TSQ 10-Q Quarterly Report March 31, 2016 | Alphaminr
Townsquare Media, Inc.
ALPHAMINR

TSQ 10-Q Quarter ended March 31, 2016

Balance Sheet
Cash Flow
Income Statement
Debt
TOWNSQUARE MEDIA, INC.
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10-Q 1 tsq033116q110q.htm 10-Q 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
__________________

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2016
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number 333-197002
Townsquare Media, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation
or organization)
4832
(Primary Standard Industrial
Classification Code Number)
27-1996555
(I.R.S. Employer
Identification No.)
240 Greenwich Avenue
Greenwich, Connecticut 06830
(203) 861-0900
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
__________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "accelerated filer," "large accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
x
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Smaller reporting company
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐    No ☒

As of May 9, 2016 , the registrant had 18,394,515 outstanding shares of common stock consisting of: (i)10,477,551 shares of Class A common stock, par value $0.01 per share; (ii) 3,022,484 shares of Class B common stock, par value $0.01 per share; and (iii) 4,894,480 shares of Class C common stock, par value $0.01 per share. The registrant also had 8,977,676 warrants to purchase Class A common stock outstanding as of that date.


TOWNSQUARE MEDIA, INC.

INDEX





PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share and per Share Data)
(unaudited)



December 31,
2015
March 31,
2016
ASSETS
Current assets:
Cash
$
33,298

$
30,820

Accounts receivable, net of allowance of $2,114 and $2,251, respectively
60,143

52,382

Prepaid expenses and other current assets
9,766

17,722

Total current assets
103,207

100,924

Property and equipment, net
133,943

135,210

Intangible assets, net
517,979

516,750

Goodwill
292,953

292,953

Investments
5,049

5,049

Other assets
7,580

7,450

Total assets
$
1,060,711

$
1,058,336

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
9,549

$
6,699

Current portion of long-term debt
171

173

Deferred revenue
17,496

24,195

Accrued expenses and other current liabilities
29,958

21,862

Accrued interest
4,910

9,763

Total current liabilities
62,084

62,692

Long-term debt, less current portion (net of deferred finance costs of $9,962 and $9,581, respectively)
588,657

588,314

Deferred tax liability
35,233

34,387

Other long-term liabilities
11,297

11,020

Total liabilities
697,271

696,413

Stockholders’ equity:
Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 9,946,354 shares
issued and outstanding at December 31, 2015 and March 31, 2016, respectively
100

100

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 and March 31, 2016, respectively
30

30

Class C common stock, par value $0.01 per share; 50,000,000 shares authorized; 4,894,480
shares issued and outstanding at both December 31, 2015 and March 31, 2016, respectively
49

49

Total common stock
179

179

Additional paid-in capital
361,186

361,438

Retained earnings (deficit)
1,391

(70
)
Accumulated other comprehensive income (loss)
44

(313
)
Non-controlling interest
640

689

Total liabilities and stockholders’ equity
$
1,060,711

$
1,058,336

See Notes to Unaudited Consolidated Financial Statements

1


TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in Thousands, Except Per Share Data)
(unaudited)



Three Months Ended
March 31,
2015
2016
Net revenue
$
81,118

$
94,432

Operating costs and expenses:
Direct operating expenses, excluding depreciation, amortization and stock-based compensation
61,329

76,905

Depreciation and amortization
3,671

6,123

Corporate expenses
5,240

5,557

Stock-based compensation
—

252

Transaction costs
47

169

Net gain on sale of assets
(7
)
(366
)
Total operating costs and expenses
70,280

88,640

Operating income
10,838

5,792

Other expenses:
Interest expense, net
10,561

8,565

Other expense (income), net
48

(483
)
Income (loss) before income taxes
229

(2,290
)
Provision (benefit) for income taxes
98

(907
)
Net income (loss)
$
131

$
(1,383
)
Net income (loss) attributable to:
Controlling interests
$
96

$
(1,461
)
Non-controlling interests
35

78

Net income (loss) per share:
Basic
$
0.01

$
(0.08
)
Diluted
$
—

$
(0.08
)
Weighted average shares outstanding:
Basic
17,374

17,863

Diluted
33,767

17,863

See Notes to Unaudited Consolidated Financial Statements

2


TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in Thousands)
(unaudited)



Three Months Ended
March 31,
2015
2016
Net income (loss)
$
131

$
(1,383
)
Foreign currency translation adjustments
—

(357
)
Comprehensive income (loss)
$
131

$
(1,740
)

See Notes to Unaudited Consolidated Financial Statements


3


TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in Thousands, except Share Data)
(unaudited)
Shares of Common Stock
Class A
Class B
Class C
Shares
Shares
Shares
Warrants
Common
Stock
Additional
Paid-in Capital
Retained Earnings (Deficit)
Accumulated Other Comprehensive Income (Loss)
Non-
Controlling
Interest
Total
Balance at January 1, 2016
9,946,354

3,022,484

4,894,480

9,508,878

$
179

$
361,186

$
1,391

$
44

$
640

$
363,440

Net (loss) income
—

—

—

—

—

—

(1,461
)
—

78

(1,383
)
Stock-based compensation
—

—

—

—

—

252

—

—

—

252

Foreign currency exchange
—

—

—

—

—

—

—

(357
)
—

(357
)
Cash distributions to non-controlling interests
—

—

—

—

—

—

—

—


(29
)
(29
)
Balance at March 31, 2016
9,946,354

3,022,484

4,894,480

9,508,878

$
179

$
361,438

$
(70
)
$
(313
)
$
689

$
361,923


See Notes to Unaudited Consolidated Financial Statements

4


TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Three Months Ended
March 31,
2015
2016
Cash flows from operating activities:
Net income (loss) attributable to:
Controlling interests
$
96

$
(1,461
)
Non-controlling interests
35

78

Net income (loss)
$
131

$
(1,383
)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization
3,671

6,123

Amortization of deferred financing costs
575

380

Deferred income tax expense (benefit)
98

(907
)
(Recovery of) provision for doubtful accounts
(360
)
610

Stock-based compensation expense
—

252

Cancellation of debt
—

(34
)
Amortization of bond premium
(424
)
—

Net gain on sale of assets
(7
)
(366
)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable
8,584

