Townsquare Media, Inc. (Form: 10-Q, Received: 11/06/2018 07:07:28)

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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 September 30, 2018 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 001-36558 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 x No o

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 x No o

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	o	Accelerated filer	x

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o
		Emerging growth company	x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of November 5, 2018, the registrant had 18,945,041 outstanding shares of common stock consisting of: (i)14,297,066 shares of Class A common stock, par value $0.01 per share; (ii) 3,011,634 shares of Class B common stock, par value $0.01 per share; and (iii) 1,636,341 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 (Unaudited)
	Consolidated Balance Sheets as of December 31, 2017 and September 30, 2018	1
	Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2018	2
	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and 2018	3
	Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 2018	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2018	5
	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	32

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
	Signatures	35

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, 2017			September 30, 2018
ASSETS
Current assets:
Cash	$	61,205		$	49,632
Accounts receivable, net of allowance of $1,079 and $1,797, respectively	61,558			68,438
Prepaid expenses and other current assets	7,540			9,002
Current assets held for sale	879			—
Current assets of discontinued operations	7,222			38
Total current assets	138,404			127,110
Property and equipment, net	104,030			110,306
Intangible assets, net	495,501			500,641
Goodwill	241,888			251,802
Investments	8,092			14,512
Other assets	8,965			7,159
Long-term assets of discontinued operations	59,478			—
Total assets	$	1,056,358		$	1,011,530

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,442		$	10,875
Current portion of long-term debt	9,524			5
Deferred revenue	17,281			9,303
Accrued expenses and other current liabilities	24,919			26,286
Accrued interest	5,699			9,227
Current liabilities of discontinued operations	2,440			223
Total current liabilities	73,305			55,919
Long-term debt, less current portion (net of deferred finance costs of $6,803 and $5,568, respectively)	555,618			556,849
Deferred tax liabilities	26,283			30,502
Other long-term liabilities	9,390			8,767
Long-term liabilities of discontinued operations	10,682			—
Total liabilities	675,278			652,037
Stockholders’ equity:
Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 13,819,639 and 14,297,066 shares issued and outstanding, respectively	138			143
Class B common stock, par value $0.01 per share; 50,000,000 shares authorized; 3,022,484 and 3,011,634 shares issued and outstanding, respectively	30			30
Class C common stock, par value $0.01 per share; 50,000,000 shares authorized; 1,636,341 shares issued and outstanding	17			17
Total common stock	185			190
Additional paid-in capital	367,041			365,366
Retained earnings (deficit)	13,265			(6,956		)
Accumulated other comprehensive loss	(532		)	—
Non-controlling interest	1,121			893
Total stockholders' equity	381,080			359,493
Total liabilities and stockholders' equity	$	1,056,358		$	1,011,530

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in Thousands, Except Per Share Data)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2018			2017		2018

Net revenue	$	111,897		$	114,073		$	314,129	$	321,641

Operating costs and expenses:
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	79,473			79,384			227,640		229,176
Depreciation and amortization	4,833			4,854			14,779		14,082
Corporate expenses	6,390			6,863			18,375		19,802
Stock-based compensation	193			597			549		1,033
Transaction costs	218			167			606		1,003
Net (gain) loss on sale and retirement of assets	(63		)	(4		)	652		(401		)
Total operating costs and expenses	91,044			91,861			262,601		264,695
Operating income	20,853			22,212			51,528		56,946
Other expenses:
Interest expense, net	8,230			8,640			24,474		25,600
Other expense, net	250			42			326		122
Income from continuing operations before income taxes	12,373			13,530			26,728		31,224
Provision from income taxes	5,279			3,699			11,185		8,517
Net income from continuing operations	7,094			9,831			15,543		22,707
Net income (loss) from discontinued operations, net of income taxes	7,198			(140		)	1,303		(37,972		)
Net income (loss)	$	14,292		$	9,691		$	16,846	$	(15,265	)

Net income (loss) attributable to
Controlling interests	$	14,216		$	9,295		$	16,320	$	(16,215	)
Non-controlling interests	76			396			526		950

Basic income (loss) per share:
Continuing operations	$	0.38		$	0.52		$	0.84	$	1.21
Discontinued operations	$	0.39		$	(0.01	)	$	0.07	$	(2.03	)

Diluted income (loss) per share:
Continuing operations	$	0.25		$	0.35		$	0.55	$	0.82
Discontinued operations	$	0.26		$	(0.01	)	$	0.05	$	(1.37	)

Weighted average shares outstanding:
Basic	18,478			18,941			18,459		18,690
Diluted	27,994			27,919			28,221		27,668

Cash dividend declared per share	$	—		$	0.075		$	—	$	0.225

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in Thousands)

(unaudited)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2018		2017		2018

Net income (loss)	$	14,292	$	9,691	$	16,846	$	(15,265	)

Foreign currency translation adjustments	193		—		307		532
Comprehensive income (loss)	14,485		9,691		17,153		(14,733		)
Less: Comprehensive income attributable to noncontrolling interest	76		396		526		950
Comprehensive income (loss) attributable to controlling interest	$	14,409	$	9,295	$	16,627	$	(15,683	)

See Notes to Unaudited Consolidated Financial Statements

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 Loss			Non- Controlling Interest			Total
Balance at January 1, 2018, as previously reported	13,819,639	3,022,484		1,636,341	8,977,676	$	185	$	367,041		$	13,265		$	(532	)	$	1,121		$	381,080
Impact of change in accounting policy*	—	—		—	—	—		—			2,271			—			—			2,271
Adjusted balance at January 1, 2018	13,819,639	3,022,484		1,636,341	8,977,676	185		367,041			15,536			(532		)	1,121			383,351
Net (loss) income	—	—		—	—	—		—			(16,215		)	—			950			(15,265		)
Dividend declared	—	—		—	—	—		—			(6,277		)	—			—			(6,277		)
Acquisition of non-controlling interests	—	—		—	—	—		(2,714		)	—			—			(645		)	(3,359		)
Conversion of common shares	10,850	(10,850	)	—	—	—		—			—			—			—			—
Stock-based compensation	—	—		—	—	—		1,044			—			—			—			1,044
Issuance of restricted stock	466,577	—		—	—	5		(5		)	—			—			—			—
Disposal of subsidiary	—	—		—	—	—		—			—			656			(19		)	637
Foreign currency exchange	—	—		—	—	—		—			—			(124		)	—			(124		)
Cash distributions to non-controlling interests	—	—		—	—	—		—			—			—			(514		)	(514		)
Balance at September 30, 2018	14,297,066	3,011,634		1,636,341	8,977,676	$	190	$	365,366		$	(6,956	)	$	—		$	893		$	359,493

* See Note 2

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in Thousands)

(unaudited)



