# Townsquare Media, Inc.: Form 10-Q for the period ended Mar 31, 2018

- Company: [Townsquare Media, Inc.](/companies/tsq.md) (CIK 1499832)
- Form: 10-Q
- Filed: 2018-05-08
- Accepted by EDGAR: May 8, 2018, 11:03 ET
- Period: 2018-03-31
- Accession: 0001628280-18-006128
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1499832/000162828018006128/tsq033118q110q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1499832/000162828018006128/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-01-01 to 2018-03-31 | $94.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2018-01-01 to 2018-03-31 | −$32.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2018-01-01 to 2018-03-31 | $8.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2018-01-01 to 2018-03-31 | −$14.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-01-01 to 2018-03-31 | −$26.8m | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2018-01-01 to 2018-03-31 | 18,478,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2018-01-01 to 2018-03-31 | −$791.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2018-01-01 to 2018-03-31 | $7.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2018-03-31 | $49.1m | us-gaap:Cash |
| Current assets | at 2018-03-31 | $119.7m | us-gaap:AssetsCurrent |
| Total assets | at 2018-03-31 | $1.00bn | us-gaap:Assets |
| Current liabilities | at 2018-03-31 | $61.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-03-31 | $648.5m | us-gaap:Liabilities |
| Long-term debt | at 2018-03-31 | $562.4m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2018-03-31 | $354.7m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 31,484 characters.

The following management’s discussion and analysis is intended to provide the reader with an overall understanding of our financial condition, results of operations, cash flows and sources and uses of cash. This section also includes general information about our business and a discussion of our management’s analysis of certain trends, risks and opportunities in our industry. In addition, we also provide a discussion of accounting policies that require critical judgments and estimates as well as discuss certain risks and uncertainties that could cause our actual future results to differ materially from our historical results or our current expectations. This discussion should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this quarterly report. The following discussion contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements as a result of these risks and uncertainties, including those set forth in this quarterly report.

### Note About Forward-Looking Statements

This report includes estimates, projections, statements relating to our business plans, objectives and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act. Forward-looking statements often discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “believe,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include the impact of general economic conditions in the United States or Canada, or in the specific markets in which we currently do business, industry conditions, including existing competition and future competitive technologies, the popularity of radio as a broadcasting and advertising medium, cancellations, disruptions or postponements of advertising schedules in response to national or world events, our dependence on key personnel, our capital expenditure requirements, our continued ability to identify suitable acquisition targets, and consummate and integrate any future acquisitions, legislative or regulatory requirements, risks and uncertainties relating to our leverage and changes in interest rates, our ability to obtain financing at times, in amounts and at rates considered appropriate by us, our ability to access the capital markets as and when needed and on terms that we consider favorable to us and other factors discussed in this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and under “Risk Factors” in our 2017 Annual Report on Form 10-K, as well as other risks discussed from time to time in our filings with the SEC. Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

### 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 14 in the accompanying Consolidated Financial Statements for additional information.

### Format of Presentation

Townsquare is a radio, digital media, entertainment and digital marketing solutions company principally focused on being the premier local advertising and marketing solutions platform 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. Our integrated and diversified product and service offerings, which we refer to as *Townsquare Everywhere*, enable local, regional and national advertisers to target audience engagement across multiple platforms, including on-air, online and at live events. We believe our *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 both 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 composed of 317 owned and operated radio stations and over 325 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 offering. Almost all of our radio stations have local companion websites that utilize the station brands and are populated with proprietary, 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. Our sales of advertisements are primarily affected by the demand for advertising from local, regional and national advertisers and the advertising rates we charge. Advertising demand and rates are based primarily on our ability to attract audiences to our various products in the demographic groups targeted by advertisers, as measured principally by various services on a periodic basis. We endeavor to develop strong audience loyalty and believe that the diversification of formats on our radio stations and websites helps to insulate our radio stations and websites from the effects of changes in musical tastes of the public with respect to any particular format. We believe that the sale of our online and mobile advertisements, which currently have rates per advertisement that are less than those of terrestrial radio advertisements, has not negatively impacted our terrestrial radio advertising net revenue. Should a significant and sudden shift in demand for these products toward online and mobile occur, there could be a material adverse impact on our financial condition and results of operations if we are unable to increase rates accordingly. However, we believe that as a result of our strong brands and quality online and mobile offerings we are well positioned to increase rates as demand increases for these products.

