UNITED STATES SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C. 20549 __________________
FORM 10-Q  __________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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 May 7, 2015, the registrant had 17,374,206 outstanding shares of common stock consisting of: (i) 9,457,242 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.

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TOWNSQUARE MEDIA, INC.

INDEX

PART I FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Consolidated Balance Sheets as of December 31, 2014 and March 31, 2015	1
		Consolidated Statements of Operations for the three months ended March 31, 2014 and 2015	2
		Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2015	3
		Consolidated Statements of Cash Flows for the three months ended March 31, 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	17
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	27
Item 4.		Controls and Procedures	27
PART II OTHER INFORMATION
Item 1.		Legal Proceedings	28
Item 1A.		Risk Factors	28
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.		Defaults upon Senior Securities	28
Item 4.		Mine Safety Disclosures	28
Item 5.		Other Information	28
Item 6.		Exhibits	28

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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				March 31, 2015
ASSETS
Current assets:
Cash	$	24,462			$	38,213
Accounts receivable, net of allowance of $3,350 and $3,302, respectively	61,151				52,640
Prepaid expenses and other current assets	7,553				9,262
Total current assets	93,166				100,115
Property and equipment, net	96,247				96,375
Intangible assets, net	505,839				505,774
Goodwill	242,300				245,473
Deferred financing costs, net	9,636				9,061
Investments	484				484
Other assets	413				336
Total assets	$	948,085			$	957,618
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,747			$	7,076
Current portion of long-term debt	1,293				1,295
Deferred revenue	14,299				22,902
Accrued expenses and other current liabilities	21,339				12,615
Accrued interest	9,245				18,923
Total current liabilities	52,923				62,811
Long-term debt, less current portion, (inclusive of bond premium of $7,203 and $6,779,     respectively)	538,383				537,635
Deferred tax liabilities	11,644				11,743
Other long-term liabilities	973				1,258
Total liabilities	603,923				613,447
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 March 31, 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 March 31, 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 March 31, 2015	49				49
Total common stock	174				174
Additional paid-in capital	351,984				351,885
Accumulated deficit	(8,439		)		(8,343		)
Non-controlling interest	443				455
Total liabilities and stockholders’ equity	$	948,085			$	957,618

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   March 31,
	2014				2015
Net revenue	$	79,161			$	81,118
Operating costs and expenses:
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	58,252				61,329
Depreciation and amortization	4,387				3,671
Corporate expenses	4,767				5,240
Stock-based compensation	159				—
Transaction costs	28				47
Net gain on sale of assets	(110		)		(7		)
Total operating costs and expenses	67,483				70,280
Operating income	11,678				10,838
Other expenses:
Interest expense, net	12,080				10,561
Other expense, net	37				48
(Loss) income before income taxes	(439		)		229
Provision for income taxes	91				98
Net (loss) income	$	(530	)		$	131
Net (loss) income attributable to:
Controlling interests	$	(530	)		$	96
Non-controlling interests	—				35
Net income per share:
Basic					$	0.01
Diluted					$	0.00
Weighted average shares outstanding:
Basic					17,374
Diluted					33,767
Pro forma C Corporation data (unaudited):
Historical loss before income taxes	$	(439	)
Pro forma income tax benefit	(173		)
Pro forma net loss	$	(266	)
Pro forma net loss per share:
Basic	$	(0.03	)
Diluted	$	(0.03	)
Weighted average shares outstanding:
Basic	7,887
Diluted	7,887

See Notes to Consolidated Financial Statements

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TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS 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 income	—			—			—			—			—				—				96				35				131
Offering costs	—			—			—			—			—				(99		)		—				—				(99		)
Cash distribution	—			—			—			—			—				—				—				(23		)		(23		)
Balance at March 31, 2015	9,457,242			3,022,484			4,894,480			9,508,878			$	174			$	351,885			$	(8,343	)		$	455			$	344,171

See Notes to Consolidated Financial Statements

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TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in Thousands)

(unaudited)

