• Company: Townsquare Media, Inc.                                                  
• Symbol: TSQ                                                                                                                    
• Analysis Date: 6/22/20
• Analysis Price: $5.00
• Price Target (PT): $9.00
• Upside: 80%
• Dividend: NA                                                                                                            
• Recommendation: Buy                                                                                   

TSQ: 5-Year Chart

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Source: Seeking Alpha

INVESTMENT THESIS:

Townsquare Media (TSQ) has not participated in the recent market rally after the COVID-19 sell-off. While the anticipated dividend cut, the high debt load, the lingering association with Live Events, and the suspicion over questionable financials are all somewhat justified risks, they have enough liquidity to last at least three years under current operating conditions. Even just assuming a return to free cash flow (FCF) generation of $40M+ (which the company has managed to accomplish for the past three years) makes for an attractive valuation. We think TSQ is a Buy.

LIQUIDITY POSITION: Adequate

As of 1Q20, TSQ had cash on hand of $86M and the full $50M available on the revolver, giving it total liquidity of $136M. Under current operating conditions, management has said that the company would be able to last for at least three years with its available resources. The debt load of $560M continues to be high, but this has been true for quite some time. TSQ is paying favorable rates (margin + LIBOR) of about 5-7%, and we do not think it will have any problem refinancing the term loan due April 2022 and then the Notes due April 2023.

COMMERCIAL PROSPECTS: Good

Starting with 1Q19, TSQ has identified three reportable operating segments: Advertising,

Townsquare Interactive, and Live Events.

Advertising

TSQ owns and operates over 300 radio stations and more than 300 local websites in almost 70 small- and mid-sized markets across the US (i.e. cities such as Albany, NY and Danbury, CT). Included in this segment is one of their two high-growth digital offerings, Townsquare Ignite, which has been developed organically over the past few years. Townsquare Ignite is a proprietary digital programmatic advertising platform which is able to hyper-target audiences for their clients. Townsquare Ignite (which is their fastest-growing product) exited 2019 with an annual run-rate approaching $50M, and the goal is to reach $100M in the next 3-5 years.

Townsquare Interactive

Their second high-growth product, Townsquare Interactive (TSI), targets small- and medium-sized businesses and has about 19,850 subscribers paying on average $300/month. TSI is a digital marketing solutions offering which provides services such as traditional and mobile- enabled website development and hosting, e-commerce platforms, search engine optimization (SEO), social media management, and website retargeting. The digital marketing industry is hyper-competitive, so while there is nothing proprietary about TSI, the cost seems very reasonable compared with other marketing agencies, and the size and complementary synergies within their advertising ecosystem across all segments will help it continue to grow market share. The goal is for this digital product to also reach $100M in annual revenue in the next 3-5 years (the annual run-rate was $68M as of 1Q20).

Live Events

Lastly, their Live Events segment plans, promotes, and produces about 200 live events each year, ranging from popular music and food festivals to craft beer and wine tastings. This segment is the smallest of the three and has gone through considerable downsizing in recent years as the company divested certain poorly performing live events. The remaining events attract over 1M attendees annually and bring in $1M-$2M in adjusted operating income per quarter.

CONCLUSION:

TSQ generated about $40M+ annually in FCF from 2017 to 2019, and we see no reason why it can’t return to those levels once things go back to normal. With a fully diluted market cap of $140M, the forward P/FCF would be an attractive 3.5x. Some of the risks are legitimate (i.e. the anticipated dividend cut, the restated financials that did not affect the cash balance, etc.). But we think the underlying fundamentals outweigh them, and so we think TSQ is a Buy.