Townsquare Media, Inc. - Quarter Report: 2015 June (Form 10-Q)

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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 June 30, 2015 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ______ Commission file number 333-197002 Townsquare Media, Inc. (Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization)	4832 (Primary Standard Industrial Classification Code Number)	27-1996555 (I.R.S. Employer Identification No.)
240 Greenwich Avenue Greenwich, Connecticut 06830 (203) 861-0900 (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) __________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "accelerated filer," "large accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	☐

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

As of August 4, 2015, the registrant had 17,374,857 outstanding shares of common stock consisting of: (i) 9,457,893 shares of Class A common stock, par value $0.01 per share; (ii) 3,022,484 shares of Class B common stock, par value $0.01 per share; and (iii) 4,894,480 shares of Class C common stock, par value $0.01 per share. The registrant also had 9,508,878 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, 2014 and June 30, 2015	1
	Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2015	2
	Consolidated Statement of Stockholders' Equity for the six months ended June 30, 2015	3
	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2015	4
	Notes to Unaudited Consolidated Financial Statements	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	31

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	32

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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, 2014			June 30, 2015
ASSETS
Current assets:
Cash	$	24,462		$	30,383
Accounts receivable, net of allowance of $3,350 and $3,064, respectively	61,151			62,685
Prepaid expenses and other current assets	7,553			10,462
Total current assets	93,166			103,530

Property and equipment, net	96,247			96,204
Intangible assets, net	505,839			505,762
Goodwill	242,300			249,109
Deferred financing costs, net	9,636			9,433
Investments	484			484
Other assets	413			341
Total assets	$	948,085		$	964,863

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,747		$	8,501
Current portion of long-term debt	1,293			2,912
Deferred revenue	14,299			17,597
Accrued expenses and other current liabilities	21,339			15,513
Accrued interest	9,245			4,907
Total current liabilities	52,923			49,430
Long-term debt, less current portion, (inclusive of bond premium of $7,203 and $0, respectively)	538,383			571,732
Deferred tax liability	11,644			5,631
Other long-term liabilities	973			1,265
Total liabilities	603,923			628,058
Commitments and contingencies (See Note 11)
Stockholders’ equity:
Class A common stock, par value $0.01 per share; 300,000,000 shares authorized and 9,457,242 shares issued and outstanding at both December 31, 2014 and June 30, 2015	95			95
Class B common stock, par value $0.01 per share; 50,000,000 shares authorized and 3,022,484 shares issued and outstanding at both December 31, 2014 and June 30, 2015	30			30
Class C common stock, par value $0.01 per share; 50,000,000 shares authorized and 4,894,480 shares issued and outstanding at both December 31, 2014 and June 30, 2015	49			49
Total common stock	174			174
Additional paid-in capital	351,984			353,288
Accumulated deficit	(8,439		)	(17,475		)
Non-controlling interest	443			818
Total liabilities and stockholders’ equity	$	948,085		$	964,863

See Notes to Consolidated Financial Statements

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TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in Thousands, Except Per Share Data)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2015			2014			2015

Net revenue	$	106,267		$	117,516		$	185,428		$	198,634

Operating costs and expenses:
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	71,478			82,297			129,730			143,626
Depreciation and amortization	4,331			3,613			8,718			7,284
Corporate expenses	6,157			6,603			10,924			11,843
Stock-based compensation	—			1,403			159			1,403
Transaction costs	(10		)	125			18			172
Net (gain) loss on sale of assets	(26		)	21			(136		)	14
Total operating costs and expenses	81,930			94,062			149,413			164,342
Operating income	24,337			23,454			36,015			34,292
Other expenses:
Interest expense	12,122			8,246			24,202			18,807
Net loss on debt extinguishment	—			30,017			—			30,017
Other expense, net	—			36			37			84
Income (loss) before income taxes	12,215			(14,845		)	11,776			(14,616		)
Provision for (benefit from) income taxes	91			(6,111		)	182			(6,013		)
Net income (loss)	$	12,124		$	(8,734	)	$	11,594		$	(8,603	)

Net income (loss) attributable to:
Controlling interests	$	11,705		$	(9,132	)	$	11,175		$	(9,036	)
Non-controlling interests	419			398			419			433

Net loss per share:
Basic				$	(0.50	)				$	(0.50	)
Diluted				$	(0.50	)				$	(0.50	)

Pro forma C Corporation data (unaudited):
Historical income before income taxes	$	12,215					$	11,776
Pro forma income tax expense	4,752						4,581
Pro forma net income	$	7,463					$	7,195

Pro forma net income per share:
Basic	$	0.95					$	0.91
Diluted	$	0.43					$	0.41

Weighted average shares outstanding:	Pro Forma						Pro Forma
Basic	7,896			17,374			7,892			17,374
Diluted	17,405			17,374			17,401			17,374

See Notes to Consolidated Financial Statements

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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			Accumulated Deficit			Non-Controlling Interest			Total
Balance at January 1, 2015	9,457,242	3,022,484	4,894,480	9,508,878	$	174	$	351,984		$	(8,439	)	$	443		$	344,162
Net (loss) income	—	—	—	—	—		—			(9,036		)	433			(8,603		)
Offering costs	—	—	—	—	—		(99		)	—			—			(99		)
Stock-based compensation	—	—	—	—	—		1,403			—			—			1,403
Cash distribution	—	—	—	—	—		—			—			(58		)	(58		)
Balance at June 30, 2015	9,457,242	3,022,484	4,894,480	9,508,878	$	174	$	353,288		$	(17,475	)	$	818		$	336,805

See Notes to Consolidated Financial Statements

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TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in Thousands)

(unaudited)



	Six Months Ended June 30,
	2014			2015
Cash flows from operating activities:
Net income (loss)	$	11,594		$	(8,603	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization	8,718			7,284
Amortization of deferred financing costs	1,263			917
Deferred income tax benefit	—			(6,013		)
Provision for doubtful accounts	964			15
Stock-based compensation expense	159			1,403
Non-cash interest expense	1,539			—
Amortization of bond premium	(848		)	(424		)
Write-off of deferred financing costs	—			9,061
Write-off of bond premium	—			(6,779		)
Net (gain) loss on sale of assets	(136		)	14
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(7,954		)	(2,013		)
Prepaid expenses and other assets	(1,026		)	(2,976		)
Accounts payable	886			1,754
Accrued expenses	(6,450		)	(3,717		)
Accrued interest	(84		)	(4,338		)
Other long-term liabilities	—			17
Net cash provided by (used in) operating activities	8,625			(14,398		)
Cash flows from investing activities:
Payments for acquisitions, net of cash received	(849		)	(6,606		)
Acquisition of intangibles	(200		)	(32		)
Purchase of property and equipment	(4,628		)	(5,812		)
Proceeds from insurance settlement	—			450
Proceeds from sale of assets	199			80
Net cash used in investing activities	(5,478		)	(11,920		)
Cash flows from financing activities:
Offering costs	—			(99		)
Repayment of long-term debt	(765		)	(532,751		)
Proceeds from the issuance of long-term debt	—			575,000
Debt financing costs	(259		)	(9,775		)
Cash distribution to non-controlling interest	—			(58		)
Repayments of capitalized obligations	(74		)	(78		)
Net cash (used in) provided by financing activities	(1,098		)	32,239
Net increase in cash	2,049			5,921
Cash:
Beginning of period	45,647			24,462
End of period	$	47,696		$	30,383