	Nine Months Ended September 30,
	2017			2018
Cash flows from operating activities:
Net income (loss)	$	16,846		$	(15,265	)
Income (loss) from discontinued operations	1,303			(37,972		)
Income from continuing operations	15,543			22,707
Adjustments to reconcile income from continuing operations to net cash flows from operating activities:
Depreciation and amortization	14,779			14,082
Amortization of deferred financing costs	1,232			1,140
Deferred income tax expense	11,185			8,517
Provision for doubtful accounts	1,734			2,072
Stock-based compensation expense	549			1,033
Trade activity, net	(7,256		)	(10,197		)
Non-cash interest expense	—			(15		)
Write-off of deferred financing costs	83			97
Net loss (gain) on sale and retirement of assets	652			(401		)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(4,535		)	(4,579		)
Prepaid expenses and other assets	(1,669		)	(191		)
Accounts payable	(2,372		)	(5,913		)
Accrued expenses	(3,803		)	(8,823		)
Accrued interest	4,580			3,559
Other long-term liabilities	(623		)	(623		)
Net cash provided by operating activities - continuing operations	30,079			22,465
Net cash used in operating activities - discontinued operations	(5,008		)	(10,442		)
Net cash provided by operating activities	25,071			12,023
Cash flows from investing activities:
Purchase of property and equipment	(12,277		)	(12,684		)
Payments for acquisitions, net of cash acquired	(5,496		)	(21,128		)
Payment for investment	(807		)	—
Acquisition of intangibles	(150		)	—
Proceeds from sale of assets	167			726
Net cash used in investing activities - continuing operations	(18,563		)	(33,086		)
Net cash (used in) provided by investing activities - discontinued operations	(5,777		)	23,792
Net cash used in investing activities	(24,340		)	(9,294		)
Cash flows from financing activities:
Repayment of long-term debt	(6,662		)	(9,519		)
Dividend payments	—			(4,120		)
Deferred financing costs	(432		)	(2		)
Proceeds from exercise of employee stock options	346			—
Cash distribution to non-controlling interest	(293		)	(514		)
Repayments of capitalized obligations	(90		)	(4		)
Net cash used in financing activities - continuing operations	(7,131		)	(14,159		)
Net cash used in financing activities - discontinued operations	(581		)	(19		)
Net cash used in financing activities	(7,712		)	(14,178		)
Effect of exchange rate changes	43			(124		)
Net decrease in cash	(6,938		)	(11,573		)
Cash and restricted cash:
Beginning of period	47,145			61,205
End of period	$	40,207		$	49,632

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in Thousands)

(unaudited)



	Nine Months Ended September 30,
	2017		2018
Supplemental Disclosure of Cash Flow Information:
Cash payments:
Interest	$	18,575	$	20,895
Income taxes	588		913

Supplemental Disclosure of Non-cash Activities:
Dividends declared during the period	$	—	$	6,277

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Description of the Business

Townsquare Media, Inc. (together with its consolidated subsidiaries, except as the context may otherwise require, "we," "us," "our," "Company," or "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 321 radio stations and more than 330 local websites in 67 U.S. markets, a digital marketing solutions company (Townsquare Interactive) serving approximately 14,500 small to medium sized businesses, a proprietary digital programmatic advertising platform (Townsquare Ignite), and approximately 200 live events with over one million attendees each year. Our brands include local media assets such as WYRK, KLAQ, K2 and NJ101.5; iconic regional and national events such as the Taste of Country Music Festival, WE Fest, Country Jam, the Boise Music Festival, the Red Dirt BBQ & Music Festival and Taste of Fort Collins; and leading tastemaker music and entertainment websites such as XXLmag.com, TasteofCountry.com and Loudwire.com.

Note 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, 2017. 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, 2017 (the "2017 Annual Report on Form 10-K") filed with the Securities and Exchange Commission ("SEC") on March 13, 2018.

Impairment of Long Lived and Intangible Assets

We evaluate the recoverability of the carrying amount of long lived and intangible assets, which include property and equipment, whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. Our review for impairment of these long lived and intangible assets takes into account estimates of future undiscounted cash flows and the fair market value based on market indicators. An impairment loss is recognized if the future undiscounted cash flows associated with the assets or the fair market value of the assets are less than their carrying value. Impairment losses are measured as the amount by which the carrying values of the assets exceed their fair market values. During the nine months ended September 30, 2018, the Company determined that the carrying value of certain long lived and intangible assets exceeded their fair market value and an impairment charge of $38.0 million was recorded and is included as part of net loss from discontinued operations.

Discontinued Operations

The Company previously identified two operating segments - Local Marketing Solutions and Entertainment. During the course of 2018, two changes have occurred which affect not only the quantitative factors for determining reportable segments, but also the way in which the Chief Operating Decision Makers (“CODM(s)”) view and manage the business. The North American Midway Entertainment (“NAME”) business, which represented approximately $92.2 million of revenue and $7.3 million of operating income in 2017, was sold in May of 2018, and Mountain Jam, a multi-day music festival, representing $3.8 million of revenue and negligible operating income in 2017, was sold in June 2018. Both were reclassified as discontinued operations separate from the Company's continuing operations for the three and nine months ended September 30, 2017 and 2018. In addition, amounts related to NAME and Mountain Jam have been reclassified as discontinued operations within the December 31, 2017 consolidated balance sheet.

Following these events and without the significant net revenue contribution of NAME, the Company has been reoriented and streamlined from a Local Marketing Solutions and Entertainment products and services company to a consolidated and fully integrated local marketing company. We now view our sole product as marketing solutions (including promotion, advertising, and marketing services) geared to local communities and customers in and around our markets (or markets of similar size and/or constitution). As such, the CODM(s) and management have adjusted the

information used to evaluate performance and allocate resources to be based solely on net revenue and operating income, which spans across geographic regions predominately within the United States.

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 Accounting Standards Codification ("ASC") Topic 842. The standard is effective for fiscal years beginning after December 15, 2018, and will require measurement of leases at the beginning of the earliest period presented, using a modified retrospective approach. The Company is currently assessing the potential impact ASU 2016-02 will have on its Consolidated Financial Statements and has begun the process of implementing new policies and procedures.

Recently Adopted Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This new standard replaced all prior U.S. GAAP related to revenue recognition and eliminated all industry-specific guidance. The core principle of this new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects consideration to which the company expects to be entitled in exchange for those goods or services. On January 1, 2018, we adopted Topic 606, Revenue from Contracts with Customers and all the related amendments to all contracts using the modified retrospective method.

We recognized the cumulative effect of adopting Topic 606 as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new standard to be immaterial to our net income or loss, as applicable, on an ongoing basis.