	Three Months Ended March 31,
	2014				2015
Cash flows from operating activities:
Net (loss) income attributable to:
Controlling interests	$	(530	)		$	96
Non-controlling interests	—				35
Net (loss) income	$	(530	)		$	131
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	4,387				3,671
Amortization of deferred financing costs	624				575
Deferred income tax expense	—				98
Provision for doubtful accounts	447				(360		)
Stock-based compensation expense	159				—
Non-cash interest expense	760				—
Amortization of bond premium	(424		)		(424		)
Net gain on sale of assets	(110		)		(7		)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	3,566				8,584
Prepaid expenses and other assets	2,425				(1,474		)
Accounts payable	(1,027		)		329
Accrued expenses	(5,306		)		(830		)
Accrued interest	9,224				9,678
Other long-term liabilities	—				10
Net cash provided by operating activities	14,195				19,981
Cash flows from investing activities:
Payments for acquisitions, net of cash received	—				(2,673		)
Acquisition of intangibles	(231		)		(32		)
Purchase of property and equipment	(1,995		)		(3,133		)
Proceeds from sale of assets	147				53
Net cash used in investing activities	(2,079		)		(5,785		)
Cash flows from financing activities:
Offering costs	—				(99		)
Repayment of long-term debt	(255		)		(284		)
Debt financing costs	(134		)		—
Cash distribution to non-controlling interest	—				(23		)
Repayments of capitalized obligations	(35		)		(39		)
Net cash used in financing activities	(424		)		(445		)
Net increase in cash	11,692				13,751
Cash:
Beginning of period	45,647				24,462
End of period	$	57,339			$	38,213
Supplemental Disclosure of Cash Flow Information:
Cash payments:
Interest	$	1,894			$	719
Income taxes	10				182
Barter transactions:
Barter revenue – included in net revenue	$	2,656			$	2,992
Barter expense – included in direct operating expenses	2,377				2,874

See Notes to Consolidated Financial Statements

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1. Organization and Basis of Presentation

Description of 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. An indirect, wholly owned subsidiary of Townsquare, Townsquare Radio, LLC, together with Townsquare Radio, Inc., are the co-borrowers under the Senior Credit Facility and co-issuers of our 9.00% Unsecured Senior Notes due in 2019. Unless the context requires otherwise, references in this quarterly report to the "borrower" and "Townsquare Radio" relate to Townsquare Radio, LLC.

    

Nature of Business

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 March 31, 2015, the Company owned and operated 311 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 one of the largest audiences among music-focused digital advertising networks as of March 2015, 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 our detailed accounting policies please refer to the Company's consolidated financial statements and related notes to audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 (the Company's "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 Pronouncements

In April 2015, the FASB issued ASU No. 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 deduction from the carrying amount of that debt liability, 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. Early adoption is permitted. The Company is currently assessing the potential impact of ASU No. 2015-03 on its financial statements.

3. Interim Financial Data

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

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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 (“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 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 months ended March 31, 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 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 Company's Revolving Credit Facility (as herein defined) 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 is 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 made during the three months ended March 31, 2015.

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Pro-Forma Results: The following table illustrates the unaudited pro forma information reflecting net revenue and net loss for the three months ended March 31, 2014 as if the WE Fest transaction had occurred on January 1, 2014. The unaudited pro forma amounts are for information 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.

	(in thousands)
	Three Months Ended   March 31, 2014
Net revenue	$	79,161
Net loss	(1,258		)

5. Property and Equipment

	(in thousands)
	December 31, 2014				March 31, 2015
Land and improvements	$	25,275			$	25,275
Buildings and leasehold improvements	30,889				31,152
Broadcast equipment	71,002				71,022
Computer and office equipment	8,093				9,160
Furniture and fixtures	5,460				6,022
Transportation equipment	7,622				7,695
Software development costs	13,366				14,363
	161,707				164,689
Less: Accumulated depreciation and amortization	(65,460		)		(68,314		)
Property and equipment, net	$	96,247			$	96,375

    

Depreciation and amortization expense for the three months ended March 31, 2014 and 2015 was $3.9 million and $3.1 million, 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.

The following represents the changes in goodwill for the three months ended March 31, 2015:

	(in thousands)
Balance, January 1, 2015	$	242,300
Live Events acquisitions	3,173
Balance, March 31, 2015	$	245,473

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Intangible assets consist of the following:

			(in thousands)
	Estimated Useful Life		December 31, 2014				March 31, 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				9,938
Other intangibles	3 years		500				500
Total			514,689				515,222
Less: Accumulated amortization			(8,850)				(9,448		)
Net amount			$	505,839			$	505,774

Amortization expense for definite-lived intangible assets for the three months ended March 31, 2014 and 2015 was $0.5 million and $0.6 million, respectively.

Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of March 31, 2015 is as follows:

	(in thousands)
2015 (remainder)	$	1,804
2016	2,340
2017	2,159
2018	1,400
2019	1,347
Thereafter	8,887
	$	17,937

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7. Long-Term Debt

Long-term debt consisted of the following:

	(in thousands)
	December 31, 2014				March 31, 2015
Townsquare Radio:
2019 Notes (inclusive of bond premium of $7,203 and $6,779, respectively)	$	418,103			$	417,679
Incremental Term Loans	111,164				110,880
Revolving Credit Facility	10,000				10,000
Capitalized obligations	409				371
	539,676				538,930
Less: current portion of long-term debt	(1,293		)		(1,295		)
	$	538,383			$	537,635

Townsquare Radio: On April 4, 2012, Townsquare Radio and Townsquare Radio, Inc. issued $265.0 million of 9% Unsecured Senior Notes due April 2019 (the "2019 Notes"). Prior to the Refinancing (as defined below) interest on the 2019 Notes was payable semiannually on April 1 and October 1, commencing on October 1, 2012 at 9%. The net proceeds from this offering of $257.0 million were used to repay, in its entirety, the outstanding debt (excluding capitalized obligations) of Townsquare Radio's subsidiaries.