Supplemental Disclosure of Cash Flow Information:
Cash payments:
Payments to redeem long-term debt prior to contractual maturity	$	—		$	27,735
Interest	22,329			22,631
Income taxes	364			540
Barter transactions:
Barter revenue – included in net revenue	$	6,040		$	6,965
Barter expense – included in direct operating expenses	5,289			6,390

See Notes to Consolidated Financial Statements

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1. Organization and Basis of Presentation

Description of the Business

On July 25, 2014, Townsquare Media, LLC (together with its consolidated subsidiaries, except as the context may otherwise require, "we," "us," "our," "Company," "Townsquare," "Townsquare Media," or "Ultimate Parent") a Delaware limited liability company organized in 2010, converted to Townsquare Media, Inc. The Company is an integrated and diversified media and entertainment and digital marketing services company that owns and operates market leading radio stations, digital and social properties and live events in small and mid-sized markets across the United States, delivering national scale and expertise to the communities it serves on a local level.

As of June 30, 2015, the Company owned and operated 310 radio stations, over 325 search engine and mobile-optimized local websites and approximately 500 live events serving 66 small and mid-sized U.S. markets, making the Company the third largest owner of radio stations in the United States by number of radio stations owned. The Company supplements its local offerings with the nationwide reach of its owned, operated and affiliated music and entertainment websites, which, on a combined basis, attracted the largest audience among music-focused digital advertising networks, as well as certain larger scale live events. Funds managed by Oaktree Capital Management, L.P. ("Oaktree") are the Company’s largest equity holder.

2. Summary of Significant Accounting Policies

There have been no significant changes in the Company’s accounting policies since December 31, 2014. 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, 2014 (the "2014 Annual Report on Form 10-K") filed with the Securities and Exchange Commission ("SEC") on March 16, 2015.

Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year’s presentation.

Recently Issued Accounting Standards

In May of 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This new standard will replace all current U.S. GAAP related to revenue recognition and will eliminate 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 the consideration to which the company expects to be entitled in exchange for those goods or services. In July 2015, the FASB affirmed its proposal to defer the effective date of this new standard. As a result, public companies will apply the new revenue standard to annual reporting periods beginning after December 15, 2017. The Company is currently assessing the potential impact ASU 2014-09 will have on its financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest, which provides guidance on simplifying the presentation of debt issuance costs. The standard requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of such debt, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The new guidance is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. The Company does not believe adoption of ASU 2015-03 will have a material impact on its financial statements, as this new standard is presentation-only in nature.

3. Interim Financial Data

The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto included in the Company's 2014 Annual

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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 accounting principles generally accepted in the United States of America (“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 completed 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 six months ended June 30, 2015 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, 2015. The consolidated balance sheet as of December 31, 2014 is derived from the audited financial statements at that date.

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.

4. Significant Acquisitions

FACE, Festivals and Concert Events, Inc. Acquisition: On October 31, 2014, the Company through a subsidiary of Townsquare Live Events, LLC ("Townsquare Live Events"), purchased substantially all of the assets of FACE, Festivals and Concert Events, Inc. ("WE Fest"), for approximately $21.5 million, net of closing adjustments, and 100,000 of the Company's Class A common shares valued at $1.2 million. Cash consideration was satisfied from cash on hand, a $10.0 million draw-down on the revolving credit facility of one of the Company's indirect wholly owned subsidiaries in existence at the time and a working capital adjustment of approximately $3.7 million. The Company estimated the fair value of acquired trademarks using the relief from royalty method. This transaction has been accounted for as a business combination with $3.4 million allocated to the trademark and $22.2 million allocated to goodwill. The total amount of goodwill that is expected to be deductible for tax purposes is $22.2 million.

The purchase price allocation was as follows:



	(in thousands)
Other current assets	$	197
Trademark	3,402
Property and Equipment	890
Goodwill	22,208
Deferred revenue	(3,922)
Total purchase price	$	22,775

There were no significant acquisitions during the six months ended June 30, 2015.

Pro-Forma Results: The following table illustrates the unaudited pro-forma information reflecting net revenue and net income for the three and six months ended June 30, 2014 as if the WE Fest transaction had occurred on January 1, 2014. The unaudited pro-forma amounts are for informational purposes only and do not purport to represent what the Company’s actual results of operations would have been if the transactions had been completed as of January 1, 2014 or any other historical date, nor is it reflective of the Company’s expected actual results of operations for any future periods.

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	(in thousands)
	Three Months Ended June 30, 2014		Six Months Ended June 30, 2014
Net revenue	$	106,267	$	185,428
Net income	11,397		10,139

5. Property and Equipment



	(in thousands)
	December 31, 2014			June 30, 2015
Land and improvements	$	25,275		$	25,275
Buildings and leasehold improvements	30,889			31,337
Broadcast equipment	71,002			71,595
Computer and office equipment	8,093			9,713
Furniture and fixtures	5,460			6,266
Transportation equipment	7,622			7,852
Software development costs	13,366			15,395
	161,707			167,433
Less: Accumulated depreciation and amortization	(65,460		)	(71,229		)
Property and equipment, net	$	96,247		$	96,204

Depreciation and amortization expense was $3.8 million and $3.0 million for the three months ended June 30, 2014 and 2015, respectively and $7.7 million and $6.1 million for the six months ended June 30, 2014 and 2015, respectively.

6. 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^st as the annual valuation date. Based on the results of the Company’s 2014 annual impairment evaluations, the fair values of the Company’s goodwill and FCC licenses exceeded their carrying values and, therefore, no impairment of these assets had occurred as of the date of the annual tests. If market conditions and operational performance of the Company’s reporting units were to deteriorate and management had no expectation that the performance would improve within a reasonable period of time or if an event occurs or circumstances change that would reduce the fair value of its goodwill and intangible assets below the amounts reflected in the balance sheet, the Company may be required to recognize impairment charges in future periods.