The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet, after consideration of discontinued operations, for the adoption of Topic 606 were as follows (in thousands):



	As Reported December 31, 2017		Adjustment due to ASC 606		Balance at January 1, 2018

Assets
Prepaid expenses and other current assets	$	7,540	$	2,271	$	9,811
Total Current Assets	138,404		2,271		140,675
Total Assets	$	1,056,358	$	2,271	$	1,058,629

Total Liabilities	$	675,278	$	—	$	675,278

Equity
Retained earnings	$	13,265	$	2,271	$	15,536
Total stockholders' equity	381,080		2,271		383,351
Total liabilities and stockholders' equity	$	1,056,358	$	2,271	$	1,058,629

As a part of Topic 606 adoption, we reclassified costs associated with sales commissions related to obtaining certain customer contracts. In accordance with the new revenue standard's requirements, for the nine months ended September 30, 2018, the impact of adoption of Topic 606 on our consolidated financial statements was a decrease to operating expenses and an increase to net income of approximately $0.5 million as a result of amortizing deferred commissions under ASC 606.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities

with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 clarifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The standard became effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

Note 3. Revenue Recognition

The following tables disaggregate our revenue into the following categories; Advertising, which includes broadcast and local digital advertising products, Live Events and our digital marketing solutions business under the brand name Townsquare Interactive (in thousands):



	Three Months Ended September 30, 2018								Nine Months Ended September 30, 2018
	Advertising		Live Events		Townsquare Interactive		Total		Advertising		Live Events		Townsquare Interactive		Total

Net Revenue (ex Political)	$	86,161	$	13,011	$	12,608	$	111,780	$	241,988	$	40,250	$	35,089	$	317,327
Political	2,293		—		—		2,293		4,314		—		—		4,314
Net Revenue	$	88,454	$	13,011	$	12,608	$	114,073	$	246,302	$	40,250	$	35,089	$	321,641



	Three Months Ended September 30, 2017								Nine Months Ended September 30, 2017
	Advertising		Live Events		Townsquare Interactive		Total		Advertising		Live Events		Townsquare Interactive		Total

Net Revenue (ex Political)	$	81,868	$	19,564	$	10,257	$	111,689	$	233,432	$	49,925	$	29,531	$	312,888
Political	208		—		—		208		1,241		—		—		1,241
Net Revenue	$	82,076	$	19,564	$	10,257	$	111,897	$	234,673	$	49,925	$	29,531	$	314,129

Revenue from contracts with customers is recognized as an obligation until the terms of a customer contract are satisfied; generally this occurs with the transfer of control as we satisfy contractual performance obligations over time. Our contractual performance obligations include the broadcast of commercials on our owned and operated radio stations, digital sales of internet based advertising campaigns, digital marketing solutions, and the operation of live events. Revenue is measured at contract inception as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Our contracts are at a fixed price at inception and do not include any variable consideration or financing components by normal course of business practice. Sales, value add, and other taxes that are collected concurrently with revenue producing activities are excluded from revenue.

The primary sources of net revenue are the sale of advertising on our radio stations, owned and operated websites, radio stations’ online streams, and mobile applications. We offer precision customer targeting solutions to advertisers through Townsquare Ignite, our digital programmatic advertising platform. We also offer digital marketing solutions under the brand name Townsquare Interactive, 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. In addition, we offer a diverse range of live events which we create, promote, and produce. This includes festivals, concerts, expositions and other experiential events within and beyond our markets. Our live events also generate substantial net revenue through the sale of sponsorships, food and other concessions, merchandise and other ancillary products and services.

Political net revenue includes the sale of advertising on our owned and operated radio stations from contracts with political advertisers. Contracted performance obligations under political contracts consist of the broadcast of advertisements across our locally owned and operated radio stations. Management views political revenue separately because political is episodic based on the election cycle and local issues calendars.

Net revenue for broadcast commercials and digital advertisements are recognized as the commercials are broadcast and digital advertisements are placed and the contractual performance obligations for Townsquare services are satisfied. We measure progress towards the satisfaction of our contractual performance obligations via the output produced in accordance with the contractual arrangement (the broadcast of commercials or the placement of digital advertisements). We recognize the associated contractual revenue as the delivery takes place and the right to invoice for services performed is met.

Our advertising contracts are short-term (less than one year) and payment terms are generally net 30-60 days for traditional customer contracts and net 60-90 days for national agency customer contracts. Our billing practice is to invoice customers on a monthly basis for services delivered to date (representing the right to invoice). Our contractual arrangements do not include rights of return and do not include any significant judgments by nature of the products and services.

Net revenue from digital subscription-based contractual performance obligations is recognized ratably over time as our performance obligations are satisfied. Subscription-based service fees are typically billed in advance of the month of service at a fixed monthly fee that is contractually agreed upon at contract inception. The measure of progress in such arrangements is the number of days of successful delivery of the contracted service.

Live events net revenue is recognized as events are conducted and our contractual performance obligations are satisfied. Our live events include single day and multi-day events, generally ranging from one day to four days in duration. We measure progress towards the satisfaction of contractual performance obligations on a daily basis, measured by the successful delivery of the event and honoring customer admissions and vendor event commitments. Live event ticket purchase prices are due at the point of purchase and are nonrefundable. Live event tickets are often sold in advance of the events; in the case of advanced ticket sales, we defer the recognition of consideration received until we satisfy the future performance obligation. Live event contractual arrangements do not include any variable consideration, financing components, or significant judgments.

For all customer contracts, we evaluate whether we are the principal (i.e., report revenue on a gross basis) or the agent (i.e., report revenue on a net basis). Generally, we report revenue for advertising placed on Townsquare properties on a gross basis (the amount billed to our customers is recorded as revenue, and the amount paid to our publishers is recorded as a cost of revenue). We are the principal because we control the advertising inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising inventory, being primarily responsible to our customers, having discretion in establishing pricing, or a combination of these factors. We also generate revenue through agency relationships in which revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for advertisers that use agencies.

No impairment losses have arisen from any contracts with customers during the three or nine months ended September 30, 2018.

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):



	At Adoption January 1, 2018		September 30, 2018
Receivables	$	61,558	$	68,438
Short-term contract liabilities (deferred revenue)	$	17,281	$	9,303

We receive payments from customers based upon contractual billing schedules; accounts receivable is recorded when the right to consideration becomes unconditional. Contract receivables are recognized in the period the Company provides services when the Company’s right to consideration is unconditional. Payment terms vary by the type and location of our customer and the products or services offered. Payment terms for amounts invoiced are typically net

30-60 days. The term between invoicing and when payment is due is not significant. The Company had no material bad debt expense recorded during the three and nine months ended September 30, 2018.