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 Solutions net revenue by managing our 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, 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 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 targeting solutions to advertisers through Townsquare Ignite, our digital programmatic advertising platform. Combining first and third party audience and geographic location data, Ignite is able to hyper-target audiences for our local, regional and national advertisers, providing them the ability to reach a high percentage of their online audience. Ignite delivers these solutions across desktop, mobile, connected TV, email, paid search and social media platforms utilizing display, video and native executions.

Our Local Marketing Solutions contracts are generally short-term. In the media industry, companies, including ours, sometimes utilize barter agreements that exchange advertising time for goods or services such as travel or lodging, instead of cash.

Our most significant Local Marketing Solutions expenses are sales, programming, digital, marketing and promotional, engineering, and general and administrative expenses. We strive to control these expenses by closely monitoring and managing each of our local markets and through efficiencies gained from the centralization of finance, accounting, legal and human resources functions and management information systems. We also use our scale and diversified geographic portfolio to negotiate favorable rates with vendors where feasible.

A portion of our Local Marketing Solutions expenses are variable. These variable expenses primarily relate to sales costs, such as commissions, as well as certain programming costs, such as music license fees. 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 and operated 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 through 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 portion 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. 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 may be 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 April 27, 2018, U.S. GDP grew at an annual rate of 2.3% in the first quarter of 2018.

### Emerging Growth Company

The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"), and may take advantage 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.

### Executive Summary

The key developments in our business for the three months ended March 31, 2018, as compared to the same period in 2017 are summarized below:

- Net revenue for the three months ended March 31, 2018 increased $5.8 million, or 6.6%. Excluding political revenue, net revenue increased 6.3%.
- Local Marketing Solutions net revenue increased $4.5 million, or 5.9%. Excluding political revenue, Local Marketing Solutions net revenue increased 5.6%.
- Entertainment net revenue increased $1.3 million, or 10.8%.

### Consolidated Results of Operations

### Three Months Ended March 31, 2017 compared to Three Months Ended March 31, 2018

The following table summarizes our historical consolidated results of operations:

*($ in thousands)*

| Statement of Operations Data: | Three Months Ended March 31, 2017 | 2018 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Local Marketing Solutions net revenue | $76,076 | $80,561 | $4,485 | 5.9% |
| Entertainment net revenue | 12,328 | 13,665 | 1,337 | 10.8% |
| **Net revenue** | **88,404** | **94,226** | **5,822** | **6.6%** |
| Operating costs and expenses: |  |  |  |  |
| Local Marketing Solutions direct operating expenses | 55,332 | 59,001 | 3,669 | 6.6% |
| Entertainment direct operating expenses | 17,508 | 18,065 | 557 | 3.2% |
| **Direct operating expenses, excluding depreciation, amortization and stock-based compensation** | **72,840** | **77,066** | **4,226** | **5.8%** |
| Depreciation and amortization | 6,383 | 6,340 | (43) | (0.7)% |
| Corporate expenses | 5,349 | 5,649 | 300 | 5.6% |
| Stock-based compensation | 188 | 197 | 9 | 4.8% |
| Transaction costs | 199 | 159 | (40) | (20.1)% |
| Impairment of long lived and intangible assets | — | 37,973 | 37,973 | \*\* |
| Net gain on sale and retirement of assets | (2) | (321) | (319) | \*\* |
| **Total operating costs and expenses** | **84,957** | **127,063** | **42,106** | **49.6%** |
| **Operating income (loss)** | **3,447** | **(32,837)** | **(36,284)** | **(1,052.6)%** |
| Other expense: |  |  |  |  |
| Interest expense, net | 8,254 | 8,427 | 173 | 2.1% |
| Other expense, net | 33 | 44 | 11 | 33.3% |
| **Total other expense** | **8,287** | **8,471** | **184** | **2.2%** |
| **Loss from continuing operations before income taxes** | **(4,840)** | **(41,308)** | **(36,468)** | **(753.5)%** |
| Benefit from income taxes | (1,930) | (14,717) | (12,787) | (662.5)% |
| Net loss from continuing operations | (2,910) | (26,591) | (23,681) | (813.8)% |
| Net loss from discontinued operations, net of income taxes | (98) | — | 98 | 100.0% |
| **Net loss** | **$(3,008)** | **$(26,591)** | **$(23,583)** | **(784.0)%** |
| \*\*Percent change not meaningful. |  |  |  |  |

#### Net Revenue

Net revenue for the three months ended March 31, 2018 increased by $5.8 million, or 6.6%, as compared to the same period in 2017. The increase was driven by increases in Local Marketing Solutions net revenue of $4.5 million and Entertainment net revenue of $1.3 million.