Concurrent with the issuance of the 2019 Notes, on April 4, 2012, Townsquare Radio entered into a Senior Secured Credit Facility with General Electric Capital Corporation, as administrative agent, and the lenders party thereto (the "Senior Secured Credit Facility"), including a $10.0 million Revolving Credit Facility (the "Revolving Credit Facility"). Prior to the Refinancing, the Revolving Credit Facility was available to finance the working capital needs and general corporate purposes of Townsquare Radio and its subsidiaries. On July 11, 2014, Townsquare Radio entered into an amendment to the Senior Secured Credit Facility, providing for an increase in the amount of the Revolving Credit Facility from $10.0 million to $25.0 million. On October 31, 2014, the Company drew-down $10.0 million of the Revolving Credit Facility, to partially finance the purchase of assets from WE Fest more fully described in Note 4.

On November 14, 2013 Townsquare Radio issued $145.9 million of 9% Unsecured Senior Notes due in April 2019 at a price of 106.25% as an add-on to Townsquare Radio's existing 2019 Notes. Prior to the Refinancing, interest was payable semiannually on April 1 and October 1, commencing on April 1, 2014 at 9%. The net proceeds from this offering of $155.1 million (including bond premium of approximately $9.1 million), were used to partially finance the acquisition of certain assets from Cumulus Media, Inc. ("Cumulus II"), which closed on November 14, 2013 more fully described in the Company's 2014 Annual Report on Form 10-K.

Prior to the Refinancing, the 2019 Notes were unconditionally guaranteed on a senior unsecured basis by each existing and future wholly owned domestic subsidiary of Townsquare Radio, other than for the licensed subsidiaries, that guaranteed the Senior Secured Credit Facility.

Prior to the Refinancing, as of March 31, 2015, based on available market information, the 2019 Notes were trading at 106.75, with an estimated fair value of $442.5 million.

On November 14, 2013, Townsquare Radio borrowed $102.0 million in Incremental Term Loans (the "Incremental Term Loans") as an add-on to Townsquare Radio's Senior Secured Credit Facility, which was used to partially finance the acquisition of Peak II Holding, LLC, as well as to partially finance the Cumulus II acquisition, as more fully described in the Company's 2014 Annual Report on Form 10-K. Prior to the Refinancing, the Incremental Term Loans had a maturity date of April 4, 2018 and amortized principal quarterly at a rate of 1% per annum.

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On July 29, 2014, the Company used a portion of the net proceeds from its initial public offering ("IPO"), along with cash on hand, to repay $90.0 million of the outstanding Incremental Term Loans under Townsquare Radio's Senior Secured Credit Facility. In addition, previously incurred deferred finance costs of $0.5 million related to the extinguished debt were written off to interest expense in July 2014.

Prior to the Refinancing, the Incremental Term Loans bore interest (subsequent to an amendment entered into November 7, 2012), at Townsquare Radio's election, at the Eurodollar Rate (as defined in the Credit Agreement governing the Senior Secured Credit Facility (the "Credit Agreement")) plus 3.50% or the Base Rate (as defined in the Credit Agreement) plus 2.50%. As of March 31, 2015, the effective interest rate on the Incremental Term Loans was 3.7%.

Prior to the Refinancing, the Incremental Term Loans were guaranteed by the holdings of each subsidiary of Townsquare Radio on substantially all of the tangible and intangible assets.

Prior to the Refinancing, as of March 31, 2015, based on available market information, the estimated fair value of the Incremental Term Loans and Revolving Credit Facility was approximately $108.7 million and $9.8 million, respectively.

Annual maturities of the Company's long-term debt as of March 31, 2015 are payable as follows:

	(in thousands)
2015 (remainder)	$	971
2016	11,301
2017	1,220
2018	107,759
2019	410,900
	$	532,151

    