We record contract liabilities when cash payments are received or due in advance of satisfying our performance obligations. Our contract liabilities include cash payments received or due in advance related to event ticket sales for events scheduled to take place over the course of the current year and digital subscriptions in which payment is received in advance of the service month. These contract liabilities are recognized as revenue as the related performance obligations are satisfied. The decrease in the contract liabilities balance that was included in the deferred revenue balance at January 1, 2018 is primarily driven by $4.1 million and $16.7 million of recognized revenue for the three and nine months ended September 30, 2018, offset by cash payments received or due in advance of satisfying our performance obligations. No significant changes in the timeframe of the satisfaction of contract liabilities have occurred during the nine months ended September 30, 2018.

In connection with the adoption of Topic 606, we are required to capitalize certain contract acquisition costs consisting primarily of commissions paid when contracts are signed (previously such costs were expensed as incurred). Our capitalized contract acquisition costs include amounts related to sales commissions paid for contract acquisition costs related to signed contracts with perceived durations exceeding one year. For these contracts, we defer the related sales commission costs and amortize such costs to expense consistent with how the related revenue is recognized over the duration of the contracts. We have evaluated the average customer contract duration (initial term and any renewals) to determine the appropriate amortization period for these contractual arrangements. For contracts with a duration of less than one year, we follow a Topic 606 practical expedient and expense these costs when incurred. As of January 1, 2018, we had a balance of $2.3 million in deferred costs and have recognized $0.4 million and $1.5 million for the three and nine months ended September 30, 2018. No impairment losses have been recognized or changes made to the timeframe for performance of the obligations related to deferred contract assets during the three and nine months ended September 30, 2018.

Arrangements with Multiple Performance Obligations

In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract inception. When multiple performance obligations are identified, we identify how control transfers to the customer for each distinct contract obligation and determine the period when the obligations are satisfied. If obligations are satisfied in the same period, no allocation of revenue is deemed to be necessary. In the event performance obligations within a bundled contract do not run concurrently, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or by using expected cost-plus margins. Performance obligations that are not distinct at contract inception are combined.

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within direct operating expenses.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed as amounts related to those performance obligations with expected durations of greater than one year are at a fixed price per unit and do not include any upfront or minimum payments requiring any estimation or allocation of revenue.

Note 4. 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 2017 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 and nine months ended September 30, 2018 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, 2018. The Consolidated Balance Sheet as of December 31, 2017 is derived from the audited financial statements at that date, adjusted for the impact of certain businesses that were discontinued in 2018.

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 live events net revenue exhibits seasonality resulting in the second quarter being the highest revenue period. The most significant driver of seasonality in live events net revenue is our multi-day music festivals which are predominately in the second and 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.

In the media industry, companies, including ours, sometimes utilize barter agreements that exchange advertising time for goods or services such as travel, lodging or assets, instead of cash. Barter revenue was $6.8 million and $7.6 million and barter expense was $4.5 million and $4.7 million for the three months ended September 30, 2017 and 2018, respectively. Barter revenue was $18.4 million and $22.3 million and barter expense was $11.1 million and $12.1 million for the nine months ended September 30, 2017 and 2018, respectively.

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.

Note 5. Significant Acquisitions

On July 2, 2018, the Company acquired certain assets and liabilities related to three radio stations in Princeton, NJ ("the Princeton Acquisition") from Connoisseur Media, LLC for $17.3 million, with a working capital adjustment of $0.1 million, resulting in a total purchase price of $17.4 million. The acquired assets included WPST-FM, WNJE-AM and WCHR-AM. The consideration was paid with cash on hand. The Company estimated the fair value of intangibles acquired (FCC licenses) to be $6.4 million using the greenfield method and the purchase price was further allocated to the assets and liabilities acquired at their fair value at the date of acquisition, with the excess of purchase price over the net assets of $9.9 million recorded as goodwill. The Company is in the process of finalizing the valuation of assets acquired and liabilities assumed.

The preliminary Princeton Acquisition purchase price allocation is shown in the following table:



	(in thousands)
Prepaid and other current assets	$	256
FCC licenses	6,409
Property and equipment, net	976
Goodwill	9,915
Accounts payable and accrued expenses	(201		)
Total purchase price	$	17,355

Note 6. 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 combination of valuation analysis using observable inputs categorized as Level 2 and performing discounted cash flows analysis, using unobservable inputs categorized as Level 3 within the ASC 820 framework.

On May 17, 2018, the Company made an investment in a business totaling $3.2 million. The investment represents a minority ownership position and is accounted for under the cost method of accounting and is recorded as an investment on the Company's Consolidated Balance Sheet as of September 30, 2018.

On June 12, 2018, the Company made an investment in a business totaling $3.2 million. The investment represents a minority ownership position and is accounted for under the cost method of accounting and is recorded as an investment in the Company's Consolidated Balance Sheet as of September 30, 2018.

Note 7. Property and Equipment

Property and equipment consisted of the following:




(in thousands)	December 31, 2017			September 30, 2018
Land and improvements	$	20,870		$	21,095
Buildings and leasehold improvements	40,567			42,667
Broadcast equipment	74,851			79,748
Computer and office equipment	13,198			14,307
Furniture and fixtures	13,894			16,394
Transportation equipment	13,509			15,932
Software development costs	15,943			20,087
Total property and equipment, gross	192,832			210,230
Less: accumulated depreciation and amortization	(88,802		)	(99,924		)
Total property and equipment, net	$	104,030		$	110,306

Depreciation and amortization expense for property and equipment was $4.3 million and $4.4 million for the three months ended September 30, 2017 and 2018, respectively and $13.0 million and $12.8 million for the nine months ended September 30, 2017 and 2018, respectively.

The Company recorded an impairment charge of $25.6 million during the three months ended March 31, 2018 as the Company determined that the carrying value of certain property and equipment assets exceeded their fair market value based on market indicators. This impairment charge has been reclassed as part of net loss from discontinued operations in our Consolidated Statement of Operations for the nine months ended September 30, 2018.

Note 8. 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.

The Company has selected December 31^stas the annual testing date. 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.

The Company recorded $9.9 million of goodwill during the three and nine months ended September 30, 2018 as noted in Note 5. With the exception of a reclassification as a result of discontinued operations, there were no other changes to the carrying value of goodwill for the three and nine months ended September 30, 2018. Goodwill was $251.8 million at September 30, 2018.

Intangible assets consist of the following:



(in thousands)	Estimated Useful Life	December 31, 2017		September 30, 2018
Intangible Assets:
FCC licenses	Indefinite	$	484,535	$	490,944
Customer and advertising relationships	10 years	14,317		6,540
Leasehold interests	5 to 39 years	1,085		1,085
Tower space	3 to 9 years	454		454
Sports broadcast rights	1 to 2 years	665		665
Non-compete agreements	1 to 2 years	243		243
Trademarks	15 years	8,675		8,675
Other intangibles	3 years	1,141		161
Total		511,115		508,767
Less: Accumulated amortization		(15,614)		(8,126		)
Net amount		$	495,501	$	500,641

Amortization expense for definite-lived intangible assets was $0.6 million and $0.5 million for the three months ended September 30, 2017 and 2018, respectively and $1.8 million and $1.3 million for the nine months ended September 30, 2017 and 2018, respectively. During the three and nine months ended September 30, 2018, the Company wrote-off $8.8 million of fully amortized customer and advertising relationships and other intangible assets that were no longer in use. There was no impact to the net value of intangible assets as a result.

