Townsquare Media, Inc. - Quarter Report: 2017 March (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 March 31, 2017 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ______ Commission file number 001-36558 Townsquare Media, Inc. (Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization)	4832 (Primary Standard Industrial Classification Code Number)	27-1996555 (I.R.S. Employer Identification No.)
240 Greenwich Avenue Greenwich, Connecticut 06830 (203) 861-0900 (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) __________________

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

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

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



Large accelerated filer	o	Accelerated filer	x

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

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

As of May 8, 2017, the registrant had 18,468,938 outstanding shares of common stock consisting of: (i)13,810,113 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) 1,636,341 shares of Class C common stock, par value $0.01 per share. The registrant also had 8,977,676 warrants to purchase Class A common stock outstanding as of that date.

TOWNSQUARE MEDIA, INC.

INDEX



PART I FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of December 31, 2016 and March 31, 2017	1
	Consolidated Statements of Operations for the three months ended March 31, 2016 and 2017	2
	Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2016 and 2017	3
	Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2017	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2017	5
	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	26

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
	Signatures	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, 2016			March 31, 2017
ASSETS
Current assets:
Cash	$	51,540		$	40,632
Accounts receivable, net of allowance of $1,433 and $1,491, respectively	59,642			52,363
Prepaid expenses and other current assets	11,445			13,170
Total current assets	122,627			106,165
Property and equipment, net	139,607			140,863
Intangible assets, net	513,915			513,312
Goodwill	292,953			295,266
Investments	4,313			4,313
Other assets	7,290			10,444
Total assets	$	1,080,705		$	1,070,363
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,602		$	8,189
Current portion of long-term debt	6,901			48
Deferred revenue	17,213			23,360
Accrued expenses and other current liabilities	25,813			18,571
Accrued interest	4,622			9,135
Total current liabilities	65,151			59,303
Long-term debt, less current portion (net of deferred finance costs of $8,006 and $7,884, respectively)	564,315			564,060
Deferred tax liability	50,967			48,976
Other long-term liabilities	10,221			10,014
Total liabilities	690,654			682,353
Stockholders’ equity:
Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 13,735,690 and 13,810,113 shares issued and outstanding, respectively	137			138
Class B common stock, par value $0.01 per share; 50,000,000 shares authorized; 3,022,484 shares issued and outstanding	30			30
Class C common stock, par value $0.01 per share; 50,000,000 shares authorized; 1,636,341 shares issued and outstanding	17			17
Total common stock	184			185
Additional paid-in capital	365,434			366,388
Retained earnings	24,450			21,399
Accumulated other comprehensive loss	(722		)	(665		)
Non-controlling interest	705			703
Total stockholders’ equity	390,051			388,010
Total liabilities and stockholders’ equity	$	1,080,705		$	1,070,363

See Notes to Unaudited 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,
	2016			2017

Net revenue	$	94,432		$	88,417

Operating costs and expenses:
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	76,905			73,011
Depreciation and amortization	6,123			6,390
Corporate expenses	5,557			5,349
Stock-based compensation	252			188
Transaction costs	169			199
Net gain on sale of assets	(366		)	(2		)
Total operating costs and expenses	88,640			85,135
Operating income	5,792			3,282
Other expense (income):
Interest expense, net	8,565			8,254
Repurchase of debt	(34		)	—
Other (income) expense, net	(449		)	33
Loss before income taxes	(2,290		)	(5,005		)
Benefit for income taxes	(907		)	(1,997		)
Net loss	$	(1,383	)	$	(3,008	)

Net (loss) income attributable to:
Controlling interests	$	(1,461	)	$	(3,051	)
Non-controlling interests	78			43

Net loss per share:
Basic	$	(0.08	)	$	(0.16	)
Diluted	$	(0.08	)	$	(0.16	)

Weighted average shares outstanding:
Basic	17,863			18,429
Diluted	17,863			18,429

See Notes to Unaudited Consolidated Financial Statements

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TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in Thousands)

(unaudited)



	Three Months Ended March 31,
	2016			2017

Net loss	$	(1,383	)	$	(3,008	)
Other comprehensive (loss) income:
Foreign currency translation adjustments	(357		)	57
Total comprehensive loss	(1,740		)	(2,951		)
Less: Comprehensive income attributable to noncontrolling interest	78			43
Comprehensive loss attributable to controlling interest	$	(1,818	)	$	(2,994	)

See Notes to Unaudited 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		Retained Earnings			Accumulated Other Comprehensive Loss			Non- Controlling Interest			Total
Balance at January 1, 2017	13,735,690	3,022,484	1,636,341	8,977,676	$	184	$	365,434	$	24,450		$	(722	)	$	705		$	390,051
Net (loss) income	—	—	—	—	—		—		(3,051		)	—			43			(3,008		)
Joint venture acquisition	48,035	—	—	—	1		512		—			—			—			513
Stock options exercised	26,388	—	—	—	—		254		—			—			—			254
Stock-based compensation	—	—	—	—	—		188		—			—			—			188
Foreign currency exchange	—	—	—	—	—		—		—			57			—			57
Cash distributions to non-controlling interests	—	—	—	—	—		—		—			—			(45		)	(45		)
Balance at March 31, 2017	13,810,113	3,022,484	1,636,341	8,977,676	$	185	$	366,388	$	21,399		$	(665	)	$	703		$	388,010

See Notes to Unaudited Consolidated Financial Statements

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TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in Thousands)

(unaudited)



	Three Months Ended March 31,
	2016			2017
Cash flows from operating activities:
Net (loss) income attributable to:
Controlling interests	$	(1,461	)	$	(3,051	)
Non-controlling interests	78			43
Net loss	$	(1,383	)	$	(3,008	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	6,123			6,390
Amortization of deferred financing costs	380			471
Deferred income tax benefit	(907		)	(1,997		)
Provision for doubtful accounts	610			491
Stock-based compensation expense	252			188
Repurchase of debt	(34		)	—
Write-off of deferred financing costs	—			83
Net gain on sale of assets	(366		)	(2		)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	6,353			5,602
Prepaid expenses and other assets	(7,332		)	(4,903		)
Accounts payable	(2,871		)	(2,416		)
Accrued expenses	(1,460		)	(1,277		)
Accrued interest	4,853			4,543
Other long-term liabilities	(277		)	(208		)
Net cash provided by operating activities	3,941			3,957
Cash flows from investing activities:
Purchase of property and equipment	(6,496		)	(5,653		)
Payments for acquisitions, net of cash received	—			(1,803		)
Acquisition of intangibles	—			(150		)
Proceeds from insurance settlement	451			—
Proceeds from sale of assets	842			161
Net cash used in investing activities	(5,203		)	(7,445		)
Cash flows from financing activities:
Repayment of long-term debt	(646		)	(6,662		)
Debt financing costs	—			(432		)
Proceeds from exercise of employee stock options	—			254
Cash distributions to non-controlling interests	(29		)	(45		)
Repayments of capitalized obligations	(42		)	(568		)
Net cash used in financing activities	(717		)	(7,453		)
Net effect of foreign currency exchange rate changes	(499		)	33
Net decrease in cash and restricted cash	(2,478		)	(10,908		)
Cash and restricted cash:
Beginning of period	33,298			51,540
End of period	$	30,820		$	40,632

