Entertainment Troubles Swing Townsquare To A Q4 Loss

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It was a year of transition for Townsquare Media Group in 2017. The company’s entertainment business is under strategic review.


Former CEO Steven Price is settling in to his new role as Executive Chairman, and his two replacements — as co-CEOs — are, like Price, energized about what lies ahead. Looking back isn’t so great: The owner of radio stations in small and medium-sized markets swung to a loss in Q4.

Its radio stations aren’t to blame.

For the final three months of 2017, Townsquare’s core Local Marketing Solutions net revenue climbed to $91.65 million, from $91.28 million in Q4 2016.

For the full-year 2017 — discussion of which dominated co-CEO Dhruv Prasad‘s comments during a Tuesday morning conference call with Wall Street analysts — Townsquare’s Local Marketing Solutions net revenue rose to $348.66 million, from $342.19 millon.

Townsquare’s entertainment segment is what’s dragging the company, and all of Townsquare’s top executives are well aware of the situation — and are acting to remedy the problems.

A YEAR OF CHANGE

Opening Townsquare’s Q4 and full-year 2017 conference call was its former CEO, Steven Price. 

Price transitioned to the role of Executive Chairman, yielding the CEO role to Prasad and co-CEO Bill Wilson. Price commented, “The closing of 2017 brings to conclusion a year of transition for Townsquare.” He added that it was a year full of strong local performance, but also a 12-month period in which Townsquare experienced challenges in its entertainment portfolio that have been addressed, “and of course the management succession that I initiated in October of last year.”

Price noted the “impressive” growth seen in its core marketing solutions business — its AMs and FMs in such markets as Albany and Buffalo, N.Y.; Amarillo and El Paso, Tex.; and Fort Collins-Greeley, Colo. — noting the strength and stability of the radio stations and local digital marketing solutions. He added that he was engaged in his new role as Executive Chairman and “energized.”

Prasad took over the conference call from Price, and focused nearly all of his discussion on the company’s full-year 2017 results — rather than Townsquare’s not-so-rosy Q4.

In Q4, consolidated net revenue fell to $114.26 million from $118.65 million, while the company shifted to a net loss of $27.12 million ($1.47 per diluted share, including $0.05 for discontinued operations), from a net gain of $3.21 million ($0.12 per diluted share).

That missed the forecasts of three Zacks Investment Research analysts, which expected revenue of $118.6 million.

Adjusted for one-time gains and costs, Townsquare saw Q4 net income of $3.89 million (14 cents per diluted share), down from $4.83 million (18 cents).

The results bested the estimate of three analysts surveyed by Zacks Investment Research of 13 cents per share.

 

For the full-year 2017, Townsquare’s adjusted net income dipped to $20.6 million (74 cents per diluted share), from $28 million ($1.03).

THAT’S ENTERTAINMENT

Prasad made it clear that Townsquare’s goal in 2018 is to “reduce complexity and volatility in our business.” That’s largely in the company’s entertainment division, which has seen its strategic review largely concluded.

Speaking later in the call, Wilson offered 2018 guidance that clearly illustrates just where Townsquare’s challenges are. For the full-year 2018, Local Media Solutions are expected to see net revenue up to between $364 million and $372 million. But, Entertainment net revenue for 2018 is anticipated to be down to between $140 million and $148 million.

Thus, total revenue will be slightly up from 2017, and is anticipated to be between $510 million and $520 million.

Adjusted EBITDA, which finished FY2017 at $97.19 million — thanks to a $13 million benefit tied to the Tax Cuts and Jobs Act — is forecast to grow by 2%-4% in 2018, to between $99 million and $101 million.

Thus, increased profitability at radio and “stability” in the entertainment division are the goals that Prasad, Wilson and Price believe can be achieved in this next nine months.

To achieve this, Wilson noted, “corrective steps” at Townsquare’s entertainment division taken in Q4 2017 and in Q1 2018 are now complete.

This includes a reduction of planned entertainment events for 2018 from 520 to 350, fewer Insane Inflatable 5k events, and the sale of the Crude Fest Texas country music festival in Midland and Country on the River in Prairie du Chien, Wisc. Both events are taking 2018 off as new owners look to revive each event in 2019.

“We continue to evaluate our portfolio of events on an ongoing basis,” Wilson said in response to a question from a Barrington Research analyst James Goss if further entertainment event sales were up for consideration.

Wilson noted earlier that it would consider strategic transitions that can bring shareholder value for Townsquare.

Lastly, Townsquare sees its programmatic sales volume in its Local Marketing Solutions digital arm to “reduce revenue potential but reduce fixed expenses.” Wilson is “incredibly excited of our digital product portfolio” and expects strong growth in 2018.

And, in response to a final question from Goss about iHeartMedia and Cumulus Media and their financial challenges at the moment, Prasad remains hopeful that any spins that could become available will see Townsquare in the mix as a potential buyer.

SHAREHOLDER REWARD 

In addition to announcing its Q4 and FY2017 results, Townsquare says that its Board of Directors have approved the initiation of a quarterly cash dividend of $0.075 per
share.

The dividend will be payable on May 15 to shareholders of record as of the close of business on April 2.

“The Board’s decision to approve a dividend reflects confidence in our current capitalization, the strength of our balance sheet, our free cash flow generation, and our outlook for 2018,” said Prasad.

Townsquare shares open Tuesday’s trading at $7.60, its highest price since February 1. However, shares are nearly half of what they were worth in April 2015, when TSQ topped out at $13.66.


RBR+TVBR RELATED READ:

‘Local First’: Townsquare Media’s Win-Seeking Mantra

The three-pronged media company is poised for growth in its current markets and could expand into other areas of the U.S. where holes of interest present themselves. With a highly publicized leadership change now in its past, Townsquare is being co-led by a genial co-CEO who came on board 7 1/2 years ago after a tenure as a VP at Thomas H. Lee Partners. RBR+TVBR spoke with Dhruv Prasad about his passion for local radio, and how that will help bring more riches to the broadcast company.