The Company recorded an impairment charge of $12.4 million during the three months ended March 31, 2018 as the Company determined that the carrying value of certain intangible assets exceeded their fair market value based on market indicators. This impairment charge has been reclassed as part of net loss from discontinued operations in our Consolidated Statement of Operations for the nine months ended September 30, 2018.

Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of September 30, 2018 is as follows (in thousands):



2018 (remainder)	$	329
2019	1,291
2020	1,243
2021	1,234
2022	1,230
Thereafter	4,370
	$	9,697

Note 9. Long-Term Debt

Total debt outstanding is summarized as follows:



(in thousands)	December 31, 2017			September 30, 2018
2023 Notes	$	280,079		$	280,079
Term Loans	291,851			282,332
Capitalized obligations	15			11
Debt before deferred financing costs	571,945			562,422
Deferred financing costs	(6,803		)	(5,568		)
Total debt	565,142			556,854
Less: current portion of long-term debt	(9,524		)	(5		)
Total long-term debt	$	555,618		$	556,849

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. 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. The LIBOR floor of 1.00% remained unchanged. All other terms of the Senior Secured Credit Facility agreement remained substantially unchanged. The Company capitalized $0.4 million of deferred financing costs in connection with this repricing. As of September 30, 2018, the interest rate on the Term Loans was 5.29%. 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 September 30, 2018, 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 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 the annual excess cash flow as defined in the credit agreement (both subject to certain reductions). We were required to make an excess cash flow payment related to 2017 on the outstanding Term Loans of $9.5 million which was paid on March 20, 2018. The Company recognized an expense of $0.1 million on the accelerated depreciation of unamortized deferred financing costs in connection with this prepayment in the first quarter of 2018. Borrowings are guaranteed by each of the Company’s direct and indirect subsidiaries, and subject to certain exceptions, are secured by substantially all of the tangible and intangible assets of the Company and its subsidiaries.

The Senior Secured Credit Facility contains covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to incur additional indebtedness or liens; engage in mergers or other fundamental changes; sell certain property or assets; pay dividends or other distributions; make acquisitions, investments, loans and advances; prepay certain indebtedness including the 2023 Notes; change the 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 September 30, 2018.

As of September 30, 2018, based on available market information, the estimated fair value of the 2023 Notes and the Term Loans were $260.8 million and $281.3 million, respectively.

Annual maturities of the Company's long-term debt as of September 30, 2018 are as follows (in thousands):



2018 (remainder)	$	1
2019	5
2020	5
2021	—
2022	282,332
Thereafter	280,079
	$	562,422

Note 10. Stockholders' Equity

The table below presents a summary, as of September 30, 2018, of our authorized and outstanding common stock, and securities convertible into common stock, excluding options issued under our 2014 Omnibus Incentive Plan.



Security¹	Par Value Per Share		Number Authorized	Number Outstanding	Description
Class A common stock	$	0.01	300,000,000	14,297,066	One vote per share.
Class B common stock	$	0.01	50,000,000	3,011,634	10 votes per share.²
Class C common stock	$	0.01	50,000,000	1,636,341	No votes.²
Warrants				8,977,676	Each warrant is exercisable for one share of Class A common stock, at an exercise price of $0.0001 per share. The aggregate exercise price for all warrants currently outstanding is $898.³
Total			400,000,000	27,922,717
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.

The foregoing share totals include 466,577 shares of restricted Class A common stock, subject to vesting terms, but exclude 4,249,278 shares of Class A common stock and 4,556,946 shares of Class B common stock issuable upon exercise of stock options, which options have an exercise price of between $6.31 and $9.63 per share. Additionally, the Company is authorized to issue 50,000,000 shares of undesignated preferred stock.

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.

On March 12, 2018 the Board of Directors approved its first quarterly dividend of $0.075 per share. The $2.1 million dividend was paid to holders of record as of April 2, 2018 on May 15, 2018. On May 7, 2018, the Board of Directors approved its second quarterly dividend of $0.075 per share. The $2.1 million dividend was paid to holders of record as of June 28, 2018 on August 15, 2018. On August 8, 2018, the Board of Directors approved its third quarterly dividend of $0.075 per share, payable to holders of record as of September 27, 2018 on November 15, 2018.

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 September 30, 2018, 2,684,121 shares were available for grant.

Options granted prior to 2016 vested immediately. Options granted beginning in 2016 generally vest 50% after three years and 50% after four years, with the exception of approximately 1.2 million options issued in 2018 that vest 25% each year over four years. The options have an exercise price of between $6.31 and $9.63 per share. The expected term of each option grant 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 had

not paid dividends and therefore did not utilize a dividend yield in the calculations, however, beginning with grants made in 2018, we have used an annual dividend of $0.30 per share in our calculations.

The following table summarizes stock option activity for the nine months ended September 30, 2018:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Outstanding at January 1, 2018	8,544,225		$	9.50	6.11	$	—
Granted	8,003,046		8.34
Exercised	—		—
Forfeited	(7,741,047	)	9.51
Outstanding at September 30, 2018	8,806,224		$	8.44	6.03	$	1,945,200

Stock-based compensation expense was $0.2 million and $0.6 million for the three months ended September 30, 2017 and 2018, respectively, and $0.5 million and $1.0 million for the nine months ended September 30, 2017 and 2018, respectively. As of September 30, 2018, total unrecognized stock-based compensation expense is $6.6 million, including $2.6 million related to restricted stock awards, to be recognized over four or five years.

On May 31, 2018, the Company issued 400,000 shares of restricted stock under the 2014 Incentive Plan, none of which were vested as of September 30, 2018. On July 9, 2018, the Company issued 48,540 shares of restricted stock, none of which were vested as of September 30, 2018. At September 30, 2018, there were 466,577 restricted stock shares outstanding with a weighted average grant date fair value per share of $6.58. The fair value of the restricted stock shares is equal to the closing share price on the date of grant. Of the total restricted stock shares outstanding, 400,000 vest 25% each year over four years, 48,540 vest after one year, and the remainder have a five-year vesting term. The Company has aggregate restricted stock share commitments of $0.3 million through 2021.

Option Exchange

On July 18, 2018, the Company commenced an offer to eligible executive officers, employees and directors to exchange certain outstanding eligible options to purchase shares of our common stock for new options covering a lesser number of shares of our common stock exercisable at a lower price.

