Townsquare Media, Inc. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



☐	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		27-1996555
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Manhattanville Road
Suite 202
Purchase,	New York	10577
(Address of Principal Executive Offices)		(Zip Code)

(203) 861-0900

Registrant's telephone number, including area code

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share	TSQ	The New York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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



Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒
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.			☒

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 November 7, 2019, the registrant had 18,961,819 outstanding shares of common stock consisting of: (i)14,313,844 shares of Class A common stock, par value $0.01 per share; (ii) 3,011,634 shares of Class B common stock, par value $0.01 per share; and (iii) 1,636,341 shares of Class C common stock, par value $0.01 per share. The registrant also had 8,977,676 warrants to purchase Class A common stock outstanding as of that date.

TOWNSQUARE MEDIA, INC.

INDEX



PART I FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	1
	Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018	2
	Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2019 and 2018	3
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	5
	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 4.	Controls and Procedures	38

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	41
	Signatures	44

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TOWNSQUARE MEDIA, INC.

CONSOLIDATED BALANCE SHEETS

(in Thousands, Except Share and Per Share Data)

(unaudited)



	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	74,189		$	60,517
Accounts receivable, net of allowance of $2,458 and $3,454, respectively	67,235			62,459
Prepaid expenses and other current assets	11,082			8,939
Current assets of discontinued operations	12			19,763
Total current assets	152,518			151,678
Property and equipment, net	113,226			112,377
Intangible assets, net	478,405			478,938
Goodwill	227,055			226,981
Investments	11,775			9,505
Operating lease right-of-use assets	45,736			—
Restricted cash	883			879
Other assets	70			6,909
Total assets	$	1,029,668		$	987,267
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,818		$	13,393
Deferred revenue	7,508			7,922
Accrued expenses and other current liabilities	22,884			32,749
Short-term lease liabilities	7,417			5
Accrued interest	9,080			4,563
Current liabilities of discontinued operations	868			7,138
Total current liabilities	60,575			65,770
Long-term debt, less current portion (net of deferred finance costs of $4,639 and $5,155, respectively)	555,841			555,325
Deferred tax liability	21,320			16,031
Long-term lease liabilities	41,278			5
Other long-term liabilities	1,570			8,559
Total liabilities	680,584			645,690
Stockholders’ equity:
Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 14,313,844 and 14,297,066 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively	143			143
Class B common stock, par value $0.01 per share; 50,000,000 shares authorized; 3,011,634 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	190			190
Additional paid-in capital	367,331			365,835
Accumulated deficit	(20,569		)	(25,735		)
Non-controlling interest	2,132			1,287
Total stockholders’ equity	349,084			341,577
Total liabilities and stockholders’ equity	$	1,029,668		$	987,267

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in Thousands, Except Per Share Data)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018

Net revenue	$	112,561		$	106,007		$	319,331		$	299,309

Operating costs and expenses:
Direct operating expenses	76,612			72,170			220,831			209,248
Depreciation and amortization	6,841			4,644			20,563			13,436
Corporate expenses	7,173			6,863			20,130			19,802
Stock-based compensation	532			597			2,068			1,033
Transaction costs	193			166			469			1,003
Business realignment costs	—			(207		)	4			(207		)
Impairment of long lived and intangible assets	—			—			231			—
Net loss (gain) on sale and retirement of assets	143			(3		)	141			(401		)
Total operating costs and expenses	91,494			84,230			264,437			243,914
Operating income	21,067			21,777			54,894			55,395
Other expense:
Interest expense, net	8,524			8,640			25,645			25,600
Other expense, net	107			41			177			121
Income from continuing operations before income taxes	12,436			13,096			29,072			29,674
Provision for income taxes	3,290			3,583			7,892			8,102
Net income from continuing operations	9,146			9,513			21,180			21,572
Net (loss) income from discontinued operations, net of income taxes	(334		)	178			(7,414		)	(36,837		)
Net income (loss)	$	8,812		$	9,691		$	13,766		$	(15,265	)

