital, capital expenditures, dividend payments, debt service, dividend and other funding requirements for at least one year from the date of this report. Future capital requirements may be materially different than those currently planned in our budgeting and forecasting activities and depend on many factors, some of which are beyond our control. In particular during the period of uncertainty related to the COVID-19 pandemic, we focused on and will continue to monitor our liquidity.
As of December 31, 2017,2023, we had $565.1$499.7 million of outstanding indebtedness, net of deferred financing costs of $6.8 million, and based$4.0 million.
Based on interest rates in effectour terms of our 2026 Notes, as of that date,December 31, 2023, we expect our debt service requirements to be approximately $40.5$34.6 million including the required excess cash flow payment, over the next twelve months. See Note 8, Long-Term Debt, in our Notes to Consolidated Financial Statements for additional information related to our 2026 Notes.
As of December 31, 2017, we will be required to make an excess cash flow payment on the outstanding Term Loans of $9.5 million in the first quarter of 2018. In addition, as of December 31, 2017,2023, we had $65.3$61.0 million of cash and restricted cash $61.7equivalents, $60.8 million of receivables from customers, which historically have had an average collection cycle of approximately 45 days and $50.0 million of available borrowing capacity under our revolving credit facility.55 days. We had restricted cash of $0.9$0.5 million as of December 31, 20162023 and 2017,2022, respectively, included within cash, that was held as collateral in connection with certain agreements. From time to time, such restricted funds could be returned to us or we could be required to pledge additional cash.
On November 6, 2023, the board of directors approved a quarterly dividend of $0.1875 per share. The $3.1 million dividend was paid to holders of record as of January 2, 2024 on February 1, 2024. On February 28, 2024, the board of directors approved a quarterly dividend of $0.1975 per share. The dividend will be paid to holders of record as of April 5, 2024 on May 1, 2024.
During 2023, the Company voluntarily repurchased an aggregate $27.1 million in principal amount of its 2026 Notes below par, plus accrued interest. The Company may repurchase additional amounts in future periods.
On June 16, 2023, the Company repurchased 1.5 million shares of the Company’s Class C common stock in the aggregate amount of $14.6 million from MSG National Properties, LLC ("MSG"). The shares were retired upon repurchase. Additionally, the Company repurchased approximately 0.2 million shares of Class A common stock for approximately $2.1 million, during the twelve months ended December 31, 2023.
Our anticipated uses of cash in the near term include working capital needs, debtinterest payments, dividend payments, other obligations, and capital expenditures. The Company believes that the cash generated by its operations should be sufficient to meet its liquidity needs for at least the next 12 months. However, our ability to fund our working capital needs, debtdividend payments, dividenddebt payments, other obligations, capital expenditures, and to comply with financial covenants under our debt agreements, depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions, increases or decreases in advertising spending, changes in the highly competitive industry in which we operate, which may be rapid, and other factors, many of which are beyond our control. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders, while the incurrence of debt financing would result in debt service obligations. Such debt instruments could introduce covenants that might restrict our operations. We cannot assure you that we could obtain additional financing on favorable terms or at all.
Additionally, on a continuing basis, we evaluate and consider strategic acquisitions and divestitures to enhance our strategic and competitive position as well as our financial performance. Any future acquisitions, joint ventures or other similar transactions will likelymay require additional capital, which may not be available to us on acceptable terms, if at all.
We closely monitor the impact of capital and credit market conditions on our liquidity as relatedand our ability to our floating rate debt.refinance in the future. We also routinely monitor the changes in the financial condition of our customers and the potential impact on our results of operations.
Operating Activities
Net cash provided by operating activities decreased $9.1 millionOther Liquidity Matters
Below is a summary of additional liquidity matters. See the indicated Notes to Consolidated Financial Statements for the year ended December 31, 2017 to $50.7 million. This decrease was primarily due to a decrease in net revenue and an increase in benefit from income taxes partially offset by impairment of goodwill and FCC licenses.
Net cash provided by operating activities increased $33.9 million for the year ended December 31, 2016 to $59.8 million. This increase was primarily due to a one-time cash payment of $27.7 million made on April 1, 2015 to lenders for the redemption of the Unsecured Senior Notes due 2019, that was not repeated in 2016. In addition, cash provided by operating activities increased due to lower cash interest expense payments in 2016 as compared to 2015.
Investing Activities
Our investing activities primarily relate to payments made for capital expenditures and acquisitions consistent with our strategy to prudently invest in market leading properties. Cash used in investing activities for the years ended December 31, 2015, 2016 and 2017 was $71.8 million, $21.0 million and $28.9 million, respectively. Cash used in investing activitiesadditional details related to capital expenditures for the years ended December 31, 2015, 2016 and 2017 was $14.7 million, $20.7 million and $22.8 million, respectively. Cash used in investing activities related to acquisitions for the years ended December 31, 2015, 2016 and 2017 was $76.2 million, $2.2 million and $5.5 million, respectively. Cash used in investing activities has been partially offset by proceeds from the sale of assets for the years ended December 31, 2015, 2016 and 2017 of $19.1 million, $1.7 million and $1.1 million, respectively.
Financing Activities
Cash flows used in financing activities in 2017 were $8.0 million and primarily consisted of a $6.7 million excess cash flow payment on Term Loans.
Cash flows used in financing activities in 2016 were $19.7 million and primarily consisted of $19.4 million of voluntary payments made to repurchase and cancel our 2023 Notes outstanding at a market price below par, plus accrued interest.
Cash flows provided by financing activities in 2015 were $54.4 million, and primarily consisted of $620.0 million of proceeds from our new long-term borrowing arrangements, partially offset by $553.6 million of repayments of our existing debt and $11.4 million of costs related to debt financing.
Financing Arrangements
On April 1, 2015, the Company issued $300.0 million of 6.5% Unsecured Senior Notes due in 2023 and entered into a Senior Secured Credit Facility, including a seven year, $275.0 million term loan facility and a five year, $50.0 million revolving credit facility. On September 1, 2015, the Company issued incremental term loans of $45.0 million under the Senior Secured Credit Facility.
On February 8, 2017, the Company amended its Senior Secured Credit Facility agreement to reduce the applicable interest rate on its Term Loan. Under the amended Term Loan, the applicable margin was reduced by 25 basis points to 300 basis points, bringing the interest rate to LIBOR plus 3.00% from LIBOR plus 3.25%. The LIBOR floor of 1.00% remained unchanged. As of December 31, 2017, LIBOR increased to 1.42% bringing the interest rate to 4.42%. All other terms of the Senior Secured Credit Facility agreement remain substantially unchanged. The Revolver has an interest rate based either on LIBOR and an applicable margin of 250 basis points, or an alternative base rate and an applicable margin of 150 basis points. The Company paid $0.4 million of deferred financing costs in connection with this repricing.
On March 20, 2017, the Company made an excess cash flow payment on the outstanding Term Loans of $6.7 million and recognized an expense of $0.1 million on the accelerated depreciation of unamortized deferred financing costs in the first quarter of 2017.
As of December 31, 2017, the Company had $291.9 million of Term Loan borrowings, and no outstanding borrowings under the Revolver. As of December 31, 2017, the Company is in compliance with all terms and covenants of its borrowing arrangements, and has $50 million of revolving credit availability under the Senior Secured Credit Facility.
We have historically serviced our debt obligations from funds generated by operating activities. We believe that our cash balance, together with our remaining capacity under the Revolver and cash generated by operating activities, will be sufficient to fund our operations, service our debt obligations and pursue our strategy for one year from the date of this report.
Contractual Obligations and Commitments
The below table reflects our estimated contractual obligationsthese and other commercial commitments as of December 31, 2017.matters affecting our liquidity and commitments.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments due by period |
| (in thousands) | | 2018 | | 2019-2020 | | 2021-2022 | | Thereafter | | Total |
| 2023 Notes | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 280,079 |
| | $ | 280,079 |
|
Term Loans(1) | | 9,519 |
| | — |
| | 282,332 |
| | — |
| | 291,851 |
|
| Capitalized obligations | | 5 |
| | 10 |
| | — |
| | — |
| | 15 |
|
Interest payments (2) | | 30,971 |
| | 61,765 |
| | 52,192 |
| | 9,103 |
| | 154,031 |
|
Significant contracts (3) | | 14,381 |
| | 26,759 |
| | 11,841 |
| | 3,859 |
| | 56,840 |
|
| Operating leases | | 10,185 |
| | 15,369 |
| | 8,907 |
| | 14,310 |
| | 48,771 |
|
| Total contractual cash obligations | | $ | 65,061 |
| | $ | 103,903 |
| | $ | 355,272 |
| | $ | 307,351 |
| | $ | 831,587 |
|
| | | | | | | | |
| Long-Term Debt | | Note 8 |
| Lease and Other Commitments | | Note 9 |
(1) Includes excess cash flow payment on the Term Loans to be paid in the first quarter of 2018.
(2) The interest amounts relate to our 2023 Notes and Senior Secured Credit Facility and represent an annual amount estimated based on interest rates in effect as of December 31, 2017.
(3) Significant contracts relate to our agreements with Nielsen, the radio broadcast industry’s principal ratings service, other broadcast service products and unconditional fee obligations which result from our advance commitments to provide rides, games and concessions at certain fairs.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements or transactions.
Impact of Inflation
We do not believe inflation has a significant impact on our operations. However, there can be no assurance that future inflation would not have an adverse impact on our financial condition and results of operations.
Critical Accounting PoliciesEstimates
Our Consolidated Financial Statements have been prepared in conformity with Generally Accepted Accounting Principles (“GAAP”), which requires us to make estimates and Estimates
assumptions that affect the amounts and disclosures reported in our Consolidated Financial Statements and accompanying notes. Accounting estimates and assumptions described in this section are those we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. For all of these estimates, we note that future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment. Actual results could differ from such estimates. The following discussion summarizes our critical accounting estimates. Circumstances arising from economic conditions in the future may require our estimates to change, however, as new events occur and additional information is obtained, any such changes will be recognized in the consolidated financial statements. Actual results could differ from such estimates, and any such differences may be material to our financial statements. Significant accounting policies used in the preparation of our Consolidated Financial Statements requires managementare discussed in our Notes to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent items. Actual results could differ significantly from those estimates. The following discussion addresses our critical accounting policies. These policies are important to the presentation of our operating results and financial position and require significant judgment or the use of estimates.Consolidated Financial Statements.
Revenue Recognition
We recognize broadcast revenue for commercial broadcasting advertisements when the commercial is broadcast. We report revenue net of agency commissions. We calculate agency commissions based on a stated percentage applied to gross billing revenue for advertisers that use agencies. We recognize live event revenue and other non-broadcast advertising revenue as events are conducted. We derive internet revenue primarily from the sale of internet-based advertising campaigns to local and national advertisers and we recognize it over the duration of the campaigns.
We adopted the new accounting guidance regarding revenue from contracts with customers on January 1, 2018 using the modified retrospective approach (refer to Note 2). Adoption of the guidance will not have a material impact on our financial statements.
Allowance for Doubtful Accounts
We reduce the carrying amount of accounts receivable by a valuation allowance that reflects our best estimate of the accounts that will not be collected. In addition to reviewing delinquent accounts receivable, we consider many factors in estimating our general allowance including historical data, experience, customer types, creditworthiness and economic trends. From time to time, we may adjust our assumptions for anticipated changes in any of those or other factors expected to affect collectability. We charge off account balances against the allowance when it is probable the receivable will not be recovered.
Acquisitions and Business Combinations
We account for our business acquisitions under the purchase method of accounting in accordance with ASC, Business Combination Topic 805.
We allocate the total cost of acquisitions to the underlying identifiable net assets, based on their respective estimated fair values at the date of acquisition.acquisition with limited exceptions allowed by GAAP. Acquisition costs are generally expensed as incurred and restructuring costs associated with a business combination are generally expensed subsequent to the acquisition date. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amounts assigned to identifiable intangible assets. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples,
among other items. In addition, we may establish liabilities in the Company’s Consolidated Balance Sheets related to acquired liabilities and qualifying restructuring costs and contingencies based on assumptions made at the time of acquisition. We evaluate these reserves on a regular basis to determine the adequaciesadequacy of the amounts.
ASC, Business Combination Topic 805 requires
Goodwill arising from an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date’s fair value with limited exceptions and changes in the accounting treatment for certain specific items, including:
acquisition costs are generally expensed as incurred;
noncontrolling interests (previously referred to as “minority interests”) are valued at fair value at the acquisition date; and
restructuring costs associated with a business combination are generally expensed subsequent to the acquisition date.
Intangible Assets
We consider our FCC licenses to be indefinite lived intangibles. We evaluate our FCC licenses for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. We evaluate the fair value of our FCC licenses at the unit of account level and have determined that the geographic market is the appropriate unit of accounting. We determine the fair value of our FCC licenses using an income-based approach.
We evaluate our goodwill for impairment at leasttested on an annual basis, or when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. DuringWe have elected to perform our evaluation we determinedannual goodwill impairment testing as of December 31st. Recoverability of goodwill is evaluated by comparison of the fair value of a reporting unit with its carrying value. For purposes of testing the carrying value of the Company's goodwill for impairment, the fair value of goodwill for each reporting unit contains significant assumptions incorporating variables that there were indicatorsare based on past experiences and judgments about future performance using industry information. These variables would include, but are not limited to: (1) forecasted revenue growth; (2) profit margin; (3) estimated capital expenditures and working capital requirements during the projection period; (4) risk-adjusted discount rate; and (5) expected growth rates in perpetuity to estimate terminal values. These variables are susceptible to changes in estimates, which could result in significant changes to the fair value of the goodwill. Impairment of goodwill is calculated by comparing the fair value as described above to the carrying value of goodwill.
We continually monitor and evaluate business and competitive conditions that affect our operations and reflect the impact of these factors in our financial projections. If permanent or sustained changes in business or competitive conditions occur, they can lead to revised projections that could potentially give rise to impairment charges.
For further discussion of impairment present,charges, see Footnote 6.Note 6, Goodwill and Other Intangible Assets, Net, in our Notes to Consolidated Financial Statements.
Indefinite-lived intangible assets
We test for impairment of our indefinite-lived intangible assets on an annual basis, as of December 31st, or when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The most significant intangible asset we have is our FCC licenses, which have been deemed to have an indefinite life. The fair value of our FCC licenses is estimated to be the price that we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date.
We evaluate the fair value of our FCC licenses at the unit of account level. Each market's broadcasting licenses are combined into a single unit of accounting, in our case geographic markets, for purposes of testing for impairments.
We utilize a discounted cash flow method to perform our impairment test. Under this method, the income that is attributable to each FCC license is isolated and is based upon modeling a hypothetical “greenfield” build-up to a “normalized” enterprise that, by design, lacks inherent goodwill and assumes that the only asset of the hypothetical start-up business is the license. It is assumed that rather than acquiring indefinite-lived intangible assets as part of a going concern business, the buyer hypothetically develops indefinite-lived intangible assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flow model which results in value that is directly attributable to the indefinite-lived intangible assets. The cash flows generated in the greenfield method are presumed to emanate from the one asset, or the FCC license, that exists at time zero. This cash flow stream is discounted to arrive at a value for the FCC license.
The key assumptions using the greenfield method are market revenue growth rates, market share, profit margin and duration and profile of the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information representing an average FCC license within a market. The projections incorporated into our license valuations take into consideration the then current economic conditions. Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may be beyond our control.
For further discussion on key assumptions utilized in the greenfield method, see Note 2, Summary of Significant Accounting Policies - Intangible Assets. For further discussion of impairment charges, see Note 6, Goodwill and Other Intangible Assets, Net, in our Notes to Consolidated Financial Statements.
Stock-based Compensation
We measure and recognize stock-based compensation expense related to stock-based transactions, including employee awards inand the Consolidated Financial StatementsEmployee Stock Purchase Plan, (“ESPP”) based on the fair value of the award on the grant date. The fair values of restricted stock awards are determined based on the fair market value of our common stock at the time of grant. We estimate the fair value of option awards using the Black-Scholes or Monte Carlo option-pricing models for service and market-based options, respectively. We estimate the fair value of the ESPP based on the estimated grant-date fair value determined using the Black-Scholes model. This model requiresThese models require assumptions including the fair value of our common stock, expected volatility, expected term of the award, exercise timing, expected dividend yield and risk-free interest rate. Stock-based compensation expense is recognized as the equity awards vest. The calculatedvest or on derived service period. We account for forfeitures as a reduction of compensation expense is adjusted basedcost in the period when such forfeitures occur.
For further discussion on an estimatethe fair value of option awards, ultimately expectedsee Note 11, Equity, in our Notes to vest.Consolidated Financial Statements.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
We evaluate the need for valuation allowances to reduce the deferred tax assets to realizable amounts. Management evaluates all positive and negative evidence and uses judgment regarding past and future events, including operating results, to help determine when it is more likely than not that all or some portion of the deferred tax assets may not be realized. When appropriate, a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized. As of December 31, 2023, the Company has recorded $38.5 million of valuation allowance against its net operating losses and tax credit carry forwards. Revisions to our forecasts or declining macroeconomic conditions could result in changes to our assessment of the realization of these deferred income tax assets.
We follow the provisions of ASC Topic 740, Accounting for Income Taxes. ASC Topic 740 clarifies the accounting for uncertainties in income taxes recognized in an enterprise’s financial statements. ASC Topic 740 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 provides guidance on derecognition, classification, interest and penalties, disclosures and transition. As required by the uncertain tax position guidance in ASC Topic 740, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Our policy is
For further discussion of valuation allowances and uncertain tax positions, see Note 10, Income Taxes, in our Notes to recognize interest and penalties accrued on unrecognized tax benefits as part of income tax expense.Consolidated Financial Statements.
Contingencies and Litigation
On an ongoing basis, we evaluate our exposure related to contingencies and litigation and record a liability when available information indicates that a liability is probable and estimable. We also disclose significant matters that
are reasonably possible to result in a loss that is expected to be material to our operations or financial results or are probable but not estimable.
Recent
New Accounting PronouncementsStandards and Accounting Changes
For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please refer to Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosure aboutAbout Market Risk
Interest Rate Risk
This Item is not required as we are a Smaller Reporting Company.
As of December 31, 2017 we were not subject to market risk from exposure to changes in interest rates with respect to borrowings under our existing 2023 Notes.
As of December 31, 2017 we were subject to market risk from exposure to changes in interest rates on borrowings under our Senior Secured Credit Facility, specifically the impact of LIBOR interest rates on our variable rate borrowings. Based upon our December 31, 2017 outstanding term loan borrowings of $291.9 million under the Senior Secured Credit Facility, an increase in the LIBOR interest rate of 1% would result in an increase in our annual interest expense of approximately $2.9 million. We anticipate such interest rate risk will remain a market risk exposure for the foreseeable future.
Item 8. Financial Statements and Supplementary Data
The information in response to this item is included in our Consolidated Financial Statements, together with the reportreports thereon of RSM US LLP,BDO USA, P.C., beginning on page F-1 of this Annual Report on Form 10-K, which follows the signature page hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to athe company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, our management Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, our controls and procedures can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control and misstatements due to error or fraud may occur and not be detected on a timely basis.their objectives.
Our management, withBased on the participation of our Co-Chief Executive Officers and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and proceduresevaluation performed as of December 31, 2017, the end of the period covered by this Annual Report on Form 10-K. Based upon such evaluation,2023, our Co-ChiefChief Executive OfficersOfficer and our Chief Financial Officer have concludeddetermined that our disclosure controls and procedures werethe Company’s internal control over financial reporting was effective as of such date.December 31, 2023.
Management’s Report of Management on Internal Control overOver Financial Reporting
Our management
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for our Company. Internal. A company’s internal control over financial reporting is a process designed by, or under the supervision of, its Chief Executive Officer and Chief Financial Officer, and effected by such company's board of directors, management and other personnel to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles generally accepted in the United States of America. Internal control over financial reportingand includes maintaining records that in reasonable detail accuratelythose policies and fairly reflect our transactions; providing reasonable assurance that transactions and disposition of assets are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures are made in accordance with the authorization of our management and directors; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis. procedures that:
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| (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; |
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is not intended to provide absolute assurancea deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of oura company's annual or interim financial statements wouldwill not be prevented or detected. Furthermore, our controls and procedures can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control and misstatements due to error or fraud may occur and not be detected on a timely basis.
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has conducted itsan evaluation of the effectiveness of our Company’s internal controlscontrol over financial reporting as of December 31, 2023, based on the framework set forth in Internal Control - IntegratedControl-Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and(COSO). Based on this assessment, management has concluded that ourthe Company’s internal control over financial reporting was effective as of December 31, 2017.2023.
Changes in Internal Controls
During 2016,Our independent registered public accounting firm, BDO USA, P.C., independently assessed the Company began implementing WideOrbit to replace Marketron as its local billing and traffic system. Aseffectiveness of December 31, 2017, WideOrbit has been implemented in all of the Company’s 67 markets. The Company has enhanced the documentation ofour internal control processes and procedures relating to the new system to supplement existing internal controls over financial reporting as appropriate. The system changes were undertaken to increaseof December 31, 2023, as stated in the efficiency of system integration and information consolidation.firm’s attestation report, which appears on page F-3.
PART III
Item 9B. Other Information
Rule 10b5-1 Trading Plans
None.