On August 17, 2018, eligible option holders tendered, and Townsquare accepted for cancellation, eligible options of 7.5 million shares of Townsquare common stock and granted replacement options to eligible option holders to purchase approximately 2.8 million shares of Class A common stock and approximately 3.8 million shares of Class B common stock in exchange for the cancellation of the tendered eligible options. The exercise price per share of the replacement options granted in the exchange offer was $8.74, the closing price of Townsquare’s Class A common stock as reported on the NYSE on August 16, 2018 plus $0.50. The exchange offer resulted in the grant of replacement options with a fair value, for accounting purposes, approximately equal to the fair value of the eligible options that are surrendered in the exchange offer.

Note 11. Income Taxes

The provision for income taxes includes effects from the Tax Cuts and Jobs Act (“TCJA”) for changes that became effective January 1, 2018. We have incorporated provisional estimates for these new TCJA provisions as part of our forecasted annual effective tax rate. For the period ended September 30, 2018, we have not recorded any adjusted tax impacts with respect to provisional amounts previously recorded at December 31, 2017 for deferred tax balances and the one-time transition tax. We are still refining our calculations and interpreting recent guidance on both the federal and state level which could change these provisional tax amounts. No material changes are anticipated.

The Company's effective tax rate for the nine months ended September 30, 2017 and 2018 was approximately 41.8% and 27.3%, 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 21% for the nine months ended September 30, 2018 primarily relates to certain non-deductible items under the TCJA provisions and state, local and foreign income taxes.

Note 12. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:



(in thousands)	December 31, 2017		September 30, 2018
Accrued compensation and benefits	$	10,629	$	9,228
Accrued professional fees	1,057		1,266
Accrued commissions	2,010		2,148
Accrued taxes	2,039		2,713
Accrued music and FCC licensing	251		1,493
Accrued publisher fees	2,752		2,154
Accrued national representation fees	947		1,012
Due to sellers, business combinations	291		293
Deferred rent	1,951		1,985
Dividend payable	—		2,158
Accrued other	2,992		1,836
	$	24,919	$	26,286

Note 13. 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 $5.7 million and $3.9 million for the three months ended September 30, 2017 and 2018, respectively and approximately $14.4 million and $11.9 million for the nine months ended September 30, 2017 and 2018, respectively. Total rental expense includes costs incurred for live events such as venue and equipment rentals.

At September 30, 2018, the total minimum annual rental commitments under non-cancelable operating leases are as follows (in thousands):



2018 (remainder)	$	2,750
2019	10,636
2020	8,390
2021	6,508
2022	5,296
Thereafter	16,371
Total minimum payments	$	49,951

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 September 30, 2018 is approximately $18.8 million and is expected to be paid in accordance with the agreements through September 2021. In addition, the Company has aggregate commitments of $1.9 million for other broadcasting services through December 2019 and aggregate commitments of $11.0 million for a business management platform through 2023.

Note 14. Discontinued Operations

During the fourth quarter of 2017, management undertook a corporate strategic review of the Company’s operations and concluded the Company should exit certain live events businesses. These businesses are classified as discontinued operations as they represent separate lines of business and the discontinuation thereof represents a strategic shift towards core business offerings. During the fourth quarter of 2017, management determined that following the completion of contractually committed 2017 events, the live event verticals, Premium Music and Holiday, would be discontinued.

On May 24, 2018, the Company, through its subsidiary, Townsquare Live Events, LLC, sold all of the issued and outstanding membership interests of Heartland Group, LLC and its wholly owned subsidiary NAME to North American Fairs, LLC for total cash consideration of $23.5 million. In addition, Townsquare will have the right to receive 15% of any sales proceeds if NAME is sold in whole or in part within the next ten years. We had considered NAME the primary business of our Entertainment reportable segment, consistent with the manner in which the CODM(s) viewed the business. As the divestiture of the NAME business represented a strategic shift that would have a major effect on the Company’s operations and financial results, NAME's assets, liabilities and financial results are presented as discontinued operations separate from the Company’s continuing operations for all periods presented. We recognized a loss on the sale of NAME of approximately $1.9 million within net loss from discontinued operations and our Entertainment reportable segment will no longer be presented as part of our segment reporting.

On June 29, 2018, the Company entered into an Agreement of Purchase and Sale to transfer it's 70% controlling interest in Mountain Jam, LLC ("Mountain Jam") to Chet-5 Festivals, LLC ("Chet-5"), and to acquire the 30% minority interest in Taste of Country Productions LLC from Chet-5. The purchase and sale included a payment of $1.3 million from the Company to Chet-5. The Company recognized a gain on the sale of Mountain Jam of approximately $1.2 million which is included within net loss from discontinued operations.

The following table shows the components of assets and liabilities that are related to discontinued operations in the Company's Consolidated Balance Sheets:



(in thousands)	December 31, 2017		September 30, 2018
Cash and cash equivalents	$	4,090	$	14
Accounts receivable	183		24
Prepaid expenses and other current assets	3,828		—
Current assets of discontinued operations	8,101		38
Property and Equipment, net	42,962		—
Intangible assets, net	14,053		—
Other non-current assets	2,463		—
Long term assets of discontinued operations	59,478		—
Accounts payable	1,116		—
Accrued expenses and other current liabilities	1,324		223
Current liabilities of discontinued operations	2,440		223
Other long-term liabilities	10,682		—
Long term liabilities of discontinued operations	10,682		—
Net assets	$	54,457	$	(185	)

The following table shows the components of operations that are related to discontinued operations in the Company's Consolidated Statement of Operations:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2018			2017			2018

Net revenue	$52,215			$1			$79,063			$15,902

Discontinued operating costs and expenses:
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	38,554			(731		)	72,122			26,834
Depreciation and amortization	1,717			—			4,997			2,176
Stock-based compensation	8			—			22			11
Impairment on long-lived assets	—			—			—			37,972
Net loss on sale and retirement of assets	—			—			10			423
Discontinued operating income (loss)	11,936			732			1,912			(51,514		)
Other (income) expense, net	(99		)	—			(136		)	23
Income (loss) from discontinued operations before income taxes	12,035			732			2,048			(51,537		)
Provision (benefit) for income taxes	4,837			872			745			(13,565		)
Net income (loss) from discontinued operations, net of income taxes	$	7,198		$	(140	)	$	1,303		$	(37,972	)

Note 15. 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 and nine months ended months ended September 30, 2017 and 2018.