6,353

Prepaid expenses and other assets
(1,474
)
(7,332
)
Accounts payable
329

(2,871
)
Accrued expenses
(830
)
(1,460
)
Accrued interest
9,678

4,853

Other long-term liabilities
10

(277
)
Net cash provided by operating activities
19,981

3,941

Cash flows from investing activities:
Payments for acquisitions, net of cash received
(2,673
)
—

Acquisition of intangibles
(32
)
—

Purchase of property and equipment
(3,133
)
(6,496
)
Proceeds from insurance settlement
—

451

Proceeds from sale of assets
53

842

Net cash used in investing activities
(5,785
)
(5,203
)
Cash flows from financing activities:
Offering costs
(99
)
—

Repayment of long-term debt
(284
)
(646
)
Cash distributions to non-controlling interests
(23
)
(29
)
Repayments of capitalized obligations
(39
)
(42
)
Net cash used in financing activities
(445
)
(717
)
Net effect of foreign currency exchange rate changes
—

(499
)
Net increase (decrease) in cash
13,751

(2,478
)
Cash:
Beginning of period
24,462

33,298

End of period
$
38,213

$
30,820

Supplemental Disclosure of Cash Flow Information:
Cash payments:
Interest
$
719

$
3,323

Income taxes
182

435

Barter transactions:
Barter revenue – included in net revenue
$
2,992

$
4,217

Barter expense – included in direct operating expenses
2,874

3,080

See Notes to Unaudited Consolidated Financial Statements

5


TOWNSQUARE MEDIA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

Description of the Business

Townsquare Media, Inc. is a media, entertainment and digital marketing solutions company principally focused on small and mid-sized markets across the United States. As of March 31, 2016 , our assets included 309 radio stations and more than 325 local websites in 66 U.S. markets, approximately 550 live events with nearly 18 million annual attendees in the U.S. and Canada, a digital marketing solutions company serving approximately 8,700 small to medium sized businesses, and one of the largest digital advertising networks focused on music and entertainment reaching more than 60 million unique visitors each month. Our brands include local media assets such as WYRK , KLAQ , K2 and NJ101.5 ; music festivals such as Mountain Jam , WE Fest and Taste of Country Music Festival ; touring lifestyle and entertainment events such as the America on Tap craft beer festival series, the Insane Inflatable 5K obstacle race series, and North American Midway Entertainment ("NAME") , North America’s largest mobile amusement company; and tastemaker music and entertainment owned and affiliated websites such as XXL.com , TasteofCountry.com , Loudwire.com, JustJared.com and BrooklynVegan.com . Funds managed by Oaktree Capital Management, L.P. ("Oaktree") are the Company’s largest equity holder.

2. Summary of Significant Accounting Policies

Except as stated below, there have been no significant changes in the Company’s accounting policies since December 31, 2015 . For the Company's detailed accounting policies please refer to the consolidated financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 (the " 2015 Annual Report on Form 10-K") filed with the Securities and Exchange Commission ("SEC") on February 26, 2016.

Foreign Currency
NAME, acquired by a subsidiary of the Company on September 1, 2015, conducts a portion of its business in Canada. Results of operations for our Canadian entity are translated into U.S. dollars using the average exchange rates during the period.  The assets and liabilities of our Canadian entity are translated into U.S. dollars using the exchange rates at the balance sheet date.  The related translation adjustments are recorded in 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.

Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The standard is effective for annual reporting

6

periods beginning after December 15, 2016, including interim periods within those annual reporting periods. The Company is currently assessing the potential impact ASU 2016-09 will have on its financial statements.

In March 2016, the FASB issued ASU 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net) , which amends the principal-versus agent implementation guidance and illustrations in the Board’s new revenue standard (ASU 2014-09, Revenue From Contracts With Customers ). FASB issued the ASU in response to concerns identified by stakeholders, including those related to (i) determining the appropriate unit of account under the revenue standard’s principal-versus-agent guidance and (ii) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle. Among other things, the ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in the ASU, a specified good or service is "a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer." Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others. The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The Company is currently assessing the potential impact ASU 2016-08 will have on its financial statements.
3. Interim Financial Data

The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto included in the Company's 2015 Annual Report on Form 10-K. The accompanying unaudited interim consolidated financial statements include the consolidated accounts of the Company and its wholly-owned subsidiaries, with all significant intercompany balances and transactions eliminated in consolidation. These financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of results of operations for and financial condition as of the end of the interim periods have been included. The results of operations and cash flows for the three months ended March 31, 2016 and the Company’s financial condition as of such date are not necessarily indicative of the results of operations or cash flows that can be expected for, or the Company’s financial condition as of, any other interim period or for the fiscal year ending December 31, 2016 . The consolidated balance sheet as of December 31, 2015 is derived from the audited financial statements at that date.

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. In addition to advertising revenue seasonality, our Live Events 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 summertime multi-day festivals, and NAME's revenue which is concentrated in the third quarter. During even-numbered years, net revenue generally includes increased advertising expenditures by political candidates, political parties and special interest groups. Political spending is typically highest during the fourth quarter. Our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on net
revenue generation until future periods, if at all.

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, the Company evaluates its significant estimates, including those related to bad debts, intangible assets, income taxes, contingencies and purchase price allocations. The Company bases its 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.



7

4. 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 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. The Company expects none of this goodwill to be 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 differ from their initial basis under GAAP, which reflects estimated fair market value.