Net income (loss) attributable to:
Controlling interests	$	8,255		$	9,258		$	12,269		$	(16,215	)
Non-controlling interests	557			433			1,497			950

Basic income (loss) per share ⁽¹⁾:
Continuing operations attributable to common shares	$	0.31		$	0.33		$	0.72		$	0.75
Discontinued operations attributable to common shares	$	(0.02	)	$	0.01		$	(0.40	)	$	(1.99	)
Continuing operations attributable to participating shares	$	0.31		$	0.33		$	0.71		$	0.75
Discontinued operations attributable to participating shares	$	—		$	0.01		$	—		$	—

Diluted income (loss) per share:
Continuing operations	$	0.31		$	0.33		$	0.72		$	0.75
Discontinued operations	$	(0.01	)	$	0.01		$	(0.27	)	$	(1.34	)

Weighted average shares outstanding:
Basic attributable to common shares	18,602			18,478			18,532			18,478
Basic attributable to participating shares	8,978			8,978			8,978			8,978

Diluted	27,581			27,690			27,510			27,632

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

(1) See Note 2 to the Unaudited Consolidated Financial Statements entitled Correction of Prior Period Financial Statements

See Notes to Unaudited Consolidated Financial Statements

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			Retained Earnings (Deficit)			Accumulated Other Comprehensive Loss			Non- Controlling Interest			Total
January 1, 2018	13,819,639	3,022,484		1,636,341	8,977,676	$	185	$	367,041		$	13,265		$	(532	)	$	1,121		$	381,080
Adjustments of equity pursuant to adoption of ASC 606*	—	—		—	—	—		—			2,271			—			—			2,271
Adjusted balance at January 1, 2018	13,819,639	3,022,484		1,636,341	8,977,676	185		367,041			15,536			(532		)	1,121			383,351
Net (loss) income	—	—		—	—	—		—			(26,809		)	—			218			(26,591		)
Dividends declared	—	—		—	—	—		—			(2,061		)	—			—			(2,061		)
Stock-based compensation	—	—		—	—	—		197			—			—			—			197
Issuance of restricted stock	18,037	—		—	—	—		—			—			—			—			—
Foreign currency exchange	—	—		—	—	—		—			—			(126		)	—			(126		)
Cash distributions to non-controlling interests	—	—		—	—	—		—			(19		)	—			(8		)	(27		)
Balance at March 31, 2018	13,837,676	3,022,484		1,636,341	8,977,676	$	185	$	367,238		$	(13,353	)	$	(658	)	$	1,331		$	354,743
Net income	—	—		—	—	—		—			1,335			—			299			1,634
Dividends declared	—	—		—	—	—		—			(2,123		)	—			—			(2,123		)
Acquisitions of non-controlling interests	—	—		—	—	—		(3,671		)	—			—			(645		)	(4,316		)
Stock-based compensation	—	—		—	—	—		251			—			—			—			251
Conversion of common shares	10,850	(10,850	)	—	—	—		—			—			—			—			—
Issuance of restricted stock	400,000	—		—	—	—		—			—			—			—			—
Disposal of subsidiary	—	—		—	—	—		—			(19		)	656			—			637
Foreign currency exchange	—	—		—	—	—		—			—			2			—			2
Cash distributions to non-controlling interests	—	—		—	—	—		—			19			—			(506		)	(487		)
Balance at June 30, 2018	14,248,526	3,011,634		1,636,341	8,977,676	$	185	$	363,818		$	(14,141	)	$	—		$	479		$	350,341
Net income	—	—		—	—	—		—			9,258			—			433			9,691
Dividends declared	—	—		—	—	—		—			(2,092		)	—			—			(2,092		)
Acquisitions of non-controlling interests	—	—		—	—	—		956			—			—			—			956
Stock-based compensation	—	—		—	—	—		597			—			—			—			597
Disposal of subsidiary	—	—		—	—	—		—			19			—			(19		)	—
Issuance of restricted stock	48,540	—		—	—	5		(5		)	—			—			—			—
Cash distributions to non-controlling interests	—	—		—	—	—		—			—			—			—			—
Balance at September 30, 2018	14,297,066	3,011,634		1,636,341	8,977,676	$	190	$	365,366		$	(6,956	)	$	—		$	893		$	359,493