On April 1, 2015, the Company successfully completed the refinancing of its outstanding capital structure (the "Refinancing"). The Refinancing consisted of $300.0 million in aggregate principal amount of its 6.5% senior notes due 2023 (the "2023 Notes") and a new senior secured credit facility, including a new seven-year, $275.0 million term loan facility (the "New Term Loan Facility") and a new five-year, $50.0 million revolving credit facility (the "New Revolving Credit Facility" and, together with the New Term Loan Facility, the "New Senior Secured Credit Facility"). The initial per annum interest rate applicable to the New Term Loan Facility is 4.25%, based on current LIBOR levels, a 1.00% LIBOR floor and an applicable margin of 325 basis points. The per annum interest rate applicable to the New Revolving Credit Facility is based on current LIBOR levels and an applicable margin of 250 basis points (or an alternative base rate and an applicable margin of 150 basis points). The New Revolving Credit Facility was undrawn at the close of the Refinancing and remains undrawn. Net proceeds from the offering of the 2023 Notes and the borrowings under the New Term Loan Facility, together with cash on hand, were used to complete the redemption of the 2019 Notes, in aggregate principal amount of $410.9 million, issued by Townsquare Radio and Townsquare Radio, Inc., and to entirely repay all amounts outstanding under Townsquare Radio's existing Senior Secured Credit Facility, including both the Incremental Term Loans and Revolving Credit Facility.

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 March 31, 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

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stock outstanding. The foregoing share totals exclude 3,082,298 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 $11.48 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.

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 fair value of the equity awards granted in 2014 were estimated on the date of grant using the Black-Scholes option pricing model, which requires estimates of the expected term of the option, the expected volatility of the price of the Company's common stock, dividend yield and the risk-free rate. The below table summarizes the assumptions used when estimating the fair value of the equity awards:

Expected volatility	40.0	%
Expected term	6.3 years
Risk free interest rate	2.0	%
Expected dividend yield	0.0	%

    

The options provide for immediate vesting and have an exercise price of between $11.00 and $11.48 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 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 issued dividends and therefore does not utilize a dividend yield in the calculation.

    

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

	Shares			Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (years)			Aggregate Intrinsic Value
Outstanding at December 31, 2014	6,924,903			$	11.00
Granted	—			—
Exercised	—			—
Forfeited	(40,412	)		11.00
Outstanding at March 31, 2015	6,884,491			$	11.00			9.29			$	12,716,058
Exercisable at March 31, 2015	6,884,491			$	11.00			9.29			$	12,716,058

The weighted average grant date fair value of stock options granted was $4.68.    

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, Alex Berkett, 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 IPO. If Oaktree sells a portion of the shares of common stock or warrants to purchase common stock that it holds (the percentage of shares and warrants, collectively, held by Oaktree at such time that it sells in such a transaction, referred to as the "Sale Percentage"), 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 IPO, and (ii) the third anniversary of the closing of the IPO.

There was no restricted stock activity during the three months ended March 31, 2015.

9. Income Taxes

    

For the three months ended March 31, 2015, the Company recorded income tax expense of $0.1 million on pre-tax income from continuing operations of $0.2 million, resulting in an effective tax rate for the three months ended March 31, 2015 of approximately 43%.

    

The Company's effective tax rate may vary significantly from period to period, and can be influenced by many factors. These factors include, but are not limited to, changes to the statutory rates in the jurisdictions where the Company has operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 35% for the three months ended March 31, 2015 primarily relates to state and local income taxes.

Prior to the Company’s 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 IPO 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. For the three months ended March 31, 2014, the Company recorded income tax expense of $0.1 million, which is primarily composed of state taxes.

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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				March 31, 2015
Accrued compensation and benefits	$	10,930			$	3,646
Accrued professional fees	1,793				1,341
Accrued commissions	1,983				2,069
Accrued taxes	862				871
Accrued music and FCC licensing	228				524
Accrued publisher fees	498				529
Accrued national representation fees	1,344				850
Accrued other	3,701				2,785
	$	21,339			$	12,615

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 $4.0 million for the three months ended March 31, 2014 and 2015, respectively. Total rental expense includes costs incurred for live events including venue and equipment rentals.

    

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At March 31, 2015, the total minimum annual rental commitments under noncancelable operating leases are as follows:

	(in thousands)
2015 (remainder)	$	7,002
2016	8,940
2017	7,748
2018	6,452
2019	5,288
Thereafter	12,692
Total minimum payments	$	48,122

Other Commitments: The radio broadcast industry’s principal ratings service is Nielsen Holdings N.V. ("Nielsen"), which publishes surveys for domestic radio markets. The Company’s remaining aggregate obligation under the agreements with Nielsen as of March 31, 2015 is approximately $17.6 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 segment disclosure is 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 March 31, 2014:

	(in thousands)
	Local Advertising				Live Events				Other Media & Entertainment				Corporate and other reconciling items				Consolidated
Three Months Ended March 31, 2014
Net revenue	$	65,272			$	7,767			$	6,122			$	—			$	79,161
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	45,074				6,696				6,482				—				58,252
Depreciation and amortization	3,324				98				814				151				4,387
Corporate expenses	—				—				—				4,767				4,767
Stock-based compensation	—				—				—				159				159
Transaction costs	—				—				—				28				28
Net gain on sale of assets	—				—				—				(110		)		(110		)
Operating income (loss)	$	16,874			$	973			$	(1,174	)		$	(4,995	)		$	11,678
Capital expenditures	$	579			$	188			$	970			$	258			$	1,995