The NAME purchase price allocation is shown in the following table.
(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

Non-controlling interest
(225
)
Accounts payable and accrued expenses
(9,586
)
Deferred tax liabilities
(17,035
)
Total purchase price
$
75,362


Pro-Forma Results : The following table illustrates the unaudited pro-forma information reflecting net revenue and net loss for the three months ended March 31, 2015 as if the acquisition of NAME had occurred on January 1, 2015. The unaudited pro-forma amounts are for informational purposes only and do not purport to represent what the Company’s actual results of operations would have been if the aforementioned acquisition had been completed as of January 1, 2015 or any other historical date, nor is it reflective of the Company’s expected actual results of operations for any future periods.
(in thousands)
Three Months Ended
March 31,
2015
Net revenue
$
88,852

Net loss
(4,205
)

5. 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 flows analysis, using unobservable inputs categorized as Level 3 within the Accounting Standards Codification Section 820 framework. It is impracticable to obtain these Level 3 inputs as of the reporting date, accordingly a current market valuation has not been performed. Since the initial valuations, however, there have been no identified events or changes in circumstances that we believe would have a significant adverse effect on the fair value of these investments.


8

6. Property and Equipment

Property and equipment consisted of the following:
(in thousands)
December 31,
2015
March 31,
2016
Land and improvements
$
20,329

$
19,956

Buildings and leasehold improvements
32,997

33,559

Broadcast equipment
70,656

71,453

Rides and related equipment
40,369

41,309

Computer and office equipment
10,742

11,067

Furniture and fixtures
7,428

8,679

Transportation equipment
11,543

13,000

Software development costs
17,571

18,746

211,635

217,769

Less: Accumulated depreciation and amortization
(77,692
)
(82,559
)
Property and equipment, net
$
133,943

$
135,210


Depreciation and amortization expense for property and equipment was $3.1 million and $4.9 million for the three months ended March 31, 2015 and 2016 , respectively.

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. The Company also entered into an agreement with Vertical Bridge whereby Vertical Bridge will serve as the exclusive marketing agent for the over 282 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 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 five -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 antenna 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 $3.1 million , respectively. The following was recognized in the Company's consolidated balance sheet in connection with this transaction with Vertical Bridge:
($ 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 the third quarter of 2015, which was included in net gain on sale in the Company's consolidated statements of operations. 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 exclusive marketing arrangement is being amortized through net revenue over the five -year term of the arrangement in the Company's consolidated statements of operations.

7. Goodwill and Other Intangible Assets

Indefinite-lived assets consist of FCC broadcast licenses and goodwill. 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.

9


The Company has selected December 31st as the annual valuation date. 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. All other fair values of the Company’s intangibles exceeded their carrying value, therefore, no 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 were 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 reduce the fair value of its goodwill and intangible assets below the amounts reflected in the balance sheet, the Company may be required to recognize additional impairment charges in future periods.

There were no changes to goodwill for the three months ended March 31, 2016 .

Intangible assets consist of the following:
(in thousands)
Estimated Useful Life
December 31,
2015
March 31,
2016
Intangible Assets:
FCC licenses
Indefinite
$
486,229

$
486,229

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

Trademark
15 years
11,258

11,258

Permits/licenses
1 year
1,000

1,000

Other intangibles
3 years
980

980

Total
529,531

529,531

Less: Accumulated amortization
(11,552)

(12,781
)
Net amount
$
517,979

$
516,750


Amortization expense for definite-lived intangible assets was $0.6 million and $1.2 million for the three months ended March 31, 2015 and 2016 , respectively.

Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of March 31, 2016 is as follows:
(in thousands)

2016 (remainder)
$
2,775

2017
2,987

2018
2,138

2019
2,015

2020
2,009

Thereafter
13,997

$
25,921


10



8. Long-Term Debt
Long-term debt consisted of the following:
(in thousands)
December 31,
2015
March 31,
2016
2023 Notes
$
300,000

$
299,320

Term Loans
298,512

298,512

Capitalized obligations
278

236

Long-term debt before deferred financing costs
598,790

598,068

Deferred financing costs
(9,962
)
(9,581
)
588,828

588,487

Less: current portion of long-term debt
(171
)
(173
)
$
588,657

$
588,314


On April 1, 2015, the Company issued $300.0 million of 6.5% Unsecured Senior Notes due in 2023 (the "2023 Notes") and a Senior Secured Credit Facility, which includes a seven year, $275.0 million term loan facility (the "Term Loans") and a five year, $50.0 million revolving credit facility (the "Revolver"). 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 proceeds from the 2023 Notes and Term Loans were used to repay substantially all of our previous long-term borrowings.

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.

On March 24, 2016, the Company voluntarily repurchased $0.7 million of its 2023 Notes at a market price of 95% of par, plus accrued interest. The repurchased notes were canceled by the Company. A gain of $34 thousand is included in other expense (income), net in the Company's consolidated statements of operations for the three months ended March 31, 2016 .
At March 31, 2016 , the Term Loans continued to bear interest at an initial interest rate of 4.25% (based on current LIBOR levels, a 1.00% LIBOR floor and an applicable margin of 325 basis points). 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 March 31, 2016 , 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 all or part of the 2023 Notes at specified redemption premiums as set forth in the indenture, together with any accrued and unpaid interest thereon. Additionally, if the Company experiences certain change of control events, holders of the 2023 Notes may require the Company to repurchase all or part of their notes at 101% of the principal amount thereof.

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 2023 Notes indenture contains restrictive covenants that limit the ability of the Company and its 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 dividends and make other distributions in respect of the Company’s and its subsidiaries’ capital stock; make certain investments or certain other restricted

11


payments; guarantee indebtedness; designate unrestricted subsidiaries; sell certain kinds of assets; enter into certain types of transactions with affiliates; and effect mergers and consolidations.

The Term Loans mature on April 1, 2022, and the Revolver matures on April 1, 2020. Borrowings under the Senior Secured Credit Facility are subject to mandatory prepayments equal to the net proceeds to the Company of any additional debt issuances or asset sales, as well as half of annual excess cash flow as defined (subject to certain reductions). 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 nature of its business; engage in certain transactions with affiliates and incur restrictions on interactions between the Company and its subsidiaries, or limit actions in relation to the Senior Secured Credit Facility.

The Company is in compliance with its covenants under the 2023 Notes and Senior Secured Credit Facility as of March 31, 2016 .

As of March 31, 2016 , based on available market information, the estimated fair values of the 2023 Notes and the Term Loans were $287.1 million and $295.2 million , respectively.