See Notes to Unaudited Consolidated Financial Statements

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TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in Thousands)

(unaudited)



	Three Months Ended March 31,
	2016		2017
Supplemental Disclosure of Cash Flow Information:
Cash payments:
Interest	$	3,323	$	3,157
Income taxes	435		313

Barter transactions:
Barter revenue – included in net revenue	$	5,076	$	4,869
Barter expense – included in direct operating expenses	3,080		2,725

Equity issued in respect of acquisitions:
Common stock, joint venture acquisition	$	—	$	513

See Notes to Unaudited Consolidated Financial Statements

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TOWNSQUARE MEDIA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Description of the Business

Townsquare Media, Inc. (together with its consolidated subsidiaries, except as the context may otherwise require, "we," "us," "our," "Company," or "Townsquare") is a media, entertainment and digital marketing solutions company principally focused on small and mid-sized markets across the United States. As of March 31, 2017, our assets included 312 radio stations and more than 325 local websites in 66 U.S. markets, a digital marketing solutions company serving approximately 11,200 small to medium sized businesses, approximately 550 live events with nearly 18 million annual attendees in the U.S. and Canada and one of the largest digital advertising networks focused on music and entertainment reaching more than 50 million unique visitors each month. Our brands include local media assets such as WYRK, KLAQ, K2 and NJ101.5; music festivals such as Mountain Jam, WE Fest and the Taste of Country Music Festival; touring lifestyle and entertainment events such as the America on Tap craft beer festival series, the Insane Inflatable 5K obstacle race series, and North American Midway Entertainment ("NAME"), North America’s largest mobile amusement company; and tastemaker music and entertainment owned and affiliated websites such as XXLmag.com, TasteofCountry.com, Loudwire.com and BrooklynVegan.com. Funds managed by Oaktree Capital Management, L.P. ("Oaktree") are the Company’s largest equity holder.

Note 2. Summary of Significant Accounting Policies

Except as stated below, there have been no significant changes in the Company’s accounting policies since December 31, 2016. 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, 2016 (the "2016 Annual Report on Form 10-K") filed with the Securities and Exchange Commission ("SEC") on March 13, 2017.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board ("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. From March through December 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These amendments are intended to improve and clarify the implementation guidance of Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements of ASU 2014-09.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). The Company currently anticipates adopting the standard using the modified retrospective method. The Company has performed a high-level analysis of its various revenue streams and expects to complete its contract evaluations in 2017, as well as an evaluation of the impact on its business processes, controls and systems.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall. ASU 2016-01 requires cost-method equity investments to be measured at fair value with changes in fair value recognized in net income. An entity may choose to measure equity investments that do not have readily determinable fair values at cost minus

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impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The ASU simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, and a measurement of the investment at fair value only when an impairment is qualitatively identified to exist. Additionally, ASU 2016-01 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is not permitted. The Company is currently assessing the potential impact ASU 2016-01 will have on its Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires the lessee to recognize in the statement of financial position a liability to make lease payments, and a right-of-use asset representing its right to use the underlying asset for the lease term. The liability and asset are initially measured at the present value of the lease payments. The ASU applies to all leases, including those previously classified as operating leases under ASC Topic 842. The standard is effective for fiscal years beginning after December 15, 2018, and will require measurement of leases at the beginning of the earliest period presented, using a modified retrospective approach. The Company is currently assessing the potential impact ASU 2016-02 will have on its Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 removes Step 2 from the goodwill impairment test. The standard is effective for annual reporting periods beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this new standard to have a material impact on its Consolidated Financial Statements.

Recently Adopted Accounting Standards

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero-coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The Company early adopted ASU 2016-15 in the first quarter of 2017. Our early adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash. ASU 2016-18 relates to the classification of restricted cash on the statement of cash flows. ASU 2016-18 provides guidance on the classification of restricted cash and cash equivalents in the statement of cash flows. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and end-of period total amounts shown on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017 with early adoption permitted. The Company early adopted ASU 2016-18 in the first quarter of 2017. Our early adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.

Note 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 2016 Annual Report on Form 10-K. The accompanying unaudited interim consolidated financial statements include the consolidated accounts of the Company and its wholly-owned subsidiaries, with all significant intercompany balances and transactions eliminated in consolidation. These financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of results of operations for and financial condition as of the end of the interim periods have been included. The results of operations and cash flows for the three months ended March 31, 2017 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, 2017. The Consolidated Balance Sheet as of December 31, 2016 is derived from the audited financial statements at that date.

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Our net revenue varies throughout the year. We expect that our first calendar quarter will produce the lowest net revenue for the year, as advertising expenditures generally decline following the winter holidays, and the second and third calendar quarters will generally produce the highest net revenue for the year. During even-numbered years, net revenue generally includes increased advertising expenditures by political candidates, political parties and special interest groups. Political spending is typically highest during the fourth quarter. In addition to advertising revenue seasonality, our Entertainment net revenue exhibits seasonality resulting in the third quarter being the highest revenue period, followed by the second, then fourth, then first quarter. Large drivers of this seasonality are our summertime multi-day music festivals and NAME's revenue which is concentrated in the third quarter. Our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on net revenue generation until future periods, if at all.

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

Note 4. Investments

Long-term investments consist of minority holdings in companies that management believes are synergistic with Townsquare. Management does not exercise significant control over operating and financial policies of the investees, accordingly the investments are reflected under the cost method of accounting. The initial equity valuations were based upon a discounted cash flows analysis, using unobservable inputs categorized as Level 3 within the Accounting Standards Codification Section 820 framework.