(in thousands, except per share data)	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2018			2017		2018

Numerator:
Net income from continuing operations	$	7,094	$	9,831		$	15,543	$	22,707
Net income (loss) from discontinued operations, net of income taxes	7,198		(140		)	1,303		(37,972		)
Net income (loss)	$	14,292	$	9,691		$	16,846	$	(15,265	)

Denominator:
Weighted average shares of common stock outstanding	18,478		18,941			18,459		18,690
Effect of dilutive common stock equivalents	9,516		8,978			9,762		8,978
Weighted average diluted common shares outstanding	27,994		27,919			28,221		27,668

Basic income (loss) per share:
Continuing operations	$	0.38	$	0.52		$	0.84	$	1.21
Discontinued operations	0.39		(0.01		)	0.07		(2.03		)

Diluted income (loss) per share:
Continuing operations	$	0.25	$	0.35		$	0.55	$	0.82
Discontinued operations	0.26		(0.01		)	0.05		$	(1.37	)

Note 16. Subsequent Events

Dividend

On November 5, 2018 the Board of Directors approved a dividend of $0.075 per share. The dividend will be paid to holders of record as of December 27, 2018. The estimated $2.1 million dividend will be paid on February 15, 2019.

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,” “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 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

On May 24, 2018, the Company, through a subsidiary of Townsquare Live Events, LLC, sold all of the issued and outstanding membership interests of Heartland Group, LLC and its wholly owned subsidiary NAME ("NAME") to North American Fairs, LLC for $23.5 million. In addition, on June 29, 2018, the Company entered into an Agreement of Purchase and Sale to transfer it's 70% controlling interest in Mountain Jam, LLC ("Mountain Jam") to Chet-5 Festivals ("Chet-5"), LLC and to acquire the 30% minority interest in Taste of Country Productions LLC from Chet-5. 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.

Townsquare owns and operates 321 radio stations and over 330 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. In addition, Townsquare owns and operates a diverse range of live events which we create, promote and produce. This includes festivals, concerts, expositions and other experiential events within and beyond our markets.

Our primary sources of net revenue are the sale of advertising on our radio stations, owned and operated 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.

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.

We also 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.

Our primary source of live events net revenue is ticket sales. Our live events also generate substantial net revenue through the sale of sponsorships, 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 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.

We strive to maximize our net revenue by managing our advertising inventory 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.

Our advertising 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 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 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 and certain costs related to production. Marketing and promotions expenses are discretionary and are primarily incurred in an effort to maintain and/or increase our audience share. Other programming, digital, engineering and general and administrative expenses are primarily fixed costs.

Seasonality

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 October 26, 2018, U.S. GDP grew at an annual rate of 3.5% in the third 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 September 30, 2018, as compared to the same period in 2017 are summarized below:


•	Net revenue for the three months ended September 30, 2018 increased $2.2 million, or 1.9%.


•	Excluding political revenue, net revenue for the three months ended September 30, 2018 remained essentially unchanged.

The key developments in our business for the nine months ended September 30, 2018, as compared to the same period in 2017 are summarized below:


•	Net revenue for the nine months ended September 30, 2018 increased $7.5 million, or 2.4%.


•	Excluding political revenue, net revenue for the nine months ended September 30, 2018 increased $4.4 million, or 1.4%.

Consolidated Results of Operations

Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2018

The following table summarizes our historical consolidated results of operations:



($ in thousands)	Three Months Ended September 30,
Statement of Operations Data:	2017			2018			$ Change			% Change
Net revenue	$	111,897		$	114,073		$	2,176		1.9	%

Operating costs and expenses:
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	79,473			79,384			(89		)	(0.1	)%
Depreciation and amortization	4,833			4,854			21			0.4	%
Corporate expenses	6,390			6,863			473			7.4	%
Stock-based compensation	193			597			404			209.3	%
Transaction costs	218			167			(51		)	(23.4	)%
Net (gain) loss on sale and retirement of assets	(63		)	(4		)	59			(93.7	)%
Total operating costs and expenses	91,044			91,861			817			0.9	%
Operating income	20,853			22,212			1,359			6.5	%

Other expenses:
Interest expense, net	8,230			8,640			410			5.0	%
Other expense, net	250			42			(208		)	(83.2	)%
Income from continuing operations before income taxes	12,373			13,530			1,157			9.4	%
Provision from income taxes	5,279			3,699			(1,580		)	(29.9	)%
Net income from continuing operations	7,094			9,831			2,737			38.6	%
Net income (loss) from discontinued operations, net of income taxes	7,198			(140		)	(7,338		)	(101.9	)%
Net income	$	14,292		$	9,691		$	(4,601	)	(32.2	)%

Net Revenue

Net revenue for the three months ended September 30, 2018 increased by $2.2 million, or 1.9%, as compared to the same period in 2017. The increase was primarily driven by revenue gains in our digital programmatic and digital marketing solutions offerings, and political, partially offset by budgeted declines in our live events business.

Direct Operating Expenses

Direct operating expenses for the three months ended September 30, 2018 remained essentially flat as compared to the same period in 2017.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended September 30, 2018 remained essentially flat as compared to the same period in 2017.

Corporate Expenses

Corporate expense for the three months ended September 30, 2018 increased $0.5 million, or 7.4%, as compared to the same period in 2017, primarily as a result of corporate related compensation.

Stock-based Compensation

Stock-based compensation expense for the three months ended September 30, 2018 increased $0.4 million, as compared to the same period in 2017, due to new option and restricted stock grants.

Transaction Costs

Transaction costs for the three months ended September 30, 2018 remained essentially flat as compared to the same period in 2017.

Net (Gain) Loss on Sale and Retirement of Assets

Net (gain) loss on sale and retirement of assets during the three months ended September 30, 2018 remained essentially flat as compared to the same period in 2017.

Other Expense

Interest expense, net is the major recurring component of other expense. Interest expense, net increased $0.4 million, or 5.0%, in the three months ended September 30, 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.



	Three Months Ended September 30,
	2017		2018
(in thousands)
2023 Notes	$	4,551	$	4,551
Term Loans	3,296		3,764
Capital lease and other	2		2
Loan origination costs	381		378
Interest income	-		(55)
Interest expense, net	$	8,230	$	8,640

Provision for income taxes

We recognized a provision for income taxes of $3.7 million for the three months ended September 30, 2018. Our effective tax rate for the period was approximately 27.3%. 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 September 30, 2018 primarily relates to certain non-deductible items under the TCJA provisions and state, local and foreign income taxes.

Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2018

The following table summarizes our historical consolidated results of operations:



($ in thousands)	Nine Months Ended September 30,
Statement of Operations Data:	2017		2018			$ Change			% Change
Net revenue	$	314,129	$	321,641		$	7,512		2.4	%

Operating costs and expenses:
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	227,640		229,176			1,536			0.7	%
Depreciation and amortization	14,779		14,082			(697		)	(4.7	)%
Corporate expenses	18,375		19,802			1,427			7.8	%
Stock-based compensation	549		1,033			484			88.2	%
Transaction costs	606		1,003			397			65.5	%
Net loss (gain) on sale and retirement of assets	652		(401		)	(1,053		)	(161.5	)%
Total operating costs and expenses	262,601		264,695			2,094			0.8	%
Operating income	51,528		56,946			5,418			10.5	%

Other expenses:
Interest expense, net	24,474		25,600			1,126			4.6	%
Other expense, net	326		122			(204		)	(62.6	)%
Income from continuing operations before income taxes	26,728		31,224			4,496			16.8	%
Provision for income taxes	11,185		8,517			(2,668		)	(23.9	)%
Net income from continuing operations	15,543		22,707			7,164			46.1	%
Net income (loss) from discontinued operations, net of income taxes	1,303		(37,972		)	(39,275		)	**
Net income (loss)	$	16,846	$	(15,265	)	$	(32,111	)	(190.6	)%
**Percent change not meaningful.