Annual maturities of the Company's long-term debt as of March 31, 2016 are as follows:
(in thousands)

2016 (remainder)
$
130

2017
91

2018
5

2019
5

2020
5

Thereafter
597,832

$
598,068


9. Stockholders' Equity

The table below presents a summary, as of March 31, 2016, of our authorized and outstanding common stock, and securities convertible into common stock, excluding options issued under our 2014 Omnibus Incentive Plan.
Security 1
Par Value Per Share
Number Authorized
Number Outstanding
Description
Class A common stock
$
0.01

300,000,000

9,946,354

One vote per share.
Class B common stock
$
0.01

50,000,000

3,022,484

10 votes per share. 2
Class C common stock
$
0.01

50,000,000

4,894,480

No votes. 2
Warrants
9,508,878

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 $951. 3
Total
400,000,000

27,372,196

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.
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.


12


The foregoing share totals exclude 4,260,478 of Class A common stock and 4,511,236 of Class B common stock issuable upon exercise of stock options, which options have an exercise price of between $8.96 and $13.02 per share. Additionally, the Company is authorized to issue 50,000,000 shares of undesignated preferred stock.

On April 6, 2016, we issued 531,197 shares of Class A common stock upon the exercise of outstanding warrants.

The Company's common stock is not entitled to preemptive or other similar subscription rights to purchase any of our securities. Unless the Company's Board of Directors determines otherwise, we will issue all of our capital stock in uncertificated form.

Stock-based Compensation

The Company's 2014 Omnibus Incentive Plan (the "2014 Incentive Plan") provides grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards. Directors, officers and other employees of the Company and its subsidiaries, as well as others performing consulting or advisory services for the Company, are eligible for grants under the 2014 Incentive Plan. The purpose of the 2014 Incentive Plan is to provide incentives that will attract, retain and motivate high performing officers, directors, employees and consultants by providing them with appropriate incentives and rewards either through a proprietary interest in our long-term success or compensation based on their performance in fulfilling their personal responsibilities. The aggregate number of shares of common stock which may be issued or used for reference purposes under the 2014 Incentive Plan or with respect to which awards may be granted may not exceed 12,000,000 shares. As of March 31, 2016, 3,235,450 shares were available for grant.

The grant date fair value of the equity options granted is estimated using the Black-Scholes option pricing model, which requires estimates of the expected term of the option, the expected volatility of the Company's common stock price, dividend yield and the risk-free rate. The below table summarizes the assumptions used to estimate the fair value of the equity options granted for the three months ended March 31, 2016.
Expected volatility
30.0
%
Expected term
4.25 - 6.33 years

Risk free interest rate
1.4% - 1.7%

Expected dividend yield
0.0
%
With the exception of the options that were granted to employees in the first quarter of 2016, the options provide for immediate vesting and the options have an exercise price of between $8.96 and $13.02 per share. The expected term was calculated using the simplified method, defined as the midpoint between the vesting period and the contractual term of each award. The expected volatility was based on market conditions of the Company and comparable companies. The risk free interest rate was based on the U.S. Treasury yield curve in effect on the date of grant which most closely corresponds to the expected term of the option. The Company historically has not paid dividends and therefore did not utilize a dividend yield in the calculations.

The following table summarizes stock option activity for the three months ended March 31, 2015 :

Shares
Weighted Average
Exercise Price
Weighted Average
Remaining Contractual Life (years)
Aggregate Intrinsic Value
Outstanding at December 31, 2014
6,924,903

$
11.00

Granted
—

—

Exercised
—

—

Forfeited
(40,412
)
11.00

Outstanding at March 31, 2015
6,884,491

$
11.00

9.29
$
12,716,058



13





The following table summarizes stock option activity for the three months ended March 31, 2016 :
Shares
Weighted Average
Exercise Price
Weighted Average
Remaining Contractual Life (years)
Aggregate Intrinsic Value
Outstanding at December 31, 2015
7,329,334

$
11.20

Granted
1,600,000

8.96

Exercised
—

—

Forfeited
(157,620
)
11.00

Outstanding at March 31, 2016
8,771,714

$
10.96

7.8
$
4,930,165


Of the 1,600,000 options granted during the three months ended March 31, 2016, 1,565,000 were granted to employees and 35,000 were granted to directors of the Company. The weighted average grant date fair value of stock options granted was $ 2.38 and $2.98 for options granted to employees and directors of the Company, respectively. The options granted to directors provide for immediate vesting, whereas the options granted to employees have a five -year term with 50% vesting in year three and 50% vesting in year four. For the three months ended March 31, 2016, the Company recognized $0.3 million , respectively, of stock-based compensation expense with respect to the options granted. As of March 31, 2016, total unrecognized stock-based compensation expense is $3.1 million to be recognized over four years.

There was no restricted stock activity during the three months ended March 31, 2015 or 2016.
The Company has issued stock to employees and independent directors. The shares are subject to a Selldown Agreement, pursuant to which the FiveWire Media Ventures LLC ("FiveWire") (an entity formed for the purpose of investing in the Company by certain members of management, including Steven Price, Stuart Rosenstein, Dhruv Prasad, Scott Schatz and certain other individuals (together, the "FiveWire Holders")) and certain other members of management are subject to certain restrictions on sales of the Company's common stock held by them. Pursuant to the terms of the Selldown Agreement, the FiveWire Holders and certain other members of management are generally restricted from transferring a specified percentage (which is expected to range between 50% and 100% ) of the shares of the Company's common stock held by them at the closing of the July 24, 2014 initial public offering (the "IPO"). If Oaktree sells a portion of the shares of common stock or warrants to purchase common stock that it holds (the percentage of shares and warrants, collectively, held by Oaktree at such time that it sells in such a transaction, referred to as the "Sale Percentage"), those subject to the Selldown Agreement will be permitted to sell a percentage of the shares of common stock and warrants held by them, up to an amount equal to the Sale Percentage. The Selldown Agreement will terminate on the earlier of (i) the date that Oaktree no longer holds at least 10% of the shares of common stock and warrants exercisable for common stock, collectively, held by Oaktree immediately following closing of the IPO, and (ii) the third anniversary of the closing of the IPO.