PART IIIItem 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10item is incorporated in this reportherein by reference to the applicable information set forth in our proxy statement for the 2018 Annual Meeting of Shareholders, which we expect to file with2024 Proxy Statement under the Securitiescaption “Directors and Exchange Commission within 120 days of our fiscal year end (the “2018 Proxy Statement”).Corporate Governance” and “Executive Officers.”
Item 11. Executive Compensation
The information required by this Item 11item is incorporated in this reportherein by reference to the applicable information set forth in our 2018the 2024 Proxy Statement.Statement under the captions “Executive Compensation” and “Director Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12item is incorporated in this reportherein by reference to the applicable information set forthin the 2024 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.”
Securities Authorized for Issuance Under Equity Compensation Plan
The following table summarizes information, as of December 31, 2023, relating to equity compensation plans of the Company pursuant to which equity securities of the Company are authorized for issuance. For more information on these plans, see Note 11, Equity, in our 2018 Proxy Statement.Notes to Consolidated Financial Statements.
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| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights
(a) | | Weighted-Average Exercise Price of Outstanding Options and Rights
(b) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))
(c) |
| Equity compensation plans approved by security holders | | 11,056,324 | | $7.74 | | 11,814,800 |
| Equity compensation plans not approved by security holders | | — | | — | | — |
| Total | | 11,056,324 | | $7.74 | | 11,814,800 |
Employee Stock Purchase Plan
In September 2021, the Company’s Board of Directors approved the 2021 Employee Stock Purchase Plan (the “ESPP”). The Plan constitutes a sub-plan under the Townsquare Media, Inc. 2014 Omnibus Incentive Plan. Under the ESPP, eligible employees may authorize payroll deductions of at least 3% but no more than 15% of their current compensation of each payday during six month offering periods which commence on January 1 and July 1. Contributions are subject to an annual limitation of $25,000, and are used to purchase shares of Class A common stock at 90% of the fair market value of the Class A common stock on either the first or last day of an offering period, whichever is lower. The total number of shares purchased during each offering period may not exceed 2,000 shares per eligible participant and the total aggregate discount price for any calendar year may not exceed an annual limitation of $600,000. The first offering period for the ESPP commenced on January 1, 2022. During the year ended December 31, 2023, the total amount of common stock issued under the ESPP totaled 111,709 shares of Class A common stock. During the year ended December 31, 2022, a total of 102,224 shares of Class A common stock were issued under the ESPP.
Stock Repurchase Plan
On December 16, 2021, the Board of Directors approved a stock repurchase plan (the “2021 Stock Repurchase Plan”), pursuant to which the Company is authorized to repurchase up to $50 million of the Company’s issued and outstanding Class A common stock over a three-year period. Repurchases of common stock under the repurchase plan may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. Any such repurchases may be executed using open market purchases, privately negotiated agreements or other transactions, and may be funded from cash on hand, available borrowings or proceeds from potential debt or other capital markets sources. During the year ended December 31, 2023, the total amount of shares repurchased under the 2021 Stock Repurchase Plan was 183,768 shares. During the year ended December 31, 2022, a total of 25,623 shares were repurchased under the 2021 Stock Repurchase Plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13item is incorporated in this reportherein by reference to the applicable information set forth in our 2018the 2024 Proxy Statement.Statement under the captions “Directors and Corporate Governance,” “Executive Officers" and “Certain Relationships and Related Transactions.”
Item 14. Principal Accountant Fees and Services
The information required by this Item 14item is incorporated in this reportherein by reference to the applicable information set forth in our 2018the 2024 Proxy Statement.Statement under the caption “Other Audit Committee Matters.”
Item 15. Exhibits, Financial Statement Schedules
(a) (1)-(2) Financial Statements. The financial statements and financial statement schedule listed in the Index to Consolidated Financial Statements appearing on page F-1 of this Annual Report on Form 10-K are filed as a part of this report. All other schedules for which provision is made in the applicable accounting regulations of the SEC have been omitted either because they are not required under the related instructions or because they are not applicable.
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| Exhibit Number | | Exhibit Description | | Filed/Furnished Herewith | | Form | | Period Ending | | Exhibit/Appendix Number | | Filing Date | |
| 3.1 | | | | | | S-1/A | | | | 3.1 | | 7/14/2014 | |
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| 3.2 | | | | | | S-1/A | | | | 3.2 | | 7/14/2014 | |
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| 4.1 | | | | | | 8-K | | | | 4.1 | | 4/1/2015 | |
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| 4.2 | | | | | | 8-K | | | | 4.2 | | 4/1/2015 | |
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| 4.3 | | | | | | 8-K | | | | 10.2 | | 7/31/2014 | |
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| 4.4 | | | | | | 8-K | | | | 4.1 | | 1/6/2021 | |
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| 4.5 | | | | | | 8-K | | | | 4.2 | | 1/6/2021 | |
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| 4.6 | | | | X | | | | | | | | | |
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| 10.1.1 | | | | | | 8-K | | | | 10.1 | | 4/1/2015 | |
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| 10.1.2 | | | | | | 8-K | | | | 10.2 | | 4/1/2015 | |
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| 10.1.3 | | | | | | 10-Q/A | | 9/30/2015 | | 10.2 | | 11/9/2015 | |
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| 10.1.4 | | Amendment No. 2, dated as of February 8, 2017, to the Credit Agreement, dated as of April 1, 2015, among Townsquare Media, Inc., Royal Bank of Canada, as administrative agent, and the other parties thereto. | | | | 10-K | | 12/31/2016 | | 10.4 | | 3/13/2017 | |
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| Exhibit Number | | Exhibit Description | | Filed/Furnished Herewith | | Form | | Period Ending | | Exhibit/Appendix Number | | Filing Date | |
| 10.1.5 | | Amendment No. 3, dated October 20, 2017, to the Credit Agreement, dated as of April 1, 2015 (as amended by the Incremental Amendment Agreement No. 1 dated as of September 1, 2015 and Amendment No. 2 dated as of February 8, 2017) (the “Credit Agreement”), among Townsquare Media, Inc., each lender from time to time party thereto, Royal Bank of Canada, as administrative agent and collateral agent. | | | | 10-Q | | 9/30/2017 | | 10.5 | | 11/7/2017 | |
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| 10.1.6 | | Amendment No. 4, dated April 30, 2019, to the Credit Agreement, dated as of April 1, 2015 (as amended by the Incremental Amendment Agreement No. 1 dated as of September 1, 2015, Amendment No. 2 dated as of February 8, 2017 and Amendment No. 3 dated as of October 20, 2017), among Townsquare Media, Inc., each lender from time to time party thereto, Royal Bank of Canada, as administrative agent and collateral agent. | | | | 10-Q | | 3/31/2019 | | 10.1 | | 5/7/2019 | |
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| 10.1.7 | | Amendment No. 5, dated April 13, 2020, to the Credit Agreement, dated as of April 1, 2015, as amended, among Townsquare Media, Inc., each lender from time to time party thereto, and Royal Bank of Canada, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 17, 2020) | | | | 8-K | | | | 10.1 | | 4/17/2020 | |
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| 10.2.1 * | | | | | | 8-K | | | | 10.1 | | 10/19/2017 | |
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| 10.2.2 * | | | | | | 8-K | | | | 10.1 | | 5/3/2018 | |
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| 10.2.3 * | | | | | | 8-K | | | | 10.1 | | 12/13/19 | |
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| 10.2.4 * | | | | | | 8-K | | | | 10.1 | | 10/14/2022 | |
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| 10.3.1 * | | | | | | 8-K | | | | 10.3 | | 10/19/2017 | |
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| 10.3.2 * | | | | | | 8-K | | | | 10.4 | | 12/13/2019 | |
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| 10.4.1 * | | | | | | 8-K | | | | 10.4 | | 10/19/2017 | |
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| 10.4.2 * | | | | | | 8-K | | | | 10.2 | | 12/13/2019 | |
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| 10.4.3 * | | | | | | 8-K | | | | 10.2 | | 10/14/2022 | |
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| Exhibit Number | | Exhibit Description | | Filed/Furnished Herewith | | Form | | Period Ending | | Exhibit/Appendix Number | | Filing Date | |
| 10.5.1 * | | | | | | 10-K | | 12/31/2018 | | 10.10 | | 3/12/2019 | |
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| 10.5.2 * | | | | | | 8-K | | | | 10.3 | | 12/13/2019 | |
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| 10.5.3 * | | | | | | 8-K | | | | 10.3 | | 10/14/2022 | |
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| 10.5.4 * | | | | | | 8-K | | | | 10.1 | | 12/28/2023 | |
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| 10.7.1 * | | | | | | S-1/A | | | | 10.8 | | 7/14/2014 | |
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| 10.7.2 * | | | | | | 8-K | | | | 10.2 | | 1/28/2021 | |
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| 10.7.3 * | | | | | | S-1/A | | | | 10.9 | | 7/14/2014 | |
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| 10.7.4 * | | | | | | S-1/A | | | | 10.10 | | 7/21/2014 | |
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| 10.7.5 * | | | | | | 8-K | | | | 10.1 | | 6/4/2018 | |
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| 10.7.6 * | | | | | | 10-Q | | 9/30/2018 | | 10.1 | | 11/6/2018 | |
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| 10.7.7 * | | | | | | | | | | | | | |
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| 10.8 * | | | | | | S-1/A | | | | 10.11 | | 7/14/2014 | |
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| 10.9 | | | | | | 8-K | | | | 10.3 | | 7/31/2014 | |
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| 10.10 | | Stockholders Agreement, dated as of July 29, 2014, by and among Townsquare Media, Inc., OCM POF IV GAP Holdings, L.P., OCM PF/FF Radio Holdings PT, L.P., FiveWire Media Ventures, LLC, Steven Price, Stuart Rosenstein, Alex Berkett, Scott Schatz and Dhruv Prasad. | | | | 8-K | | | | 10.4 | | 7/31/2014 | |
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| 10.11 | | | | | | 10-Q | | 9/30/2016 | | 10.1 | | 11/8/2016 | |
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| 10.12 | | | | | | 8-K | | | | 10.1 | | 5/29/2018 | |
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| 10.13 | | | | | | 8-K | | | | 10.1 | | 1/28/2021 | |
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| Exhibit Number | | Exhibit Description | | Filed/Furnished Herewith | | Form | | Period Ending | | Exhibit/Appendix Number | | Filing Date | |
| 10.14 | | Settlement Agreement, dated as of March 8, 2021, by and among Townsquare Media, Inc., OCM POF IV AIF GAP Holdings, L.P., OCM PF/FF Radio Holdings PT, L.P., Oaktree FF Investment Fund, L.P., Second Street Holdings 1, L.P., Second Street Holdings 2, L.P., Second Street Holdings 3, L.P., Second Street Holdings 4, L.P., Second Street Holdings 5, L.P., Second Street Holdings 6, L.P., Second Street Holdings 7, L.P., and Second Street Holdings 8, L.P | | | | 8-K | | | | 10.1 | | 3/10/2021 | |
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| 16.1 | | | | | | 8-K | | | | 16.1 | | 6/19/2019 | |
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| 17.1 | | | | | | 8-K | | | | 17.1 | | 5/17/2021 | |
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| 21.1 | | | | X | | | | | | | | | |
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| 23.1 | | | | X | | | | | | | | | |
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| 31.1 | | | | X | | | | | | | | | |
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| 31.2 | | | | X | | | | | | | | | |
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| 32.1 | | | | X | | | | | | | | | |
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| 32.2 | | | | X | | | | | | | | | |
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| 97.1 | | | | X | | | | | | | | | |
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| 101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | X | | | | | | | | | |
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| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | X | | | | | | | | | |
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| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | X | | | | | | | | | |
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | X | | | | | | | | | |
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| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | X | | | | | | | | | |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | X | | | | | | | | | |
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| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | X | | | | | | | | | |
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| * | | Management contract or compensatory plan or arrangement. | | | | | | | | | |
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| Exhibit Number | | Exhibit Description | | Filed/Furnished Herewith | | Form | | Period Ending | | Exhibit/Appendix Number | | Filing Date | |
2.1†***
(b) Exhibits. See Exhibits above. | | | Asset Purchase and Exchange Agreement, dated as of April 28, 2012, among Townsquare Radio, LLC, Townsquare Media of Bloomington, Inc., Townsquare Media of Peoria, Inc. and companies set forth as Townsquare Purchasers on the signature page thereto and Cumulus Media Inc., Cumulus Broadcasting LLC, Cumulus Licensing LLC, Citadel Broadcasting Company and Radio License Holding CBC, LLC | | | | | | | | |
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2.2†***(c) Financial Statement Schedules. Schedule II - Valuation and Qualifying Accounts | | |
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2.3†*** | | |
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10.1**** | | |
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10.3** | | |
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10.4****** | | Amendment No. 2, dated as of February 8, 2017, to the Credit Agreement, dated as of April 1, 2015, among Townsquare Media, Inc., Royal Bank of Canada, as administrative agent, and the other parties thereto. |
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| | Amendment No. 3, dated October 20, 2017, to the Credit Agreement, dated as of April 1, 2015 (as amended by the Incremental Amendment Agreement No. 1 dated as of September 1, 2015 and Amendment No. 2 dated as of February 8, 2017) (the “Credit Agreement”), among Townsquare Media, Inc., each lender from time to time party thereto, Royal Bank of Canada, as administrative agent and collateral agent. |
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10.16***** | | |
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10.17***** | | Stockholders Agreement, dated as of July 29, 2014, by and among Townsquare Media, Inc., OCM POF IV GAP Holdings, L.P., OCM PF/FF Radio Holdings PT, L.P., FiveWire Media Ventures, LLC, Steven Price, Stuart Rosenstein, Alex Berkett, Scott Schatz and Dhruv Prasad. |
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101.0‡s
| | The following materials from Townsquare Media, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Stockholders’ Equity and (vi) Notes to Consolidated Financial Statements |
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101.SCH s
| | XBRL Taxonomy Extension Schema Document |
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101.CAL s
| | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF s
| | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB s
| | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE s
| | XBRL Taxonomy Extension Presentation Linkbase Document |
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s Filed herewith.
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ssPreviously filed as an exhibit to our Quarterly Report on Form 10-Q filed on November 7, 2017.
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sssPreviously filed as an exhibit to our Current Report on Form 8-K filed on October 19, 2017
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*Previously filed as an exhibit to our Quarterly Report on Form 10-Q filed on November 8, 2016. |
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**Previously filed as an exhibit to our Quarterly Report on Form 10-Q filed on November 9, 2015. |
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***Previously filed as an exhibit to our Registration Statement No. 333-197002 on Form S-1, as amended. |
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****Previously filed as an exhibit to our Form 8-K filed on April 1, 2015. |
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*****Previously filed as an exhibit to our Form 8-K filed on July 31, 2014. |
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******Previously filed as an exhibit to our Form 10-K filed on March 13, 2017. |
† Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.
‡ The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
(b) Exhibits. See Exhibits above.
(c) Financial Statement Schedules. Schedule II - Valuation and Qualifying Accounts
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 13th15th day of March 2018.2024.
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| | TOWNSQUARE MEDIA, INC. |
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| By: | By: | /s/ Stuart Rosenstein |
| | Name: Stuart Rosenstein |
| | Title: Executive Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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| Signature | Title | |
| Signature | Title |
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/s/ Dhruv PrasadBill Wilson | Co-ChiefChief Executive Officer and Director | March 13, 201815, 2024 |
Dhruv PrasadBill Wilson | (Principal Executive Officer) | |
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/s/ Bill Wilson | Co-Chief Executive Officer and Director | March 13, 2018 |
Bill Wilson | (Principal Executive Officer) | |
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| /s/ Stuart Rosenstein | Executive Vice President and Chief Financial Officer | March 13, 201815, 2024 |
| Stuart Rosenstein | (Principal Financial Officer) | |
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/s/ Linda LieRobert Worshek | Senior Vice President | March 13, 2018 |
Linda Lie | and Chief Accounting Officer | March 15, 2024 |
| Robert Worshek | (Principal Accounting Officer) | |
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| /s/ Steven Price | Executive Chairman and Director | March 13, 201815, 2024 |
| Steven Price | | |
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| /s/ B. James Ford | Director | March 13, 201815, 2024 |
| B. James Ford | | |
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| /s/ Gary Ginsberg | Director | March 13, 201815, 2024 |
| Gary Ginsberg | | |
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| /s/ Stephen Kaplan | Director | March 13, 201815, 2024 |
| Stephen Kaplan | | |
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| /s/ David Lebow | Director | March 13, 201815, 2024 |
| David Lebow | | |
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| /s/ Gary D. Way | Director | March 15, 2024 |
| Gary D. Way | | |
| /s/ David Quick | Director | March 13, 2018
David Quick | | |
| | |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Townsquare Media, Inc., are included in Item 8:
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| (2) | Financial Statement Schedule | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors and Stockholders
Townsquare Media, Inc. and subsidiaries
Purchase, New York
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Townsquare Media, Inc. and its subsidiaries(the “Company”) as of December 31, 20162023 and 2017,2022, the related consolidated statements of operations, comprehensive income (loss), stockholders'stockholders’ equity, and cash flows for each of the three years in the periodthen ended, December 31, 2017, and the related notes to the consolidated financial statements and schedule (collectively referred to as the “consolidated financial statements)statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofat December 31, 20162023 and 2017,2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 15, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
FCC Broadcast License Impairment Assessment
As described in Notes 2 and 6 to the consolidated financial statements, the Company’s FCC licenses carrying value at December 31, 2023 was $181.2 million. Management tests the FCC licenses for impairment annually, as of December
31, or more frequently if certain events or changes in circumstances indicate they may be impaired. In order to determine the fair value of the FCC licenses, management utilized an income approach, specifically the Greenfield method. This method assumes that a hypothetical buyer develops indefinite-lived intangible assets and builds a new operation with similar attributes from scratch, while incurring start-up costs during the build-up phase. The Greenfield method requires management to make certain significant judgments and assumptions such as discount rate, forecasted revenue growth and profit margins, among others, which may be affected by future economic and market conditions.
We identified the impairment assessment of certain FCC licenses as a critical audit matter. The principal considerations for our determination were the certain significant judgments and assumptions that management used when developing the fair value measurement of the FCC licenses, primarily the discount rate, forecasted revenue growth and profit margins. Auditing the discount rate, forecasts of future revenues and profit margins assumptions involved especially challenging and subjective auditor judgment due to the nature and extent of the audit effort required to address these matters, including the extent of specialized skills and knowledge needed.
The primary procedures we performed to address this critical audit matter included:
•Evaluating the reasonableness of the forecasted revenue growth used by management by comparing the forecasts to industry data and historical financial results.
•Evaluating the reasonableness of the forecasted profit margins used by management by comparing the forecasts to historical financial results.
•Utilizing personnel with specialized skills and knowledge in valuation to assist in evaluating the reasonableness of the inputs and assumptions used in the estimation of the discount rate used in the Greenfield method.
/s/ BDO USA, P.C.
We have served as the Company's auditor since 2019.
New York, New York
March 15, 2024
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Townsquare Media, Inc.
Purchase, New York
Opinion on Internal Control over Financial Reporting
We have audited Townsquare Media, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB)(“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended, and the related notes and schedule and our report dated March 15, 2024, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of itseffective internal control over financial reporting. As part of our audits we are required to obtainreporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, but not forassessing the purposerisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of expressing an opinioninternal control based on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
assessed risk. Our auditsaudit also included performing such other procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresas we considered necessary in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.circumstances. We believe that our audits provideaudit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLPBDO USA, P.C.
We have served as the Company's auditor since 2010.