The following table presents the Company’s reportable segment results for the three months ended March 31, 2015:

	(in thousands)
	Local Advertising				Live Events				Other Media & Entertainment				Corporate and other reconciling items				Consolidated
Three Months Ended March 31, 2015
Net revenue	$	65,053			$	8,166			$	7,899			$	—			$	81,118
Direct operating expenses, excluding depreciation and amortization	46,202				7,572				7,555				—				61,329
Depreciation and amortization	2,796				223				219				433				3,671
Corporate expenses	—				—				—				5,240				5,240
Transaction costs	—				—				—				47				47
Net gain on sale of assets	—				—				—				(7		)		(7		)
Operating income (loss)	$	16,055			$	371			$	125			$	(5,713	)		$	10,838
Capital expenditures	$	681			$	705			$	1,353			$	394			$	3,133

Note 13. Pro Forma Loss Per Common Share

Pro forma basic and diluted net loss per common share 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 and warrants and options to purchase common stock of Townsquare Media, Inc. upon the completion of the IPO of the Company’s common stock. In addition, the pro forma net loss applied in computing the pro forma basic and diluted net loss per share is based upon the Company’s historical net loss 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 pro forma net loss, therefore, includes adjustments for income tax expense as if the Company had been a corporation and subject to income taxes at an assumed combined federal, state, and local income tax rate of 39.4%.

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The following table sets forth the computation of basic and diluted pro forma net loss per share:

	(in thousands, except per share data)
	Three Months Ended March 31, 2014
Numerator:
Pro forma net loss	$	(266	)
Denominator:
Weighted average shares of common stock outstanding	7,887
Effect of dilutive common stock equivalents	—
Weighted average diluted common shares outstanding	7,887
Pro forma net loss per share:
Basic	$	(0.03	)
Diluted	$	(0.03	)

The Company had the following dilutive securities that were not included in the computations of historical and pro forma net loss per share as they were considered anti-dilutive:    

	Three Months Ended March 31, 2014
Warrants	9,508,878
Stock options	—

14. Subsequent Events

The Company evaluated the consolidated financial statements for subsequent events through May 7, 2015, the date the consolidated financial statements were available to be issued. Except as stated below, the Company is not aware of any subsequent events that would require recognition or disclosure in the consolidated financial statements.

    

On April 1, 2015, the Company closed an offering of $300.0 million in aggregate principal amount of its 2023 Notes and entered into the New Senior Secured Credit Facility, including the $275.0 million New Term Loan Facility and the $50.0 million New Revolving Credit Facility, the latter of which was undrawn at closing and remains undrawn (see Note 7—Long-Term Debt).

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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 (“MD&A”) 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

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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 311 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 totaled $2.7 million and $3.0 million for the three months ended March 31, 2014 and 2015, respectively. Barter expense totaled $2.4 million and $2.9 million for three months ended March 31, 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,

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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 costs in nature.

Seasonality

Our net revenue varies throughout the year. We expect that our first calendar quarter will produce the lowest net revenue for the year, as advertising expenditures generally decline following the winter holidays, and the second and third calendar quarters will generally produce the highest net revenue for the year. During even-numbered years, net revenue generally includes increased advertising expenditures by political candidates, political parties and special interest groups. Political spending is typically highest during the fourth quarter. Our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on net revenue generation until future periods, if at all. 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, U.S. GDP growth for the first quarter of 2015 was 0.2% based on the first quarter estimate as of April 29, 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 nonbinding advisory vote of stockholders on executive compensation and any golden parachute payments not previously approved.

Consolidated Results of Operations

Three Months Ended March 31, 2014 compared to Three Months Ended March 31, 2015

The following table summarizes our historical consolidated results of operations:

	Three Months Ended   March 31,
($ in thousands)	2014				2015				$ Change				% Change
Statement of Operations Data:
Local Advertising net revenue	$	65,272			$	65,053			$	(219	)		(0.3	)%
Live Events net revenue	7,767				8,166				399				5.1	%
Other Media and Entertainment net revenue	6,122				7,899				1,777				29.0	%
Net revenue	79,161				81,118				1,957				2.5	%
Operating Costs and Expenses:
Local Advertising direct operating expenses	45,074				46,202				1,128				2.5	%
Live Events direct operating expenses	6,696				7,572				876				13.1	%
Other Media and Entertainment direct operating expenses	6,482				7,555				1,073				16.6	%
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	58,252				61,329				3,077				5.3	%
Depreciation and amortization	4,387				3,671				(716		)		(16.3	)%
Corporate expenses	4,767				5,240				473				9.9	%
Stock-based compensation	159				—				(159		)		(100.0	)%
Transaction costs	28				47				19				67.9	%
Net gain on sale of assets	(110		)		(7		)		103				93.6	%
Total operating costs and expenses	67,483				70,280				2,797				4.1	%
Operating income	11,678				10,838				(840		)		(7.2	)%
Other expense:
Interest expense, net	12,080				10,561				(1,519		)		(12.6	)%
Other expense, net	37				48				11				29.7	%
Total other expense	12,117				10,609				(1,508		)		(12.4	)%
(Loss) income before income taxes	(439		)		229				668				152.2	%
Provision for income taxes	91				98				7				7.7	%
Net (loss) income	$	(530	)		$	131			$	661			124.7	%

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Net Revenue

Net revenue for the three months ended March 31, 2015 increased approximately $2.0 million, or 2.5%, as compared to the three months ended March 31, 2014. The increase was composed of a decrease in Local Advertising net revenue of $0.2 million, offset by a $0.4 million increase in Live Events net revenue and a $1.8 million increase in Other Media and Entertainment net revenue, as further detailed below.

Local Advertising net revenue declined primarily as a result of decreases in political Local Advertising net revenue of $0.3 million, which was partially offset by increases in non-political Local Advertising net revenue of $0.1 million. Live Events net revenue grew as a result of increases in the number, attendance and revenue per attendee of our live events. Other Media and Entertainment net revenue grew as a result of increases within our digital marketing services and national digital assets, which was partially offset by a decrease in e-commerce net revenue.

Direct Operating Expenses

Direct operating expenses for the three months ended March 31, 2015 increased approximately $3.1 million, or 5.3%, as compared to the three months ended March 31, 2014. The increase was composed of increases of $1.1 million in Local Advertising direct operating expenses, $0.9 million in Live Events direct operating expenses and $1.1 million in Other Media and Entertainment direct operating expenses, as further detailed below.

Local Advertising direct operating expenses increased as a result of increases in variable costs, including sales related expenses. Live Events direct operating expenses increased as a result of increases in the number and size of our events, as well as increased headcount in support of planned events during the remainder of 2015. Other Media and Entertainment direct operating expenses commensurate with net revenue growth within our digital marketing services and national digital assets.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended March 31, 2015 decreased approximately $0.7 million, or 16.3%, as compared to the three months ended March 31, 2014, primarily relating to software development costs.

Corporate Expenses

Corporate expense for the three months ended March 31, 2015 increased approximately $0.5 million, or 9.9%, as compared to the three months ended March 31, 2014. This is primarily a result of increases in costs associated with being a public company.

Stock-based Compensation

There was no stock-based compensation for the three months ended March 31, 2015. On January 14, 2014, the Company distributed certain equity units to selected employees as compensation. The Company valued these units based upon a December 2013 market transaction with an unrelated third party and recorded $0.2 million in compensation expense in the first quarter of 2014.

Transaction Costs

Transaction costs for the three months ended March 31, 2015 remained relatively unchanged, as compared to the three months ended March 31, 2014.

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Gain on Sale of Assets

Gain on sale of assets for the three months ended March 31, 2015 decreased approximately $0.1 million, or 93.6%, as compared to the three months ended March 31, 2014. In the comparable prior year period, the gain consisted of $0.1 million of proceeds received for the sale of a portion of land in Lubbock, Texas.

Other Expense

Interest expense, net is the major component of other expense. Interest expense, net for the three months ended March 31, 2015, decreased approximately $1.5 million, or 12.6%, as compared to the three months ended March 31, 2014. The decrease was primarily a result of us using a portion of the net proceeds from our IPO in July 2014, along with cash on hand, to repay $90.0 million of the outstanding Incremental Term Loans under Townsquare Radio's Senior Secured Credit Facility and the $32.2 million outstanding balance on our Senior PIK Notes, which consisted of principal of $30.0 million and accrued PIK interest of $2.2 million. The table below illustrates the current year and prior year components of our interest expense, net.

	Three Months Ended   March 31,
	2014				2015
($ in thousands)
Unsecured Senior Notes	$	8,822			$	8,822
Incremental Term Loans	1,865				1,147
Subordinated Notes	760				—
Capital loans and other	10				16
Loan origination cost	624				576
Interest income	(1		)		—
Interest expense, net	$	12,080			$	10,561

Provision for income taxes

For the three months ended March 31, 2015, we recorded income tax expense of approximately $0.1 million on pre-tax income from continuing operations of $0.2 million, resulting in an effective tax rate for the three months ended March 31, 2015 of approximately 43%.