10. Income Taxes
The Company's effective tax rate for the three months ended March 31, 2015 and 2016 was approximately 42.8% and 39.6% , respectively. The 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 the statutory rates in the jurisdictions where the Company has 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% for the three months ended March 31, 2016 primarily relates to state, local and foreign income taxes.


14


11. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
(in thousands)
December 31,
2015
March 31,
2016
Accrued compensation and benefits
$
14,157

$
6,644

Accrued professional fees
935

1,099

Accrued commissions
2,252

2,277

Accrued taxes
2,786

2,339

Accrued music and FCC licensing
1,103

1,096

Accrued publisher fees
1,088

850

Accrued national representation fees
1,060

891

Due to sellers, business combinations
2,286

1,015

Deferred rent
1,295

1,252

Accrued other
2,996

4,399

$
29,958

$
21,862


12. Lease and Other Commitments

Operating Leases : The Company leases certain facilities and equipment used in its operations. Certain of the Company’s operating leases contain renewal options through 2062, escalating rent provisions and/or cost of living adjustments. Total rental expense was approximately $4.0 million and $4.8 million for the three months ended March 31, 2015 and 2016 , respectively. Total rental expense includes costs incurred for live events such as venue and equipment rentals.

At March 31, 2016 , the total minimum annual rental commitments under non-cancelable operating leases are as follows:
(in thousands)
2016 (remainder)
$
7,393

2017
8,939

2018
7,688

2019
6,692

2020
4,969

Thereafter
15,521

Total minimum payments
$
51,202


In January 2016, the Company signed a lease for office space in Charlotte, North Carolina, for use by its digital marketing solutions operation. The lease commenced on March 1, 2016, and has a ten year term. Initially 28,000 square feet will be leased, increasing to 51,288 square feet by year four. The annual minimum rental commitment aggregates $0.3 million at commencement of the lease, escalating to $1.3 million by year ten .

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 obligation under the agreements with Nielsen as of March 31, 2016 is approximately $11.2 million and is expected to be paid in accordance with the agreements through October 2018.

We normally commit one or more years in advance to provide rides, games and concessions at certain fairs. These agreements include an obligation to pay event fees, which may be expressed as a flat fee or as a percentage of revenues. At March 31, 2016 , our total minimum fee commitments for contracts with a remaining term in excess of one year are as follows:

15

(in thousands)

2016 (remainder)
$
2,651

2017
3,531

2018
3,215

2019
1,920

2020
1,062

Thereafter
2,821

Total minimum payments
$
15,200



13. Segment Reporting

The Company has two reportable segments, Local Advertising, which provides advertising via broadcast and digital delivery within our local markets, and Live Events, which is composed of a diverse range of live events, which we create, promote and produce, including music concerts, multi-day music festivals, fairs, consumer expositions and trade shows, athletic events, lifestyle events and other forms of entertainment. The Company reports the remainder of its business in its Other Media and Entertainment category, which principally provide digital marketing solutions, e-commerce solutions and digital advertising services nationally. The following disclosures are consistent with the management decision-making process that determines the allocation of resources and measurement of performance.
The following table presents the Company’s reportable segment results for the three months ended March 31, 2015 :
(in thousands)
Local
Advertising
Live
Events
Other Media &
Entertainment
Corporate
and other
reconciling items


Consolidated
Three Months Ended March 31, 2015
Net revenue
$
65,053

$
8,166

$
7,899

$
—

$
81,118

Direct operating expenses, excluding depreciation, amortization and stock-based compensation
46,202

7,572

7,555

—

61,329

Depreciation and amortization
2,796

223

219

433

3,671

Corporate expenses
—

—

—

5,240

5,240

Transaction costs
—

—

—

47

47

Net gain on sale of assets
—

—

—

(7
)
(7
)
Operating income (loss)
$
16,055

$
371

$
125

$
(5,713
)
$
10,838

Capital expenditures
$
681

$
705

$
1,353

$
394

$
3,133



16

The following table presents the Company’s reportable segment results for the three months ended March 31, 2016 :
(in thousands)
Local
Advertising
Live
Events
Other Media &
Entertainment
Corporate
and other
reconciling items


Consolidated
Three Months Ended March 31, 2016
Net revenue
$
67,915

$
15,546

$
10,971

$
—

$
94,432

Direct operating expenses, excluding depreciation, amortization and stock-based compensation
48,236

18,787

9,882

—

76,905

Depreciation and amortization
2,688

2,145

182

1,108

6,123

Corporate expenses
—

—

—

5,557

5,557

Stock-based compensation
21

20

8

203

252

Transaction costs
—

—

—

169

169

Net gain on sale of assets
—

—

—

(366
)
(366
)
Operating income (loss)
$
16,970

$
(5,406
)
$
899

$
(6,671
)
$
5,792

Capital expenditures
$
1,030

$
3,138

$
1,379

$
949

$
6,496

NAME, acquired by a subsidiary of the Company on September 1, 2015, conducts a portion of its business in Canada. Consolidated revenue for the three months ended March 31, 2016 includes $83 thousand of Canadian revenue, and long-lived assets located in Canada aggregated $3.9 million as of March 31, 2016 .
Note 14. Net Income (Loss) Per Common Share

The following table sets forth the computations of basic and diluted net income (loss) per share for the three months ended March 31, 2015 and 2016.
(in thousands, except per share data)
Three Months Ended
March 31,
2015
2016
Numerator:
Net income (loss)
$
131

$
(1,383
)
Denominator:
Weighted average shares of common stock outstanding
17,374

17,863

Effect of dilutive common stock equivalents
16,393

—

Weighted average diluted common shares outstanding
33,767

17,863

Net income (loss) per share:
Basic
$
0.01

$
(0.08
)
Diluted
$
—

$
(0.08
)

The Company excluded 9,508,787 warrants and 202,036 options from the calculation of net loss per share for the three months ended March 31, 2016 as they were considered anti-dilutive.