New York, NYNew York
March 13, 2018
TOWNSQUARE MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share and Per Share Data)
| | At December 31, | | | At December 31, |
| | 2023 | |
| 2023 | |
| 2023 | | | 2022 |
| ASSETS | |
| Current assets: | |
| Current assets: | |
| Current assets: | |
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Accounts receivable, net of allowance for credit losses of $4,041 and $5,946, respectively | |
| Prepaid expenses and other current assets | |
| | | | December 31,
2016 | | December 31,
2017 |
| ASSETS | | | |
| Current assets: | | | |
| Cash | $ | 51,540 |
| | $ | 65,295 |
|
| Accounts receivable, net of allowance of $1,433 and $1,079, respectively | 59,580 |
| | 61,659 |
|
| Prepaid expenses and other current assets | 11,253 |
| | 10,471 |
|
| Current assets held for sale | — |
| | 879 |
|
| Current assets of discontinued operations | 254 |
| | 100 |
|
| Total current assets | 122,627 |
| | 138,404 |
|
| | | | |
Total current assets | |
| Total current assets | |
| | Property and equipment, net | |
| Property and equipment, net | |
| Property and equipment, net | 139,408 |
| | 146,992 |
|
| Intangible assets, net | 513,915 |
| | 508,399 |
|
| Goodwill | 292,953 |
| | 243,042 |
|
| Investments | 4,313 |
| | 8,092 |
|
| Operating lease right-of-use assets | |
| | Other assets | 7,290 |
| | 10,998 |
|
| Long-term assets of discontinued operations | — |
| | 431 |
|
| Long-term assets held for sale | 199 |
| | — |
|
| Other assets | |
| Other assets | |
| Restricted cash | |
| | Total assets | |
| Total assets | |
| Total assets | $ | 1,080,705 |
| | $ | 1,056,358 |
|
| | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| Current liabilities: | |
| Current liabilities: | |
| Current liabilities: | | | |
| Accounts payable | $ | 10,602 |
| | $ | 14,559 |
|
| Current portion of long-term debt | 6,901 |
| | 9,524 |
|
| Accounts payable | |
| Accounts payable | |
| | Deferred revenue | 17,208 |
| | 17,683 |
|
| Deferred revenue | |
| Deferred revenue | |
| Accrued compensation and benefits | |
| Accrued expenses and other current liabilities | 25,748 |
| | 25,160 |
|
| Operating lease liabilities, current | |
| | Accrued interest | 4,622 |
| | 5,699 |
|
| Current liabilities of discontinued operations | 71 |
| | 680 |
|
| Accrued interest | |
| Accrued interest | |
| | Total current liabilities | 65,152 |
| | 73,305 |
|
| Long-term debt, less current portion (net of deferred financing costs of $8,006 and $6,803, respectively) | 564,315 |
| | 555,618 |
|
| | Total current liabilities | |
| | Total current liabilities | |
| Long-term debt, net of deferred finance costs of $3,960 and $6,324, respectively | |
| Deferred tax liability | 50,907 |
| | 36,965 |
|
| Operating lease liability, net of current portion | |
| | Other long-term liabilities | 10,221 |
| | 9,390 |
|
| Long-term liabilities of discontinued operations | 59 |
| | — |
|
| Other long-term liabilities | |
| Other long-term liabilities | |
| | Total liabilities | |
| Total liabilities | |
| Total liabilities | 690,654 |
| | 675,278 |
|
| |
|
| |
|
|
| Stockholders’ equity: | | | |
| Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 13,735,690 and 13,819,639 shares issued and outstanding, respectively | 137 |
| | 138 |
|
| Class B common stock, par value $0.01 per share; 50,000,000 shares authorized; 3,022,484 shares issued and outstanding | 30 |
| | 30 |
|
| Class C common stock, par value $0.01 per share; 50,000,000 shares authorized; 1,636,341 shares issued and outstanding | 17 |
| | 17 |
|
| Stockholders’ equity: | |
| Stockholders’ equity: | |
| Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 14,023,767 and 12,964,312 shares issued and outstanding, respectively | |
| Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 14,023,767 and 12,964,312 shares issued and outstanding, respectively | |
| Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 14,023,767 and 12,964,312 shares issued and outstanding, respectively | |
| Class B common stock, par value $0.01 per share; 50,000,000 shares authorized; 815,296 and 815,296 shares issued and outstanding, respectively | |
| Class C common stock, par value $0.01 per share; 50,000,000 shares authorized; 1,961,341 and 3,461,341 shares issued and outstanding, respectively | |
| Total common stock | 184 |
| | 185 |
|
| Treasury stock, at cost; 183,768 and 0 shares of Class A common stock, respectively | |
| Additional paid-in capital | 365,434 |
| | 367,041 |
|
| Retained earnings | 24,450 |
| | 13,265 |
|
| Accumulated other comprehensive loss | (722 | ) | | (532 | ) |
| Noncontrolling interest | 705 |
| | 1,121 |
|
| Accumulated deficit | |
| | Non-controlling interest | |
| Non-controlling interest | |
| Non-controlling interest | |
| Total stockholders’ equity | 390,051 |
| | 381,080 |
|
| Total liabilities and stockholders’ equity | $ | 1,080,705 |
| | $ | 1,056,358 |
|
See Notes to Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in Thousands, Except Per Share Data)
|
| | | | | | | | | | | |
| Years Ended December 31, |
| | 2015 | | 2016 | | 2017 |
| | | | | | |
| Net revenue | $ | 441,222 |
| | $ | 515,995 |
| | $ | 507,434 |
|
| | | | | | |
| Operating costs and expenses: | | | | | |
| Direct operating expenses, excluding depreciation, amortization and stock-based compensation | 317,789 |
| | 383,994 |
| | 384,412 |
|
| Depreciation and amortization | 17,577 |
| | 23,971 |
| | 25,683 |
|
| Corporate expenses | 25,458 |
| | 25,370 |
| | 25,828 |
|
| Stock-based compensation | 4,278 |
| | 4,253 |
| | 748 |
|
| Transaction costs | 1,739 |
| | 844 |
| | 1,175 |
|
| Business realignment costs | — |
| | — |
| | 6,204 |
|
| Goodwill and other intangible impairment charges | 1,680 |
| | — |
| | 51,848 |
|
| Net (gain) loss on sale and retirement of assets | (12,029 | ) | | 282 |
| | 397 |
|
| Total operating costs and expenses | 356,492 |
| | 438,714 |
| | 496,295 |
|
| Operating income | 84,730 |
| | 77,281 |
| | 11,139 |
|
| | | | | | |
| Other expense (income): | | | | | |
| Interest expense, net | 35,979 |
| | 34,072 |
| | 32,753 |
|
| Impairment on investment | — |
| | 4,236 |
| | — |
|
| Cancellation and (repurchase) of debt | 30,305 |
| | (546 | ) | | — |
|
| Other expense (income), net | 276 |
| | (665 | ) | | 288 |
|
| Income (loss) from continuing operations before income taxes | 18,170 |
| | 40,184 |
| | (21,902 | ) |
| Provision (benefit) from income taxes | 7,924 |
| | 16,982 |
| | (13,027 | ) |
| Net income (loss) from continuing operations | 10,246 |
| | 23,202 |
| | (8,875 | ) |
| Net income (loss) from discontinued operations, net of income taxes | — |
| | 91 |
| | (1,398 | ) |
| Net income (loss) | $ | 10,246 |
| | $ | 23,293 |
| | $ | (10,273 | ) |
| | | | | | |
| Net income (loss) attributable to: | | | | | |
| Controlling interests | $ | 9,830 |
| | $ | 23,059 |
| | $ | (11,185 | ) |
| Noncontrolling interests | 416 |
| | 234 |
| | 912 |
|
| | | | | | |
| Basic income (loss) per share: | | | | | |
| Continuing operations | $ | 0.58 |
| | $ | 1.28 |
| | $ | (0.48 | ) |
| Discontinued operations | — |
| | — |
| | (0.08 | ) |
| | $ | 0.58 |
| | $ | 1.28 |
| | $ | (0.56 | ) |
| Diluted income (loss) per share: | | | | | |
| Continuing operations | $ | 0.37 |
| | $ | 0.85 |
| | $ | (0.48 | ) |
| Discontinued operations | — |
| | — |
| | (0.08 | ) |
| | $ | 0.37 |
| | $ | 0.85 |
| | $ | (0.56 | ) |
| Weighted average shares outstanding: |
| |
| |
|
| Basic | 17,537 |
| | 18,255 |
| | 18,459 |
|
| Diluted | 27,724 |
| | 27,313 |
| | 18,459 |
|
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| Year Ended
December 31, | | | |
| | | | | | | | |
| 2023 | | 2022 | | | | | |
| | | | | | | | |
| Net revenue | $ | 454,231 | | | $ | 463,077 | | | | | | |
| | | | | | | | |
| Operating costs and expenses: | | | | | | | | |
| Direct operating expenses, excluding depreciation, amortization, and stock-based compensation | 329,197 | | | 324,931 | | | | | | |
| Depreciation and amortization | 19,200 | | | 19,044 | | | | | | |
| Corporate expenses | 25,023 | | | 24,428 | | | | | | |
| Stock-based compensation | 8,033 | | | 3,797 | | | | | | |
| Transaction and business realignment costs | 1,169 | | | 4,448 | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Impairment of intangible assets, investments, goodwill, and long-lived assets | 90,578 | | | 31,114 | | | | | | |
| | | | | | | | |
| Net loss (gain) on sale and retirement of assets | 170 | | | (275) | | | | | | |
| Total operating costs and expenses | 473,370 | | | 407,487 | | | | | | |
| Operating (loss) income | (19,139) | | | 55,590 | | | | | | |
| | | | | | | | |
| Other expense (income): | | | | | | | | |
| Interest expense, net | 37,249 | | | 39,828 | | | | | | |
| | | | | | | | |
| Gain on repurchases of debt | (1,249) | | | (108) | | | | | | |
| Other (income) expense, net | (5,975) | | | 2,044 | | | | | | |
| (Loss) income from operations before tax | (49,164) | | | 13,826 | | | | | | |
| Income tax benefit | (6,142) | | | (564) | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Net (loss) income | $ | (43,022) | | | $ | 14,390 | | | | | | |
| | | | | | | | |
| Net (loss) income attributable to: | | | | | | | | |
| Controlling interests | (44,961) | | | 12,337 | | | | | | |
| Non-controlling interests | 1,939 | | | 2,053 | | | | | | |
| Net (loss) income | (43,022) | | | 14,390 | | | | | | |
| | | | | | | | |
| Basic (loss) income per share: | $ | (2.68) | | | $ | 0.73 | | | | | | |
| | | | | | | | |
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| | | | | | | | |
| Diluted (loss) income per share: | $ | (2.68) | | | $ | 0.68 | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | |
| Basic | 16,761 | | | 16,991 | | | | | | |
| | | | | | | | |
| Diluted | 16,761 | | | 18,204 | | | | | | |
| | | | | | | | |
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See Notes to Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)CASH FLOWS
(in Thousands)
| | | | | | | | | | | | | |
| Year Ended
December 31, |
| | | | | |
| 2023 | | 2022 | | |
| Cash flows from operating activities: | | | | | |
| Net (loss) income | $ | (43,022) | | | $ | 14,390 | | | |
| | | | | |
| | | | | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities | | | | | |
| Depreciation and amortization | 19,200 | | | 19,044 | | | |
| Amortization of deferred financing costs | 2,086 | | | 1,879 | | | |
| Non-cash lease expense | 96 | | | 11 | | | |
| Net deferred taxes and other | (6,892) | | | (1,333) | | | |
| Allowance for credit losses | 4,265 | | | 3,015 | | | |
| Stock-based compensation expense | 8,033 | | | 3,797 | | | |
| Gain on repurchases of debt | (1,249) | | | (108) | | | |
| Trade and barter activity, net | (1,465) | | | (4,626) | | | |
| Impairment of intangible assets, investments, goodwill and long-lived assets | 90,578 | | | 31,114 | | | |
| Realized gain on sale of digital assets | (839) | | | — | | | |
| Gain on sale of investment | (5,210) | | | — | | | |
| Unrealized loss on investment | 388 | | | 2,073 | | | |
| Content rights acquired | — | | | (19,784) | | | |
| Amortization of content rights | 4,867 | | | 4,315 | | | |
| Change in content rights liabilities | (2,997) | | | 16,297 | | | |
| | | | | |
| | | | | |
| Other | (291) | | | (837) | | | |
| Changes in assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable | (3,900) | | | (7,185) | | | |
| Prepaid expenses and other assets | 6,198 | | | (4,719) | | | |
| | | | | |
| Accounts payable | 982 | | | (1,608) | | | |
| Accrued expenses | (2,268) | | | (4,621) | | | |
| Accrued interest | (783) | | | (551) | | | |
| | | | | |
| Other long-term liabilities | 50 | | | (378) | | | |
| | | | | |
| | | | | |
| Net cash provided by operating activities | 67,827 | | | 50,185 | | | |
| Cash flows from investing activities: | | | | | |
| Payment for acquisition | — | | | (18,485) | | | |
| Purchase of property and equipment | (14,979) | | | (15,828) | | | |
| | | | | |
| Purchase of digital assets | — | | | (4,997) | | | |
| Proceeds from sale of digital assets | 2,975 | | | — | | | |
| Proceeds from insurance recoveries | 774 | | | 578 | | | |
| Proceeds from sale of assets and investment related transactions | 7,661 | | | 968 | | | |
| | | | | |
| | | | | |
| | | | | |
| Net cash used in investing activities | (3,569) | | | (37,764) | | | |
| Cash flows from financing activities: | | | | | |
| Repurchases of 2026 Notes | (25,621) | | | (18,850) | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Dividend payments | (9,344) | | | — | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Proceeds from stock options exercised | 6,750 | | | 790 | | | |
| Repurchases of stock | (16,645) | | | (225) | | | |
| Withholdings for shares issued under the ESPP | 729 | | | 753 | | | |
| Cash distribution to non-controlling interests | (1,997) | | | (1,820) | | | |
| Repayments of capitalized obligations | (494) | | | (155) | | | |
| | | | | |
| | | | | |
| Net cash used in financing activities | (46,622) | | | (19,507) | | | |
| | | | | |
| Cash and cash equivalents and restricted cash: | | | | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 17,636 | | | (7,086) | | | |
| Beginning of period | 43,913 | | | 50,999 | | | |
| End of period | $ | 61,549 | | | $ | 43,913 | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2016 | | 2017 |
| | | | | | |
| Net income (loss) | $ | 10,246 |
| | $ | 23,293 |
| | $ | (10,273 | ) |
| Other comprehensive income: | | | | | |
| Foreign currency translation adjustments | 44 |
| | (766 | ) | | 190 |
|
| Total comprehensive income (loss) | 10,290 |
| | 22,527 |
| | (10,083 | ) |
| Less: comprehensive income attributable to noncontrolling interest | 416 |
| | 234 |
| | 912 |
|
| Comprehensive income (loss) attributable to controlling interest | $ | 9,874 |
| | $ | 22,293 |
| | $ | (10,995 | ) |
See Notes to Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in Thousands)
| | | | | | | | | | | | | |
| Year Ended
December 31, |
| | | | | |
| 2023 | | 2022 | | |
| Supplemental Disclosure of Cash Flow Information: | | | | | |
| Cash payments: | | | | | |
| Interest | $ | 37,547 | | | $ | 38,603 | | | |
| Income taxes | 1,412 | | | 1,198 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Supplemental Disclosure of Non-cash Activities: | | | | | |
| Dividends declared, but not paid during the period | $ | 3,279 | | | $ | — | | | |
| Deferred payments for software licenses | 3,889 | | | — | | | |
Investments acquired in exchange for advertising (1) | — | | | 4,161 | | | |
Property and equipment acquired in exchange for advertising (1) | 997 | | | 1,198 | | | |
| | | | | |
| Accrued capital expenditures | 85 | | | 158 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Supplemental Disclosure of Cash Flow Information relating to Leases: | | | | | |
| Cash paid for amounts included in the measurement of operating lease liabilities, included in operating cash flows | $ | 11,747 | | | $ | 10,909 | | | |
| Right-of-use assets obtained in exchange for operating lease obligations | 5,687 | | | 10,944 | | | |
| | | | | |
| Reconciliation of cash, cash equivalents, and restricted cash | | | | | |
| Cash and cash equivalents | $ | 61,046 | | | $ | 43,417 | | | |
| Restricted cash | 503 | | | 496 | | | |
| $ | 61,549 | | | $ | 43,913 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
(1) Represents total advertising services provided by the Company in exchange for property and equipment and equity interests acquired during each of the years ended December 31, 2023 and 2022, respectively.
See Notes to Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in Thousands, except Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares of Common Stock | | Treasury Stock | | | | | | | | | | | | | | | | |
| | Class A | | Class B | | Class C | | Class A | | | | | | | | | | | | | | | | |
| | Shares | | Shares | | Shares | | Shares | | | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained
Earnings (Deficit) | | | | Non-controlling Interest | | Total |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2021 | | 12,573,654 | | | 815,296 | | | 3,461,341 | | | — | | | | | $ | 169 | | | $ | — | | | $ | 302,724 | | | $ | (256,635) | | | | | $ | 3,326 | | | $ | 49,584 | |
| Net income | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 12,337 | | | | | 2,053 | | | 14,390 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued under exercise of stock options | | 116,601 | | | — | | | — | | | — | | | | | 1 | | | — | | | 789 | | | — | | | | | — | | | 790 | |
Issuance of restricted stock(1) | | 197,456 | | | — | | | — | | | — | | | | | 2 | | | — | | | 1,807 | | | — | | | | | — | | | 1,809 | |
| Stock-based compensation | | — | | | — | | | — | | | — | | | | | — | | | — | | | 3,797 | | | — | | | | | — | | | 3,797 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Treasury stock acquired at cost(2) | | — | | | — | | | — | | | 25,623 | | | | | — | | | (225) | | | — | | | — | | | | | — | | | (225) | |
| Common stock issued under the Employee Stock Purchase Plan | | 76,601 | | | — | | | — | | | (25,623) | | | | | 1 | | | 225 | | | 528 | | | — | | | | | — | | | 754 | |
| Cash distributions to non-controlling interests | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | | | (1,820) | | | (1,820) | |
| Balance at December 31, 2022 | | 12,964,312 | | | 815,296 | | | 3,461,341 | | | — | | | | | $ | 173 | | | $ | — | | | $ | 309,645 | | | $ | (244,298) | | | | | $ | 3,559 | | | $ | 69,079 | |
| Net loss | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | (44,961) | | | | | 1,939 | | | (43,022) | |
| Dividends declared ($0.75 per share) | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | (12,934) | | | | | — | | | (12,934) | |
Repurchase of stock(3) | | — | | | — | | | (1,500,000) | | | — | | | | | (15) | | | — | | | (14,535) | | | — | | | | | — | | | (14,550) | |
| Common stock issued under exercise of stock options | | 847,731 | | | — | | | — | | | — | | | | | 8 | | | — | | | 6,742 | | | — | | | | | — | | | 6,750 | |
Issuance of restricted stock(4) | | 100,015 | | | — | | | — | | | — | | | | | 1 | | | — | | | (1) | | | — | | | | | — | | | — | |
| Stock-based compensation | | — | | | — | | | — | | | — | | | | | — | | | — | | | 8,033 | | | — | | | | | — | | | 8,033 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Treasury stock acquired at cost(2) | | — | | | — | | | — | | | 183,768 | | | | | — | | | (2,177) | | | — | | | — | | | | | — | | | (2,177) | |
| Common stock issued under the Employee Stock Purchase Plan | | 111,709 | | | — | | | — | | | — | | | | | 1 | | | — | | | 728 | | | — | | | | | — | | | 729 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Cash distributions to non-controlling interests | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | | | (1,997) | | | (1,997) | |
| Balance at December 31, 2023 | | 14,023,767 | | | 815,296 | | | 1,961,341 | | | 183,768 | | | | | $ | 168 | | | $ | (2,177) | | | $ | 310,612 | | | $ | (302,193) | | | | | $ | 3,501 | | | $ | 9,911 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares of Common Stock | | | | | | | | | | | | | | |
| | | Class A | | Class B | | Class C | | | | | | | | | | | | | | |
| | | Shares | | Shares | | Shares | | Warrants | | Common Stock | | Additional Paid-in Capital | | Retained (Deficit) Earnings | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interest | | Total |
| Balance at January 1, 2015 | | 9,457,242 |
| | 3,022,484 |
| | 4,894,480 |
| | 9,508,878 |
| | $ | 174 |
| | $ | 351,984 |
| | $ | (8,439 | ) | | $ | — |
| | $ | 443 |
| | $ | 344,162 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,830 |
| | — |
| | 416 |
| | 10,246 |
|
| Offering costs | | — |
| | — |
| | — |
| | — |
| | — |
| | (92 | ) | | — |
| | — |
| | — |
| | (92 | ) |
| Stock-based compensation | | — |
| | — |
| | — |
| | — |
| | — |
| | 4,278 |
| | — |
| | — |
| | — |
| | 4,278 |
|
| Stock options exercised | | 7,164 |
| | — |
| | — |
| | — |
| | — |
| | 71 |
| | — |
| | — |
| | — |
| | 71 |
|
| Issuance of common stock in connection with NAME acquisition | | 481,948 |
| | — |
| | — |
| | — |
| | 5 |
| | 4,945 |
| | — |
| | — |
| | 225 |
| | 5,175 |
|
| Foreign currency translation adjustment | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 44 |
| | — |
| | 44 |
|
| Cash distribution to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (444 | ) | | (444 | ) |
| Balance at December 31, 2015 | | 9,946,354 |
| | 3,022,484 |
| | 4,894,480 |
| | 9,508,878 |
| | $ | 179 |
| | $ | 361,186 |
| | $ | 1,391 |
| | $ | 44 |
| | $ | 640 |
| | $ | 363,440 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 23,059 |
| | — |
| | 234 |
| | 23,293 |
|
| Exercise of warrants | | 531,197 |
| | — |
| | — |
| | (531,202 | ) | | 5 |
| | (5 | ) | | — |
| | — |
| | — |
| | — |
|
| GE Capital Equity Holdings, LLC conversion | | 3,258,139 |
| | — |
| | (3,258,139 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Proceeds from sale of minority interest in subsidiary | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50 |
| | 50 |
|
| Stock-based compensation | | — |
| | — |
| | — |
| | — |
| | — |
| | 4,253 |
| | — |
| | — |
| | — |
| | 4,253 |
|
| Foreign currency translation adjustment | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (766 | ) | | — |
| | (766 | ) |
| Cash distribution to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (219 | ) | | (219 | ) |
| Balance at December 31, 2016 | | 13,735,690 |
| | 3,022,484 |
| | 1,636,341 |
| | 8,977,676 |
| | $ | 184 |
| | $ | 365,434 |
| | $ | 24,450 |
| | $ | (722 | ) | | $ | 705 |
| | $ | 390,051 |
|
| Net (loss) income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (11,185 | ) | | — |
| | 912 |
| | (10,273 | ) |
| Joint venture acquisition | | 48,035 |
| | — |
| | — |
| | — |
| | 1 |
| | 513 |
| | — |
| | — |
| | — |
| | 514 |
|
| Stock-based compensation | | — |
| | — |
| | — |
| | — |
| | — |
| | 748 |
| | — |
| | — |
| | — |
| | 748 |
|
| Stock options exercised | | 35,914 |
| | — |
| | — |
| | — |
| | — |
| | 346 |
| | — |
| | — |
| | — |
| | 346 |
|
| Foreign currency translation adjustment | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 190 |
| | — |
| | 190 |
|
| Cash distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (496 | ) | | (496 | ) |
| Balance at December 31, 2017 | | 13,819,639 |
| | 3,022,484 |
| | 1,636,341 |
| | 8,977,676 |
| | $ | 185 |
| | $ | 367,041 |
| | $ | 13,265 |
| | $ | (532 | ) | | $ | 1,121 |
| | $ | 381,080 |
|
(2) Represents shares repurchased under the terms of the Company's stock repurchase plan pursuant to which the Company is authorized to repurchase up to $50 million of the Company’s issued and outstanding Class A common stock over a three-year period, the "2021 Stock Repurchase Plan."