Note 5. Property and Equipment

Property and equipment consisted of the following:



(in thousands)	December 31, 2016			March 31, 2017
Land and improvements	$	20,223		$	20,245
Buildings and leasehold improvements	36,556			37,339
Broadcast equipment	71,159			72,031
Rides and related equipment	45,159			46,459
Computer and office equipment	11,827			12,240
Furniture and fixtures	11,090			11,870
Transportation equipment	14,249			15,593
Software development costs	10,641			11,925
Total property and equipment, gross	220,904			227,702
Less accumulated depreciation and amortization	(81,297		)	(86,839		)
Total property and equipment, net	$	139,607		$	140,863

Depreciation and amortization expense for property and equipment was $4.9 million and $5.6 million for the three months ended March 31, 2016 and 2017, respectively.

Note 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^stas the annual testing date. All fair values of the Company’s intangibles exceeded their carrying value, therefore, no impairment of these assets had occurred as of the date of the annual tests.

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If market conditions and operational performance of the Company’s reporting units were to deteriorate and management had no expectation that the performance would improve within a reasonable period of time or if an event occurs or circumstances change that would reduce the fair value of its goodwill and intangible assets below the amounts reflected in the balance sheet, the Company may be required to recognize additional impairment charges in future periods.

The following represents the changes in the carrying value of goodwill by reportable segment for the three months ended March 31, 2017:



(in thousands)	Local Marketing Solutions		Entertainment		Consolidated
Balance at January 1, 2017	$	202,862	$	90,091	$	292,953
Joint venture acquisition	2,313		—		2,313
Balance at March 31, 2017	$	205,175	$	90,091	$	295,266

Intangible assets consist of the following:



(in thousands)	Estimated Useful Life	December 31, 2016		March 31, 2017
Intangible Assets:
FCC licenses	Indefinite	$	486,525	$	486,525
Trademarks and trade names	Indefinite	4,600		4,600
Customer and advertising relationships	10 years	14,317		14,317
Customer relationships	15 years	8,700		8,700
Leasehold interests	5 to 39 years	1,085		1,085
Tower space	3 to 9 years	454		454
Sports broadcast rights	1 to 2 years	665		665
Non-compete agreements	1 to 2 years	243		243
Trademarks	15 years	10,695		10,695
Permits/licenses	1 year	1,000		1,000
Other intangibles	3 years	991		1,141
Total		529,275		529,425
Less: Accumulated amortization		(15,360)		(16,113		)
Net amount		$	513,915	$	513,312

Amortization expense for definite-lived intangible assets was $1.2 million and $0.8 million for the three months ended March 31, 2016 and 2017.

Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of March 31, 2017 is as follows (in thousands):



2017 (remainder)	$	2,237
2018	2,150
2019	2,028
2020	1,980
2021	1,971
Thereafter	11,821
	$	22,187

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Note 7. Long-Term Debt

Total debt outstanding is summarized as follows:



(in thousands)	December 31, 2016			March 31, 2017
2023 Notes	$	280,079		$	280,079
Term Loans	298,512			291,851
Capitalized obligations	631			62
Debt before deferred financing costs	579,222			571,992
Deferred financing costs	(8,006		)	(7,884		)
Total debt	571,216			564,108
Less: current portion of long-term debt	(6,901		)	(48		)
Total long-term debt	$	564,315		$	564,060

On April 1, 2015, the Company issued $300.0 million of 6.5% Unsecured Senior Notes due in 2023 (the "2023 Notes") and a Senior Secured Credit Facility, which includes a seven year, $275.0 million term loan facility (the "Term Loans") and a five year, $50.0 million revolving credit facility (the "Revolver"). Borrowings are guaranteed by each of the Company’s direct and indirect subsidiaries, and subject to certain exceptions, are secured by substantially all of the tangible and intangible assets of the Company and its subsidiaries. On September 1, 2015, the Company increased its incremental term loans by $45.0 million under the Senior Secured Credit Facility.

In the first three months of 2016, the Company voluntarily repurchased $0.7 million of its 2023 Notes at a market price below par, plus accrued interest. The repurchased notes were canceled by the Company. A gain of $34 thousand is included in other (income) expense, net in the Company's Consolidated Statements of Operations for the three months ended March 31, 2016.

The 2023 Notes mature on April 1, 2023, with interest payable on April 1 and October 1 of each year. Prior to maturity, the Company may redeem all or part of the 2023 Notes at specified redemption premiums as set forth in the indenture, together with any accrued and unpaid interest thereon. Additionally, if the Company experiences certain change of control events, holders of the 2023 Notes may require the Company to repurchase all or part of their notes at 101% of the principal amount thereof.

The 2023 Notes rank equally with all of the Company's existing and future senior debt, are senior to all of the Company's existing and future subordinated debt, and are guaranteed on a senior basis by certain of the Company’s direct and indirect wholly-owned subsidiaries.

The 2023 Notes indenture contains restrictive covenants that limit the ability of the Company and its subsidiaries to, among other things, incur additional debt or issue preferred stock; create liens; create restrictions on the Company’s subsidiaries’ ability to make payments to the Company; pay dividends and make other distributions in respect of the Company’s and its subsidiaries’ capital stock; make certain investments or certain other restricted payments; guarantee indebtedness; designate unrestricted subsidiaries; sell certain kinds of assets; enter into certain types of transactions with affiliates; and effect mergers and consolidations.

On February 8, 2017, the Company amended its Senior Secured Credit Facility agreement to reduce the applicable interest rate on its Term Loan. Under the amended Term Loan, the applicable margin was reduced by 25 basis points to 300 basis points, bringing the interest rate to 4.00% (based on current LIBOR levels) from 4.25%. The LIBOR floor of 1.00% remained unchanged and a 1.00% prepayment premium will apply in the event any Term Loans are repriced, repaid or refinanced within six months of the repricing. All other terms of the Senior Secured Credit Facility agreement remain substantially unchanged. The Revolver has an interest rate based either on LIBOR and an applicable margin of 250 basis points, or an alternative base rate and an applicable margin of 150 basis points. As of March 31, 2017, the Company had no outstanding borrowings under the Revolver. The Company capitalized $0.4 million of deferred financing costs in connection with this repricing.