Local Marketing Solutions net revenue for the three months ended March 31, 2018 increased $4.5 million, or 5.9%, as compared to the same period in 2017. The increase was driven by an increase in non-political net revenue of $4.2 million, and an increase in political net revenue of $0.3 million.

Entertainment net revenue for the three months ended March 31, 2018 increased $1.3 million, or 10.8%, as compared to the same period in 2017. The increase was primarily related to the timing of a live event.

#### Direct Operating Expenses

Direct operating expenses for the three months ended March 31, 2018 increased by $4.2 million, or 5.8%, as compared to the same period in 2017. The increase was driven by an increase in Local Marketing Solutions direct operating expenses of $3.7 million and an increase in Entertainment direct operating expenses of $0.6 million.

Local Marketing Solutions direct operating expenses for the three months ended March 31, 2018 increased $3.7 million, or 6.6%, as compared to the same period in 2017. The increase was primarily a result of higher costs in headcount-related expenses including salaries, sales commissions, and benefits, to support the growth within our local digital business.

Entertainment direct operating expenses for the three months ended March 31, 2018 increased $0.6 million, or 3.2%, as compared to the same period in 2017. The increase was primarily the result of the timing of a live event, partially offset by expense reductions in our national digital business.

#### Depreciation and Amortization

Depreciation and amortization expense for the three months ended March 31, 2018 decreased $0.1 million, or 0.7%, as compared to the same period in 2017, primarily related to amortization of capitalized software development costs.

#### Corporate Expenses

Corporate expense for the three months ended March 31, 2018 increased $0.3 million, or 5.6%, as compared to the same period in 2017, primarily as a result of increases in headcount-related expenses.

#### Stock-based Compensation

Stock-based compensation expense was $0.2 million for the three months ended March 31, 2017 and 2018, respectively. The stock-based compensation relates to the grant of stock options in the first quarter of 2017 and 2018 that vest over a period of four years.

#### Transaction Costs

Transaction costs for the three months ended March 31, 2018 decreased insignificantly as compared to the same period in 2017.

#### Impairment of long lived and intangible assets

For the three months ended March 31, 2018 we determined that the carrying value of long lived and intangible assets in our Entertainment segment exceeded their fair market value and a impairment charge of $38.0 million was recorded based on the difference between the carrying value and the estimated fair market value of these assets.

#### Net Gain on Sale and Retirement of Assets

Net gain on sale of assets for the three months ended March 31, 2018 increased $0.3 million, as compared to the same period in 2017. The net gain in the first quarter of 2018 primarily resulted from the sale of certain live events assets that had been categorized as held for sale at December 31, 2017.

#### Other Expense

Interest expense, net is the major recurring component of other expense. Interest expense, net increased $0.2 million, or 2.1%, in the three months ended March 31, 2018, as compared to the same period in 2017, primarily due to an increase in LIBOR rates, partially offset by a lower term loan balance.

The following table illustrates the components of our interest expense, net for the periods indicated.

*(in thousands)*

|  | Three Months Ended March 31, 2017 | 2018 |
| --- | ---: | ---: |
| 2023 Notes | $4,551 | $4,551 |
| Term Loans | 3,147 | 3,401 |
| Capital loans and other | 2 | 2 |
| Loan origination costs | 554 | 479 |
| Interest income | 0 | (6) |
| **Interest expense, net** | **$8,254** | **$8,427** |

#### Benefit for income taxes

We recognized a benefit for income taxes of $14.7 million for the three months ended March 31, 2018. Our effective tax rate for the period was approximately 35.6%. Our effective tax rate may vary significantly from period to period 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 21% for the three months ended March 31, 2018 primarily relates to certain non-deductible items under the TCJA provisions and state, local and foreign income taxes.

### Liquidity and Capital Resources

*(in thousands)*

|  | Three Months Ended March 31, 2017 | 2018 |
| --- | ---: | ---: |
| Cash provided by (used in) operating activities | $3,957 | $(791) |
| Cash used in investing activities | (7,445) | (5,880) |
| Cash used in financing activities | (7,453) | (9,547) |
| **Net effect of foreign currency exchange rate changes** | 33 | 3 |
| **Net decrease in cash and restricted cash** | **$(10,908)** | **$(16,215)** |

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, debt service, dividend and other funding requirements for at least one year from the date of this report. As of March 31, 2018, we had $556.1 million of outstanding indebtedness, net of deferred financing costs of $6.3 million. Based on interest rates in effect as of March 31, 2018, we expect our debt service requirements to be approximately $32.2 million over the next twelve months. In addition, as of March 31, 2018 we had $49.1 million of cash and restricted cash, $53.8 million of receivables from customers, which historically have had an average collection cycle of approximately 61 days, and $50.0 million of available borrowing capacity under our revolving credit facility. We had restricted cash of $0.9 million at December 31, 2017 and March 31, 2018, 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.