(3) On June 16, 2023, the Company repurchased 1.5 million shares of the Company’s Class C common stock. For further discussion on the repurchase, see Note 11, Stockholders' Equity, in our Notes to Consolidated Financial Statements.
(4) Refer to Note 11, Stockholders' Equity, in the accompanying Notes to Consolidated Financial Statements for additional information related to shares issued.
See Notes to Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2016 | | 2017 |
| Cash flows from operating activities: | | | | | |
| Net income (loss) attributable to: | | | | | |
| Controlling interests | $ | 9,830 |
| | $ | 23,059 |
| | $ | (11,185 | ) |
| Noncontrolling interests | 416 |
| | 234 |
| | 912 |
|
| Net income (loss) | $ | 10,246 |
| | $ | 23,293 |
| | $ | (10,273 | ) |
| Adjustments to reconcile net income (loss) to net cash from operating activities: | | | | | |
| Depreciation and amortization | 17,577 |
| | 23,971 |
| | 25,683 |
|
| Amortization of deferred financing costs | 1,720 |
| | 1,579 |
| | 1,646 |
|
| Deferred income tax expense (benefit) | 7,737 |
| | 15,831 |
| | (13,806 | ) |
| Provision for doubtful accounts | 1,170 |
| | 1,921 |
| | 2,186 |
|
| Stock-based compensation expense | 4,278 |
| | 4,253 |
| | 748 |
|
| Trade activity, net | (5,357 | ) | | (9,731 | ) | | (11,754 | ) |
| Repurchase of debt | — |
| | (546 | ) | | — |
|
| Amortization of bond premium | (424 | ) | | — |
| | — |
|
| Write-off deferred financing costs | 9,348 |
| | 376 |
| | 83 |
|
| Write-off of bond premium | (6,779 | ) | | — |
| | — |
|
| Impairment of goodwill | — |
| | — |
| | 48,933 |
|
| Impairment of FCC licenses | 1,680 |
| | — |
| | 2,915 |
|
| Write-off of goodwill | — |
| | — |
| | 4,105 |
|
| Write-off of trademark | — |
| | — |
| | 771 |
|
| Impairment on investment | — |
| | 4,236 |
| | — |
|
| Net (gain) loss on sale and retirement of assets | (12,029 | ) | | 282 |
| | 397 |
|
| Changes in assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable | 3,342 |
| | 3,987 |
| | (864 | ) |
| Prepaid expenses and other assets | (6,805 | ) | | (704 | ) | | (676 | ) |
| Accounts payable | 33 |
| | (2,463 | ) | | 669 |
|
| Accrued expenses | 1,657 |
| | (5,002 | ) | | (625 | ) |
| Accrued interest | (4,335 | ) | | (288 | ) | | 1,107 |
|
| Other long-term liabilities | 2,884 |
| | (1,074 | ) | | (835 | ) |
| Net cash provided by operating activities - continuing operations | 25,943 |
| | 59,921 |
| | 50,410 |
|
| Net cash (used in) provided by operating activities - discontinued operations | — |
| | (124 | ) | | 274 |
|
| Net cash provided by operating activities | 25,943 |
| | 59,797 |
| | 50,684 |
|
| Cash flows from investing activities: | | | | | |
| Payments for acquisitions, net of cash received | (76,213 | ) | | (2,160 | ) | | (5,511 | ) |
| Payment for investment | — |
| | — |
| | (857 | ) |
| Acquisition of intangibles | (377 | ) | | (11 | ) | | (150 | ) |
| Purchase of property and equipment | (14,724 | ) | | (20,722 | ) | | (22,824 | ) |
| Proceeds from insurance settlement | 450 |
| | 451 |
| | — |
|
| Proceeds from sale of assets | 19,087 |
| | 1,678 |
| | 1,092 |
|
| Net cash used in investing activities - continuing operations | (71,777 | ) | | (20,764 | ) | | (28,250 | ) |
| Net cash used in investing activities - discontinued operations | — |
| | (199 | ) | | (680 | ) |
| Net cash used in investing activities | (71,777 | ) | | (20,963 | ) | | (28,930 | ) |
| Cash flows from financing activities: | | | | | |
| Offering costs | (92 | ) | | — |
| | — |
|
| Proceeds from exercise of employee stock options | 72 |
| | — |
| | 346 |
|
| Repayment of long-term debt | (553,552 | ) | | (19,375 | ) | | (6,662 | ) |
| Proceeds from the issuance of long-term debt | 620,000 |
| | — |
| | — |
|
| Debt financing costs | (11,394 | ) | | — |
| | (526 | ) |
| Proceeds from sale of noncontrolling interest in subsidiary | — |
| | 50 |
| | — |
|
| Cash distributions to noncontrolling interests | (444 | ) | | (219 | ) | | (496 | ) |
| Repayments of capitalized obligations | (159 | ) | | (171 | ) | | (616 | ) |
| Net cash provided by (used in) financing activities | 54,431 |
| | (19,715 | ) | | (7,954 | ) |
| Net effect of foreign currency exchange rate changes | 239 |
| | (877 | ) | | (45 | ) |
| Net increase in cash and restricted cash | 8,836 |
| | 18,242 |
| | 13,755 |
|
| Cash and restricted cash: | | | | | |
| Beginning of period | 24,462 |
| | 33,298 |
| | 51,540 |
|
| End of period | $ | 33,298 |
| | $ | 51,540 |
| | $ | 65,295 |
|
See Notes to Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in Thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2016 | | 2017 |
| Supplemental Disclosure of Cash Flow Information: | | | | | |
| Cash payments: | | | | | |
| Payments to redeem long-term debt prior to contractual maturity | $ | 27,735 |
| | $ | — |
| | $ | — |
|
| Interest | 38,978 |
| | 32,371 |
| | 29,917 |
|
| Income taxes | 622 |
| | 1,878 |
| | 3,170 |
|
| Purchase obligations: | | | | | |
| Capital lease | $ | — |
| | $ | 525 |
| | $ | — |
|
| Equity issued in respect of acquisitions: | | | | | |
| Common stock, NAME acquisition | $ | 4,950 |
| | $ | — |
| | $ | — |
|
| Common stock, joint venture acquisition | — |
| | — |
| | 513 |
|
| Allocation of business acquisition to noncontrolling interest: | | | | | |
| NAME | $ | 225 |
| | $ | — |
| | $ | — |
|
| Non-cash investment: | | | | | |
| Investments | $ | — |
| | $ | 3,500 |
| | $ | 2,972 |
|
See Notes to Consolidated Financial Statements
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Description of Business
On July 25, 2014, Townsquare Media, LLC converted into a Delaware corporation (the “LLC Conversion”), and was renamed Townsquare Media, Inc. The accompanying Consolidated Financial Statements are presented post-conversion as Townsquare Media, Inc. (together with its consolidated subsidiaries, except as the context may otherwise require, “we,” “us,” “our,” “Company,” or “Townsquare”).
Pursuant to the conversion, each unit and warrant to purchase units of Townsquare Media, LLC was exchanged for a number of shares of Class A, Class B or Class C common stock of Townsquare Media Inc., and warrants to purchase shares of Class A common stock of Townsquare Media, Inc. The conversion was structured to retain the relative equity interests of each of the respective equity holders of Townsquare Media, LLC in Townsquare Media, Inc.
In conjunction with the LLC Conversion, the Company’s shares began trading on the New York Stock Exchange (“NYSE”) in an initial public offering (“IPO”) on July 24, 2014. The Company’s shares are traded on the NYSE under the symbol “TSQ.” See Note 8 for additional information.
Nature of Business
Townsquare is a radio,community-focused digital media entertainment and digital marketing solutions company with market leading local radio stations, principally focused on beingoutside the premiertop 50 markets in the U.S. Our integrated and diversified products and solutions enable local, advertisingregional and marketing solutions platform in smallnational advertisers to target audiences across multiple platforms, including digital, mobile, social, video, streaming, e-commerce, radio and mid-sized markets across the United States.events. Our assets include 317 radio stations and more than 325 local websites in 67 U.S. markets, a subscription digital marketing solutions company (Townsquare Interactive) servingservices 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 12,40024,000 small to medium sized businesses,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 platform (Townsquare Ignite)technology stack with an in-house demand and approximatelydata management platform; and a portfolio of 350 live events with nearly 18 million annual attendeeslocal terrestrial radio stations in 74 U.S. markets strategically situated outside the Top 50 markets in the U.S. and Canada. United States. Our brands includeportfolio includes local media assetsbrands such as WYRKWYRK.com, KLAQWJON.com and NJ101.5.com, K2and NJ101.5;premier national music festivalsbrands such as Mountain Jam, WE Fest and the Taste of Country Music Festival; touring lifestyle and entertainment events such as the America on Tap craft beer festival series and North American Midway Entertainment, North America’s largest mobile amusement company; and tastemaker music and entertainment owned and affiliated websites such as XXLmag.com, TasteofCountry.com, UltimateClassicRock.com, and Loudwire.com.
Current economic challenges, including high and sustained inflation and interest rates have caused and could continue to cause economic uncertainty and volatility. These factors could result in advertising and subscription digital marketing solutions cancellations, declines in the purchase of new advertising by our clients, declines in the addition of new digital marketing solutions subscribers, and increases to our operating expenses. We monitor economic conditions closely, and in response to observed or anticipated reductions in revenue, we may institute precautionary measures to address the potential impact to our consolidated financial position, consolidated results of operations, and liquidity, including wage reduction efforts and controlling non-essential capital expenditures.
The extent of the impact of current economic conditions will depend on future actions and outcomes, all of which remain fluid and cannot be predicted with confidence (including effects on advertising activity, consumer discretionary spending and our employees in the markets in which we operate).
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.wholly-owned and majority-owned subsidiaries that it controls. All intercompany accounts and transactions have been eliminated in consolidation. Certain amounts
Segment Reporting: The Company’s operating segments are organized internally by the types of products and services provided, represented by three segments: Subscription Digital Marketing Solutions, which includes the results of the Company’s subscription digital marketing solutions business, Townsquare Interactive; Digital Advertising, which includes digital advertising on its owned and operated digital properties and its digital programmatic advertising platform; and Broadcast Advertising, which includes our local, regional and national advertising products and solutions delivered via terrestrial radio broadcast, and other miscellaneous revenue that is associated with its broadcast advertising platform. The remainder of the Company’s business is reported in the prior year’s financial statementsOther category, which includes owned and operated live events.
The presentation of $0.1 million of broadcast and digital advertising revenues for the year ended December 31, 2022 have been reclassified to conform towith the current year’speriod's presentation.
The Company’s activities are predominately within the United States, which represents one geographic region for segment reporting. The Company does not have any material inter-segment sales. See Note 13, Segment Reporting,: Operating segments are organized internally by type of products and services provided. The Company has aggregated similar operating segments into two reportable segments, which are Local Marketing Solutions and Entertainment. The Company’s Local Marketing Solutions segment provides broadcast and digital products and solutions in our Notes to advertisers and businesses within our local markets. The Company’s Entertainment segment provides live event experiences and music and lifestyle content directly to consumers and promotion, advertising and product activations to local and national advertisers. Prior to the second quarter of 2016, the Company reported its results in two reportable segments, Local Advertising and Live Events, and reported the remainder of its business in its Other Media and Entertainment category. The prior Local Advertising segment, together with the Company’s digital marketing and e-commerce solutions, which were previously part of the Other Media and Entertainment category, are now reported within Local Marketing Solutions. The prior Live Events segment, together with the Company’s national digital assets which were previously part of the Other Media and Entertainment category, are now reported within Entertainment. The segment disclosure is consistent with the management decision-making process that determines the allocation of resources and the measurement of performance.Consolidated Financial Statements for further information.
Use of Estimates: The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include assumptions used in determining the fair value of assets and liabilities acquired in a business combination, impairment testing of intangible assets, valuation and impairment testing of long-lived tangible assets, the present value of leasing arrangements, share-based payment expense and the calculation of allowance for credit losses and income taxes.
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of Credit Risk: Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The credit risk is limited due to the large number of customers comprising the Company’s customer base and their dispersion across several different geographic areas of the country. No single customer accounts for more than 1% of revenue for the years ended December 31, 2023 and 2022.
Cash and cash equivalents: The Company maintains its cash balances principally at large financial institutions throughout the United States. Accounts at the institutions are insured by the Federal Deposit Insurance Corporation. Balances in these accounts may at times exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within three months from date of purchase to be cash equivalents. As of December 31, 2023 and 2022, cash equivalents were comprised of money market funds of $59.0 million and $42.4 million, valued using Level 1 inputs.
Restricted cash: Restricted cash includes the collateral account for the Company’s corporate credit cards and a stand-by letter of credit issued in favor of a landlord for one of our leases, and are classified in non-current assets in the Consolidated Balance Sheets. From time to time, such restricted funds could be returned to us or we could be required to pledge additional cash. We had restricted cash of $0.5 million as of December 31, 2023 and 2022, respectively.
Accounts Receivable and Allowance for Doubtful AccountsCredit Losses: Accounts receivable are recorded at the invoiced amount. The carrying amountCompany maintains an allowance for credit losses, which represents the portion of accounts receivable that is reduced bynot expected to be collected over the duration of its contractual life. Credit losses are recorded when the
Company believes a valuation allowance that reflects management’s best estimatecustomer, or group of the accounts that willcustomers, may not be collected. In additionable to reviewing delinquent accounts receivable, management considers manymeet their financial obligations. A considerable amount of judgment is required in determining expected credit losses. Relevant factors include prior collection history with customers, the related aging of past due balances, projections of credit losses based on historical trends or past events, and the consideration of forecasts of future economic conditions. Allowances for credit losses are based on facts available and are re-evaluated and adjusted on a regular basis. Negative macroeconomic trends could result in estimating its general allowance including historical data, experience, customer types, creditworthiness andan increase in credit losses if delays in the payment of outstanding receivables are observed or if future economic trends. From time to time, management may adjust its assumptions for anticipated changesconditions differ from those considered in any of those or other factors expected to affect collectability.our forecasts. Account balances are charged off against the allowance when it is probable the receivable will not be recovered.
The change in the allowance for credit losses for the year ended December 31, 2023 was as follows (in thousands):
| | | | | | | | |
| Balance at December 31, 2022 | | $ | 5,946 | |
| Provision for credit losses | | 4,265 | |
| Amounts written off against allowance, net of recoveries | | (6,170) | |
| Balance at December 31, 2023 | | $ | 4,041 | |
Property and Equipment: Property and equipment are statedrecorded at cost.cost and depreciated over their estimated useful life. Property and equipment acquired in a business combination are recorded at their estimated fair value at the date of acquisition under the acquisition method of accounting. Major additions or improvements are capitalized, while repairs and maintenance are charged to expense.
Depreciation expense on property and equipment is determined on arecorded using the straight-line basis.method. The estimated useful lives for depreciationproperty and equipment are as follows:
| | | | | | | | |
| | |
| Property Type | | Depreciation Period in Years |
| Buildings and improvements | | 10 to 39 years |
| Broadcasting equipment | | 3 to 2030 years |
Rides and related equipment | | 10 to 20 years |
| Computer and office equipment | | 3 to 5 years |
| Furniture and fixtures | | 5 to 10 years |
| Transportation equipment | | 5 2 to 105 years |
| Software development costs | | 1 to 23 years |
| Leasehold improvements | | Shorter of theirthe economic useful life or remaining term of lease assuming likely renewal periods, as appropriate |
The above depreciable lives are used for new property and equipment. Used property and equipment may have a useful life that is less than that of an acquired fixed asset that is new, depending on its condition. Upon sale or disposition of an asset, the cost and related accumulated depreciation are removed from the accounts and any loss or gain is recognized in net loss (gain) loss on sale and retirement of assets in the Consolidated Statements of Operations.
During each of the years ended December 31, 2023 and 2022, the Company received total insurance recoveries of $0.8 million and $0.6 million, respectively, primarily related to hurricane related damages incurred in the Shreveport, LA and Lake Charles, LA markets, respectively. Insurance recoveries are included as a component of Other expense (income), net in the Consolidated Statements of Operations.
Software Development Costs: During the years ending December 31, 2016 and 2017, the Company had capitalized software development costs of $4.7 million and $5.6 million (net of write downs of $0.4 million and $0.3 million), respectively, inIn accordance with Accounting Standards Codification (“ASC”) Topic 350, Internally Developed Software,. Costs we incurred and capitalized software development costs of $5.9 million and $4.7 million during each of the years ended December 31, 2023 and 2022, respectively. Certain costs incurred for software development prior to technological feasibilityduring the application development stage are capitalized while costs incurred during the preliminary and post-implementation stages are expensed in the period incurred. Once technological feasibility is reached, which is generally at the point of time of the completion of a working model, developmentCapitalized costs are capitalized untilamortized over the product is ready for general release.project’s estimated useful life. Software development costs consist primarily of salary and benefits for the
Company’s development and technical support staff, contractors’ fees and other costs associated with the development and localization of products and services.
Acquisitions and Business Combinations: The Company accounts for its business acquisitions under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. The total cost of acquisitions is allocated to the underlying identifiable net assets, based on their respective estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amounts assigned to identifiable intangible assets. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items.
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
This standard requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date’s fair value with limited exceptions and changes the accounting treatment for certain specific items, including:
Acquisition costs are generally expensed as incurred;
Noncontrolling interests are valued at fair value at the acquisition date; and
Restructuring costs associated with a business combination are generally expensed subsequent to the acquisition date.
Intangible Assets: Intangible assets consist principally of Federal Communication Commission (“FCC”) broadcast licenses and other definite-lived intangible assets. FCC broadcast licenses are granted to radio stations for up to eight years under the Telecommunications Act of 1996 (the “Act”). The Act requires the FCC to renew a broadcast license if the FCC finds that the station has served the public interest, convenience and necessity, there have been no serious violations of either the Communications Act of 1934 or the FCC’s rules and regulations by the licensee, and there have been no other serious violations which taken together constitute a pattern of abuse. The licenses may be renewed indefinitely at minimal cost. Costs incurred to renew FCC broadcast licenses are expensed as incurred. The weighted average time to renewal of our FCC licenses is 5.6 years as of December 31, 2023. FCC licenses, which have been recorded at their estimated fair value as of the date of acquisition.
FCC Broadcast Licenses: FCC broadcast licensesacquisition, have an indefinite useful life and therefore are not amortized. The fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Costs associated with other definite-lived intangible assets are being amortized using the straight-line method over the term of the related agreements,their estimated remaining useful lives, which range from 13 to 39 years.
The Company evaluates the fair value of its FCC licenses at the unit of account level. Each market's broadcasting licenses are combined into a single unit of accounting for purposes of testing for impairments. The Company has determined that the geographic market is the appropriate unit of accounting. The Company evaluates its FCC licenses for impairment9 years, as of December 31, 2023.
We have selected December 31st as the annual testing date for impairment of FCC licenses. We evaluate our FCC licenses annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. The Company determinesWe evaluated the fair value of its FCC licenses using an income approach. This income approach attempts to isolate the local advertising income that is attributable toour FCC licenses at the unit of account level. The fair valueEach market's broadcasting licenses were combined into a single unit of accounting for purposes of testing for impairments, which was geographic market.
We utilized a discounted cash flow method to perform our impairment test. Under this method, the income that is calculatedattributable to each FCC license is isolated and is based upon modeling a hypothetical “greenfield” build-up to a “normalized” enterprise that, by estimatingdesign, lacks inherent goodwill and discountingassumes that the cash flowsonly asset of the hypothetical start-up business is the license. It is assumed that a typical market participant would assume could be available from similar radio stations operatedrather than acquiring indefinite-lived intangible assets as part of a group of commonly owned radio stationsgoing concern business, the buyer hypothetically develops indefinite-lived intangible assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flow model which results in a similar sized geographic radio market.value that is directly attributable to the indefinite-lived intangible assets. The Company believes thiscash flows generated in the greenfield method of valuation providesare presumed to emanate from the best estimate of the fair value ofone asset, or the FCC licenses. The Company did not utilizelicense, that exists at time zero. This cash flow stream is discounted to arrive at a market approach as transactions involvingvalue for the FCC licenses are frequently private transactions that are highly dependent on the collection of assets with limited disclosure. The cost approach is not applicable as FCC licenses are not able to be re-created or duplicated.license.
For purposes of testing the carrying value of the Company’s FCC licenses for impairment, the
The fair value of FCC licenses for each geographic market contains significantis primarily dependent on the future cash flows of the radio markets and other assumptions, incorporating variables that are based on past experiences and judgments about future performance using industry information within each market. These variables would include,including, but are not limited to: (1)to, forecasted revenue growth, ratesprofit margins and a risk-adjusted discount rate. This data is populated using industry normalized information representing an average FCC license within a market. The projections incorporated into our license valuations take into consideration the then current economic conditions. Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may be beyond our control.