The Term Loans mature on April 1, 2022, and the Revolver matures on April 1, 2020. Borrowings under the Senior Secured Credit Facility are subject to mandatory prepayments equal to the net proceeds to the Company of any additional debt issuances or asset sales, as well as half of the annual excess cash flow as defined in the credit agreement (subject to certain reductions). At December 31, 2016, we were required to make an excess cash flow payment on the outstanding Term Loans of $6.7 million which was subsequently paid on March 20, 2017. The Company recognized an expense of $0.1 million on the accelerated depreciation of unamortized deferred financing costs in connection with

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this prepayment in the first quarter of 2017. Borrowings are guaranteed by each of the Company’s direct and indirect subsidiaries, and subject to certain exceptions, are secured by substantially all of the tangible and intangible assets of the Company and its subsidiaries.

The Senior Secured Credit Facility contains covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to incur additional indebtedness or liens; engage in mergers or other fundamental changes; sell certain property or assets; pay dividends or other distributions; make acquisitions, investments, loans and advances; prepay certain indebtedness including the 2023 Notes; change the nature of its business; engage in certain transactions with affiliates and incur restrictions on interactions between the Company and its subsidiaries, or limit actions in relation to the Senior Secured Credit Facility.

The Company is in compliance with its covenants under the 2023 Notes and Senior Secured Credit Facility as of March 31, 2017.

As of March 31, 2017, based on available market information, the estimated fair value of the 2023 Notes and the Term Loans were $280.1 million and $293.3 million, respectively.

Annual maturities of the Company's long-term debt as of March 31, 2017 are as follows (in thousands):



2017 (remainder)	$	47
2018	5
2019	5
2020	5
2021	—
Thereafter	571,930
	$	571,992

Note 8. Stockholders' Equity

The table below presents a summary, as of March 31, 2017, of our authorized and outstanding common stock, and securities convertible into common stock, excluding options issued under our 2014 Omnibus Incentive Plan.



Security¹	Par Value Per Share		Number Authorized	Number Outstanding	Description
Class A common stock	$	0.01	300,000,000	13,810,113	One vote per share.
Class B common stock	$	0.01	50,000,000	3,022,484	10 votes per share.²
Class C common stock	$	0.01	50,000,000	1,636,341	No votes.²
Warrants				8,977,676	Each warrant is exercisable for one share of Class A common stock, at an exercise price of $0.0001 per share. The aggregate exercise price for all warrants currently outstanding is $898.³
Total			400,000,000	27,446,614
¹ Each of the shares of common stock, including the shares of Class A common stock issuable upon exercise of the warrants, have equal economic rights.
² Each share converts into one share of Class A common stock upon transfer or at the option of the holder, subject to certain conditions, including compliance with FCC rules.
³ The warrants are fully vested and exercisable for shares of Class A common stock, subject to certain conditions, including compliance with FCC rules.

The foregoing share totals exclude 4,068,507 of Class A common stock and 4,511,236 of Class B common stock issuable upon exercise of stock options, which options have an exercise price of between $8.96 and $9.63 per share. Additionally, the Company is authorized to issue 50,000,000 shares of undesignated preferred stock.

On January 31, 2017, the Company issued 48,035 shares of Class A common stock as a portion of the consideration in its acquisition of an interest in a joint venture.

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

Stock-based Compensation

The Company's 2014 Omnibus Incentive Plan (the "2014 Incentive Plan") provides grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards. Directors, officers and other employees of the Company and its subsidiaries, as well as others performing consulting or advisory services for the Company, are eligible for grants under the 2014 Incentive Plan. The purpose of the 2014 Incentive Plan is to provide incentives that will attract, retain and motivate high performing officers, directors, employees and consultants by providing them with appropriate incentives and rewards either through a proprietary interest in our long-term success or compensation based on their performance in fulfilling their personal responsibilities. The aggregate number of shares of common stock which may be issued or used for reference purposes under the 2014 Incentive Plan or with respect to which awards may be granted may not exceed 12,000,000 shares. As of March 31, 2017, 3,386,705 shares were available for grant.

In November 2016, the Board of Directors of the Company and the holders of a majority of the voting power of the Company’s issued and outstanding shares of common stock approved a one-time stock option repricing program (the “Option Repricing”). For each outstanding option to acquire shares of our Class A common stock, and each outstanding stock option to acquire shares of our Class B common stock, granted under the Company’s 2014 Incentive Plan, in each case with an exercise price in excess of $9.00 per share, the Option Repricing authorized a reduction in the exercise price to $9.00 per share or fair market value, whichever was higher, and on January 3, 2017, the exercise price was amended to $9.63. Under ASC Topic 718, the Company recognized a one-time expense relating to the Option Repricing in the fourth quarter of 2016.

With the exception of the options that were granted to employees in the first quarter of 2016, the options provide for immediate vesting. The options have an exercise price of between $8.96 and $9.63 per share. The expected term was calculated using the simplified method, defined as the midpoint between the vesting period and the contractual term of each award. The expected volatility was based on market conditions of the Company and comparable companies. The risk-free interest rate was based on the U.S. Treasury yield curve in effect on the date of grant which most closely corresponds to the expected term of the option. The Company historically has not paid dividends and therefore did not utilize a dividend yield in the calculations.

The following table summarizes stock option activity for the three months ended March 31, 2017:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Outstanding at January 1, 2017	8,653,712		$	9.51	7.1	$	7,805
Exercised	(26,388	)	9.63
Forfeited	(47,581	)	9.63
Outstanding at March 31, 2017	8,579,743		$	9.51	6.8	$	22,934

The total intrinsic value of stock options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) and associated cash proceeds was $0.1 million and $0.3 million, respectively for the three months ended March 31, 2017. Stock-based compensation expense was $0.3 million and $0.2 million, respectively, for the three months ended March 31, 2016 and 2017. As of March 31, 2017, total unrecognized stock-based compensation expense is $2.4 million to be recognized over three years.

The Company has issued stock to employees and independent directors. The shares are subject to a Selldown Agreement, pursuant to which FiveWire Media Ventures LLC ("FiveWire") (an entity formed for the purpose of investing in the Company by certain members of management, (the "FiveWire Holders")) are subject to certain restrictions on sales of the Company's common stock held by them. Pursuant to the terms of the Selldown Agreement, the FiveWire Holders and certain other members of management are generally restricted from transferring a specified percentage (which is expected to range between 50% and 100%) of the shares of the Company's common stock held by them at the closing of the July 24, 2014 initial public offering (the "IPO"). If Oaktree sells a portion of the shares of common stock or warrants to purchase common stock that it holds (the percentage of shares and warrants, collectively, held by Oaktree at such time that it sells in such a transaction, referred to as the "Sale Percentage"), those subject to the Selldown Agreement will be permitted to sell a percentage of the shares of common stock and warrants held by them, up to an amount equal to the Sale Percentage. The Selldown Agreement will terminate on the earlier of (i) the date that Oaktree

no longer holds at least 10% of the shares of common stock and warrants exercisable for common stock, collectively, held by Oaktree immediately following closing of the IPO, and (ii) the third anniversary of the closing of the IPO.