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The following represents the changes in goodwill for the six months ended June 30, 2015:



	(in thousands)
Balance, January 1, 2015	$	242,300
Local Advertising acquisitions	113
Live Events acquisitions	6,696
Balance, June 30, 2015	$	249,109

Intangible assets consist of the following as of the dates indicated:



		(in thousands)
	Estimated Useful Life	December 31, 2014		June 30, 2015
Intangible Assets:
FCC licenses	Indefinite	$	487,804	$	487,837
Customer and advertising relationships	10 years	14,317		14,317
Leasehold interests	5 to 39 years	1,085		1,085
Tower space	3 to 9 years	637		637
Sports broadcast rights	1 to 2 years	665		665
Non-compete agreements	1 to 2 years	243		243
Trademark	15 years	9,438		10,544
Other intangibles	3 years	500		500
Total		514,689		515,828
Less: Accumulated amortization		(8,850)		(10,066		)
Net amount		$	505,839	$	505,762

Amortization expense for definite-lived intangible assets was $0.5 million and $0.6 million for the three months ended June 30, 2014 and 2015, respectively and $1.0 million and $1.2 million for the six months ended June 30, 2014 and 2015, respectively.

Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of June 30, 2015 is as follows:



	(in thousands)
2015 (remainder)	$	1,247
2016	2,428
2017	2,247
2018	1,448
2019	1,376
Thereafter	9,179
	$	17,925

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7. Long-Term Debt

Long-term debt consisted of the following as of the dates indicated:



	(in thousands)
	December 31, 2014			June 30, 2015
Townsquare Radio:
2019 Notes (inclusive of bond premium of $7,203 and $0, respectively)	$	418,103		$	—
Incremental Term Loans	111,164			—
Revolving Credit Facility	10,000			—

Townsquare Media:
2023 Notes	—			300,000
Term Loan	—			274,313

Capitalized obligations	409			331
	539,676			574,644
Less: current portion of long-term debt	(1,293		)	(2,912		)
	$	538,383		$	571,732

On April 1, 2015, the Company issued $300.0 million of new 6.5% Unsecured Senior Notes due in 2023 (the "2023 Notes") and a new Senior Secured Credit Facility, including a new seven year, $275.0 million term loan facility (the "Term Loan") and a new five year, $50.0 million revolving credit facility (the "Revolver" and together with the Term Loan, the "New Senior Secured Credit Facility"). The Term Loan has an initial interest rate of 4.25% (based on current LIBOR levels), a 1.00% LIBOR floor and an applicable margin of 325 basis points. The Revolver has an interest rate based either on LIBOR and an applicable margin of 250 basis points, or an alternative base rate and an applicable margin of 150 basis points. As of June 30, 2015, the Company had no outstanding borrowings under the Revolver.

The proceeds from the 2023 Notes and Term Loan were used to redeem the 9% Unsecured Senior Notes due April 2019 issued by the Company's wholly-owned, indirect subsidiary Townsquare Radio, LLC ("Townsquare Radio") together with Townsquare Radio, Inc., as co-borrowers (the "2019 Notes"), and repay all outstanding borrowings under Townsquare Radio's existing Senior Secured Credit Facility (the "Incremental Term Loans"), including a $10.0 million Revolving Credit Facility. The Company paid $27.7 million in redemption premiums to holders of the 2019 Notes in connection with the redemption. In addition, the Company had a loss of $9.1 million and a gain of $6.8 million on the write-off of unamortized deferred financing costs and bond premium, respectively in connection with these repayments. The payment to holders of the 2019 Notes and the write-off of the unamortized deferred financing costs and bond premium are included in net loss on debt extinguishment in the Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2015.

The 2023 Notes are guaranteed on a senior basis by certain of the Company’s direct and indirect wholly-owned subsidiaries. Borrowings under the new Senior Secured Credit Facility are guaranteed by each of the Company’s direct and indirect subsidiaries, and subject to certain exceptions, is secured by substantially all of the Company’s tangible and intangible assets.

As of June 30, 2015, based on available market information, the estimated fair values of the 2023 Notes and the Term Loan were $297.8 million and $274.7 million, respectively.

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Annual maturities of the Company's long-term debt as of June 30, 2015 are payable as follows:



	(in thousands)
2015 (remainder)	$	1,455
2016	2,915
2017	2,836
2018	2,750
2019	2,750
Thereafter	561,938
	$	574,644

8. Stockholders' Equity

The Company is authorized to issue 300,000,000 shares of Class A common stock, par value $0.01 per share, 50,000,000 shares of Class B common stock, par value $0.01 per share, 50,000,000 shares of Class C common stock, par value $0.01 per share and 50,000,000 shares of undesignated preferred stock.

As of June 30, 2015 the Company had 9,457,242 shares of Class A common stock, 9,508,878 warrants to purchase Class A common stock, 3,022,484 shares of Class B common stock and 4,894,480 shares of Class C common stock outstanding. The foregoing share totals exclude 3,367,356 of Class A common stock and 3,802,193 of Class B common stock issuable upon exercise of stock options, which options have an exercise price of between $11.00 and $13.02 per share.

Holders of shares of Class A common stock, Class B common stock and Class C common stock vote together as a single class on all matters presented to the Company's stockholders for their vote or approval, except as otherwise required by applicable law. Each holder of the Company's Class A common stock is entitled to one vote per share on each matter submitted to a vote of stockholders. The Company's Class A common stock is neither convertible nor redeemable. Each holder of the Company's Class B common stock is entitled to ten votes per share on each matter submitted to a vote of stockholders. The Company's Class B common stock is not redeemable, but is convertible (including automatically upon certain transfers) into Class A common stock. Holders of shares of Class C common stock are not entitled to any voting rights with respect to such shares of Class C common stock. The Company's Class C common stock is not redeemable, but is convertible (including automatically upon certain transfers) into Class A common 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.

Stock-based Compensation

On July 21, 2014 the Board of Directors approved the 2014 Omnibus Incentive Plan (the "2014 Incentive Plan"), which 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.

The grant date fair value of the equity options granted during the six months ended June 30, 2015 was estimated using the Black-Scholes option pricing model, which requires estimates of the expected term of the option, the expected volatility of the Company's common stock price, dividend yield and the risk-free rate. The below table summarizes the assumptions used to estimate the fair value of the equity options granted during the period.