Below are some of the key assumptions used in our 2023 impairment assessments:
| | | | | | | | |
| December 31, 2023 |
| Discount Rate | 12.2% - 14.1% |
| Long-term Revenue Growth Rate | 0.0% |
| Low | High |
| Mature Market Share* | 20.6 | % | 75.0 | % |
| Operating Profit Margin | 20.0 | % | 47.0 | % |
Below are some of the key assumptions used in our 2022 impairment assessments:
| | | | | | | | |
| December 31, 2022 |
| Discount Rate | 10.2% - 12.0% |
| Long-term Revenue Growth Rate | 0.0% |
| Low | High |
| Mature Market Share* | 19.3 | % | 60.7 | % |
| Operating Profit Margin | 20.0 | % | 47.0 | % |
* Market share assumption used when reliable third-party data is available. Otherwise, Company results and forecasts are utilized.
Based on the results of the Company’s impairment evaluations of its FCC licenses performed at March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023, we incurred impairment charges of $8.2 million, $16.6 million, $23.6 million, and $22.5 million, respectively, for each geographic market; (2) profit marginFCC licenses in 36 of our 74 local markets representing total FCC impairment charges of $70.9 million for the market; (3) estimated capital expendituresyear ended December 31, 2023.
Based on the results of the Company’s impairment evaluations of its FCC licenses performed at June 30, 2022, September 30, 2022 and working capital requirements duringDecember 31, 2022, we incurred impairment charges of $5.2 million, $10.3 million and $10.6 million, respectively, for FCC licenses in nine of our 74 local markets representing total FCC impairment charges of $26.1 million for the projection period; (4) risk-adjusted discount rate; and (5) expected growth rates in perpetuityyear ended December 31, 2022.
Assumptions used to estimate terminal values. These variables are susceptible to changes in estimates, which could result in significant changes to the fair value of the FCC licenses. If the carrying amount of theour FCC licenses is greater than itsare dependent upon the expected performance and growth of our traditional broadcast operations. In the event broadcast revenues experience actual or anticipated declines, such declines will have a negative impact on the estimated fair value in a given geographic market,of our FCC licenses, and it is possible the carrying amount of the FCC license is reduced to its estimated fair value and this reduction may have a material impact on the Company’s consolidated financial condition and results of operations. AnCompany will recognize additional impairment loss is recognized if the carrying value amount of the FCC license is not recoverable and exceeds its fair value, as noted above.charges.
Goodwill:The acquisition method of accounting requires that the excess of purchase price paid over the estimated fair value of identifiable tangible and intangible net assets of acquired businesses be recorded as goodwill. Under the provisions of ASU 2017-04,ASC Topic 350, Intangibles-Goodwill and Other, (Topic 350): Simplifying the Test for Goodwill Impairment, goodwill is not amortized, but is reviewed for impairment at least on an annual basis at December 31st, or when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.
The Company evaluates goodwill for impairment at the reporting unit level and has determined appropriate reporting units. The most material, the Local Marketing Solutions operating segment,significant reporting unit is comprised of the components representing the local broadcast advertising businesses of all geographic markets, “Local Advertising”, which are aggregated into one reporting unit for testing. OtherOur other reporting units tested for goodwill impairment come from within our Entertainment operating segment and include in-market operations, NAME, Music Festivals,include: (i) national digital assets, and other national events. In-market operations comprise the events that occur within our 67 distinct markets, NAME“National Digital”, which consists of music and entertainment focused national websites, (ii) Townsquare Ignite, our digital programmatic advertising platform, (iii) Amped, which is our owned and operated network of digital brands, made up of over 400 websites and over 400 mobile applications (iv) Analytical Services, which is an attribution and analytics platform dedicated to tracking broadcast media, (v) Townsquare Interactive, which is our subscription based digital marketing solutions offered to small and mid-sized local and regional businesses in markets outside the operations of North American Midway Entertainment, Music Festivals consists oftop 50 in the United States, and (vi) Live Events, which includes the operations of our multi-day music festivals and other national events includeincluding other expos, lifestyle and active events which occur outside of our 6774 distinct markets.
Recoverability of goodwill is evaluated by comparison of the fair value of a reporting unit with its carrying value. For purposes of testing the carrying value of the Company's goodwill for impairment, the fair value of goodwill for each reporting unit contains significant assumptions incorporating variables that are based on past experiences and
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
judgments about future performance using industry information. These variables would include, but are not limited to: (1) forecasted revenue growth rates;growth; (2) profit margin; (3) estimated capital expenditures and working capital requirements during the projection period; (4) risk-adjusted discount rate; and (5) expected growth rates in perpetuity to estimate terminal values. These variables are susceptible to changes in estimates, which could result in significant changes to the fair value of the goodwill. Impairment of goodwill is calculated by comparing the fair value as described above to the carrying value of goodwill.
The Company also performedperforms a reasonableness test on the fair value results for goodwill by comparing the carryingfair value of the Company’s assetsreporting units to the Company’s enterprise value based on its market capitalization.
During the third quarter of 2023, the Company concluded that the carrying amount of the Local Advertising reporting unit exceeded its fair value, resulting in the recognition of a non-cash goodwill impairment charge of $2.8 million. An interim impairment assessment was considered necessary as a result of declines in traditional broadcast revenue and the increase in the weighted average cost of capital. The Company did not identify indicators of impairment related to any other reporting unit that would have required an interim impairment assessment during the year ended December 31, 2023.
In assessing whether goodwill was impaired in connection with its annual impairment testing performed as of December 31st, the Company performed a quantitative assessment for each of its reporting units. The Company compared the fair value of each of its reporting units, determined based upon discounted estimated future cash flows, to the carrying amount at December 31, 2023, including goodwill. Based upon such assessment, we determined that the fair value of the following reporting units exceeded their respective carrying amounts. The fair values of our National Digital, Townsquare Ignite, Analytical Services and Townsquare Interactive reporting units were in excess of their respective carrying values by approximately 117%, 41%, 157%, and 147%, respectively. The fair values of each of our reporting units were determined using the income approach. The income approach requires several assumptions including future sales growth, EBITDA (earnings before interest, taxes, depreciation and amortization) margins, capital expenditures, and discount rates which are the basis for the information used in the discounted cash flow model. The weighted-average cost of capital used in testing our reporting units for impairment ranged from 12.0% to 17.2% with perpetual growth rates ranging from 1.7% to 5.6%.
During the fourth quarter of 2023, the Company revised its near-term revenue and operating margin expectations for the Live Events reporting unit in consideration of the performance of events during the period. As a result, the Company determined that the fair value of the Live Events reporting unit was less than its carrying amount resulting in the recognition of a non-cash goodwill impairment charge of $1.4 million. The fair value of the Live Events reporting unit was calculated utilizing a weighted average cost of capital of 12.0%. Cash flow projections were derived from internal forecasts of anticipated revenue growth rates and operating margins, updated as discussed above, with cash flows beyond the discrete forecast period estimated using a terminal value calculation which incorporated historical and forecasted trends and an estimate of the long-term growth rate. The perpetual growth rate utilized in the terminal value calculation was 4.1%.
For 2022, in assessing whether goodwill was impaired in connection with its annual impairment testing performed as of December 31st, the Company performed a quantitative assessment for each of its reporting units. The Company compared the fair value of each of its reporting units, determined based upon discounted estimated future cash flows, to the carrying amount at December 31, 2022, including goodwill. Based upon such assessment, we determined that the fair value of each of our reporting units exceeded their respective carrying amounts. The fair values of our Local Advertising, National Digital, Townsquare Ignite, Analytical Services, Townsquare Interactive and Live Events reporting units were in excess of their respective carrying values by approximately 18%, 243%, 90%, 211%, 252% and 19%, respectively. The fair values of each of our reporting units were determined using the income approach. The income approach requires several assumptions including future sales growth, EBITDA (earnings before interest, taxes, depreciation and amortization) margins, capital expenditures, and discount rates which are the basis for the information used in the discounted cash flow model. The weighted-average cost of capital used in testing our reporting units for impairment ranged from 10% to 18.8% with perpetual growth rates ranging from (4.9)% to 10.6%.
The key assumptions used to determine the estimated fair value of each reporting unit are predicated on our market positioning and the ability to provide diversified and integrated product and service offerings. In the event our operating strategy faces challenges in the business environments in which each of our reporting units operate, a resulting change in the key assumptions (e.g., long-term financial projections) could have a negative impact on the estimated fair value of our reporting units, and it is possible the Company could recognize additional impairment charges.
See Note 6, Goodwill and Other Intangible Assets, Net, for further details related to the results were reasonable. of our impairment testing for each of the years ended December 31, 2023 and 2022, respectively.
Investments: Long-term investments consistconsists of minority holdings in companies thatvarious companies. As management believes are synergistic with Townsquare. Management does not exercise significant controlinfluence over operating and financial policies of the investees, accordingly the investments are reflectednot consolidated or accounted for under the costequity method of accounting. The initial valuation of equity valuations weresecurities is based upon an estimate of market value at the time of investment, or upon a combination of valuation analysisanalyses using both observable and unobservable inputs categorized as Level 2 and performing discounted cash flows analysis, using unobservable inputs categorized as Level 3 within the ASC 820 framework. Management periodically reviewsframework, respectively.
In accordance with ASC 321, Investments - Equity Securities, the Company measures its equity securities at cost minus impairment, as their fair value is not readily determinable and the investments do not qualify for the net asset value per share practical expedient. The Company monitors its investments for any subsequent observable price changes in orderly transactions for the identical or a similar investment of the same investee, at which time the Company adjusts the then current carrying values of the related investment. On July 2, 2021, one of the Company's investees completed its registration with the SEC and became a publicly traded company. As a result, the Company's investment was no longer measured at cost minus impairment and the carrying value of the investment is measured at its fair value with changes in fair value reflected in net income. Additionally, the Company evaluates its investments initially valued using a discounted cash flows analysis duringfor any indicators of impairment. The Company recorded $14.5 million impairment charges for the year and determined that thereended December 31, 2023. There were no indicators of$1.2 million impairment present duringcharges recorded for the year. The valuation analysis using observable inputs were performed near year end and believes that current market value is not materially different from carrying value.ended December 31, 2022.
See Note 7, Investments, for further details related to the Company's investments.
Deferred Financing Costs: Deferred financing costs related to the issuance of debt are capitalized and are amortized over the life of the notesinstrument in such a way as to result in a constant rate of interest when applied to the amount outstanding at the beginning of any given period (the interest method). The amortization of these costs is recorded as interest expense, net in the Consolidated Statements of Operations. The Company has early-adopted ASU 2015-03 in 2015, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs, accordingly unamortizedUnamortized deferred financing costs as of December 31, 20162023 and 20172022 have been deducted from the long-term debt balance in the Consolidated Balance Sheets presented herein.Sheets.
Impairment of Long-Lived Assets: Long-lived assets (including property, equipment and intangible assets subject to amortization) to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset group may not be recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposal of the asset group. If it were determined that the carrying amount of an asset was not recoverable, an impairment loss would be recorded. The Company determines the fair value of its long-lived assets based upon the market value of similar assets, if available, or independent appraisals, if necessary. Long-lived assets to be disposed of and/or held for sale are reported at the lower of carrying amount or fair value, less cost to sell. The fair value of assets held for sale is determined in the same manner as described for assets held and used. There was nowere a total of $0.4 million non-cash impairment atcharges related to long-lived assets for the twelve months ended December 31, 2015, 20162023. We recognized total impairment charges related to long-lived assets during the year ended December 31, 2022 of $0.9 million. Long-lived asset impairment charges are included in caption Impairment of long-lived and 2017.intangible assets, in the Company’s Consolidated Statements of Operations.
Transaction and Business Realignment Costs: On June 17, 2022, following regulatory approval, the Company completed the acquisition of Cherry Creek Broadcasting LLC (“Cherry Creek”) and incurred transaction, acquisition, integration, and other costs. On January 24, 2021 the Company entered into a stock repurchase agreement with Oaktree Capital Management L.P. (“Oaktree”) and paid $4.5 million related to the settlement agreement.
The Company recorded the following transaction and business realignment costs for the years ended December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | |
| | December 31,
2023 | | December 31,
2022 | | |
| | | | | | |
| Transaction/Acquisition Costs | | 127 | | | 1,085 | | | |
| Business Integration Costs | | — | | | 1,272 | | | |
| Compensation and Other Costs | | 1,042 | | | 2,091 | | | |
| Total | | $ | 1,169 | | | $ | 4,448 | | | |
Self-Insurance Liabilities: The Company is self-insured for medical liability. In addition, the Company has stop loss coverage in excess of certain defined limits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering claims experience, severity factors and other assumptions. For any legal costs expected to be incurred in connection with a loss contingency, the Company recognizes the expense as incurred.
Asset Retirement Obligations: Under the provisions of ASC 410, Asset Retirement and Environmental Obligations, the Company is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the fair value can be reasonably estimated. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company settles the obligation for its recorded amount and records a gain or loss upon settlement. The obligation for equipment removal at the end of the lease term as of December 31, 2016 and 2017 was $0.9 million, which is included in other long-term liabilities in the Consolidated Balance Sheets.
Revenue Recognition: Broadcast revenue for commercial broadcasting advertisements is recognized over time when the commercial is broadcast. Revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for advertisers that use agencies. Subscription digital marketing solutions revenue, under the brand name Townsquare Interactive, is recognized as a contract liability until the terms of a customer contract are satisfied, which generally occurs with the transfer of control as the Company satisfies its contractual performance obligation over time. Digital revenue is derived primarily from the sale of internet-based advertising campaigns to local, regional, and national advertisers and is recognized over the duration of the campaigns based on impressions delivered or time elapsed, depending upon the terms of the contract. Live events revenue and other non-broadcast advertising revenue are recognized as events are conducted. Deferred revenue consists primarily of digital subscriptions in which payment is received in advance of the service month and advance ticket sales onof events scheduled to take place at dates in the future. Digital revenue is derived primarily
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
from the sale of internet-based advertising campaigns to local and national advertisers and is recognized over the duration of the campaigns.
Trade and Barter TransactionsAdvertising: Trade and Barter transactionsAdvertising (advertising provided in exchange for goods and services) are reported at the estimated fair value of the products or services received.received, unless this is not reasonably estimable, in which case the consideration is measured based on the standalone selling price of the advertising promised or delivered. Revenue from trade and barter transactionsadvertising is recognized when advertisements are broadcast. Merchandise or services received is charged to expense when received or utilized. If merchandise or services are received prior to the broadcast of the advertising, a liability is recorded. If advertising is broadcast before the receipt of the goods or services, a receivable is recorded. Total revenues recognized related to trade and barter advertising were $13.8 million and $13.3 million for the years ended December 31, 2023 and 2022, respectively. Total expense recognized related to trade and barter advertising were $12.3 million and $8.7 million for the years ended December 31, 2023 and 2022, respectively.
Leases: The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, current and operating lease liability, net of current portion on our Consolidated Balance Sheets. Finance leases are included in property and equipment, net, accrued expenses and other current liabilities and other long-term liabilities on our Consolidated Balance Sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ROU assets may also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received.
Our lease arrangements may contain lease and non-lease components. We elected to combine lease and non-lease components. In determining the present value of the future lease payments, we consider only payments that are fixed and determinable at commencement date, including non-lease components. Variable components such as utilities and maintenance costs are expensed as incurred. As our leases do not provide an implicit rate, in determining the net present value of lease payments, management used judgment in order to estimate the appropriate incremental borrowing rate, which is the rate incurred to borrow equivalent funds on a collateralized basis over a similar term in a similar economic environment. Lease terms include periods under options to extend or terminate
the lease when we are reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.
We also elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for leases with a term of 12 months or less.
ROU assets for operating leases are periodically reviewed for impairment losses. The Company uses the long-lived assets impairment guidance to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize. We monitor for events or changes in circumstances that require a reassessment of one of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. There were a total of $0.6 million non-cash impairment charges related to ROU assets for the twelve months ended December 31, 2023 associated with the abandonment of leased office space in Purchase and Binghamton, NY, and in Dubuque, IA.
Local Marketing Agreements: At times, the Company enters into Local Marketing Agreements (“LMAs”), also known as Time Brokerage Agreements (“TBA”TBAs”). In a typical LMA, the licensee of a radio station makes available, for a fee, airtime on its radio station to a party which supplies content to be broadcast during that airtime and collects revenue from advertising aired during such content. LMAs are subject to compliance with the antitrust laws and the Communications Laws,Act of 1934, as amended, and relevant FCC rules and published policies (“Communication Laws”), including the requirement that the licensee must maintain independent control over the radio station and, in particular, its personnel, content and finances. The FCC has held that such agreements do not violate the Communications Laws as long as the licensee of the radio station receiving content from another station maintains ultimate responsibility for, and control over radio station operations and otherwise ensures compliance with the Communications Laws.
As of December 31, 2017,2023, the Company operated two non-owned radio stations under LMAs.an LMA. The total net revenue for the contractual portion of the LMALMAs of the radio stations and its total expenses for the contractual portion of the LMALMAs were immaterial.
Financial Instruments: ASC 825, Disclosures about Fair Value of Financial Instruments, requires the Company to disclose estimated fair values for its financial instruments. Management has reviewed its cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses and has determined that their carrying values approximate their fair value due to the short maturity of these instruments. The fair value of the Company’s long-term debt is disclosed in Note 7.8, Long-Term Debt.
Fair Value Measurements: ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
The fair value framework under ASC 820 provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:
•Level 1: Inputs are quoted prices (unadjusted) in active markets for identified assets or liabilities that the Company has the ability to access at the measurement date.
•Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 assets include quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets that are not active; and inputs other than quoted prices that are observable such as models.
•Level 3: Inputs are unobservable inputs for the asset or liability. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
Advertising and Promotion Costs: Costs of media advertising (including barter) and associated production costs are expensed to direct operating expenses the first time the advertising takes place. The Company recorded advertising expenses of $5.1 million, $7.0$0.6 million and $5.4$0.7 million, for the years ended December 31, 2015, 20162023 and 2017,2022, respectively.
Income Taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company also evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts. Management evaluates all positive and negative evidence and uses judgment regarding past and future events, including operating results, to help determine when it is more likely than not that all or some portion of the deferred tax assets may not be realized. When appropriate, a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized.
The Company follows the provisions of ASC Topic 740, Accounting for Income Taxes. ASC Topic 740 clarifies the accounting for uncertainties in income taxes recognized in an enterprise’s financial statements. ASC Topic 740 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 provides guidance on derecognition, classification, interest and penalties, disclosures and transition. As required by the uncertain tax position guidance in ASC Topic 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company’s policy is to recognize interest and penalties accrued on unrecognized tax benefits as part of income tax expense. The Company’s Federal income tax returns and various state tax returns remain subject to examination by taxing authorities for all years after 2013.2019.
Stock-based compensation: Stock-based compensation expense related to stock-based transactions, including employee awards and the Employee Stock Purchase Plan (the “ESPP”), is measured and recognized in the Consolidated Financial Statements based on the fair value of the award on the grant date. The fair values of restricted stock awards are determined based on the fair market value of our common stock at the time of grant. The fair value of time-based and performance-based option awards is estimated using the Black-Scholes and Monte Carlo option-pricing model. This model requiresmodels. The models require assumptions including the fair value of the Company’s common stock, expected volatility, expected term of the award, exercise timing, expected dividend yield and risk-free interest rate. Stock-based compensation expense is recognized as the equity awards vest. The calculated compensationvest and ESPP expense is adjusted based on an estimate ofthe estimated grant-date fair value determined using the Black-Scholes valuation model with a straight-line amortization method. Share-based awards ultimately expectedmay be subject to vest.forfeiture if certain employment conditions are not met. The Company accounts for forfeitures as they occur.
Employee benefit plansLegal Costs: The Company’s 401(k) Plan is a defined contribution plan covering the employees of the Company and is subject to the provisions of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 ("IRC"). The Company's U.S. employees participate in a defined contribution plan. Under the provisions of the plan, an employee is fully vested with respect to Company contributions after four years of service. The Company matches employee contributions of 25% up to a maximum of 4% of qualified compensation and may, at its discretion, make voluntary contributions. The Company's contributions were $1.0 million for each of the years ended December 31, 2023, and 2022, respectively.
Contingencies: In accordance with ASC Topic 450, Contingencies, the Company accrues for estimated legal costs torecords a loss contingency when it is probable a liability has been incurred and the amount of the loss can be incurred in defending lawsuits and asserted claims.reasonably estimated. The Company monitors the stage of progress of its litigation matters and relates that to an accrual for estimated accrual of costlosses to determine if any adjustments are required.
In the normal course of business, the Company is subject to various regulatory proceedings, lawsuits, claims and other matters. Additionally, from time to time the Company is engaged in various legal proceedings related to its intellectual property, employees or other matters. Although such matters are subject to many uncertainties and outcomes are not predictable with assurance, as of December 31, 2015, 20162023 and 20172022, management does not believe any such matters are material to the Company’s consolidated results of operations or financial condition.