17


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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,” “believe,” “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 of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. 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, 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, and other factors mentioned 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 2015 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.
Format of Presentation

Townsquare is a media, entertainment and digital marketing solutions company, principally focused on 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 operating segments, which are Local Advertising and Live Events, and report the remainder of our business in an Other Media and Entertainment category. Our Local Advertising segment offers broadcast, digital and mobile advertising within our

18

local markets. Our Live Events segment is composed of a diverse range of live events, which we create, promote and produce, including music concerts, multi-day music festivals, fairs, consumer expositions and trade shows, athletic events, lifestyle events and other forms of entertainment. Other Media and Entertainment is primarily composed of our digital marketing solutions offering, national digital assets and e-commerce offering and also includes tower and other miscellaneous revenue.

Local Advertising

Our Local Advertising segment is composed of 309 owned and operated radio stations and over 325 owned and operated local websites serving 66 small and mid-sized markets. 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 Advertising net revenue is the sale of advertising and sponsorship on our radio stations, local companion websites, radio stations’ online streams and mobile applications. Our sales of advertisements and sponsorship 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. 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.
We strive to maximize net revenue by managing our advertising inventory time and adjusting prices up or down based on supply and demand. 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 and their online streams, the programming format of a particular radio station. Each of our products has a general target level of inventory available for advertising.

We seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across our platforms, thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group.
Our Local Advertising contracts are generally short-term. In the media industry, companies sometimes utilize barter agreements that exchange advertising time for goods or services such as travel or lodging, instead of cash. Barter revenue was $3.0 million and $4.2 million and barter expense was $2.9 million and $3.1 million for the three months ended March 31, 2015 and 2016 , respectively. The majority of barter revenue and expense falls within our Local Advertising segment.

Our most significant Local Advertising 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 Local Advertising market 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 Advertising segment’s 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. Other programming, digital, engineering and general and administrative expenses are primarily fixed costs. Marketing and promotions expenses are discretionary and are primarily incurred in an effort to maintain and/or increase our audience share.

19


Live Events

Our primary source of Live Events net revenue is from ticket sales. 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 Live Event 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.

Certain expenses attributable to the live events business are variable, including sponsorship sales commissions, certain costs related to production and certain revenue sharing agreements with partners. A portion of our revenue and expenses, related to some of our North American Midway Entertainment, Inc. ("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.
Other Media and Entertainment

The Other Media and Entertainment business is primarily composed of our digital marketing solutions offering, national digital assets and e-commerce offering and also includes other miscellaneous revenue. These assets extend our audience and advertiser reach into and beyond our Local Advertising markets.

Our primary source of Other Media and Entertainment net revenue is from national digital advertising and digital marketing solutions. Demand for national digital advertising is primarily for display advertisements. 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. We believe this risk is mitigated by the subscription nature of our digital marketing solutions as well as the level of investment in our advertising products, services and brands.

Other sources of revenue within our Other Media and Entertainment business include tower and other miscellaneous revenue. We generate revenue from leasing space on our own tower facilities sold generally 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 6 of the Notes to unaudited Consolidated Financial Statements), tower lease revenue is no longer a significant contributor to other revenue.

A portion of the expenses attributable to the Other Media and Entertainment business is variable. These variable expenses primarily relate to sales costs, such as commissions. Certain technology infrastructure related to our digital marketing solutions, national digital assets and e-commerce business are generally fixed costs in nature.

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. In addition to advertising revenue seasonality, our Live Events 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 summertime multi-day festivals, and NAME's revenue which is concentrated in the third quarter. During even-numbered years, net revenue generally includes increased advertising expenditures by political candidates, political parties and special interest groups. Political spending is typically highest during the fourth quarter. Our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on net revenue generation until future periods, if at all.


20

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 28, 2016, U.S. GDP grew at an annual rate of 0.5% in the first quarter of 2016 .

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 nonbinding 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, 2016 , as compared to the same period in 2015 are summarized below:

•
Consolidated net revenue for the three months ended March 31, 2016 increased $13.3 million , or 16.4% .
Organic growth accounts for $6.9 million of the increase, with $6.4 million relating to the acquisition of NAME.

•
Local Advertising net revenue increased $2.9 million , or 4.4% .

•
Live Events net revenue increased $7.4 million , or 90.4% .

•
Other Media and Entertainment net revenue increased $3.0 million, or 38.9% .

•
Pro forma consolidated net revenue increased $5.9 million , or 6.7% .

•
Local Advertising net revenue increased $2.9 million , or 4.4% . Excluding the impact of political advertising revenue in 2016, an election year, pro forma Local Advertising net revenue increased $1.8 million, or 2.7%.

•
Pro forma Live Events net revenue decreased $0.4 million , or 2.2% , primarily as a result of events that previously occurred in the first quarter of 2015 moving entirely or partially to the second quarter of 2016.

•
Pro forma Other Media and Entertainment net revenue increased $3.4 million , or 45.3% , primarily driven by strong growth within our digital marketing solutions offering and national digital assets.


Consolidated Results of Operations

Three Months Ended March 31, 2015 compared to Three Months Ended March 31, 2016

The following table summarizes our historical consolidated results of operations:






($ in thousands)
Three Months Ended
March 31,
2015
2016
$ Change
% Change
Statement of Operations Data:
Local Advertising net revenue
$
65,053

$
67,915

$
2,862

4.4
%
Live Events net revenue
8,166

15,546

7,380

90.4
%
Other Media and Entertainment net revenue
7,899

10,971

3,072

38.9
%
Net revenue
81,118

94,432

13,314

16.4
%
Operating Costs and Expenses:


Local Advertising direct operating expenses
46,202

48,236

2,034

4.4
%
Live Events direct operating expenses
7,572

18,787

11,215

148.1
%
Other Media and Entertainment direct operating expenses
7,555

9,882

2,327

30.8
%
Direct operating expenses, excluding depreciation, amortization and stock-based compensation
61,329