Expected volatility	30.0	%
Expected term	6.3 years
Risk free interest rate	2.1	%
Expected dividend yield	0.0	%

The equity options granted during the six months ended June 30, 2015 provide for immediate vesting and have an exercise price of $13.02 per share. Due to the Company's lack of option exercise history, the expected term was calculated using the simplified method defined as the midpoint between the vesting period and the contractual term of each award. The expected volatility was based on market conditions of the Company and comparable companies. The risk free interest rate was based on the U.S. Treasury yield curve in effect on the date of grant which most closely corresponds to the expected term of the option. The Company historically has not paid dividends and therefore did not utilize a dividend yield in the calculations.

The following table summarizes stock option activity for the six months ended June 30, 2015:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Outstanding at December 31, 2014	6,924,903		$	11.00
Granted	316,000		13.02
Exercised	—		—
Forfeited	(71,354	)	11.00
Outstanding at June 30, 2015	7,169,549		$	11.09	9.1	$	17,838,836
Exercisable at June 30, 2015	7,169,549		$	11.09	9.1	$	17,838,836

The weighted average grant date fair value of stock options granted during the six months ended June 30, 2015 was $4.44. For the six months ended June 30, 2015, the Company recognized approximately $1.4 million of stock-based compensation expense with respect to the options granted.

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

There was no restricted stock activity during the six months ended June 30, 2015.

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9. Income Taxes

The Company's effective tax rate for the six months ended June 30, 2015 was approximately 41.1%. The effective tax rate may vary significantly from period to period, and can be influenced by many factors. These factors include, but are not limited to, changes to the statutory rates in the jurisdictions where the Company has operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 35% for the six months ended June 30, 2015 primarily relates to state and local income taxes.

Prior to the Company’s initial public offering ("IPO"), for income tax purposes the Company was principally comprised of limited liability entities, which were not subject to federal and certain state income taxes at the entity level and certain corporations whose operations were subject to income taxes at the company level. Upon completion of the initial public offering and the conversion of the parent entity into a corporation (“the LLC Conversion”) all of the Company’s operations became subject to income taxes at the corporation level.

The statements of operations for the interim period in 2014 give pro-forma effect to the income tax expense which would have been reported had the operations of the Company been subject to federal and state income taxes throughout the period.

10. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:



	(in thousands)
	December 31, 2014		June 30, 2015
Accrued compensation and benefits	$	10,930	$	5,186
Accrued professional fees	1,793		800
Accrued commissions	1,983		2,438
Accrued taxes	862		836
Accrued music and FCC licensing	228		1,343
Accrued publisher fees	498		425
Accrued national representation fees	1,344		1,007
Accrued other	3,701		3,478
	$	21,339	$	15,513

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11. Commitments and Contingencies

Operating Leases: The Company leases certain facilities and equipment used in its operations. Certain of the Company’s operating leases contain renewal options through 2062, escalating rent provisions and/or cost of living adjustments. Total rental expense was approximately $4.7 million and $4.8 million for the three months ended June 30, 2014 and 2015, respectively, and $9.4 million and $8.8 million for the six months ended June 30, 2014 and 2015, respectively. Total rental expense includes costs incurred for live events such as venue and equipment rentals.

At June 30, 2015, the total minimum annual rental commitments under non-cancelable operating leases are as follows:



	(in thousands)
2015 (remainder)	$	4,731
2016	9,220
2017	8,021
2018	6,703
2019	5,532
Thereafter	12,874
Total minimum payments	$	47,081

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 June 30, 2015 is approximately $16.0 million and is expected to be paid in accordance with the agreements through October 2018.

Litigation: In the normal course of business, the Company is subject to various regulatory proceedings, lawsuits, claims and other matters. Such matters are subject to many uncertainties and outcomes are not predictable with assurance.

Additionally, from time to time the Company is engaged in various legal proceedings related to the intellectual property, employee, or other matters, which are not material to the Company’s consolidated operations or financial condition.

12. Segment Reporting

The Company has two reportable segments, Local Advertising, which provides advertising via broadcast and digital delivery within our local markets, and Live Events, which is composed of a diverse range of live events, which we create, promote and produce, including music concerts, multi-day music festivals, consumer expositions and trade shows, athletic events, lifestyle events and other forms of entertainment. The Company reports the remainder of its business in its Other Media and Entertainment category, which principally provide digital marketing services, e-commerce solutions and digital advertising services nationally. The following disclosures are consistent with the management decision-making process that determines the allocation of resources and measurement of performance.

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The following table presents the Company’s reportable segment results for the three months ended June 30, 2014:



	(in thousands)
	Local Advertising		Live Events		Other Media & Entertainment			Corporate and other reconciling items			Consolidated
Three Months Ended June 30, 2014
Net revenue	$	78,050	$	19,745	$	8,472		$	—		$	106,267
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	47,913		15,501		8,064			—			71,478
Depreciation and amortization	3,249		113		776			193			4,331
Corporate expenses	—		—		—			6,157			6,157
Transaction costs	—		—		—			(10		)	(10		)
Net (gain) on sale of assets	—		—		—			(26		)	(26		)
Operating income (loss)	$	26,888	$	4,131	$	(368	)	$	(6,314	)	$	24,337

The following table presents the Company’s reportable segment results for the three months ended June 30, 2015:



	(in thousands)
	Local Advertising		Live Events		Other Media & Entertainment		Corporate and other reconciling items			Consolidated
Three Months Ended June 30, 2015
Net revenue	$	78,531	$	29,706	$	9,279	$	—		$	117,516
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	47,922		26,395		7,980		—			82,297
Depreciation and amortization	2,639		250		252		472			3,613
Corporate expenses	—		—		—		6,603			6,603
Stock-based compensation	948		138		111		206			1,403
Transaction costs	—		—		—		125			125
Net loss on sale of assets	—		—		—		21			21
Operating income (loss)	$	27,022	$	2,923	$	936	$	(7,427	)	$	23,454

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The following table presents the Company’s reportable segment results for the six months ended June 30, 2014:



	(in thousands)
	Local Advertising		Live Events		Other Media & Entertainment			Corporate and other reconciling items			Consolidated
Six Months Ended June 30, 2014
Net revenue	$	143,322	$	27,512	$	14,594		$	—		$	185,428
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	92,987		22,197		14,546			—			129,730
Depreciation and amortization	6,573		211		1,590			344			8,718
Corporate expenses	—		—		—			10,924			10,924
Stock-based compensation	—		—		—			159			159
Transaction costs	—		—		—			18			18
Net (gain) on sale of assets	—		—		—			(136		)	(136		)
Operating income (loss)	$	43,762	$	5,104	$	(1,542	)	$	(11,309	)	$	36,015
Capital expenditures	$	1,301	$	744	$	1,978		$	605		$	4,628

The following table presents the Company’s reportable segment results for the six months ended June 30, 2015:



	(in thousands)
	Local Advertising		Live Events		Other Media & Entertainment		Corporate and other reconciling items			Consolidated
Six Months Ended June 30, 2015
Net revenue	$	143,584	$	37,872	$	17,178	$	—		$	198,634
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	94,124		33,967		15,535		—			143,626
Depreciation and amortization	5,435		473		471		905			7,284
Corporate expenses	—		—		—		11,843			11,843
Stock-based compensation	948		138		111		206			1,403
Transaction costs	—		—		—		172			172
Net loss on sale of assets	—		—		—		14			14
Operating income (loss)	$	43,077	$	3,294	$	1,061	$	(13,140	)	$	34,292
Capital expenditures	$	1,571	$	1,114	$	1,973	$	1,154		$	5,812

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Note 13. Net Income (Loss) Per Common Share

The following table sets forth the computations of basic and diluted pro forma net income per share for the three and six months ended June 30, 2014, as well as the computation of basic and diluted net loss per common share for the three and six months ended June 30, 2015.



	(in thousands, except per share data)
	Three Months Ended June 30,					Six Months Ended June 30,
	2014		2015			2014		2015
	Pro forma					Pro forma
Numerator:
Net income (loss)	$	7,463	$	(8,734	)	$	7,195	$	(8,603	)

Denominator:
Weighted average shares of common stock outstanding	7,896		17,374			7,892		17,374
Effect of dilutive common stock equivalents	9,509		—			9,509		—

Weighted average diluted common shares outstanding	17,405		17,374			17,401		17,374

Net income (loss) per share:
Basic	$	0.95	$	(0.50	)	$	0.91	$	(0.50	)
Diluted	$	0.43	$	(0.50	)	$	0.41	$	(0.50	)

The basic and diluted pro forma net income per share computations for the three and six months ended June 30, 2014 have been computed to give effect to the assumed conversion of the units and warrants to purchase units of Townsquare Media, LLC into Class A, Class B and Class C common stock, warrants and options to purchase common stock of Townsquare Media, Inc. upon the completion of the initial public offering of the Company’s common stock. In addition, the 2014 pro forma net income is based on the Company’s historical net income as adjusted to reflect the conversion of the Company from a limited liability company into a Delaware corporation. Prior to such conversion, the Company was treated as a partnership and generally was not subject to income taxes. The 2014 pro forma net income, therefore, includes adjustments for income tax expense as if the Company had been a corporation and was subject to income taxes at an assumed combined federal, state, and local income tax rate of 38.9%.

There were no antidilutive common stock equivalents for the three and six months ended June 30, 2014. For the three and six months ended June 30, 2015, the calculation of weighted average shares for diluted net loss per share does not include 9,508,878 warrants and options to purchase shares of common stock of 7,024,316 and 6,991,509, respectively because their effects were antidilutive.

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Note 14. Subsequent Events

The Company evaluated the consolidated financial statements for subsequent events through the date the consolidated financial statements were issued. Except those stated below, the Company is not aware of any other subsequent events that would require recognition or disclosure in the consolidated financial statements.

On July 17, 2015, Townsquare entered into an agreement to sell 43 towers to a subsidiary of Vertical Bridge, LLC ("Vertical Bridge") for approximately $22.8 million in cash, subject to closing adjustments (the “Tower Sale”).

The 43 towers being divested are located on 41 sites in 28 markets and presently house antenna which broadcast certain of the Company’s radio stations, together with third party tenants who pay rent for similar space on such towers. For a period of 35 years following the closing, including an initial term of 20 years and three optional 5-year renewal periods, the Company will pay $41 of rent per annum ($1 per site per annum) to Vertical Bridge for the right to house its existing antenna on the divested towers. The Company has also entered into an agreement with Vertical Bridge whereby Vertical Bridge will serve as the exclusive marketing agent for the over 250 towers retained by the Company.

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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 consolidated financial statements and related notes appearing elsewhere in this quarterly report. The following discussion contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements as a result of these risks and uncertainties, including those set forth in this quarterly report.

Note About Forward-Looking Statements

This report includes estimates, projections, statements relating to our business plans, objectives and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act. Forward-looking statements often discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “believe,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include the impact of general economic conditions, industry conditions, including existing competition and future competitive technologies, the popularity of radio as a broadcasting and advertising medium, cancellations, disruptions or postponements of advertising schedules in response to national or world events, our dependence on key personnel, our capital expenditure requirements, our continued ability to identify suitable acquisition targets, and consummate and integrate any future acquisitions, legislative or regulatory requirements, and other factors mentioned in this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and under “Risk Factors” in our 2014 Annual Report on Form 10-K, as well as other risks discussed from time to time in our filings with the SEC. Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Format of Presentation

Townsquare Media is an integrated and diversified media and entertainment and digital marketing services company that owns and operates market leading radio stations, digital and social properties and live events in small and mid-sized markets across the United States, delivering national scale and expertise to the communities we serve on a local level. 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. Our Townsquare Everywhere capabilities, combined with our leading market position in small and mid-sized markets, enable us to generate higher total net revenue per audience member than radio station owners focused on larger markets.

Our discussion is presented on both a consolidated and segment basis. We have two reportable operating segments, which are Local Advertising and Live Events, and report the remainder of our business in an Other Media

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

Local Advertising

Our Local Advertising segment is composed of 310 owned and operated radio stations and over 325 owned and operated local websites serving 66 small and mid-sized markets. Almost all of our radio stations have local companion websites that utilize the station brands and are populated with proprietary, original content created or curated by our local media personalities.

Our primary source of Local Advertising net revenue is the sale of advertising and sponsorship on our radio stations, local companion websites, radio stations’ online streams and mobile applications. Our sales of advertisements and sponsorship are primarily affected by the demand for advertising from local, regional and national advertisers and the advertising rates we charge. We believe that the sale of our online (in-stream) 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 in-stream and mobile occur, there could be a material adverse impact on our financial condition and results of operations if we are unable to increase rates accordingly. We believe that as a result of our strong brands and quality in-stream and mobile offerings we are well positioned to increase rates as demand increases for these products. Advertising demand and rates are based primarily on our ability to attract audiences to our various products in the demographic groups targeted by its 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 strive to maximize net revenue by managing our advertising inventory time and adjusting prices up or down based on supply and demand. Our selling and pricing activity is based on demand for our advertising inventory and, in general, we respond to this demand by varying prices rather than by varying our target inventory levels. The optimal number of advertisements available for sale depends on the platform and in the case of our radio stations and their streams, the programming format of a particular radio station. Each of our products has a general target level of inventory available for advertising.

We seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across our platforms, thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group.

Our Local Advertising contracts are generally short-term. In the local media industry, companies sometimes utilize barter agreements that exchange advertising time for goods or services such as travel or lodging, instead of cash. Barter revenue was $3.3 million and $4.0 million and barter expense was $2.9 million and $3.5 million for the three months ended June 30, 2014 and 2015, respectively. Barter revenue was $6.0 million and $7.0 million and barter expense was $5.3 million and $6.4 million for the six months ended June 30, 2014 and 2015, respectively.

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

A portion of our Local Advertising segment’s expenses are variable. These variable expenses primarily relate to sales costs, such as commissions as well as certain programming costs, such as music license fees. Other programming,

digital, engineering and general and administrative expenses are primarily fixed costs. Marketing and promotions expenses are discretionary and are primarily incurred in an effort to maintain and/or increase our audience share.

Live Events

Our primary source of Live Events net revenue is from ticket sales. Our live events also generate substantial net revenue through the sale of sponsorships, concessions, merchandise and other ancillary products and services. Live event ticket pricing is based on consumer demand for each event and the geographic location and target audience demographic of each event. Unforeseen events such as inclement weather conditions can have an adverse impact on our live event net revenue. In certain cases, we mitigate this risk with insurance policies, which cover a portion of lost revenue as a result of unforeseen events including inclement weather.

A portion of the expenses attributable to the live events business is variable, including sponsorship sales commissions and certain costs related to production.

Other Media and Entertainment

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

Our primary source of Other Media and Entertainment net revenue is from national digital advertising and digital marketing services. Our national digital assets are subject to general advertising trends as well as advertisers’ perception and demand for our products. A downturn in advertising spending or the economy could have an adverse effect on this net revenue. We believe this risk is mitigated by the subscription nature of our digital marketing services as well as the level of investment in our advertising products, services and brands.

Other sources of revenue within our Other Media and Entertainment segment include tower and other miscellaneous revenue. We generate revenue from leasing space on our own tower facilities sold generally to communications companies and local authorities, as well as from other miscellaneous revenue sources.

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

Seasonality

Our net revenue varies throughout the year. We expect that our first calendar quarter will produce the lowest net revenue for the year, as advertising expenditures generally decline following the winter holidays, and the second and third calendar quarters will generally produce the highest net revenue for the year. During even-numbered years, net revenue generally includes increased advertising expenditures by political candidates, political parties and special interest groups. Political spending is typically highest during the fourth quarter. Our operating results in any period may be affected by advertising and promotion expenses that typically do not have an effect on net revenue generation until future periods, if at all. In addition to advertising revenue seasonality, our Live Events net revenue exhibits seasonality resulting in the second quarter being the highest revenue period.

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 GDP estimate as of July 30, 2015, U.S. GDP increased at an annual rate of 2.3% in the second quarter of 2015.

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Emerging Growth Company

The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 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), 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.

Consolidated Results of Operations

Three Months Ended June 30, 2014 compared to Three Months Ended June 30, 2015

The following table summarizes our historical consolidated results of operations:



($ in thousands)	Three Months Ended June 30,
($ in thousands)	2014			2015			$ Change			% Change
Statement of Operations Data:
Local Advertising net revenue	$	78,050		$	78,531		$	481		0.6	%
Live Events net revenue	19,745			29,706			9,961			50.4	%
Other Media and Entertainment net revenue	8,472			9,279			807			9.5	%
Net revenue	106,267			117,516			11,249			10.6	%
Operating Costs and Expenses:
Local Advertising direct operating expenses	47,913			47,922			9			—	%
Live Events direct operating expenses	15,501			26,395			10,894			70.3	%
Other Media and Entertainment direct operating expenses	8,064			7,980			(84		)	(1.0	)%
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	71,478			82,297			10,819			15.1	%
Depreciation and amortization	4,331			3,613			(718		)	(16.6	)%
Corporate expenses	6,157			6,603			446			7.2	%
Stock-based compensation	—			1,403			1,403			**
Transaction costs	(10		)	125			135			**
Net (gain) loss on sale of assets	(26		)	21			47			**
Total operating costs and expenses	81,930			94,062			12,132			14.8	%
Operating income	24,337			23,454			(883		)	(3.6	)%
Other expense:
Interest expense	12,122			8,246			(3,876		)	(32.0	)%
Net loss on debt extinguishment	—			30,017			30,017			**
Other expense, net	—			36			36			**
Total other expense	12,122			38,299			26,177			**
Income (loss) before income taxes	12,215			(14,845		)	(27,060		)	**
Provision for (benefit from) income taxes	91			(6,111		)	(6,202		)	**
Net income (loss)	$	12,124		$	(8,734	)	$	(20,858	)	**

**Percent change not meaningful.

Net Revenue

Net revenue for the three months ended June 30, 2015 increased $11.2 million, or 10.6%, as compared to the the same period in 2014. This was primarily due to an increase in net revenue from Live Events of $10.0 million, or 50.4%, as compared to the same period in 2014, which was the result of increases in attendance and revenue per attendee of our live events. We have continued to make strategic investments in our live event portfolio that have positively contributed to our net revenues. In addition, Other Media and Entertainment net revenue increased $0.8 million, or 9.5%, as compared to the same period in 2014 primarily as a result of an increase within our digital marketing services offering.

Direct Operating Expenses

Direct operating expenses for the three months ended June 30, 2015 increased $10.8 million, or 15.1%, as compared to the the same period in 2014. As described in further detail below, this was mainly due to an increase in Live Events direct operating expenses in the second quarter of 2014.

Live Events direct operating expenses for the three months ended June 30, 2015 increased $10.9 million, or 70.3%, as compared to the same period in 2014. The increase in our Live Events direct operating expenses offset the corresponding increase in related net revenue. This was the result of our heightened level of investment in new events, particularly one day and multi-day music festivals, as well as further investments in talent and the production of our existing events.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended June 30, 2015 decreased $0.7 million, or 16.6%, as compared to the same period in 2014 primarily relating to software development costs.

Corporate Expenses

Corporate expense for the three months ended June 30, 2015 increased $0.4 million, or 7.2%, as compared to the same period in 2014 primarily due to costs associated with being a public company.

Stock-based Compensation

Stock-based compensation was $1.4 million for the three months ended June 30, 2015. In the second quarter of 2015, certain employees were granted vested stock options under the 2014 Incentive Plan. There was no stock-based compensation in the second quarter of 2014.

Other Expense

Interest expense is the major recurring component of other expense. Interest expense decreased $3.9 million, or 32.0%, in the three months ended June 30, 2015 as compared to the same period in 2014. This decrease was due to a lower overall average interest rate on our debt and a lower level of outstanding indebtedness in the second quarter of 2015 as compared to the second quarter of 2014.