Note 9. Income Taxes

The Company's effective tax rate for the three months ended March 31, 2016 and 2017 was approximately 39.6% and 39.9%, respectively. The effective tax rate may vary significantly from period to period, and can be influenced by many factors. These factors include, but are not limited to, changes to the statutory rates in the jurisdictions where the Company has operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 35% for the three months ended March 31, 2017 primarily relates to state, local and foreign income taxes.

Note 10. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:



(in thousands)	December 31, 2016		March 31, 2017
Accrued compensation and benefits	$	12,468	$	5,898
Accrued professional fees	1,172		1,011
Accrued commissions	1,883		1,889
Accrued taxes	2,286		2,253
Accrued music and FCC licensing	338		512
Accrued publisher fees	1,593		1,757
Accrued national representation fees	1,265		746
Deferred rent	1,694		1,871
Accrued other	3,114		2,634
	$	25,813	$	18,571

Note 11. Lease and Other Commitments

Operating Leases: The Company leases certain facilities and equipment used in its operations. Certain of the Company’s operating leases contain renewal options through 2062, escalating rent provisions and/or cost of living adjustments. Total rental expense was approximately $4.9 million and $4.2 million for the three months ended March 31, 2016 and 2017, respectively. Total rental expense includes costs incurred for live events such as venue and equipment rentals.

At March 31, 2017, the total minimum annual rental commitments under non-cancelable operating leases are as follows (in thousands):



2017 (remainder)	$	7,616
2018	9,005
2019	7,843
2020	5,934
2021	4,245
Thereafter	16,965
Total minimum payments	$	51,608

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, 2017 is approximately $5.0 million and is expected to be paid in accordance with the agreements through April 2019. In addition, the Company has aggregate commitments of $4.1 million for other broadcasting services through December 2019 and aggregate commitments of $13.3 million for a business management platform through 2023.

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We normally commit one or more years in advance to provide rides, games and concessions at certain fairs. These agreements include an obligation to pay event fees, which may be expressed as a flat fee or as a percentage of revenue. At March 31, 2017, our total minimum fee commitments for contracts with a remaining term in excess of one year are as follows (in thousands):



2017 (remainder)	$	4,936
2018	4,870
2019	3,349
2020	2,116
2021	1,947
Thereafter	5,426
Total minimum payments	$	22,644

Note 12. Segment Reporting

The Company has two reportable segments, Local Marketing Solutions, which provides broadcast and digital products and solutions to advertisers and businesses within our local markets, and Entertainment, which provides live event experiences and music and lifestyle content directly to consumers, and promotion, advertising and product activations to local and national advertisers. Prior to the second quarter of 2016, the Company reported its results in two reportable segments, Local Advertising and Live Events, and reported the remainder of its business in its Other Media and Entertainment category. The prior Local Advertising segment, together with the Company’s digital marketing and e-commerce solutions, which were previously part of the Other Media and Entertainment category, are now reported within Local Marketing Solutions. The Live Events segment, together with the Company’s national digital assets which were previously part of the Other Media and Entertainment category, are now reported within Entertainment. The Company redefined its reportable segments to more closely align with how its businesses have evolved over time, allocating its locally-focused products and services to the Local Marketing Solutions segment and its events and related production products and services to the Entertainment segment. This reflects how management currently reviews the Company’s performance and assesses the allocation of resources. The new segment presentation has been applied retrospectively to the Company's segment financial information but did not impact the Company's Consolidated Financial Statements.

The following table presents the Company’s reportable segment results for the three months ended March 31, 2016:



(in thousands)	Local Marketing Solutions		Entertainment			Corporate and other reconciling items			Consolidated
Three Months Ended March 31, 2016
Net revenue	$	75,207	$	19,225		$	—		$	94,432
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	54,165		22,740			—			76,905
Depreciation and amortization	3,129		2,182			812			6,123
Corporate expenses	—		—			5,557			5,557
Stock-based compensation	27		22			203			252
Transaction costs	—		—			169			169
Net gain on sale of assets	—		—			(366		)	(366		)
Operating income (loss)	$	17,886	$	(5,719	)	$	(6,375	)	$	5,792
Capital expenditures	$	2,381	$	3,166		$	949		$	6,496

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The following table presents the Company’s reportable segment results for the three months ended March 31, 2017:



(in thousands)	Local Marketing Solutions		Entertainment			Corporate and other reconciling items			Consolidated
Three Months Ended March 31, 2017
Net revenue	$	76,076	$	12,341		$	—		$	88,417
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	55,332		17,679			—			73,011
Depreciation and amortization	3,243		2,053			1,094			6,390
Corporate expenses	—		—			5,349			5,349
Stock-based compensation	34		28			126			188
Transaction costs	—		—			199			199
Net gain on sale of assets	—		—			(2		)	(2		)
Operating income (loss)	$	17,467	$	(7,419	)	$	(6,766	)	$	3,282
Capital expenditures	$	3,166	$	2,176		$	311		$	5,653

The following table contains the long-lived assets for each reportable segment:



(in thousands)	December 31, 2016		March 31, 2017
Local Marketing Solutions	$	774,908	$	777,387
Entertainment	156,875		156,879
Corporate and other reconciling items	14,692		15,175
Total	$	946,475	$	949,441

NAME conducts a portion of its business in Canada. Consolidated net revenue for the three months ended March 31, 2016 and 2017 includes $0.1 million Canadian revenue, respectively and long-lived assets located in Canada aggregated $3.9 million as of December 31, 2016 and March 31, 2017.

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Note 13. Net Loss Per Common Share

The following table sets forth the computations of basic and diluted net loss per share for the three months ended March 31, 2016 and 2017.