76,905

15,576

25.4
%
Depreciation and amortization
3,671

6,123

2,452

66.8
%
Corporate expenses
5,240

5,557

317

6.0
%
Stock-based compensation
—

252

252

**

Transaction costs
47

169

122

259.6
%
Net gain on sale of assets
(7
)
(366
)
(359
)
**

Total operating costs and expenses
70,280

88,640

18,360

26.1
%
Operating income (loss)
10,838

5,792

(5,046
)
(46.6
)%
Other expense:


Interest expense, net
10,561

8,565

(1,996
)
(18.9
)%
Other expense (income), net
48

(483
)
(531
)
**

Total other expense
10,609

8,082

(2,527
)
(23.8
)%
Income (loss) before income taxes
229

(2,290
)
(2,519
)
**

Provision (benefit) for income taxes
98

(907
)
(1,005
)
**

Net income (loss)
$
131

$
(1,383
)
$
(1,514
)
**

** Percent change not meaningful.

Net Revenue

Net revenue for the three months ended March 31, 2016 increased by $13.3 million , or 16.4% , as compared to the same period in 2015 . The increase was primarily driven by increases in Local Advertising net revenue of $2.9 million , Live Events net revenue of $7.4 million and Other Media and Entertainment net revenue of $3.0 million.

Local Advertising net revenue for the three months ended March 31, 2016 increased $2.9 million , or 4.4% , as compared to the same period in 2015 . The increase was driven by an increase in political net revenue of $1.1 million and non-political net revenue of $1.8 million.

Live Events net revenue for the three months ended March 31, 2016 increased $7.4 million , or 90.4% , as compared to the the same period in 2015 . The increase was composed of $6.4 million of growth from the acquisition of NAME on September 1, 2015 and $1.0 million of growth from our existing business. The growth from our existing business was achieved primarily within our touring lifestyle and entertainment events such as our America on Tap craft beer festival series and our Insane Inflatable 5K obstacle race series.


22

Other Media and Entertainment net revenue for the three months ended March 31, 2016 increased $3.0 million, or 38.9% , as compared to the the same period in 2015 , as the result of increases within our digital marketing solutions offering and national digital assets.

Direct Operating Expenses

Direct operating expenses for the three months ended March 31, 2016 increased by $15.5 million, or 25.4% , as compared to the same period in 2015 . The increase was primarily driven by increases in Local Advertising direct operating expenses of $2.0 million , Live Events direct operating expenses of $11.2 million and Other Media and Entertainment direct operating expenses of $2.3 million .

Local Advertising direct operating expenses for the three months ended March 31, 2016 increased $2.0 million , or 4.4% , as compared to the the same period in 2015 , as a result of increases in variable costs, including sales related expenses.

Live Events direct operating expenses for the three months ended March 31, 2016 increased $11.2 million , or 148.1% , as compared to the the same period in 2015 . The increase in Live Events direct operating expenses was primarily related to NAME, which we acquired on September 1, 2015.

Other Media and Entertainment direct operating expenses for the three months ended March 31, 2016 increased $2.3 million , or 30.8% , as compared to the the same period in 2015 . The increase was driven by higher costs in headcount-related expenses including salaries and benefits, to support the growth within our digital marketing solutions offering and national digital assets.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended March 31, 2016 increased $2.5 million , or 66.8% , as compared to the same period in 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 expense for the three months ended March 31, 2016 increased $0.3 million , or 6.0% , as compared to the same period in 2015 . The increase was primarily due to (i) increased costs in headcount-related expenses including salaries and benefits as a result of increased hiring in the fourth quarter of 2015 and (ii) costs incurred to support our data initiative project.

Stock-based Compensation

Stock-based compensation was $0.3 million for the three months ended March 31, 2016 due to the grant of 1.6 million stock options to certain employees and directors under the 2014 Incentive Plan in the first quarter of 2016. No such options were issued during the three months ended March 31, 2015 .

Net Gain on Sale of Assets

In the three months ended March 31, 2016 , we recognized a $0.4 million net gain on the sale of assets, as compared to de minimus gain in the same period in 2015 . The net gain in the first quarter of 2016 primarily resulted from an earnout payment related to the sale of 43 towers on 41 sites in 28 markets to a subsidiary of Vertical Bridge, LLC (the "Tower Sale").


23

Other Expense

Interest expense, net is the major recurring component of other expense. Interest expense, net decreased $2.0 million , or 18.9% , in the three months ended March 31, 2016 as compared to the same period in 2015 , primarily due to the refinancing of our outstanding indebtedness at more favorable rates on April 1, 2015.

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.

The following table illustrates the components of our interest expense, net for the periods indicated.
Three Months Ended
March 31,
2015
2016
($ in thousands)
2023 Notes
$
8,822

$
4,874

Term Loans
1,147

3,299

Capital loans and other
16

12

Loan origination costs
576

380

Interest expense, net
$
10,561

$
8,565


Provision (benefit) for income taxes

We recognized a benefit for income taxes of $0.9 million for the three months ended March 31, 2016 . Our effective tax rate for the period was approximately 39.6% . 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 35% for the three months ended March 31, 2016 primarily relates to state, local and foreign income taxes.

Supplemental Pro Forma Net Revenue
For comparative purposes and to enable the reader to adequately compare prior year with current year results, the following discussion and tables present net revenue for Townsquare, pro forma for the acquisitions of NAME on September 1, 2015, as well as the Tower Sale on September 1, 2015 (collectively, the "Transactions"). The following tables present our pro forma results, which include the results of the Transactions prior to the transaction dates.

24

Three Months Ended March 31, 2015:
($ in thousands)
Townsquare
NAME
Tower Sale
Townsquare
Pro Forma for
the Transactions
Local Advertising net revenue
$
65,053

$
—

$
—

$
65,053

Live Events net revenue
8,166

7,734

—

15,900

Other Media and Entertainment net revenue
7,899

—

(348
)
7,551

Net revenue
$
81,118

$
7,734

$
(348
)
$
88,504


The following table summarizes our pro forma net revenue for the three months ended March 31, 2015 and 2016:
($ in thousands)
Three Months Ended
March 31,
$
%
2015
2016
Change
Change
Local Advertising net revenue
$
65,053

$
67,915

$
2,862

4.4
%
Live Events net revenue
15,900

15,546

(354
)
(2.2
)%
Other Media and Entertainment net revenue
7,551

10,971

3,420

45.3
%
Net revenue
$
88,504

$
94,432

$
5,928

6.7
%

On a pro forma consolidated basis, net revenue for the three months ended March 31, 2016 increased by $5.9 million , or 6.7% , as compared to the same period in 2015 . The increase primarily resulted from a $2.9 million increase in Local Advertising net revenue and a $3.4 million increase in Other Media and Entertainment net revenue, which was partially offset by a $0.4 million decrease in Live Events net revenue.