In April 2015, we used the proceeds from new borrowings to repay all of the previously outstanding indebtedness of certain of our indirect wholly owned subsidiaries. See "Liquidity and Capital Resources - Financing Arrangements". The interest rates on the new borrowings are lower than the rates on the debt we repaid. We recognized a $30.0 million net loss on debt extinguishment in connection with these repayments.

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



	Three Months Ended June 30,
	2014		2015
($ in thousands)
Unsecured Senior Notes	$	8,822	$	4,875
Term loans	1,878		3,017
Subordinated notes	779		—
Capital loans and other	5		12
Loan origination cost	638		342
Interest expense	$	12,122	$	8,246

Provision for income taxes

We recognized an income tax benefit of $6.1 million for the three months ended June 30, 2015. Our effective tax rate for the period was approximately 41.2%. Our effective tax rate may vary significantly from period to period, and can be influenced by many factors. These factors include, but are not limited to, changes to statutory rates in the jurisdictions where we have operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 35% for the three months ended June 30, 2015 primarily relates to state and local income taxes.

Prior to our initial public offering (the "IPO"), for income tax purposes we were comprised principally of limited liability entities, which were not subject to federal and certain state income taxes at the entity level and certain corporations whose operations were subject to income taxes at the company level. Upon completion of our IPO and the LLC Conversion, all of our operations became subject to income taxes at the corporation level.

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Six Months Ended June 30, 2014 compared to Six Months Ended June 30, 2015

The following table summarizes our historical consolidated results of operations:



($ in thousands)	Six Months Ended June 30,
($ in thousands)	2014			2015			$ Change			% Change
Statement of Operations Data:
Local Advertising net revenue	$	143,322		$	143,584		$	262		0.2	%
Live Events net revenue	27,512			37,872			10,360			37.7	%
Other Media and Entertainment net revenue	14,594			17,178			2,584			17.7	%
Net revenue	185,428			198,634			13,206			7.1	%
Operating Costs and Expenses:
Local Advertising direct operating expenses	92,987			94,124			1,137			1.2	%
Live Events direct operating expenses	22,197			33,967			11,770			53.0	%
Other Media and Entertainment direct operating expenses	14,546			15,535			989			6.8	%
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	129,730			143,626			13,896			10.7	%
Depreciation and amortization	8,718			7,284			(1,434		)	(16.4	)%
Corporate expenses	10,924			11,843			919			8.4	%
Stock-based compensation	159			1,403			1,244			**
Transaction costs	18			172			154			**
Net (gain) loss on sale of assets	(136		)	14			150			**
Total operating costs and expenses	149,413			164,342			14,929			10.0	%
Operating income	36,015			34,292			(1,723		)	(4.8	)%
Other expense:
Interest expense	24,202			18,807			(5,395		)	(22.3	)%
Net loss on debt extinguishment	—			30,017			30,017			**
Other expense, net	37			84			47			**
Total other expense	24,239			48,908			24,669			**
Income (loss) before income taxes	11,776			(14,616		)	(26,392		)	**
Provision for (benefit from) income taxes	182			(6,013		)	(6,195		)	**
Net income (loss)	$	11,594		$	(8,603	)	$	(20,197	)	**

**Percent change not meaningful.

Net Revenue

Net revenue for the six months ended June 30, 2015 increased $13.2 million, or 7.1%, as compared to the same period in 2014. As described in further detail below, this was primarily due to an increase in net revenue from Live Events and Other Media and Entertainment.

Live Events net revenue increased $10.4 million, or 37.7%, as compared to the same period in 2014 as a result of increases in attendance and revenue per attendee of our live events. We have continued to make strategic investments in our live event portfolio that have positively contributed to our net revenue growth. Other Media and Entertainment net revenue increased $2.6 million, or 17.7%, as compared to the same period in 2014 as a result of increases within our digital marketing services offering and national digital assets.

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Direct Operating Expenses

Direct operating expenses for the six months ended June 30, 2015 increased $13.9 million, or 10.7%, as compared to the same period in 2014. As further detailed below, this increase was due to higher direct operating expenses from Live Events, Local Advertising and Other Media and Entertainment.

Live Events direct operating expenses for the six months ended June 30, 2015 increased $11.8 million, or 53.0%, as compared to the same period in 2014. The increase in our Live Events direct operating expenses offset the corresponding increase in related net revenue. This was the result of our heightened level of investment in new events, particularly one day and multi-day music festivals, as well as further investments in talent and the production of our existing events. Local Advertising direct operating expenses increased $1.1 million, or 1.2%, as compared to the same period in 2014 as a result of increases in variable costs, included sales related expenses. Other Media and Entertainment direct operating expenses increased $1.0 million, or 6.8%, commensurate with net revenue growth in our digital marketing services and national digital assets.

Depreciation and Amortization

Depreciation and amortization expense for the six months ended June 30, 2015 decreased $1.4 million, or 16.4%, as compared to the same period in 2014, primarily relating to software development costs.

Corporate Expenses

Corporate expense for the six months ended June 30, 2015 increased $0.9 million, or 8.4%, as compared to the same period in 2014 due to costs associated with being a public company.

Stock-based Compensation

Stock-based compensation was $1.4 million for the six months ended June 30, 2015. In the second quarter of 2015, certain employees were granted vested stock options under the 2014 Incentive Plan.

Stock-based compensation was $0.2 million for the six months ended June 30, 2014. In 2014, selected employees were distributed certain equity units as compensation. These units were valued based on a December 2013 market transaction with an unrelated third party.

Net (Gain) Loss on Sale of Assets

In the six months ended June 30, 2015, we recognized an insignificant net loss on the sale of assets, as compared to a net gain of $0.1 million in the same period in 2014. The net gain in 2014 was realized on the sale of a portion of land in Lubbock, Texas.

Other Expense

Interest expense is the major recurring component of other expense. Interest expense decreased $5.4 million, or 22.3%, in the six months ended June 30, 2015 as compared to the same period in 2014. This decrease was due to a lower overall average interest rate on our debt and a lower level of outstanding indebtedness in the first half of 2015, as compared to the first half of 2014.

On April 1, 2015, we used the proceeds from new borrowings to repay all of the previously outstanding indebtedness of certain of our indirect wholly owned subsidiaries. See "Liquidity and Capital Resources - Financing Arrangements". The interest rates on the new borrowings are lower than the rates on the debt we repaid. We recognized a $30.0 million net loss on debt extinguishment in connection with these repayments.