    

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 three months ended March 31, 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. For the three months ended March 31, 2014, we recorded income tax expense of approximately $0.1 million, which is primarily composed of state taxes.

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Liquidity and Capital Resources

		Three Months Ended   March 31,
($ in thousands)		2014				2015
Cash provided by operating activities		14,195				19,981
Cash used in investing activities		(2,079		)		(5,785		)
Cash used in financing activities		(424		)		(445		)
Net increase in cash		$	11,692			$	13,751

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 March 31, 2015, prior to the Refinancing, the total amount of revolving credit capacity available to us was $15.0 million under Townsquare Radio's Senior Secured Credit Facility. On October 31, 2014 we drew-down $10.0 million on Townsquare Radio's Revolving Credit Facility to fund a portion of the consideration for the WE Fest acquisition more fully described in Note 4 of this quarterly report. As of March 31, 2015, prior to the Refinancing we had $532.2 million of outstanding indebtedness with annual debt service requirements of approximately $42.8 million. As of March 31, 2015, on a pro forma basis after giving effect to the completion of the Refinancing, more fully described in Note 7 of this quarterly report we would have had $575.4 million of outstanding indebtedness with annual debt service requirements of approximately $34.2 million.

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 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. 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 Flow

As of March 31, 2015, we had a total of $38.2 million of cash in our operating bank accounts that was not subject to principal market fluctuations. As of March 31, 2015, we had accounts receivable totaling $52.6 million from our customers who have historically evidenced an average collection cycle of 58 days.

Operating Activities

Cash flows provided by operating activities for the three months ended March 31, 2014 were $14.2 million, primarily driven by $5.3 million in cash generated by operations and a decrease in our net operating assets and liabilities of $8.9 million. The decrease in our net operating assets and liabilities primarily consisted of an increase in accrued interest of $9.2 million on our bond, payable semiannually each April 1 and October 1.

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Cash flows provided by operating activities for the three months ended March 31, 2015 were $20.0 million, primarily driven by $3.7 million in cash generated by operations and a decrease in our net operating assets and liabilities of $16.3 million. The decrease in our net operating assets and liabilities primarily consisted of (i) a $9.7 million increase in accrued interest of which, $9.2 million relates to our bond due April 1 and October 1 each year, (ii) a $8.6 million decrease in accounts receivable as a result of increased collection efforts and an improvement in our average collection cycle and (iii) an $1.5 million increase in prepaid expenses primarily relating to our live events business.

Investing Activities

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. Cash used in investing activities for the three months ended March 31, 2014 and 2015 was $2.1 million and $5.8 million, respectively. Cash used in investing activities relating to acquisitions for the three months ended March 31, 2014 and 2015 were $0.2 million and $2.7 million, respectively. Cash used in investing activities relating to capital expenditures for the three months ended March 31, 2014 and 2015 were $2.0 million and $3.1 million, respectively. We believe that our capital structure provides adequate liquidity and scale for us to pursue and finance potential strategic acquisitions in the future.

Financing Activities

Cash flows used in financing activities for the three months ended March 31, 2014 were $0.4 million, primarily consisting of (i) $0.3 million of principal payments on our outstanding debt and (ii) $0.1 million in fees relating to debt financing costs.

Cash flows used in financing activities for the three months ended March 31, 2015 were $0.4 million and primarily consisted of (i) $0.3 million of principal payments on our outstanding debt and (ii) $0.1 million of payments for costs relating to our IPO.

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

Senior Secured Credit Facility

Townsquare Radio, a subsidiary of the Company, as borrower, is party to the Senior Secured Credit Facility. Townsquare Radio has incurred $207.0 million of term loans under the Senior Secured Credit Facility. On July 11, 2014, we entered into an amendment to the Senior Secured Credit Facility that provides for up to $25.0 million of borrowings under the Revolving Credit Facility. On October 31, 2014 we borrowed $10.0 million under the Revolving Credit Facility to partially finance the WE Fest acquisition. As of March 31, 2015, we have $15.0 million remaining under the Revolving Credit Facility. On July 29, 2014 we used substantially all of the net proceeds from our IPO, together with $37.0 million of cash on hand to repay $90.0 million of the Incremental Term Loans under the Senior Secured Credit Facility, leaving a remaining balance of $110.9 million as of March 31, 2015.