On a pro forma basis, Local Advertising net revenue for the three months ended March 31, 2016 increased by $2.9 million , or 4.4% , as compared to the same period in 2015 . The increase was driven by an increase in political net revenue of $1.1 million and non-political net revenue of $1.8 million.

On a pro forma basis, Live Events net revenue for the three months ended March 31, 2016 decreased by $0.4 million , or 2.2% , as compared to the same period in 2015 . This was primarily a result of events that previously occurred in the first quarter of 2015 moving entirely or partially to the second quarter of 2016.
On a pro forma basis, Other Media and Entertainment net revenue for the three months ended March 31, 2016 increased by $3.4 million , or 45.3% , as compared to the same period in 2015 . The increase was primarily driven by growth within our digital marketing solutions offering and national digital assets.

Liquidity and Capital Resources
Three Months Ended
March 31,
($ in thousands)
2015
2016
Cash provided by operating activities
$
19,981

$
3,941

Cash used in investing activities
(5,785
)
(5,203
)
Cash used in financing activities
(445
)
(717
)
Net effect of foreign currency exchange rate changes
—

(499
)
Net increase (decrease) in cash
$
13,751

$
(2,478
)

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,

25

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 and other funding requirements for at least the next twelve months. As of March 31, 2016 , we had $588.5 million of outstanding indebtedness, net of deferred finance costs of $9.6 million , and based on interest rates in effect as of that date, we expect our debt service requirements to be approximately $32.4 million over the next twelve months. In addition, as of March 31, 2016 we have $30.8 million of cash, $52.4 million of receivables from customers, which historically have had an average collection cycle of approximately 50 days, and $50.0 million of available borrowing capacity under our revolving credit facility.

Our anticipated uses of cash in the near term include working capital needs, debt payments, other obligations, and capital expenditures. However, our ability to fund our working capital needs, debt payments, other obligations, capital expenditures, and to comply with the 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, rapid changes in the highly competitive industry in which we operate and other factors, many of which are beyond our control.

Additionally, on a continual 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 likely require additional capital and such capital 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 for the three months ended March 31, 2016 was $3.9 million , as compared to $20.0 million in the same period in 2015 . This decrease was primarily driven by (i) an increase of $5.9 million in prepaid expenses primarily relating to our live events business, of which $4.0 million relates to NAME, which we acquired on September 1, 2015 (ii) a decrease of $4.8 million in accrued interest as a result of our refinancing of our previous long-term borrowings at more favorable rates in April 2015, (iii) a decrease in accounts payable of $3.2 million as a result of timing of payments and (iv) an increase in accounts receivable of $2.2 million primarily as a result of increased business activity.

Cash Flows from Investing Activities

Net cash used in investing activities decreased $0.6 million to $5.2 million for the three months ended March 31, 2016 from cash used of $5.8 million for the same period in 2015 . The decrease was primarily driven by a decrease in payments made for acquisitions of $2.7 million . This decrease was partially offset, by increased spending for capital expenditures of $3.4 million , of which $2.0 million relates to NAME, which we acquired on September 1, 2015.

Cash Flows from Financing Activities

Net cash used in financing activities was $0.7 million for the three months ended March 31, 2016 , as compared to net cash used in financing activities of $0.4 million for the same period in 2015 . This increase was driven by a $0.4 million increase in repayments of long-term debt. During the three months ended March 31, 2016 we voluntarily repurchased and canceled $0.7 million of our 2023 Notes outstanding at a market price of 95% of par, plus accrued interest. The gain of $34 thousand is included in other expense (income), net in the Company's consolidated statements of operations for the three months ended March 31, 2016. Repayments of long-term debt during the three months ended March 31, 2015 was comprised of principal payments on our then-outstanding bank debt.




26

Financing Arrangements

On April 1, 2015, the Company issued $300.0 million of 6.5% Unsecured Senior Notes due in 2023 and entered into the Senior Secured Credit Facility, including a seven year, $275.0 million term loan facility and a five year, $50.0 million revolving credit facility. The Term Loans has an initial interest rate of 4.25% (based on current LIBOR levels), a 1.00% LIBOR floor and an applicable margin of 325 basis points. 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.

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 Loan.

As of March 31, 2016, 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 the next twelve months.

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 2015 Annual Report on Form 10-K reflect 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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-

27

Q, as well as those discussed within our audited consolidated financial statements and related notes to audited consolidated financial statements included in our 2015 Annual Report on Form 10-K .
Interest Rate Risk

As of March 31, 2016 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, 2016 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, 2016 outstanding term loan borrowings of $298.5 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 $1.3 million. We anticipate such interest rate risk will remain a market risk exposure for the foreseeable future.



28

Item 4. Controls and Procedures

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 the 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 the 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 Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2016, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of such date.

Changes in Internal Controls

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



29

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
We are parties to various legal matters and claims arising in the ordinary course of business. We do not expect that the final resolution of these ordinary course matters will have a material adverse impact on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

Please refer to Part I, Item 1A, “Risk Factors,” in our 2015 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

See Exhibit Index.

30


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TOWNSQUARE MEDIA, INC.
By:
/s/ Steven Price
Name: Steven Price
Title: Chairman & Chief Executive Officer
By:
/s/ Stuart Rosenstein
Name: Stuart Rosenstein
Title: Executive Vice President & Chief Financial Officer
Date: May 10, 2016


31


EXHIBIT INDEX
Exhibit
Description
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document


32
TABLE OF CONTENTS