(in thousands, except per share data)	Three Months Ended March 31,
	2016			2017

Numerator:
Net loss	$	(1,383	)	$	(3,008	)

Denominator:
Weighted average shares of common stock outstanding	17,863			18,429
Effect of dilutive common stock equivalents	—			—
Weighted average diluted common shares outstanding	17,863			18,429

Net loss per share:
Basic	$	(0.08	)	$	(0.16	)
Diluted	$	(0.08	)	$	(0.16	)

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

Note About Forward-Looking Statements

This report includes estimates, projections, statements relating to our business plans, objectives and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act. Forward-looking statements often discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “believe,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include the impact of general economic conditions in the United States or Canada, or in the specific markets in which we currently do business, industry conditions, including existing competition and future competitive technologies, the popularity of radio as a broadcasting and advertising medium, cancellations, disruptions or postponements of advertising schedules in response to national or world events, our dependence on key personnel, our capital expenditure requirements, our continued ability to identify suitable acquisition targets, and consummate and integrate any future acquisitions, legislative or regulatory requirements, risks and uncertainties relating to our leverage and changes in interest rates, our ability to obtain financing at times, in amounts and at rates considered appropriate by us, our ability to access the capital markets as and when needed and on terms that we consider favorable to us and other factors discussed in this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and under “Risk Factors” in our 2016 Annual Report on Form 10-K, as well as other risks discussed from time to time in our filings with the SEC. Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Format of Presentation

Townsquare is a media, entertainment and digital marketing solutions company, principally focused on small and mid-sized markets across the United States. Our assets include market leading radio stations, live events, and digital, mobile, video and social media properties. Our integrated and diversified product and service offerings, which we refer to as Townsquare Everywhere, enable local, regional and national advertisers to target audience engagement across multiple platforms, including on-air, online and at live events. We believe our Townsquare Everywhere capabilities, combined with our leading market position in small and mid-sized markets, enable us to generate higher total net revenue per audience member than radio station owners focused on larger markets.

Our discussion is presented on both a consolidated and segment basis. We have two reportable segments, Local Marketing Solutions, which provides broadcast and digital products and solutions to advertisers and businesses within our local markets, and Entertainment, which provides live event experiences and music and lifestyle content directly to consumers, and promotion, advertising and product activations to local and national advertisers. Prior to the second quarter of 2016, we reported our results in two reportable segments, Local Advertising and Live Events, and reported the remainder of our business in our Other Media and Entertainment category. The prior Local Advertising segment, together with our digital marketing and e-commerce solutions, which were previously part of the Other Media and Entertainment category, are now reported within Local Marketing Solutions. The prior Live Events segment, together with our national digital assets which were previously part of the Other Media and Entertainment category, are now reported within Entertainment. We redefined our reportable segments to

more closely align with how our businesses have evolved over time, allocating our locally-focused products and services to our Local Marketing Solutions segment and our events and related production products and services to the Entertainment segment. This reflects how management currently reviews our performance and assesses the allocation of resources. The new segment presentation has been applied retrospectively to our segment financial information but did not impact our Consolidated Financial Statements.

Local Marketing Solutions

Our Local Marketing Solutions segment is composed of 312 owned and operated radio stations and over 325 owned and operated local websites serving 66 small and mid-sized markets, a digital marketing solutions offering and an e-commerce offering. Almost all of our radio stations have local companion websites that utilize the station brands and are populated with proprietary, original content created or curated by our local media personalities.

Our primary source of Local Marketing Solutions net revenue is the sale of advertising on our radio stations, local companion websites, radio stations’ online streams and mobile applications. Our sales of advertisements are primarily affected by the demand for advertising from local, regional and national advertisers and the advertising rates we charge. Advertising demand and rates are based primarily on our ability to attract audiences to our various products in the demographic groups targeted by advertisers, as measured principally by various services on a periodic basis. We endeavor to develop strong audience loyalty and believe that the diversification of formats on our radio stations and websites helps to insulate our radio stations and websites from the effects of changes in musical tastes of the public with respect to any particular format. We believe that the sale of our online and mobile advertisements, which currently have rates per advertisement that are less than those of terrestrial radio advertisements, has not negatively impacted our terrestrial radio advertising net revenue. Should a significant and sudden shift in demand for these products toward online and mobile occur, there could be a material adverse impact on our financial condition and results of operations if we are unable to increase rates accordingly. However, we believe that as a result of our strong brands and quality online and mobile offerings, we are well positioned to increase rates as demand increases for these products.

Within our Local Marketing Solutions segment we offer digital marketing solutions, on a subscription basis, to small and mid-sized local and regional businesses ("SMBs") in small and mid-sized markets across the United States, including the markets in which we operate radio stations. Our digital marketing solutions, offered under the brand name Townsquare Interactive, include traditional and mobile-enabled website development and hosting services, search engine and online directory optimization services, online reputation management and social media management.

We strive to maximize Local Marketing Solutions net revenue by managing our advertising inventory time and adjusting prices up or down based on supply and demand and by broadening our base of advertisers and subscribers. Our selling and pricing activity is based on demand for our advertising inventory and, in general, we respond to this demand by varying prices rather than by varying our target inventory levels. The optimal number of advertisements available for sale depends on the platform and in the case of our radio stations and their online streams, the programming format of a particular radio station. Each of our advertising products has a general target level of available inventory. We seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across our platforms, thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group.

Our Local Marketing Solutions contracts are generally short-term. In the media industry, companies, including us, sometimes utilize barter agreements that exchange advertising time for goods or services such as travel or lodging, instead of cash. Barter revenue was $5.1 million and $4.9 million and barter expense was $3.1 million and $2.7 million for the three months ended March 31, 2016 and 2017, respectively.

Other sources of revenue within our Local Marketing Solutions segment include other miscellaneous revenue.

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

A portion of our Local Marketing Solutions expenses are variable. These variable expenses primarily relate to sales costs, such as commissions as well as certain programming costs, such as music license fees. 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.

Entertainment

Our Entertainment segment is composed of a diverse range of live events, which we create, promote and produce, including festivals, concerts, expositions and other experiential events within and beyond our markets, and music and lifestyle content distributed through our owned, operated and affiliated national websites.

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

Another source of Entertainment net revenue is national digital advertising, primarily display advertisements on our network of owned, operated and affiliated music and entertainment websites. Our national digital sales team also sells product-activation sponsorship and advertising related to our live events. Our national digital assets are subject to general advertising trends as well as advertisers’ perception and demand for our products. A downturn in advertising spending or the economy could have an adverse effect on this net revenue.

Certain expenses in our Entertainment segment are variable, including sales commissions, certain costs related to production and certain revenue sharing agreements with partners. A portion of our revenue and expenses related to our NAME operations are denominated in Canadian dollars and expose us to translational foreign currency risk. We have not historically hedged our exposure to this risk.