The Incremental Term Loans previously incurred under the Senior Secured Credit Facility mature six years from the closing of the Senior Secured Credit Facility, ending April 4, 2018. Revolving loans and swingline loans incurred under the Senior Secured Credit Facility mature four years from the closing of the Senior Secured Credit Facility, ending April 4, 2016. Subject to certain exceptions, the Senior Secured Credit Facility is subject to mandatory prepayments in amounts equal to:

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▪	100% of the net cash proceeds from issuances or the incurrence of debt by Townsquare Radio Holdings, LLC (the parent of Townsquare Radio), Townsquare Radio or any of its subsidiaries (other than certain indebtedness permitted by the Senior Secured Credit Facility);

▪	100% of the net cash proceeds from certain sales or other dispositions of assets (including as a result of casualty or condemnation) by Townsquare Radio or any of its subsidiaries in excess of a certain amount and subject to customary reinvestment provisions and certain other exceptions; and

▪	50% (with stepdowns after the first year to 25% and 0% based upon achievement of specified senior secured leverage ratios) of annual excess cash flow of Townsquare Radio and its subsidiaries, which are applicable given that Incremental Term Loans have been incurred under the Senior Secured Credit Facility.

At Townsquare Radio’s election, the interest rate per annum applicable to the term loans is based on a fluctuating rate of interest determined by reference to either (i) a base rate determined by reference to the higher of (a) the rate last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (b) the federal funds effective rate plus 0.5% and (c) (x) the LIBOR rate applicable for an interest period of one month, plus (y) the excess of the LIBOR applicable margin over the base rate applicable margin, in each case, plus an applicable margin or (ii) LIBOR, plus an applicable margin.

As of March 31, 2015, we were in compliance with the covenants contained in our Senior Secured Credit Facility.

The Senior Secured Credit Facility was repaid on April 1, 2015 as part of the Refinancing. See "The Refinancing" below.

9.00% Unsecured Senior Notes Due 2019

On April 4, 2012, Townsquare Radio and Townsquare Radio, Inc. (together, the “Issuers”) issued $265.0 million aggregate principal amount of the 2019 Notes pursuant to an indenture among the Issuers, the guarantors signatory thereto and Wilmington Trust, National Association, as trustee. On November 14, 2013, the Issuers issued an additional $145.9 million aggregate principal amount of the 2019 Notes pursuant to the indenture. The 2019 Notes are general senior obligations of the Issuers and are guaranteed by certain of the Issuers’ restricted subsidiaries that guarantee other indebtedness of the Issuers or guarantors, including the Senior Secured Credit Facility.

On March 2, 2015, we delivered a conditional notice of redemption (the "Notice") to the trustee of the 2019 Notes. The Notice called for the redemption of the remaining $410.9 million aggregate principal amount of the 2019 Notes on April 1, 2015 and was conditioned on the completion of the Refinancing. The redemption price for the 2019 Notes was 106.750% of the principal amount redeemed, which amount is equal to $1,067.50 per $1,000.00 principal amount, plus accrued and unpaid interest to the redemption date, in accordance with the provisions of the indenture governing the 2019 Notes.

The 2019 Notes were redeemed on April 1, 2015 as part of the Refinancing, See "The Refinancing" below.

The Refinancing

On April 1, 2015, we successfully completed the Refinancing, which consisted of $300.0 million in aggregate principal amount of our 2023 Notes and the New Senior Secured Credit Facility, including the $275.0 million New Term Loan Facility and the $50.0 million New Revolving Credit Facility. The initial per annum interest rate applicable to the New Term Loan Facility is 4.25%, based on current LIBOR levels, a 1.00% LIBOR floor and an applicable margin of 325 basis points. The per annum interest rate applicable to the New Revolving Credit Facility is based on current LIBOR levels and an applicable margin of 250 basis points (or an alternative base rate and an applicable margin of 150 basis points). The New Revolving Credit Facility was undrawn at close and remains undrawn. Net proceeds

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from the offering of the 2023 Notes and the borrowings under the New Term Loan Facility, together with cash on hand, were used to complete the redemption of the 2019 Notes, in aggregate principal amount of $410.9 million and to entirely repay all amounts outstanding under Townsquare Radio's existing Senior Secured Credit Facility, including both the Incremental Term Loans and the Revolving Credit Facility.

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 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 2014 Annual Report on Form 10-K reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements. There have been no material changes to the critical accounting policies and estimates as filed in such report.

Recent Accounting Pronouncements

In April 2015, the FASB issued ASU No. 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 deduction from the carrying amount of that debt liability, 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. Early adoption is permitted. We are currently assessing the potential impact of ASU No. 2015-03 on our financial statements.

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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 March 31, 2015 we had cash of $38.2 million, as such we do not believe our cash has significant risk of default or illiquidity.

As of March 31, 2015 we were not subject to market risk from exposure to changes in interest rates with respect to borrowings under the 2019 Notes.

Our primary interest rate exposure as of March 31, 2015 was due to interest rate fluctuations, specifically the impact of LIBOR interest rates on the Incremental Term Loans. We anticipate such interest rate risk with respect to our New Term Loan Facility will remain a market risk exposure 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.

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 March 31, 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
* Filed herewith

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