Foreign CurrencyAdjustments:North American Midway Entertainment (“NAME”), acquired by a subsidiary During fourth quarter of 2023, the Company on September 1, 2015, conducts a portionrecorded an immaterial adjustment to recognize revenue and an equal amount of its business in Canada. Results of operations for our Canadian entity are translated into U.S. dollars using the average exchange ratesdirect operating expense related to certain barter transactions that should have been recorded during the period.previous quarterly periods in 2023. The assetsadjustment did not have any net effect on operating loss or net loss.
Accounting Developments
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and liabilitiesremoves the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of our Canadian entity are translated into U.S. dollars usinga financial instrument and the exchange rates atamount of amortized cost that the balance sheet date.company expects to collect over the instrument's contractual life. The related translation adjustments are recordednew guidance became effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
The Company adopted the new guidance in the first quarter of 2023. The adoption of this standard did not have a separate component of stockholders’ equity, “Accumulated other comprehensive income.” Foreign currency transaction gains and losses are included in operations in other expense (income), net.significant impact on the Consolidated Financial Statements.
Recently Issued Accounting PronouncementsStandards That Have Not Yet Been Adopted
In January 2016,November 2023, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) 2016-01, Financial Instruments - Overall. ASU 2016-01 requires cost-method equity investments2023-07, Segment Reporting – Improvements to Reportable Segments Disclosures, which enhances disclosures of significant segment expenses by requiring to disclose significant segment expenses regularly provided to the chief operating decision maker, extends certain annual disclosures to interim periods, and permits more than one measure of segment profit or loss to be measured at fair value with changes in fair value recognized in net income. An entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactionsreported under certain conditions. The amendments are effective for the identical or a similar investmentCompany in fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption of the same issuer.amendment is permitted, including adoption in any interim periods for which financial statements have not been issued. The Company is currently evaluating the guidance and the adoption of this standard is not expected to have a significant impact on the Consolidated Financial Statements.
In December 2023, the FASB issued ASU simplifies2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires additional categories of information about federal and state income taxes in the impairment assessmentrate reconciliation table and to provide more details about reconciling items in some categories if items meet a quantitative threshold. The guidance also requires the disclosure of equity investments without readily determinable fair valuesincome taxes paid, net of refunds, disaggregated by requiringfederal (national) and state taxes for annual periods and to disaggregate the information by jurisdiction based on a qualitative assessment to identify impairment, and a measurement of the investment at fair value only when an impairment is qualitatively identified to exist. Additionally, ASU 2016-01 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.quantitative threshold. The standardguidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is not permitted. The Company is currently assessing the potential impact ASU 2016-01 will have on its Consolidated Financial Statements.
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires the lessee to recognize in the statement of financial position a liability to make lease payments, and a right-of-use asset representing its right to use the underlying asset for the lease term. The liability and asset are initially measured at the present value of the lease payments. The ASU applies to all leases, including those previously classified as operating leases under ASC Topic 842. The standard is effective for fiscal years beginning after December 15, 2018, and will require measurement of leases at the beginning of the earliest period presented, using a modified retrospective approach. The Company is currently assessing the potential impact ASU 2016-02 will have on its Consolidated Financial Statements and has begun the process of implementing new policies and procedures.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company does not expect the adoption of this new standard to have a material impact on its Consolidated Financial Statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 clarifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The standard is effective for annual reporting periods beginning after December 15, 2017,2024, with early adoption permitted. The Company does not expectis currently evaluating the guidance and the adoption of this new standard to have a material impact on its Consolidated Financial Statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). This new standard will replace all current U.S. GAAP related to revenue recognition and will eliminate all industry-specific guidance. The core principle of this new standard is that a company should recognize revenue to depict transfer of promised goods or services to customers in an amount that reflects consideration to which the company expects to be entitled in exchange for those goods or services. In July 2015, the FASB affirmed its proposal to defer the effective date of this new standard. As a result, public companies will apply the new revenue standard to annual reporting periods beginning after December 15, 2017. From March 2016 through September 2017, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers and ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842). These amendments are intended to improve and clarify implementation guidance of Topic 606. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09.
To assess the impact of the standard, the Company dedicated management personnel to lead the implementation effort and supplemented them with additional external resources. These personnel reviewed the amended guidance and subsequent clarifications, consulted with relevant leadership to obtain a detailed understanding of contracts with customers within operating segments of the business, and reviewed a sample of contracts judgmentally selected based on the size and complexity of all major revenue streams and assessed the standard requirements against the current revenue recognition practice. The Company has completed its review and analysis and effective January 1, 2018, we will adopt FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. ASC 606 will be applied using the modified retrospective method, where the cumulative effect of the initial application is recognized as an adjustment to opening retained earnings at January 1, 2018 and is not expected to have a materialsignificant impact on the Consolidated Financial Statements.
Note 3. Revenue Recognition
The following tables present a disaggregation of our financial position. ASC 606 provides a five-step model where revenue by reporting segment and revenue from political sources and all other sources (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| Subscription Digital Marketing Solutions | | Digital Advertising | | Broadcast Advertising | | Other | | | | Total |
| Net Revenue (ex Political) | $ | 82,220 | | | $ | 150,074 | | | $ | 209,025 | | | $ | 10,010 | | | | | $ | 451,329 | |
| Political | — | | | 202 | | | 2,700 | | | — | | | | | 2,902 | |
| Net Revenue | $ | 82,220 | | | $ | 150,276 | | | $ | 211,725 | | | $ | 10,010 | | | | | $ | 454,231 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Subscription Digital Marketing Solutions | | Digital Advertising | | Broadcast Advertising | | Other | | | | Total |
| Net Revenue (ex Political) | $ | 90,402 | | | $ | 139,854 | | | $ | 216,858 | | | $ | 8,441 | | | | | $ | 455,555 | |
| Political | — | | | 501 | | | 7,021 | | | — | | | | | 7,522 | |
| Net Revenue | $ | 90,402 | | | $ | 140,355 | | | $ | 223,879 | | | $ | 8,441 | | | | | $ | 463,077 | |
Revenue from contracts with customers is recognized whenas an obligation until the terms of a customer obtainscontract are satisfied; this occurs with the transfer of control as we satisfy contractual performance obligations. Our contractual performance obligations include the performance of digital marketing solutions, placement of internet-based advertising campaigns, broadcast of commercials on our owned and operated radio stations, and the promised goods or services in anoperation of live events. Revenue is measured at contract inception as the amount that reflects theof consideration that we expect to receive in exchange for thosetransferring goods or providing services. Our contracts are at a fixed price at inception and do not include any variable consideration or financing components by normal course of business practice. Sales, value add, and other taxes that are collected concurrently with revenue producing activities are excluded from revenue.
The Company has determined that there will not beprimary sources of net revenue are the sale of digital and broadcast advertising solutions on our owned and operated websites, radio stations’ online streams, and mobile applications, radio stations, and on third-party websites through our in-house digital programmatic advertising platform. Through our digital programmatic advertising platform, we are able to hyper-target audiences for our local, regional and national advertisers by combining first and third-party audience and geographic location data, providing them the ability to reach a material impact ashigh percentage of their online audience. We deliver these solutions across desktop, mobile, connected TV, email, paid search and social media platforms utilizing display, video and native executions. We also offer subscription digital marketing solutions under the brand name Townsquare Interactive to small and mid-sized local and regional businesses in markets outside the top 50 across the United States, including the markets in which we operate radio stations. Townsquare Interactive offers traditional and mobile-enabled website development and hosting services, e-commerce platforms, search engine and online directory optimization services, online reputation monitoring, social media management, and website retargeting.
Political net revenue includes the sale of advertising for political advertisers. Contracted performance obligations under political contracts consist of the datebroadcast and placement of adoption betweendigital advertisements. Management views political revenue separately based on the newepisodic nature of election cycles and local issues calendars.
Net revenue standard and how we previouslyfor digital advertisements are recognized as the contractual performance obligations for Townsquare services are satisfied over the duration of the campaigns based on impressions delivered or time elapsed. Net revenue for broadcast advertisements are recognized when the commercial is broadcast. Live events revenue and will not have a material effect onother non-broadcast advertising revenue are recognized as events are conducted. We measure progress towards the satisfaction of our consolidated results of operations, balance sheets, and cash flows in future periods. However, additional disclosures will be included in future reporting periodscontractual performance obligations in accordance with requirementsthe contractual arrangement. We recognize the associated contractual revenue as delivery takes place and the right to invoice for services performed is met.
Net revenue from digital subscription-based contractual performance obligations is recognized ratably over time as our performance obligations are satisfied. Subscription-based service fees are typically billed in advance of the new guidance.month of service at a fixed monthly fee that is contractually agreed upon at contract inception. The measure of progress in such arrangements is the number of days of successful delivery of the contracted service.
TOWNSQUARE MEDIA, INC.F-22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As a result of adoption of ASC 606 we will recognize an asset for the incremental costs of obtaining a contract if we expect the benefit of those costs to be longerOur advertising contracts are short-term (less than one year. We have determined that certain sales commissions will meet the requirements to be capitalized,year) and expenses incurred under these programs will therefore be capitalizedpayment terms are generally net 30-60 days for traditional customer contracts and amortized over the estimatednet 60-90 days for national agency customer contract life, whereas our current policycontracts. Our billing practice is to expense these costs as incurred. Weinvoice customers on a monthly basis for services delivered to date (representing the right to invoice). Our contractual arrangements do not expectinclude rights of return and do not include any significant judgments by nature of the new guidanceproducts and services.
For all customer contracts, we evaluate whether we are the principal (i.e., report revenue on a gross basis) or the agent (i.e., report revenue on a net basis). Generally, we report revenue for advertising placed on Townsquare properties on a gross basis (the amount billed to haveour customers is recorded as revenue, and the amount paid to our publishers is recorded as a material impact oncost of revenue). We are the financial statementsprincipal because we control the advertising inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising inventory, being primarily responsible to our customers, having discretion in future periods.
Recently Adopted Accounting Pronouncements
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepaymentestablishing pricing, or extinguishment costs, the maturing of a zero-coupon bond, the settlement of contingent liabilities arising from a business combination proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these factors. We also generate revenue through agency relationships in which revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for advertisers that use agencies.
The following table provides information about receivables, contract acquisition costs and contract liabilities from contracts with customers (in thousands):
| | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 | | |
| Accounts Receivable | $ | 60,780 | | | $ | 61,234 | | | |
| Short-term contract liabilities (deferred revenue) | $ | 9,059 | | | $ | 10,669 | | | |
| Contract acquisition costs | $ | 5,175 | | | $ | 6,348 | | | |
We receive payments from customers based upon contractual billing schedules; accounts receivable is recorded when the right to consideration becomes unconditional. Accounts receivable are recognized in the period the Company provides services when the Company’s right to consideration is unconditional. Payment terms vary by the type and location of our customer and the products or services offered. Payment terms for amounts invoiced are typically net 30-60 days.
Our contract liabilities include cash receiptspayments received or due in advance of satisfying our performance obligations and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented,digital subscriptions in which payment is required unless it is impracticable for somereceived in advance of the amendments, in which case those amendments would be prospectivelyservice and month. These contract liabilities are recognized as revenue as the related performance obligations are satisfied. As of December 31, 2023, and December 31, 2022, the earliest date practicable. The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The Company early adopted ASU 2016-15balance in the first quartercontract liabilities was $9.1 million and $10.7 million, respectively. The decrease in our contract liabilities balance from December 31, 2022 is primarily driven by $9.6 million of 2017. Early adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash. ASU 2016-18 relates to the classification of restricted cash on the statement of cash flows. ASU 2016-18 provides guidance on the classification of restricted cash and cash equivalents in the statement of cash flows. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and end-of period total amounts shown on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017 with early adoption permitted. The Company early adopted ASU 2016-18 in the first quarter of 2017. Early adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 removes Step 2 from the goodwill impairment test. The standard is effective for annual reporting periods beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The early adoption of ASU 2017-04, Intangibles-Goodwill and Other (Topic 350)recognized revenue for the year ended December 31, 2017 impacted the Company’s calculation2023, offset by cash payments received or due in advance of impairment. Refer to Note 6, for a description of the Company’s processes and results of its impairment testing.
Note 3. Significant Acquisitions
NAME Acquisition: On September 1, 2015, the Company, through a subsidiary of Townsquare Live Events, LLC, purchased all of the issued and outstanding membership interests of Heartland Group, LLC and its wholly-owned subsidiary NAME for approximately $70.0 million in cash, 481,948 unregistered shares of the Company’s Class A common stock valued at $4.9 million, and a working capital adjustment of $0.4 million. Cash consideration was satisfied from cash on hand, $45.0 million of incremental term loan borrowings and a working capital adjustment of approximately $0.4 million. The $1.3 million remaining payable balance as of December 31, 2015 was subsequently paid in full in January 2016. The Company estimated the fair value of acquired intangibles using the discounted cash flow method. The purchase price was allocated to the tangible and intangible assets and liabilities at their fair value at the date of acquisition, with any excess of the purchase price over the net assets acquired being reported as goodwill. None of this goodwill was deductible for tax purposes. The Company has recognized an opening deferred tax liability in connection with the acquisition of NAME, as the initial tax basis of the acquired assets differed from their initial basis under GAAP, which reflected estimated fair market value. Refer to Note 9 for more information regarding the income tax effects of the NAME acquisition.
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The purchase price allocation is as follows (in thousands): |
| | | |
| Current assets | $ | 5,148 |
|
| Customer relationships | 8,700 |
|
| Trade name | 4,600 |
|
| Other intangibles | 1,000 |
|
| Property and Equipment | 42,894 |
|
| Goodwill | 39,866 |
|
| Noncontrolling interest | (225) |
|
| Accounts payable and accrued expenses | (9,586) |
|
| Deferred tax liabilities | (17,035) |
|
| Total purchase price | $ | 75,362 |
|
Note 4. Investments
Long-term investments consist of minority holdings in companies that management believes are synergistic with Townsquare. Management does not exercise significant control over operating and financial policies of the investees, accordingly the investments are reflected under the cost method of accounting. The initial equity valuations were based upon a discounted cash flow analysis, using unobservable inputs categorized as Level 3 within the Accounting Standards Codification Section 820 framework.
The Company determined there was objective evidence to indicate certain events had adversely impacted estimated future cash flows for one of its investments and as a result recorded a $4.2 million impairment charge forsatisfying our performance obligations. For the year ended December 31, 2016. There2022, we recognized $8.6 million of revenue that was no impairment forpreviously included in our deferred revenue balance. No significant changes in the time frame of the satisfaction of contract liabilities have occurred during the year ended December 31, 2017.2023.
Our capitalized contract acquisition costs include amounts related to sales commissions paid for signed contracts with perceived durations exceeding one year. We defer the related sales commission costs and amortize such costs to expense in a manner that is consistent with how the related revenue is recognized over the duration of the related contracts. We have evaluated the average customer contract duration (initial term and any renewals) to determine the appropriate amortization period for these contractual arrangements. Capitalized contract acquisition costs are recognized in prepaid expenses and other current assets in the accompanying consolidated balance sheets. As of December 31, 2023 and 2022, we had a balance of $5.2 million and $6.3 million in capitalized contract acquisition costs and recognized $6.8 million and $5.1 million of amortization during the years ended December 31, 2023 and 2022, respectively. No impairment losses have been recognized or changes made to the time frame for performance of the obligations related to deferred contract assets during the years ended December 31, 2023 or 2022, respectively.
Arrangements with Multiple Performance Obligations
In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract inception. When multiple performance obligations are identified, we identify how control transfers to the customer for each distinct contract obligation and determine the period when the obligations are satisfied. If obligations are satisfied in the same period, no allocation of revenue is deemed to be necessary. In the event performance obligations within a contract do not run concurrently, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers. Performance obligations that are not distinct at contract inception are combined.
Performance Obligations
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. Amounts related to performance obligations with expected durations of greater than one year are at a fixed price per unit and do not include any upfront or minimum payments requiring any estimation or allocation of revenue.
Note 4. Acquisitions and Divestitures
Acquisitions and Divestitures
On June 17, 2022, the Company acquired Cherry Creek Broadcasting LLC (“Cherry Creek”) for a cash purchase price of $18.5 million, net of closing adjustments. The purchase price was in excess of the fair value of net assets acquired, resulting in the recognition of goodwill. The Company finalized the allocation of the purchase price for Cherry Creek during the three months ended March 31, 2023. The table below summarizes the Cherry Creek purchase price allocation. The measurement period adjustments below reflect changes from the preliminary purchase acquisition date fair values of major classes of net assets acquired (in thousands):
| | | | | | | | | | | | | | | | | |
| Amounts recognized at June 17, 2022
(Provisional) | Measurement Period Adjustments | Amounts recognized at December 31, 2022
(Adjusted) | Measurement Period Adjustments | Amounts recognized at March 31, 2023
(Adjusted) |
| Net tangible assets acquired | $ | 1,366 | | $ | 4,790 | | $ | 6,156 | | $ | (96) | | $ | 6,060 | |
| Intangible assets, net | 8,676 | | 187 | | 8,863 | | — | | 8,863 | |
| Goodwill | 8,377 | | (4,939) | | 3,438 | | 96 | | 3,534 | |
| Total Purchase Price | $ | 18,419 | | $ | 38 | | $ | 18,457 | | $ | — | | $ | 18,457 | |
The intangible assets acquired based on the estimate of the fair values of the identifiable intangible assets are as follows:
| | | | | | | | |
| Amounts recognized at December 31, 2022 | Remaining Useful Life at June 17, 2022
(in years) |
| Customer relationships | $ | 5,007 | | 10 |
| FCC licenses | 2,889 | | Indefinite |
| Content Rights | 642 | | 7 |
| Other intangibles | 325 | | 3 |
| Total Acquired Intangible Assets | $ | 8,863 | | |
The estimate of the fair value of the customer relationships acquired in the Cherry Creek acquisition were determined using a risk-adjusted discounted cash flow model, specifically, the excess earnings method which
considers the use of other assets in the generation of the projected cash flows of a specific asset to isolate the economic benefit generated by the customer relationships. The contribution of other assets, such as fixed assets, working capital and workforce, to overall cash flows was estimated through contributory asset capital charges. Therefore, the value of the acquired customer relationship is the present value of the attributed post-tax cash flows, net of the return on fair value attributed to tangible and other intangible assets.
The estimate of the fair value of the FCC licenses acquired in the Cherry Creek acquisition were determined utilizing observable market-based transactions of similar broadcast licenses and their estimated replacement values.
Goodwill totaling $3.4 million represents the excess of the Cherry Creek purchase price over the fair value of net assets acquired, representing future economic benefits that are expected to be achieved as a result of the acquisition, and is included in the Broadcast Advertising and Digital Advertising segments. The Company believes the acquisition of Cherry Creek, which includes a portfolio of local media brands, will further its goal of becoming the number one local media company in markets outside of the Top 50 in the United States. In addition, the acquisition provides an opportunity to bring our digital assets and solutions to the Cherry Creek markets and accelerate their digital growth with our Digital First strategy.
Goodwill generated from the Cherry Creek acquisition is deductible for income tax purposes.
The results of Cherry Creek's operations have been included in our 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.
Simultaneously, due to FCC ownership limitations, the Company sold six radio stations in Missoula, MT for an immaterial amount and has placed one radio station in Tri-Cities, WA in a divestiture trust. On July 19, 2022, the Company acquired a radio station in Tri-Cities, WA for an immaterial amount.
During the yeartwelve months ended December 31, 20172023, the Company made certain investmentssold assets associated with radio broadcast stations in several small businesses totaling $3.8 million. The investments represent minority ownership positionsTexarkana, TX, Bozeman, MT and are accountedDanbury, CT for underimmaterial amounts, and returned the cost method of accounting. These transactions are recorded as investmentslicenses associated with broadcast stations in the Company’s Consolidated Balance Sheet as of December 31, 2017.Binghamton, NY and Augusta/Waterville, ME.
During the year ended December 31, 2016 the Company made a $3.5 million investment in an online services business. The investment represents a minority ownership position and is accounted for under the cost method of accounting. This transaction is recorded as an investment in the Company’s Consolidated Balance Sheet as of December 31, 2016.
Note 5. Property and Equipment, Net
Property and equipment consisted of the following:following (in thousands):
| | | (in thousands) | December 31,
2016 | | December 31,
2017 |
| December 31,
2023 | | | December 31,
2023 | | December 31,
2022 |
| Land and improvements | $ | 20,223 |
| | $ | 20,870 |
|
| Buildings and leasehold improvements | 36,556 |
| | 41,890 |
|
| Broadcast equipment | 71,159 |
| | 74,851 |
|
| Rides and related equipment | 45,159 |
| | 50,558 |
|
| Computer and office equipment | 11,827 |
| | 13,331 |
|
| Furniture and fixtures | 10,886 |
| | 13,936 |
|
| Transportation equipment | 14,249 |
| | 17,504 |
|
| Software development costs | 10,641 |
| | 15,943 |
|
| Total property and equipment, gross | 220,700 |
| | 248,883 |
|
| Less: Accumulated depreciation and amortization | (81,292 | ) | | (101,891 | ) |
| Total property and equipment, net | $ | 139,408 |
| | $ | 146,992 |
|
Depreciation and amortization expense for property and equipment was $14.7 million, $20.0$16.7 million and $22.7$17.1 million for the years ended December 31, 2015, 20162023 and 2017,2022, respectively.