Our anticipated uses of cash in the near term include working capital needs, debt payments, dividend payments, other obligations, and capital expenditures. However, our ability to fund our working capital needs, debt payments, dividend 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.

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 may 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 related to our floating rate debt. We also routinely monitor the changes in the financial condition of our customers and the potential impact on our results of operations.

### Cash Flows from Operating Activities

Net cash provided by operating activities decreased $4.7 million from $4.0 million for the three months ended March 31, 2017 to $0.8 million of cash used in operating activities for the three months ended March 31, 2018, primarily due to reductions in accounts payable and accrued expenses.

### Cash Flows from Investing Activities

Net cash used in investing activities decreased $1.5 million to $5.9 million for the three months ended March 31, 2018 from $7.4 million for the same period in 2017, primarily due to payments made for acquisitions of $1.8 million in the first quarter of 2017.

### Cash Flows from Financing Activities

Net cash used in financing activities increased $2.1 million to $9.5 million for the three months ended March 31, 2018, as compared to $7.5 million for the same period in 2017. This change was driven by a $2.8 million increase in the excess cash flow payment on our outstanding Term Loan made in the first quarter of 2018, as compared to the same period in 2017. In addition, we paid $0.4 million of deferred financing fees in the three months ended March 31, 2017 in connection with the amendment to our Senior Secured Credit Facility agreement that reduced the applicable interest rate on our Term Loan.

### 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. All other terms of the Senior Secured Credit Facility agreement remain substantially unchanged. As of March 31, 2018, LIBOR increased to 1.88% bringing the interest rate to 4.88%. The Company paid $0.4 million of deferred financing costs in connection with this repricing. 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 made an excess cash flow payment on its outstanding Term Loan of $6.7 and $9.5 million in the first quarter of 2017 and 2018, respectively.

As of March 31, 2018, the Company had $282.3 million of Term Loan borrowings, and no outstanding borrowings under the Revolver. As of March 31, 2018, 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.

### Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements or transactions.

### Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our significant estimates, including those related to bad debts, intangible assets, income taxes, contingencies and purchase price allocations. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the result of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts and results may differ materially from these estimates under different assumptions or conditions.

We believe the accounting policies and estimates discussed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2017 Annual Report on Form 10-K reflects our more significant judgments and estimates used in the preparation of the consolidated financial statements. There have been no material changes to the critical accounting policies and estimates as filed in such report.

### Recent Accounting Standards

For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please refer to Note 2 of the Notes to Unaudited Consolidated Financial Statements included under Item 1.

## Market risk

As filed, 1,192 characters.

*The following discussion should be read together with our unaudited consolidated financial statements and related notes to unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, as well as those discussed within our audited consolidated financial statements and related notes to audited consolidated financial statements included in our 2017 Annual Report on Form 10-K.*

### Interest Rate Risk

As of March 31, 2018, 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 March 31, 2018, 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 March 31, 2018 outstanding term loan borrowings of $282.3 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 $2.8 million. We anticipate such interest rate risk will remain a market risk exposure for the foreseeable future.

## Controls and procedures

As filed, 2,264 characters.

#### Evaluation of Disclosure Controls and Procedures

We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, 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 is accumulated and communicated to a 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 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.

Our management, with the participation of our Co-Chief Executive Officers and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2018, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our Co-Chief Executive Officers and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of such date.

#### Changes in Internal Controls

Beginning January 1, 2018, we implemented ASU 2014-09, *Revenue from Contracts with Customers (Topic 606)*. There were no significant changes made to our accounting policies and procedures as a result of the implementation. Internal control changes necessary to implement the standard have been evaluated and implemented where applicable.

## Risk factors

As filed, 436 characters.

Please refer to Part I, Item 1A, “Risk Factors,” in our 2017 Annual Report on Form 10-K for information regarding known material risks that could affect our results of operations, financial condition and liquidity. In addition to these risks, other risks that we presently do not consider material, or other unknown risks, could materially adversely impact our business, financial condition and results of operations in a future period.

Filed May 8, 2018.
Source: SEC EDGAR, the filing index for accession 0001628280-18-006128. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.