Seasonality

Macroeconomic Indicators

Our advertising revenue for our businesses may be highly correlated to changes in gross domestic product (“GDP”), as advertising spending has historically trended in line with, and in our experience often lags, changes in GDP. According to the U.S. Department of Commerce estimate as of April 28, 2017, U.S. GDP grew at an annual rate of 0.7% in the first quarter of 2017.

Emerging Growth Company

The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements of Sections 14A(a) and (b) of the Securities Exchange Act to hold a non-binding advisory vote of stockholders on executive compensation and any golden parachute payments not previously approved.

Executive Summary

The key developments in our business for the three months ended March 31, 2017, as compared to the same period in 2016 are summarized below:


•	Net revenue for the three months ended March 31, 2017 decreased $6.0 million, or 6.4%. Excluding political revenue, net revenue decreased 5.4%.


•	Local Marketing Solutions net revenue increased $0.9 million, or 1.2%. Excluding political revenue, Local Marketing Solutions net revenue increased 2.5%.


•	Entertainment net revenue decreased $6.9 million, or 35.8%.

Consolidated Results of Operations

Three Months Ended March 31, 2016 compared to Three Months Ended March 31, 2017

The following table summarizes our historical consolidated results of operations:



($ in thousands)	Three Months Ended March 31,
	2016			2017			$ Change			% Change
Statement of Operations Data:
Local Marketing Solutions net revenue	$	75,207		$	76,076		$	869		1.2	%
Entertainment net revenue	19,225			12,341			(6,884		)	(35.8	)%
Net revenue	94,432			88,417			(6,015		)	(6.4	)%
Operating costs and expenses:
Local Marketing Solutions direct operating expenses	54,165			55,332			1,167			2.2	%
Entertainment direct operating expenses	22,740			17,679			(5,061		)	(22.3	)%
Direct operating expenses, excluding depreciation, amortization and stock-based compensation	76,905			73,011			(3,894		)	(5.1	)%
Depreciation and amortization	6,123			6,390			267			4.4	%
Corporate expenses	5,557			5,349			(208		)	(3.7	)%
Stock-based compensation	252			188			(64		)	(25.4	)%
Transaction costs	169			199			30			17.8	%
Net gain on sale of assets	(366		)	(2		)	364			(99.5	)%
Total operating costs and expenses	88,640			85,135			(3,505		)	(4.0	)%
Operating income	5,792			3,282			(2,510		)	(43.3	)%
Other expense (income):
Interest expense, net	8,565			8,254			(311		)	(3.6	)%
Repurchase of debt	(34		)	—			34			**
Other (income) expense, net	(449		)	33			482			(107.3	)%
Total other expense	8,082			8,287			205			2.5	%
Loss before income taxes	(2,290		)	(5,005		)	(2,715		)	118.6	%
Benefit for income taxes	(907		)	(1,997		)	(1,090		)	120.2	%
Net loss	$	(1,383	)	$	(3,008	)	$	(1,625	)	117.5	%
**Percent change not meaningful.

Net Revenue

Net revenue for the three months ended March 31, 2017 decreased by $6.0 million, or 6.4%, as compared to the same period in 2016. The decrease was driven by a decline in Entertainment net revenue of $6.9 million partially offset by an increase in Local Marketing Solutions net revenue of $0.9 million.

Entertainment net revenue for the three months ended March 31, 2017 decreased $6.9 million, or 35.8%, as compared to the same period in 2016. The decrease was primarily related to declines within our live events business, in part due to the timing of a live event.

Local Marketing Solutions net revenue for the three months ended March 31, 2017 increased $0.9 million, or 1.2%, as compared to the same period in 2016. The increase was driven by an increase in non-political net revenue of $1.8 million, partially offset by decreases in political net revenue of $0.9 million as 2016 was a political year.

Direct Operating Expenses

Direct operating expenses for the three months ended March 31, 2017 decreased by $3.9 million, or 5.1%, as compared to the same period in 2016. The decrease was driven by the decline of Entertainment direct operating expenses of $5.1 million partially offset by an increase in Local Marketing Solutions direct operating expenses of $1.2 million.

Entertainment direct operating expenses for the three months ended March 31, 2017 decreased $5.1 million, or 22.3%, as compared to the same period in 2016. This decrease was primarily related to declines within our live events business, in part due to the timing of a live event.

Local Marketing Solutions direct operating expenses for the three months ended March 31, 2017 increased $1.2 million, or 2.2%, as compared to the same period in 2016. The increase was primarily a result of higher costs in headcount-related expenses including salaries, sales commissions and benefits, to support the growth within our digital businesses.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended March 31, 2017 increased $0.3 million, or 4.4%, as compared to the same period in 2016, primarily related to amortization of capitalized software development costs.

Corporate Expenses

Corporate expense for the three months ended March 31, 2017 decreased $0.2 million, or 3.7%, as compared to the same period in 2016, primarily as a result of decreased professional fees.

Stock-based Compensation

Stock-based compensation expense for the three months ended March 31, 2017 decreased $0.1 million, or 25.4%, as compared to the same period in 2016. The stock-based compensation expense in 2016 and 2017 was related to the grant of stock options in the first quarter of 2016 that vest over a period of four years.

Net Gain on Sale of Assets

Net gain on sale of assets for the three months ended March 31, 2017, decreased $0.4 million, as compared to the same period in 2016. The net gain in the first quarter of 2016 primarily resulted from a $0.4 million gain from an earnout payment related to the 2015 sale of 43 towers.

Other Expense (Income), Net

Interest expense, net is the major recurring component of other expense (income), net. Interest expense, net decreased $0.3 million, or 3.6%, in the three months ended March 31, 2017, as compared to the same period in 2016, primarily due to the repayment of debt in 2016 and 2017.

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



	Three Months Ended March 31,
	2016		2017
(in thousands)
2023 Notes	$	4,874	$	4,551
Term Loans	3,299		3,147
Capital loans and other	12		2
Loan origination costs	380		554
Interest expense, net	$	8,565	$	8,254

Benefit for income taxes

We recognized a benefit for income taxes of $2.0 million for the three months ended March 31, 2017. Our effective tax rate for the period was approximately 39.9%. Our effective tax rate may vary significantly from period to period, and can be influenced by many factors. These factors include, but are not limited to, changes to statutory rates in the jurisdictions where we have operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 35% for the three months ended March 31, 2017 primarily relates to state, local and foreign income taxes.