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



	Six Months Ended June 30, 2015
	2014		2015
($ in thousands)
Unsecured Senior Notes	$	17,643	$	13,697
Term loans	3,742		4,164
Subordinated notes	1,539		—
Capital loans and other	15		29
Loan origination cost	1,263		917
Interest expense	$	24,202	$	18,807

Provision for income taxes

We recognized an income tax benefit of $6.0 million for the six months ended June 30, 2015. Our effective tax rate for the period was 41.1%. 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 the statutory rates in the jurisdictions where we have operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 35% for the six months ended June 30, 2015 primarily relates to state and local income taxes.

Prior to our IPO, for income tax purposes we were comprised principally of limited liability entities, which were not subject to federal and certain state income taxes at the entity level and certain corporations whose operations were subject to income taxes at the company level. Upon completion of our IPO and the LLC Conversion, all of our operations became subject to income taxes at the corporation level.

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Liquidity and Capital Resources



	Six Months Ended June 30,
($ in thousands)	2014			2015
Cash provided by (used in) operating activities	8,625			(14,398		)
Cash used in investing activities	(5,478		)	(11,920		)
Cash (used in) provided by financing activities	(1,098		)	32,239
Net increase in cash	$	2,049		$	5,921

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 and other funding requirements for at least the next twelve months. As of June 30, 2015, we had $574.6 million of outstanding indebtedness, and based on interest rates in effect as of that date, we expect our debt service requirements to be approximately $34.5 million over the next twelve months. In addition, as of June 30, 2015 we have $30.4 million of cash, $62.7 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.

Our anticipated uses of cash in the near term include working capital needs, debt payments and other obligations, and capital expenditures. However, our ability to fund our working capital needs, debt payments and other obligations, capital expenditures, and to comply with the financial covenants under our debt agreements, depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions, increases or decreases in advertising spending, rapid changes in the highly competitive industry in which we operate and other factors, many of which are beyond our control.

Additionally, on a continual basis, we evaluate and consider strategic acquisitions and divestitures to enhance our strategic and competitive position as well as our financial performance. Any future acquisitions, joint ventures or other similar transactions will likely require additional capital and such capital may not be available to us on acceptable terms, if at all.

We closely monitor the impact of capital and credit market conditions on our liquidity. We also routinely monitor the changes in the financial condition of our customers and the potential impact on our results of operations. There has not yet been a change in the financial condition of a customer that has had a material adverse effect on our results of operations.

Cash Flows from Operating Activities

Net cash used in operating activities for the six months ended June 30, 2015 was $14.4 million, as compared to net cash flows provided by operating activities of $8.6 million in the same period in 2014. This decrease was primarily driven by a one-time cash payment of $27.7 million on April 1, 2015 to lenders for the redemption of the Unsecured Senior Notes due 2019 issued by our indirect, wholly owned subsidiary as described below under "Financing Arrangements". Excluding this non-recurring payment to lenders in 2015, cash flows provided by operating activities would have been $13.3 million in the first half of 2015, an increase of $4.7 million. This increase, excluding the non-recurring payment to lenders, was due to a lower increase in accounts receivable of $5.9 million and $1.4 million more cash generated by our operations in the first half of 2015 than in the same period in 2014, offset by $2.0 million of higher prepayments for events scheduled to take place in the second half of 2015 and $0.9 million of higher payments to satisfy accounts payable and other accrued expenses.

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Cash Flows from Investing Activities

Net cash used in investing activities increased $6.4 million to $11.9 million for the six months ended June 30, 2015 from $5.5 million for the same period in 2014. This was due to a $5.8 million increase in net payments for acquisitions and a $1.2 million increase in cash used to purchase property and equipment.

Currently, our investing activities primarily relate to our continued investment in acquisitions which are consistent with our strategy to prudently invest in market leading media properties in small and mid-sized markets. Additionally, our investing activities include payments made for capital expenditures. We believe that our capital structure provides adequate liquidity and scale for us to pursue and finance potential strategic acquisitions in the future.

Cash Flows from Financing Activities

Net cash provided by financing activities was $32.2 million for the six months ended June 30, 2015, as compared to net cash used in financing activities of $1.1 million for the same period in 2014. This increase was due to new borrowings, net of debt repayments and debt issuance fees, of $32.5 million in the first half of 2015 in connection with the refinancing described under "Financing Arrangements" below.

We have historically serviced our debt obligations from funds generated from operating activities. We believe that our cash balance, together with our revolver capacity and cash generated by operating activities, will be sufficient to fund our operations, service our debt obligations and pursue our strategy in the future.

Financing Arrangements

The proceeds from the 2023 Notes and Term Loan were used to redeem the 9% Unsecured Senior Notes due April 2019 issued by our indirect, wholly-owned subsidiary Townsquare Radio, LLC ("Townsquare Radio") together with Townsquare Radio, Inc., as co-borrowers (the "2019 Notes"), and repay all outstanding borrowings under Townsquare Radio's existing Senior Secured Credit Facility (the "Incremental Term Loans"), including a $10.0 million Revolving Credit Facility. The Company paid $27.7 million in redemption premiums to holders of the 2019 Notes in connection with the redemption. In addition, the Company had a loss of $9.1 million and a gain of $6.8 million on the write-off of unamortized deferred financing costs and bond premium, respectively in connection with these repayments. The payment to holders of the 2019 Notes and the write-off of the unamortized deferred financing costs and bond premium are included in net loss on debt extinguishment in the Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2015.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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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 2014 Annual Report on Form 10-K reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements. With the exception of how we account for deferred financing costs as described in Note 2 to our Consolidated Financial Statements included under Item 1, 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 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 consolidated financial statements and related notes to consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, as well as those discussed within our audited consolidated financial statements, related notes to audited consolidated financial statements included in our 2014 Annual Report on Form 10-K.

Interest Rate Risk

At June 30, 2015 we had cash of $30.4 million, as such we do not believe our cash has significant risk of default or illiquidity.

As of June 30, 2015 we were not subject to market risk from exposure to changes in interest rates with respect to borrowings under the 2023 Notes.

Our primary interest rate exposure as of June 30, 2015 was due to interest rate fluctuations, specifically the impact of LIBOR interest rates on our senior secured term loan. We anticipate such interest rate risk will remain a market risk for the foreseeable future.

Inflation Risk

We do not believe inflation has a significant impact on our operations. However, there can be no assurance that future inflation would not have an adverse impact on our financial condition and results of operations.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), refers to controls and procedures 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.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2015, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of such date.

Changes in Internal Controls

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Please refer to Part I, Item 1A, “Risk Factors,” in our 2014 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



31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document