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In September 2015, the Company closed on the sale of 43 towers located on 41 sites in 28 markets to a subsidiary of Vertical Bridge, LLC (“Vertical Bridge”) (the “Tower Sale”). The divested towers house antennae that broadcast certain of the Company’s radio stations. The Company also entered into an agreement with Vertical Bridge whereby Vertical Bridge will serve as the exclusive marketing agent for the 283 towers retained by the Company. The Company received total cash proceeds of $21.6 million, net of closing adjustments, in exchange for the sale of the towers and the exclusive marketing arrangement. In addition, the Company has leased a portion of the space of the sold towers that house certain of the Company’s antennae. The lease is for a period of 35 years, including an initial term of 20 years and three optional 5-year renewal periods. The Company will pay $41 of rent per annum ($1 per site per annum) to Vertical Bridge for the right to house its existing antennae on the divested towers.
The Company has determined that the relative fair value of the towers sold and the exclusive marketing arrangement were $25.8 million and $3.1 million, respectively. The following was recognized in the Company’s Consolidated Balance Sheets during 2015 in connection with the transaction with Vertical Bridge:
|
| | | | | |
| (in thousands) | Fair Value | | Balance Sheet Location |
| Long-term prepaid rent asset | $ | 7,311 |
| | Other long term assets |
| Deferred gain on the sale of towers | $ | 7,311 |
| | Other long term liabilities |
| Exclusive marketing arrangement | $ | 3,111 |
| | Other long term liabilities |
The Company realized an $11.5 million gain in connection with the sale of these towers during
For the year ended December 31, 2015, which is included in net gain on sale in the Company’s Consolidated Statements of Operations. In addition,2023, the Company determined thatrecognized a total of $0.2 million in losses related to the lease issales of assets in various markets, as compared to an operating lease and is amortizing$0.3 million total gain related to the long-term prepaid rent asset and deferred gain onsales of assets for the year ended December 31, 2022.
For the year ended December 31, 2023, the company recognized $0.4 million in impairment charges related to the sale of towersland and a building in Battle Creek, MI.
For the year ended December 31, 2022, the Company sold land and a building in Quincy-Hannibal, IL and in Oelwein, IA. The Company recognized $0.9 million in impairment charges related to the sales.
The Company had no material right of use assets related to it finance leases as offsetting amounts over the lease term. The exclusive marketing arrangement is being amortized through net revenue over the 5-year term of the arrangement in the Company’s Consolidated Statements of Operations.December 31, 2023 and
Note 6. Goodwill and Other Intangible Assets, Net
Indefinite-lived intangible assets
Indefinite-lived assets consist of goodwill and FCC broadcast licenses and goodwill. licenses.
FCC Broadcast Licenses
FCC licenses represent a substantial portion of the Company’s total assets. The FCC licenses are renewable in the ordinary course of business, generally for a maximum of eight years. The fair value of FCC licenses is primarily dependent on the future cash flows of the radio markets and other assumptions, including, but not limited to, forecasted revenue growth, rates, profit margins and a risk-adjusted discount rate.
The Company has selected December 31st as the annual testing date.
The Company evaluates its FCC licenses for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Due to changes in forecasted traditional broadcast revenue in the markets in which we operate in and increases in the weighted average cost of capital, the Company quantitatively evaluated the fair value of its FCC licenses at each quarter during the year ended December 31, 2023.
Based on the results of the Company’s annual impairment evaluations of its FCC licenses the Company recorded $1.7 million ofperformed at March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023, we incurred impairment charges pertaining toof $8.2 million, $16.6 million, $23.6 million, and $22.5 million, respectively, for FCC licenses in 36 of our Quad Cities and Grand Junction74 local markets representing total FCC impairment charges of $70.9 million for the year ended December 31, 2015,2023. The $70.9 million impairment charges recorded during the year were primarily driven by increases in the discount rate applied in the valuation of our FCC licenses due to an increase in the weighted average cost of capital, decreases in third-party forecasts of broadcast revenues and $2.9an increase in the estimate of initial capital costs due to rising prices.
The Company recorded impairment charges of $26.1 million for FCC licenses in nine of our 74 local markets during the year ended December 31, 2022, driven by increases in the discount rate applied in the valuation of our FCC licenses due to an increase in the weighted average cost of capital and the estimate of initial capital costs due to rising prices.
Charges related to the impairment of the Company’s FCC licenses are included in the Broadcast Advertising segment results.
Unfavorable changes in key assumptions utilized in the impairment assessment of our FCC licenses may affect future testing results. For example, keeping all other assumptions constant, a 50-basis point increase in the weighted average cost of capital as of the date of our last quantitative assessment would cause the estimated fair values of our FCC licenses to decrease by $13.0 million which would have resulted in an additional impairment charge of $9.9 million as of December 31, 2023. Further, a 100-basis point decline in the long-term revenue growth rate would cause the estimated fair values of our FCC licenses to further decrease by $17.1 million which would have resulted in a further impairment charge of $14.0 million as of December 31, 2023. Assumptions used to
estimate the fair value of our FCC licenses are also dependent upon the expected performance and growth of our traditional broadcast operations. In the event broadcast revenue experiences actual or anticipated declines, such declines will have a negative impact on the estimated fair value of our FCC licenses, and the Company could recognize additional impairment charges, which could be material.
Goodwill
During the third quarter of 2023, the Company concluded that the carrying amount of the Local Advertising reporting unit exceeded its fair value, resulting in the recognition of a non-cash goodwill impairment charge of $2.8 million. An interim impairment assessment was considered necessary as a result of declines in traditional broadcast revenue and the increase in the weighted average cost of capital. The Company did not identify indicators of impairment chargesrelated to any other reporting unit that would have required an interim impairment assessment during the year ended December 31, 2023.
For its annual impairment testing performed as of December 31, 2023, the Company performed a quantitative assessment for each of its reporting units. Based upon such assessment, the Company determined that the fair value of the following reporting units exceeded their respective carrying amounts as of December 31, 2023. The fair values of our National Digital, Townsquare Ignite, Analytical Services, and Townsquare Interactive reporting units were in excess of their respective carrying values by approximately 117%, 41%, 157%, and 147%, respectively. The Local Advertising and Amped reporting units had no goodwill as of December 31, 2023.
During the fourth quarter of 2023, the Company revised its near-term revenue and operating margin expectations for the Live Events reporting unit in consideration of the performance of events during the period. As a result, the Company determined that the fair value of the Live Events reporting unit was less than its carrying amount resulting in the recognition of a non-cash goodwill impairment charge of $1.4 million. The fair value of the Live Events reporting unit was calculated using a weighted average cost of capital of 12.0%. Cash flow projections were derived from internal forecasts of anticipated revenue growth rates and operating margins, updated as discussed above, with cash flows beyond the discrete forecast period estimated using a terminal value calculation which incorporated historical and forecasted trends and an estimate of the long-term growth rate. The perpetual growth rate utilized in the terminal value calculation was 4.1%.
For 2022, in assessing whether goodwill was impaired in connection with its annual impairment testing performed as of December 31st, the Company performed a quantitative assessment for each of its reporting units. Based upon such assessment, the Company determined that the fair value of the following reporting units exceeded their respective carrying amounts as of December 31, 2022. The fair values of the Local Advertising, National Digital, Townsquare Ignite, Analytical Services, Townsquare Interactive and Live Events reporting units were in excess of their respective carrying values by approximately 18%, 243%, 90%, 211%, 252% and 19%, respectively. The Amped reporting unit had no goodwill as of December 31, 2022.
As of December 31, 2023, the goodwill balances remaining for each of our Rochesterreporting units were as follows (amounts in thousands):
| | | | | | | | | | | |
| Goodwill at December 31, 2023 | | Goodwill at December 31, 2022 |
| Reporting Unit: | | | |
| Local Advertising | $ | — | | | $ | 2,715 | |
| National Digital | 8,273 | | | 8,273 | |
| Townsquare Ignite | 67,101 | | | 67,101 | |
| Amped | — | | | — | |
| Analytical Services | 2,313 | | | 2,313 | |
| Townsquare Interactive | 77,000 | | | 77,000 | |
| Live Events / Other | 2,583 | | | 3,983 | |
| Balance | $ | 157,270 | | | $ | 161,385 | |
The fair values of each of our reporting units were determined using an income approach whereby the fair value was calculated utilizing discounted estimated future cash flows. The income approach requires several assumptions including future sales growth, EBITDA (earnings before interest, taxes, depreciation and Wichita Falls marketsamortization) margins, and capital expenditures and discount rates which are the basis for the information used in the discounted cash flow model. The weighted-average cost of capital used in testing our reporting units for impairment ranged from 12.0% to 17.2% with perpetual growth rates ranging from 1.7% to 5.6%.
Due to the inherent uncertainties involved in making these estimates, assumptions may change in future periods. Estimates and assumptions made for purposes of goodwill impairment testing may prove to be inaccurate predictions of the future, and other factors used in assessing fair value, such as the weighted average cost of capital, are outside the control of management. Unfavorable changes in certain of these key assumptions may affect future testing results. For example, keeping all other assumptions constant, a 100-basis point increase in the weighted average cost of capital assumption for each of our reporting units would cause the estimated fair values of our National Digital, Townsquare Ignite, Analytical Service, Townsquare Interactive and Live Events reporting units to decline, resulting in a decrease in the fair value in excess of their respective carrying values by approximately 6%, 5%, 8%, 9%, and 4%, respectively. Further, keeping all other assumptions constant, a 10% decline in the estimated fair value of each reporting unit, due to other changes in assumptions, including forecasted future cash flows, would have resulted in an incremental goodwill impairment charge of approximately $0.3 million for the Live Events reporting unit. A 10% decline in the estimated fair values of the remainder of our reporting units would not have resulted in goodwill impairment charges for the year ended December 31, 2017. These2023.
The following table presents changes in goodwill by segment during each of the two years ended December 31, 2023 and 2022, respectively (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Subscription Digital Marketing Solutions | | Digital Advertising | | Broadcast Advertising | | Other | | | | Total |
Balance at December 31, 2021(1) | $ | 77,000 | | | $ | 76,964 | | | $ | — | | | $ | 3,983 | | | | | $ | 157,947 | |
Cherry Creek acquisition(2) | — | | | 723 | | | 2,715 | | | — | | | | | 3,438 | |
| Balance at December 31, 2022 | $ | 77,000 | | | $ | 77,687 | | | $ | 2,715 | | | $ | 3,983 | | | | | $ | 161,385 | |
Cherry Creek measurement period adjustment (2) | — | | | — | | | 96 | | | — | | | | | 96 | |
| Impairment | — | | | — | | | (2,811) | | | (1,400) | | | | | (4,211) | |
| Balance at December 31, 2023 | $ | 77,000 | | | $ | 77,687 | | | $ | — | | | $ | 2,583 | | | | | $ | 157,270 | |
(1) The aggregate goodwill balance as of December 31, 2021 is net of (i) a $69.0 million non-cash goodwill impairment charge related to the local advertising businesses reporting unit in the fourth quarter of 2019; (ii) $48.9 million of accumulated impairment charges pertainincurred in 2017, of which $39.9 million was included as a component of discontinued operations and $9.1 million of which related to the 2017 strategic review and restructuring of our Local Marketing Solutions segment. Thereentertainment business; and (iii) a $4.1 million write-off of goodwill was norecorded in 2017 in connection with business realignments within the entertainment business.
(2) For further information see Note 4, Acquisitions and Divestitures.
Digital Assets
During the first quarter of 2022, the Company invested an aggregate of $5.0 million in digital assets. They are accounted for as indefinite-lived intangible assets in accordance with ASC 350, Intangibles - Goodwill and Other, included as a component of intangible assets, net on the Consolidated Balance Sheet. We had ownership of and control over our digital assets and we used third-party custodial services to secure it. Any decrease in the digital assets' fair values below our carrying values at any time subsequent to acquisition required the Company to recognize impairment charges. No upward revisions for any market price increases are recognized until a sale of the digital assets occurs.
The fair value of the digital assets was based upon quoted prices (unadjusted) on the active exchange that the Company determined was the principal market for our digital assets, Level 1 measurements under the fair value measurement hierarchy established under Fair Value Measurement (Topic 820). The Company performed an analysis to identify whether events or changes in circumstances, principally decreases in the quoted prices on the active exchange, indicated that it was more likely than not that our digital assets were impaired. In determining if an impairment had occurred, the Company considered the lowest market price of one unit of digital asset quoted on the active exchange since the date the Company acquired the digital assets. Any observed declines in the market values of our digital assets below their current carrying values resulted in an impairment loss equal to the difference between the digital assets carrying values and the lowest observed market price, even if the overall market values of these assets subsequently increased.
In early March 2023, the Company sold its digital assets with a carrying value of $2.1 million, recognizing a gain on the sale of $0.8 million, included as a component of Other (income) expense, net on the Consolidated Statements of Operations.
During the year ended December 31, 2016. All other fair values of2022, the Company’s other intangible assets exceeded their carrying value, therefore, noCompany recorded $2.9 million in impairment of these assets had occurred as of the date of the annual tests.
If market conditions and operational performance of the Company’s reporting units werelosses due to deteriorate and management had no expectation that the performance would improve within a reasonable period of time or if an event occurs or circumstances change that would reducechanges in the fair value of its goodwill andthe Company's digital assets observed during the period. As of December 31, 2022, the carrying value of the Company's digital assets was $2.1 million.
Definite-lived intangible assets
The Company’s definite-lived intangible assets belowwere acquired primarily in various acquisitions as well as in connection with the amounts reflectedacquisition of software and music licenses.
Content Rights
The Company enters into multi-year content licensing agreements pursuant to which the Company is required to make payments over the term of the license agreement. These licensing agreements are accounted for as a license of program material in accordance with ASC 920-350, Broadcasters - Intangibles - Goodwill and Other. The Company capitalizes the content licenses and records a related liability at fair value, which includes a discount, on the effective date of the respective license agreement. Amortization of capitalized content licenses is included as a component of direct operating expenses in the balance sheet,Consolidated Statement of Operations. The difference between the Company may be required to recognize additional impairment charges in future periods. Goodwill impairment testing conductedgross and net liability is amortized over the term of the license agreements and reflected as a component of interest expense.
The following tables present details of intangible assets as of December 31, 20152023 and 2016 did not result in any goodwill impairment. The testing conducted as of December 31, 2017 resulted in a goodwill impairment charge of $48.9 million in our Entertainment segment.
During the fourth quarter of 2017 Management undertook a corporate strategic review and concluded the Company would exit certain Entertainment businesses. These businesses represent components within the Entertainment business and not an exit from this line of business as other similar events will continue to be held. In connection with this realignment the Company wrote off $4.1 million of goodwill and $0.8 million of trademarks,2022, respectively as of December 31, 2017. These charges are included on the Consolidated Statement of Operations in Business Realignment Costs.
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following represents the changes in goodwill (in thousands):
|
| | | |
| Balance at December 31, 2016 and 2015 | $ | 292,953 |
|
| Local Marketing Solutions acquisitions | 3,014 |
|
| Entertainment acquisitions | 114 |
|
| Write-off of goodwill related to Entertainment businesses discontinued operations | (4,105 | ) |
| Impairment of goodwill | (48,934 | ) |
| Balance at December 31, 2017 | $ | 243,042 |
|
Intangible assets consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Weighted Average Useful Life (in Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Intangible Assets: | | | | | | | |
| FCC licenses | Indefinite | | $ | 181,236 | | | $ | — | | | $ | 181,236 | |
| | | | | | | |
| Content rights and other intangible assets | 3 - 9 | | 32,630 | | | (13,560) | | | 19,070 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total | | | $ | 213,866 | | | $ | (13,560) | | | $ | 200,306 | |
|
| | | | | | | | | |
| (in thousands) | Estimated Useful Life | | December 31,
2016 | | December 31,
2017 |
| Intangible Assets: | | | | | |
| FCC licenses | Indefinite | | $ | 486,525 |
| | $ | 484,535 |
|
| Trademarks and trade names | Indefinite | | 4,600 |
| | 4,600 |
|
| Customer and advertising relationships | 10 years | | 14,317 |
| | 14,317 |
|
| Customer relationships | 15 years | | 8,700 |
| | 8,700 |
|
| Leasehold interests | 5 to 39 years | | 1,085 |
| | 1,085 |
|
| Tower space | 3 to 9 years | | 454 |
| | 454 |
|
| Sports broadcast rights | 1 to 2 years | | 665 |
| | 665 |
|
| Non-compete agreements | 1 to 2 years | | 243 |
| | 243 |
|
| Trademarks | 15 years | | 10,695 |
| | 9,815 |
|
| Permits/licenses | 1 year | | 1,000 |
| | 1,000 |
|
| Other intangibles | 3 years | | 991 |
| | 1,141 |
|
| Total | | | 529,275 |
| | 526,555 |
|
| Less: Accumulated amortization | | | (15,360 | ) | | (18,156 | ) |
| Net amount | | | $ | 513,915 |
| | $ | 508,399 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Weighted Average Useful Life (in Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Intangible Assets: | | | | | | | |
| FCC licenses | Indefinite | | $ | 252,110 | | | $ | — | | | $ | 252,110 | |
| Digital Assets | Indefinite | | 2,136 | | | 0 | | | 2,136 | |
| Content rights and other intangible assets | 1 - 10 | | 37,092 | | | (14,500) | | | 22,592 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total | | | $ | 291,338 | | | $ | (14,500) | | | $ | 276,838 | |
Amortization expense for definite-lived intangible assets for each of the years ended December 31, 2015, 20162023 and 20172022 was $2.9 million, $4.0$7.3 million and $3.0$6.2 million, respectively.
Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of December 31, 20172023 is as follows (in thousands):
|
| | | |
| 2018 | $ | 2,092 |
|
| 2019 | 1,969 |
|
| 2020 | 1,921 |
|
| 2021 | 1,912 |
|
| 2022 | 1,909 |
|
| Thereafter | 9,461 |
|
| | $ | 19,264 |
|
| | | | | |
| |
| 2024 | $ | 7,314 | |
| 2025 | 3,600 | |
| 2026 | 3,188 | |
| 2027 | 1,978 | |
| 2028 | 1,880 | |
| Thereafter | 1,110 | |
| $ | 19,070 | |
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Investments
Long-term investments primarily consists of minority holdings in various companies. As management does not exercise significant control over operating and financial policies of the investees, the investments are not consolidated or accounted for under the equity method of accounting. The initial valuation of the equity securities was based upon an estimate of market value at the time of investment or upon a combination of a valuation analysis using observable inputs categorized as Level 2 and Level 3 within the ASC 820 framework.
In accordance with ASC 321, Investments - Equity Securities, the Company measures its equity securities at cost minus impairment, as their fair values are not readily determinable and the investments do not qualify for the net asset value per share practical expedient. The Company monitors its investments for any subsequent observable price changes in orderly transactions for the identical or a similar investment of the same investee, at which time the Company would adjust the then current carrying values of the related investment. Additionally, the Company evaluates its investments for any indicators of impairment.
Equity securities measured at cost minus impairment
During the year ended December 31, 2023, the Company recorded $14.5 million of impairment charges for existing investments based on the implied fair value of the investees, as the Company became aware of objective evidence to indicate that the fair value of the investments were below their carrying amounts.
On April 12, 2023, one of the Company's investees was acquired as a result of a private transaction. The Company recognized a $5.2 million gain on the transaction during the twelve months ended December 31, 2023, based on total consideration received in the amount of $6.0 million.
During the twelve months ended December 31, 2022, the Company recorded a $1.2 million impairment charge for an investee based on the implied fair value of the investee as a result of a private transaction.
A total of $15.7 million in cumulative impairment charges have been recorded for the Company’s existing equity securities that are measured at cost minus impairment.
Equity securities measured at fair value
On July 2, 2021, one of the Company's investees completed its registration with the SEC and became a publicly traded company. Based on the market price of the investee's common stock as of December 31, 2023, the fair value of the Company's investment in the common stock of the investee was approximately $0.8 million. As a result, the Company recorded a total unrealized net loss of $0.4 million during 2023. The Company recorded a total unrealized net loss of $2.1 million during 2022.
Unrealized gains and losses are included as a component of other expense (income) on the Consolidated Financial Statements. The market price of the investee's common stock as of December 31, 2023 is categorized as Level 1 within the ASC 820 framework.
In February of 2024, one of the Company’s investees announced the completion of its acquisition in a private transaction. The Company will recognize a gain of approximately $4.0 million based on total consideration received in March of 2024.
Note 8. Long-Term Debt
Total debt outstanding is summarized as follows:follows (in thousands):
|
| | | | | | | |
| (in thousands) | December 31,
2016 | | December 31,
2017 |
| 2023 Notes | $ | 280,079 |
| | $ | 280,079 |
|
| Term Loans | 298,512 |
| | 291,851 |
|
| Capitalized leases | 631 |
| | 15 |
|
| Debt before deferred financing costs | 579,222 |
| | 571,945 |
|
| Deferred financing costs | (8,006 | ) | | (6,803 | ) |
| Total debt | 571,216 |
| | 565,142 |
|
| Less: current portion of long-term debt | (6,901 | ) | | (9,524 | ) |
| Total long-term debt | $ | 564,315 |
| | $ | 555,618 |
|
| | | | | | | | | | | |
| December 31,
2023 | | December 31,
2022 |
| 2026 Notes | $ | 503,618 | | | $ | 530,766 | |
| | | |
| | | |
| | | |
| Deferred financing costs | (3,960) | | | (6,324) | |
| | | |
| | | |
| Total long-term debt | $ | 499,658 | | | $ | 524,442 | |
On April 1, 2015,January 6, 2021, the Company issued $300.0completed the private offering and sale of $550.0 million aggregate principal amount of 6.5% Unsecured Senior Notes6.875% senior secured notes due in 20232026 (the “2023“2026 Notes”) at an issue price of 100.0%. The 2026 Notes bear interest at a rate of 6.875% and a Senior Secured Credit Facility, which includes a sevenmature on February 1, 2026. Interest on the 2026 Notes is payable semi-annually in cash in arrears on February 1 and August 1 of each year, $275.0 million term loan facility (the “Term Loans”) and a five year, $50.0 million revolving credit facility (the “Revolver”). Borrowingscommencing on August 1, 2021.