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Liquidity and Capital Resources



	Three Months Ended March 31,
(in thousands)	2016			2017
Cash provided by operating activities	$	3,941		$	3,957
Cash used in investing activities	(5,203		)	(7,445		)
Cash used in financing activities	(717		)	(7,453		)
Net effect of foreign currency exchange rate changes	(499		)	33
Net decrease in cash and restricted cash	$	(2,478	)	$	(10,908	)

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 one year from the date of this report. As of March 31, 2017, we had $564.1 million of outstanding indebtedness, net of deferred financing costs of $7.9 million, and based on interest rates in effect as of that date, we expect our debt service requirements to be approximately $30.2 million over the next twelve months. In addition, as of March 31, 2017 we had $40.6 million of cash and restricted cash, $52.4 million of receivables from customers, which historically have had an average collection cycle of approximately 45 days, and $50.0 million of available borrowing capacity under our revolving credit facility. We had restricted cash of $0.9 million at December 31, 2016 and March 31, 2017, respectively, included within cash, that was held as collateral in connection with certain agreements. From time to time, such restricted funds could be returned to us or we could be required to pledge additional cash.

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

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

We closely monitor the impact of capital and credit market conditions on our liquidity as related to our floating rate debt. We also routinely monitor the changes in the financial condition of our customers and the potential impact on our results of operations.

Cash Flows from Operating Activities

Net cash provided by operating activities remained constant for the three months ended March 31, 2017, as compared to the same period in 2016, primarily due to the decrease of $2.4 million in prepaid expenses, mainly relating to our live events businesses, being offset by increased net loss and increased deferred taxes.

Cash Flows from Investing Activities

Net cash used in investing activities increased $2.2 million to $7.4 million for the three months ended March 31, 2017 from $5.2 million for the same period in 2016. The increase was primarily driven by a payment made for our joint venture acquisition of $1.8 million and decreased proceeds from the sale of assets of $0.7 million due to a 2016 earnout payment related to the 2015 sale of 43 towers. This was partially offset by decreased spending on capital expenditures of $0.8 million.

Cash Flows from Financing Activities

Net cash used in financing activities was $7.5 million for the three months ended March 31, 2017, as compared to $0.7 million for the same period in 2016. This change was driven by an excess cash flow payment on the outstanding Term Loans of $6.7 million made on March 20, 2017. In addition, we paid $0.4 million of deferred financing fees in the three months ended March 31, 2017 in connection with the amendment to the Senior Secured Credit Facility agreement that reduced the applicable interest rate on our Term Loan.

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Financing Arrangements

On April 1, 2015, the Company issued $300.0 million of 6.5% Unsecured Senior Notes due in 2023 and entered into a Senior Secured Credit Facility, including a seven year, $275.0 million term loan facility and a five year, $50.0 million revolving credit facility. On September 1, 2015, the Company issued incremental term loans of $45.0 million under the Senior Secured Credit Facility.

On February 8, 2017, the Company amended its Senior Secured Credit Facility agreement to reduce the applicable interest rate on its Term Loan. Under the amended Term Loan, the applicable margin was reduced by 25 basis points to 300 basis points, bringing the interest rate to 4.00% (based on current LIBOR levels) from 4.25%. The LIBOR floor of 1.00% remained unchanged and a 1.00% prepayment premium will apply in the event any Term Loans are repriced, repaid or refinanced within six months of the repricing. All other terms of the Senior Secured Credit Facility agreement remain substantially unchanged. The Revolver has an interest rate based either on LIBOR and an applicable margin of 250 basis points, or an alternative base rate and an applicable margin of 150 basis points. The Company paid $0.4 million of deferred financing costs in connection with this repricing.

On March 20, 2017, the Company made an excess cash flow payment on the outstanding Term Loans of $6.7 million and recognized an expense of $0.1 million on the accelerated depreciation of unamortized deferred financing costs in the first quarter of 2017.

As of March 31, 2017, the Company had $291.9 million of Term Loan borrowings, and no outstanding borrowings under the Revolver. As of March 31, 2017, the Company is in compliance with all terms and covenants of its borrowing arrangements, and has $50 million of revolving credit availability under the Senior Secured Credit Facility.

We have historically serviced our debt obligations from funds generated by operating activities. We believe that our cash balance, together with our remaining capacity under the Revolver and cash generated by operating activities, will be sufficient to fund our operations, service our debt obligations and pursue our strategy for one year from the date of this report.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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

We believe the accounting policies and estimates discussed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2016 Annual Report on Form 10-K reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements. There have been no material changes to the critical accounting policies and estimates as filed in such report.

Recent Accounting Standards

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The following discussion should be read together with our unaudited consolidated financial statements and related notes to unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, as well as those discussed within our audited consolidated financial statements and related notes to audited consolidated financial statements included in our 2016 Annual Report on Form 10-K.

Interest Rate Risk

As of March 31, 2017, we were not subject to market risk from exposure to changes in interest rates with respect to borrowings under our existing 2023 Notes.

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As of March 31, 2017, we were subject to market risk from exposure to changes in interest rates on borrowings under our Senior Secured Credit Facility, specifically the impact of LIBOR interest rates on our variable rate borrowings. Based upon our March 31, 2017 outstanding term loan borrowings of $291.9 million under the Senior Secured Credit Facility, an increase in the LIBOR interest rate of 1% would result in an increase in our annual interest expense of approximately $3.0 million. We anticipate such interest rate risk will remain a market risk exposure for the foreseeable future.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, our controls and procedures can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control and misstatements due to error or fraud may occur and not be detected on a timely basis.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2017, 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

During 2016, the Company began implementing WideOrbit to replace Marketron as its billing and radio traffic system. As of March 31, 2017, WideOrbit has been implemented in 27 of the 66 markets. The Company has enhanced the documentation of internal control processes and procedures relating to the new system to supplement existing internal controls over financial reporting, as appropriate. The system changes were undertaken to increase the efficiency of system integration and information consolidation.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Please refer to Part I, Item 1A, “Risk Factors,” in our 2016 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

On January 31, 2017, the Company issued 48,035 shares of Class A common stock as a portion of the consideration

in its acquisition of an interest in a joint venture.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

See Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	TOWNSQUARE MEDIA, INC.

By:	/s/ Steven Price
	Name: Steven Price
	Title: Chairman & Chief Executive Officer

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

Date: May 9, 2017

EXHIBIT INDEX



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

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

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

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

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

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document