Net Revenue

Net revenue for the nine months ended September 30, 2018 increased by $7.5 million, or 2.4%, as compared to the same period in 2017. The increase was primarily driven by revenue gains in our digital programmatic and digital marketing solutions offerings, and political, partially offset by budgeted declines in our live events business.

Direct Operating Expenses

Direct operating expenses for the nine months ended September 30, 2018 increased by $1.5 million, or 0.7%, as compared to the same period in 2017. The increase was primarily driven by investments in headcount related expenses to support the growth of our digital programmatic and digital marketing solutions offerings, partially offset by budgeted declines in the live events business.

Depreciation and Amortization

Depreciation and amortization expense for the nine months ended September 30, 2018 decreased $0.7 million, or 4.7%, as compared to the same period in 2017, primarily as a result of timing of capital expenditure purchases.

Corporate Expenses

Corporate expense for the nine months ended September 30, 2018 increased $1.4 million, or 7.8%, as compared to the same period in 2017, primarily as a result of corporate related compensation.

Stock-based Compensation

Stock-based compensation expense nine months ended September 30, 2018 increased $0.5 million, or 88.2%, as compared to the same period in 2017, due to new option and restricted stock grants.

Transaction Costs

Transaction costs for nine months ended September 30, 2018 increased $0.4 million or 65.5% as compared to the same period in 2017, primarily due to costs associated with the Princeton Acquisition.

Net Loss (Gain) on Sale and Retirement of Assets

During the nine months ended September 30, 2018 the Company had a $0.4 million gain on the sale and retirement of assets, as compared to a loss of $0.7 million in the same period in 2017. The net gain primarily resulted from the sale of certain live events assets that had been categorized as held for sale at December 31, 2017 and insurance proceeds received for damaged assets.

Other Expense

Interest expense, net is the major recurring component of other expense. Interest expense, net increased $1.1 million, or 4.6%, in the nine months ended September 30, 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.



	Nine Months Ended September 30,
(in thousands)	2017		2018
2023 Notes	$	13,653	$	13,653
Term Loans	9,499		10,770
Capital lease and other	7		7
Loan origination costs	1,315		1,237
Interest income	-		(67		)
Interest expense, net	$	24,474	$	25,600

Provision for income taxes

We recognized a provision for income taxes of $8.5 million for the nine months ended September 30, 2018. Our effective tax rate for the period was approximately 27.3%. 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 nine months ended September 30, 2018 primarily relates to state, local and foreign income taxes.

Liquidity and Capital Resources



	Nine Months Ended September 30,
(in thousands)	2017			2018
Cash provided by operating activities	$	25,071		$	12,023
Cash used in investing activities	(24,340		)	(9,294		)
Cash used in financing activities	(7,712		)	(14,178		)
Net effect of foreign currency exchange rate changes	43			(124		)
Net decrease in cash and restricted cash	$	(6,938	)	$	(11,573	)

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 September 30, 2018, we had $556.9 million of outstanding indebtedness, net of deferred financing costs of $5.6 million. Based on interest rates in effect as of September 30, 2018, we expect our debt service requirements to be approximately $33.7 million over the next twelve months. In addition, as of September 30, 2018 we had $49.6 million of cash and restricted cash, $68.4 million of receivables from customers, which historically have had an average collection cycle of approximately 58 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 September 30, 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 $13.1 million to $12.0 million for the nine months ended September 30, 2018, from $25.1 million for the nine months ended September 30, 2017. This decrease was primarily due to the increases in accounts payable and accrued expenses as a result of timing of payments, and an increase in net cash used in operating activities - discontinued operations.

Cash Flows from Investing Activities

Net cash used in investing activities decreased $15.0 million to $9.3 million for the nine months ended September 30, 2018, as compared to $24.3 million for the same period in 2017. The decrease was primarily due to proceeds received on the sale of NAME, which was partially offset by payments made for the Princeton Acquisition.

Cash Flows from Financing Activities

Net cash used in financing activities increased $6.5 million to $14.2 million for the nine months ended September 30, 2018, as compared to $7.7 million for the same period in 2017. This change was driven by a $2.9 million increase in the excess cash flow payment on our outstanding Term Loan, as well as $4.1 million of dividend payments made during the nine months ended September 30, 2018.

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 remained substantially unchanged. The Company paid $0.4 million of deferred financing costs in connection with this repricing. As of September 30, 2018, LIBOR increased to 2.29% bringing the interest rate to 5.29%. 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 million and $9.5 million during the nine months ended September 30, 2017 and 2018, respectively.

As of September 30, 2018, the Company had $282.3 million of Term Loan borrowings, and no outstanding borrowings under the Revolver. As of September 30, 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 and dividend 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.

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-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 September 30, 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 September 30, 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 September 30, 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.

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 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 September 30, 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the normal course of business, the Company is subject to various regulatory proceedings, lawsuits, claims and other matters related to intellectual property, personal injury, employee, or other matters. These matters are subject to many uncertainties and outcomes are not predictable with assurance. However, we do not believe that the ultimate resolution of these matters will have a material adverse effect on our financial position or results of operations.

Item 1A. Risk Factors

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.

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.

EXHIBIT INDEX



Exhibit		Description
10.1		Form of Restricted Stock Grant Agreement

31.1		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

31.2		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

31.3		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

32.1		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350

32.2		Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350

32.3		Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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

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/ Stuart Rosenstein
	Name: Stuart Rosenstein
	Title: Executive Vice President & Chief Financial Officer

Date: November 6, 2018



Dated: November 6, 2018	By:	/s/ Bill Wilson
		Name: Bill Wilson
		Title: Co-Chief Executive Officer



Dated: November 6, 2018	By:	/s/ Dhruv Prasad
		Name: Dhruv Prasad
		Title: Co-Chief Executive Officer



Dated: November 6, 2018		/s/ Bill Wilson
		Name: Bill Wilson
		Title: Co-Chief Executive Officer



Dated: November 6, 2018		/s/ Dhruv Prasad
		Name: Dhruv Prasad
		Title: Co-Chief Executive Officer


1.	I have reviewed this quarterly report on Form 10-Q of Townsquare Media, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.