The Company’s obligations under the 2026 Notes are guaranteed by each of the Company’s direct and indirect subsidiaries, and subject to certain exceptions, are secured by substantially all of the tangibleits subsidiaries and intangible assets of the Company and its subsidiaries.assets. The proceeds from the 2023 Notes and Term Loans were used to redeem the 9% Unsecured Senior Notes due 2019 issued by the Company’s wholly-owned, indirect subsidiary Townsquare Radio, LLC (“Townsquare Radio”) together with Townsquare Radio, Inc., as co-borrowers (the “2019 Notes”), and repay all outstanding borrowings under Townsquare Radio’s previously existing senior secured credit facility, including a $10.0 million revolving credit facility. The Company paid $27.7 million in redemption premiums to holders of the 2019 Notes in connection with the redemption. In addition, the Company had a loss of $9.1 million and a gain of $6.8 million on the write-off of unamortized deferred financing costs and bond premium, respectively in connection with these repayments. The payment to holders of the 2019 Notes and the write-off of the unamortized deferred financing costs and bond premium are included in cancellation and (repurchase) of debt in the Company’s Consolidated Statements of Operations for the year ended December 31, 2015.
On September 1, 2015, the Company issued incremental term loans of $45.0 million under the Senior Secured Credit Facility, the proceeds of which were used to partially fund the purchase price of NAME. Further, on September 30, 2015, the Company made a $20.0 million voluntary prepayment of borrowings under the Term Loans. The Company recognized a loss of $0.3 million on the write-off of unamortized deferred financing costs in connection with this voluntary prepayment in the third quarter of 2015.
During the year ended December 31, 2016, the Company voluntarily repurchased $19.9 million of its 2023 Notes at a market price below par, plus accrued interest and recognized a gain of $0.5 million, which is included in other expense (income), net in the Company’s Consolidated Statements of Operations. The repurchased notes were canceled by the Company. The Company recognized a loss of $0.4 million on the write-off of unamortized deferred financing costs in connection with the voluntary repurchases of its 2023 Notes, which is included in interest expense, net in the Company’s Consolidated Statements of Operations for the year ended December 31, 2016.
On February 8, 2017, the Company amended its Senior Secured Credit Facility agreement to reduce the applicable interest rate on its Term Loan. Under the amended Term Loan, the applicable margin has been reduced by 25 basis points to 300 basis points. The LIBOR floor of 1% remains unchanged. All other terms of the Senior Secured Credit Facility agreement remain substantially unchanged. The Company capitalized $0.4 million of deferred financing costs in connection with this repricing. As of December 31, 2017, the interest rate on the Term Loans was 4.42%. The Revolver has an interest rate based either on LIBOR and an applicable margin of 250 basis points, or an alternative base rate and an applicable margin of 150 basis points. As of December 31, 2017, the Company had no outstanding borrowings under the Revolver.
The 2023 Notes mature on April 1, 2023, with interest payable on April 1 and October 1 of each year. Prior to maturity, the Company may redeem allthe 2026 Notes in whole or in part, at its option, at a redemption price equal to 100% of the 2023 Notes at specifiedprincipal amount, subject to the following redemption premiums as set forth in the indenture, together with anyprices, plus accrued and unpaid interest, thereon. Additionally, if any to, but excluding, the redemption date:
| | | | | | | | |
| Period | | Price |
| Beginning February 1, 2023 | | 103.438 | % |
| Beginning February 1, 2024 | | 101.719 | % |
| Beginning February 1, 2025 and thereafter | | 100.000 | % |
Change of Control
If the Company experiences certain
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
change of control events, holders of the 20232026 Notes may require the Company to repurchase all or part of their notes2026 Notes at 101% of the principal amount thereof.thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
Certain Covenants
The 2023 Notes rank equally with all of the Company’s existing and future senior debt, are senior to all of the Company’s existing and future subordinated debt, and are guaranteed on a senior basis by certain of the Company’s direct and indirect wholly-owned subsidiaries.
The 20232026 Notes indenture contains restrictivecertain covenants that may limit, among other things, our ability to; incur additional indebtedness, declare or pay dividends, redeem stock, transfer or sell assets, make investments or agree to certain restrictions on the ability of the Company and itsrestricted subsidiaries to, among other things, incur additional debt or issue preferred stock; create liens; create restrictions on the Company’s subsidiaries’ ability to make payments to the Company; pay dividendsCompany. Certain of these covenants will be suspended if the 2026 Notes are assigned an investment grade rating by Standard & Poor’s Investors Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. and make other distributions in respectno event of the Company’sdefault has occurred and its subsidiaries’ capital stock; make certain investments or certain other restricted payments; guarantee indebtedness; designate unrestricted subsidiaries; sell certain kinds of assets; enter into certain types of transactions with affiliates; and effect mergers and consolidations.is continuing.
The Term Loans mature on
April 1, 2022, and
During the Revolver matures on April 1, 2020. Borrowings under the Senior Secured Credit Facility are subject to mandatory prepayments equal to the net proceeds toyear ended December 31, 2023, the Company voluntarily repurchased an aggregate $27.1 million principal amount of any additional debt issuancesits 2026 Notes at or asset sales, as well as halfbelow par, plus accrued interest. The Company wrote-off approximately $0.3 million of unamortized deferred financing costs, recognizing a total net gain of $1.2 million in connection with the annual excess cash flow as defined involuntary repurchases of its 2026 Notes. The repurchased notes were canceled by the credit agreement (subject to certain reductions). As ofCompany.
During the year ended December 31, 2016, we were required to make2022, the Company voluntarily repurchased an excess cash flow payment on the outstanding Term Loansaggregate $19.2 million principal amount of $6.7its 2026 Notes at or below par, plus accrued interest. The Company wrote-off approximately $0.3 million which was subsequently paid on March 20, 2017. As of December 31, 2017, we will be required to make an excess cash flow payment on the outstanding Term Loansunamortized deferred financing costs, recognizing a total net gain of $9.5$0.1 million in connection with the first quarter of 2018. Borrowings are guaranteed by each of the Company’s direct and indirect subsidiaries, and subject to certain exceptions, are secured by substantially all of the tangible and intangible assets of the Company and its subsidiaries.
The Senior Secured Credit Facility contains covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to incur additional indebtedness or liens; engage in mergers or other fundamental changes; sell certain property or assets; pay dividends or other distributions; make acquisitions, investments, loans and advances; prepay certain indebtedness including the 2023 Notes; change the naturevoluntary repurchases of its business; engage in certain transactions with affiliates and incur restrictions on interactions between2026 Notes. The repurchased notes were canceled by the Company and its subsidiaries, or limit actions in relation to the Senior Secured Credit Facility.Company.
The Company iswas in compliance with its covenants under the 20232026 Notes and the Senior Secured Credit Facilityindenture as of December 31, 2017.2023.
As of December 31, 20162023 and 2017,2022, based on available market information, the estimated fair value of the 20232026 Notes was $268.4$493.5 million and $275.8$472.4 million, respectively, and $299.6 million and $288.9 million, respectively, for the Term Loans.respectively. The Company used Level 2 measurements under the fair value measurement hierarchy established under Fair Value Measurement (Topic 820).
The following table illustrates the components of our interest expense, net (in thousands):
| | | | | | | | | | | |
| Year Ended
December 31, |
| 2023 | | 2022 |
| 2026 Notes | $ | 35,534 | | | $ | 36,999 | |
| | | |
| | | |
| Capital leases and other | 1,350 | | | 1,140 | |
| Deferred financing costs and discounts | 2,086 | | | 1,879 | |
| Interest income | (1,721) | | | (190) | |
| Interest expense, net | $ | 37,249 | | | $ | 39,828 | |
Annual maturities of the Company's long-term debt as of December 31, 20172023 are as follows (in thousands):
|
| | | |
| 2018 | $ | 9,524 |
|
| 2019 | 5 |
|
| 2020 | 5 |
|
| 2021 | — |
|
| 2022 | 282,332 |
|
| Thereafter | 280,079 |
|
| | $ | 571,945 |
|
| | | | | |
| (in thousands) |
| 2024 | $ | — | |
| 2025 | — | |
| 2026 | 503,618 | |
| 2027 | — | |
| 2028 | — | |
| Thereafter | — | |
| $ | 503,618 | |
TOWNSQUARE MEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 8.9. Lease and Other Commitments
Our lease agreements are primarily for facilities, land, radio towers and other equipment used in our operations and contain renewal options through 2088, escalating rent provisions and/or cost of living adjustments. The majority of our leases are operating leases, although we have several finance leases for equipment as the lease term represents a significant portion of the useful life. In several cases, we have lease arrangements where the lease payment is based upon the consumer price index. Our lease agreements generally do not contain guarantees of the residual value at the end of the lease term or restrictive financial or other covenants.
Total rental expense, including costs incurred for live events such as venue and equipment rentals, for our operating leases was $14.7 million and $13.0 million for the years ended December 31, 2023 and 2022, respectively, and is included in Income from operations.
In September 2015, the Company closed on the sale of 43 towers located on 41 sites in 28 markets to a subsidiary of Vertical Bridge, LLC ("Vertical Bridge") (the "Tower Sale"). The divested towers house antenna that broadcast certain of the Company’s radio stations. As part of this transaction, the Company leased a portion of the space on the sold towers that house certain of the Company's antenna. The lease is for a period of 35 years, including an initial term of twenty years and three optional 5-year renewal periods. The Company pays $41 of rent per annum ($1 per site per annum) to Vertical Bridge for the right to house its existing antenna on the divested towers. In addition, the Company determined that the lease is an operating lease and is amortizing the long-term prepaid rent asset and deferred gain on the sale of towers as offsetting amounts over the lease term. The ending balances of the prepaid rent asset and deferred gain, including the current portion of $0.2 million, as of December 31, 2023 and 2022 were $5.6 million and $5.8 million, respectively. The Company will continue to amortize these balances over the remaining lease term.
Weighted-average remaining lease term (in years) and discount rate related to leases were as follows:
| | | | | | | | | | | |
| Weighted Average Remaining Lease Term | December 31, 2023 | | December 31, 2022 |
| Finance Leases | 24.28 years | | 25.53 years |
| Operating leases | 6.71 years | | 7.09 years |
| Weighted Average Discount Rate | | | |
| Finance Leases | 7.40% | | 7.39% |
| Operating leases | 6.98% | | 7.05% |
Maturities of lease liabilities for operating leases are as follows as of December 31, 2023 (in thousands):
| | | | | |
| |
| 2024 | $ | 11,843 | |
| 2025 | 10,631 | |
| 2026 | 7,849 | |
| 2027 | 5,823 | |
| 2028 | 4,942 | |
| Thereafter | 16,305 | |
| Total operating lease payments | 57,393 | |
| Less: imputed interest | (12,151) | |
| Add: deferred gain sale leaseback transaction | 5,571 | |
| Total | $ | 50,813 | |
Maturities of lease liabilities for financing leases are as follows as of December 31, 2023 (in thousands):
| | | | | |
| |
| 2024 | $ | 199 | |
| 2025 | 173 | |
| 2026 | 137 | |
| 2027 | 109 | |
| 2028 | 98 | |
| Thereafter | 3,005 | |
| Total financing lease payments | 3,721 | |
| Less: imputed interest | (2,194) | |
| Total | $ | 1,527 | |
Finance leases are included in property and equipment, net, accrued expenses and other current liabilities and other long-term liabilities on our Consolidated Balance Sheets.
The components of lease costs recorded to operating and corporate expense where the short-term lease measurement and recognition exemption was not applied are as follows (dollars in thousands):
| | | | | | | | | | | |
| Year Ended December 31, 2023 | | Year Ended December 31, 2022 |
| Operating lease cost | $ | 11,831 | | | $ | 10,778 | |
| Short-term lease cost | 33 | | | 35 | |
| Variable lease cost | 13 | | | 12 | |
| Total lease cost | $ | 11,877 | | | $ | 10,825 | |
Other Commitments: The radio broadcast industry’s principal ratings service is Nielsen Holdings N.V. (“Nielsen”), which publishes surveys for domestic radio markets. The Company’s remaining aggregate fixed obligation under the agreements with Nielsen as of December 31, 2023 is approximately $15.0 million and is expected to be paid in accordance with the agreements through September 2026. In addition, the Company has aggregate commitments of $6.0 million for a business management platform through October 2026.
Future expected payments under these agreements as of December 31, 2023 are as follows (in thousands):
| | | | | |
| |
| 2024 | $ | 9,127 | |
| 2025 | 8,941 | |
| 2026 | 2,982 | |
| 2027 | — | |
| 2028 | — | |
| Thereafter | — | |
| Total purchase obligations | $ | 21,050 | |
Total payments made under these agreements were $8.7 million and $10.2 million for the years ended December 31, 2023 and 2022, respectively.
Note 10. Income Taxes
Income tax (benefit) expense from operations for the years ended December 31, 2023 and 2022 consisted of the following (in thousands):
| | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | |
| Current income tax expense | | | | | | |
| State | | $ | 750 | | | $ | 769 | | | |
| Total current income tax expense | | $ | 750 | | | $ | 769 | | | |
| | | | | | |
| Deferred tax (benefit) expense | | | | | | |
| Federal | | $ | (5,516) | | | $ | 421 | | | |
| State | | (1,376) | | | (1,754) | | | |
| Total deferred income tax benefit | | (6,892) | | | (1,333) | | | |
| Total income tax benefit | | $ | (6,142) | | | $ | (564) | | | |
Total income tax (benefit) expense from operations differed from the amount computed by applying the federal statutory tax rate of 21% for the years ended December 31, 2023 and 2022, due to the following (in thousands):
| | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | |
| Pretax income at federal statutory rate | | $ | (10,324) | | | $ | 2,903 | | | |
| State income tax expense, net federal expense | | (1,146) | | | 626 | | | |
| Non-deductible compensation | | 1,870 | | | 1,083 | | | |
| Non-controlling interest | | (407) | | | (431) | | | |
| Other Non-deductible items | | 69 | | | (61) | | | |
| Total Non-deductible items | | 1,532 | | | 591 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Prior year true-up adjustment | | — | | | 241 | | | |
| Tax basis in investments | | 413 | | | — | | | |
| Tax attribute expiration | | 13,701 | | | 764 | | | |
| Prior year NOL adjustment | | (135) | | | — | | | |
| Tax rate changes | | (102) | | | (192) | | | |
| Stock-based compensation | | 386 | | | 188 | | | |
| Property and equipment | | 328 | | | — | | | |
| | | | | | |
| Total Adjustment of prior year deferred taxes | | 14,591 | | | 1,001 | | | |
| Change in valuation allowance | | (10,878) | | | (5,672) | | | |
| Other items | | 83 | | | (13) | | | |
| Total (benefit) expense for income taxes | | $ | (6,142) | | | $ | (564) | | | |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2023 and 2022 are presented below (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| Deferred tax assets: | | | |
| Allowance for credit losses | $ | 1,026 | | | $ | 1,516 | |
| Accrued expenses and other current liabilities | 347 | | | 479 | |
| Stock-based compensation | 2,477 | | | 2,774 | |
| Investments | 2,058 | | | 1,553 | |
| Property and equipment | 1,502 | | | 1,977 | |
| Interest expense | 23,200 | | | 16,949 | |
| Operating lease obligations | 12,875 | | | 13,773 | |
| | | |
| Non-current liabilities | 2,250 | | | 2,462 | |
| Net operating loss and credit carryforwards | 33,151 | | | 52,179 | |
| Foreign tax credits | 385 | | | 385 | |
| 79,271 | | | 94,047 | |
| Less: valuation allowance | (38,520) | | | (49,398) | |
| Deferred tax assets | 40,751 | | | 44,649 | |
| Deferred tax liabilities: | | | |
| Intangible assets | 39,930 | | | 49,227 | |
| Operating lease right of use assets | 11,905 | | | 12,998 | |
| Software development costs | 772 | | | 1,172 | |
| Deferred tax liabilities | 52,607 | | | 63,397 | |
| Net deferred tax liabilities | $ | (11,856) | | | $ | (18,748) | |
As of December 31, 2023, the Company has federal net operating loss carryforwards of approximately $121.4 million available to offset future income which will expire in the years 2024 through 2037, of which $45.7 million has an indefinite life. Approximately $18.0 million is applicable to Townsquare Radio, Inc. and can only be utilized against its future earnings (subject to further limitations under Section 382 of the Internal Revenue Code), and $57.8 million applicable to post IPO operations of the Company and can be utilized against future earnings without limitation through 2037. Additionally, the Company has various amounts of state net operating loss carry forwards expiring through 2043.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. At December 31, 2023 and 2022, management believes it is not more likely than not that the Company will realize the benefits of these deductible differences.
The decrease in the valuation allowance of $10.9 million during the December 31, 2023 period, is primarily due to the expiration of capital loss carryforwards of $13.5 million, a $0.6 million decrease in valuation allowances associated with the utilization of capital loss carryforwards, and a $5.8 million decrease in valuation allowances associated with the utilization of net operating loss carryforwards, partially offset by a $9.0 million increase in the valuation allowance for the interest expense carryforward. The decrease in the valuation allowance of $5.7 million during the December 31, 2022 period, is primarily due to the utilization of net operating loss carryforwards.
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits for the years ended December 31, 2023 and 2022 is as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | |
| Balance at beginning of the year | | $ | — | | | $ | — | | | |
| Increases for prior year tax positions | | 12,986 | | | — | | | |
| Balance at the end of the year | | $ | 12,986 | | | $ | — | | | |
As of December 31, 2023, the Company had unrecognized tax benefits of $13.0 million, all of which if recognized, would result in additional federal and state net operating loss carryforwards, with $2.2 million impacting the effective tax rate, and $10.8 million fully offset by a valuation allowance. It is not expected that unrecognized tax benefits will materially change in the next 12 months.
Note 11. Stockholders’ Equity
The table below presents a summary, as of December 31, 2017,2023, of our authorized and outstanding common stock, and securities convertible into common stock, excluding options issued under our 2014 Omnibus Incentive Plan.
| | Security1 | |
Security1 | |
Security1 | | Par Value Per Share | Number Authorized | Number Outstanding | Description | | Par Value Per Share | | Number Authorized | | Number Outstanding | | Description |
| Class A common stock | | $ | 0.01 |
| 300,000,000 | 13,819,639 | One vote per share. | Class A common stock | | $ | 0.01 | | | 300,000,000 | | 300,000,000 | | | 14,023,767 | | 14,023,767 | | One vote per share. |
| Class B common stock | | $ | 0.01 |
| 50,000,000 | 3,022,484 | 10 votes per share.2 | Class B common stock | | $ | 0.01 | | | 50,000,000 | | 50,000,000 | | | 815,296 | | 815,296 | | Ten votes per share.2 |
| Class C common stock | | $ | 0.01 |
| 50,000,000 | 1,636,341 | No votes.2 | Class C common stock | | $ | 0.01 | | | 50,000,000 | | 50,000,000 | | | 1,961,341 | | 1,961,341 | | | No votes.2 | | No votes.2 |
| Warrants | | | | 8,977,676 | Each warrant is exercisable for one share of Class A common stock, at an exercise price of $0.0001 per share. The aggregate exercise price for all warrants currently outstanding is $898.3 |
| | Total | | | 400,000,000 | 27,456,140 | |
1 Each of the shares of common stock, including the shares of Class A common stock issuable upon exercise of the warrants, have equal economic rights. | | Total | |
| Total | |
1 Each of the shares of common stock have equal economic rights. | |
1 Each of the shares of common stock have equal economic rights. | |
1 Each of the shares of common stock have equal economic rights. | |
2 Each share converts into one share of Class A common stock upon transfer or at the option of the holder, subject to certain conditions, including compliance with FCC rules. | 2 Each share converts into one share of Class A common stock upon transfer or at the option of the holder, subject to certain conditions, including compliance with FCC rules. | 2 Each share converts into one share of Class A common stock upon transfer or at the option of the holder, subject to certain conditions, including compliance with FCC rules. |
3 The warrants are fully vested and exercisable for shares of Class A common stock, subject to certain conditions, including compliance with FCC rules. | |
Holders of shares of Class A common stock, Class B common stock and Class C common stock vote together as a single class on all matters presented to the Company'sCompany’s stockholders for their vote or approval, except as otherwise required by applicable law. Each holder of the Company'sCompany’s Class A common stock is entitled to one vote per share on each matter submitted to a vote of stockholders. The Company'sCompany’s Class A common stock is neither convertible nor redeemable. Each holder of the Company'sCompany’s Class B common stock is entitled to ten votes per share on each matter submitted to a vote of stockholders. The Company'sCompany’s Class B common stock is not redeemable, but is convertible 1:1 (including automatically upon certain transfers) into Class A common stock. Holders of shares of Class C common stock are not entitled to any voting rights with respect to such shares. The Company’s Class C common stock is not redeemable, but is convertible 1:1 (including automatically upon certain transfers) into Class A common stock.