*See Note 3

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(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			Accumulated Other Comprehensive Loss			Non- Controlling Interest			Total
January 1, 2019	14,297,066	3,011,634	1,636,341	8,977,676	$	190	$	365,835		$	(25,735	)	$	—		$	1,287		$	341,577
Adjustments of equity pursuant to adoption of ASC 842**	—	—	—	—	—		—			(816		)	—			—			(816		)
Net (loss) income***	—	—	—	—	—		—			(5,505		)	—			447			(5,058		)
Dividends declared	—	—	—	—	—		—			(2,095		)	—			—			(2,095		)
Stock-based compensation	—	—	—	—	—		876			—			—			—			876
Issuance of restricted stock	16,778	—	—	—	—		—			—			—			—			—
Cash distributions to non-controlling interests	—	—	—	—	—		—			—			—		—	(1,287		)	(1,287		)
Balance at March 31, 2019***	14,313,844	3,011,634	1,636,341	8,977,676	$	190	$	366,711		$	(34,151	)	$	—		$	447		$	333,197
Net income***	—	—	—	—	—		—			9,519			—			493			10,012
Dividends declared	—	—	—	—	—		—			(2,095		)	—			—			(2,095		)
Stock-based compensation	—	—	—	—	—		673			—			—			—			673
Sale of non-controlling interest	—	—	—	—	—		(430		)	—			—			1,930			1,500
Cash distributions to non-controlling interests	—	—	—	—	—		—			—			—		—	(13		)	(13		)
Balance at June 30, 2019***	14,313,844	3,011,634	1,636,341	8,977,676	$	190	$	366,954		$	(26,727	)	$	—		$	2,857		$	343,274
Net income	—	—	—	—	—		—			8,255			—			557			8,812
Dividends declared	—	—	—	—	—		—			(2,097		)	—			—			(2,097		)
Stock-based compensation	—	—	—	—	—		421			—			—			—			421
Sale of non-controlling interest	—	—	—	—	—		(44		)	—			—			—			(44		)
Cash distributions to non-controlling interests	—	—	—	—	—		—			—			—		—	(1,282		)	(1,282		)
Balance at September 30, 2019	14,313,844	3,011,634	1,636,341	8,977,676	$	190	$	367,331		$	(20,569	)	$	—		$	2,132		$	349,084

**See Note 15

***See Note 2

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in Thousands)

(unaudited)



	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	13,766		$	(15,265	)
Loss from discontinued operations	(7,414		)	(36,837		)
Income from continuing operations	21,180			21,572
Adjustments to reconcile income from continuing operations to net cash flows from operating activities
Depreciation and amortization	20,563			13,436
Amortization of deferred financing costs	1,036			1,140
Net deferred taxes and other	7,892			8,752
Provision for doubtful accounts	823			2,044
Stock-based compensation expense	2,068			1,033
Trade activity, net	(8,243		)	(10,138		)
Non-cash interest expense	—			(15		)
Write-off of deferred financing costs	7			97
Impairment of long lived and intangible assets	231			—
Net loss (gain) on sale of assets	141			(401		)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(3,983		)	(5,124		)
Prepaid expenses and other assets	5,105			(912		)
Accounts payable	(626		)	(5,911		)
Accrued expenses	(12,045		)	(1,549		)
Accrued interest	4,517			3,559
Other long-term liabilities	(6,147		)	(623		)
Net cash provided by operating activities - continuing operations	32,519			26,960
Net cash used in operating activities - discontinued operations	(7,116		)	(15,757		)
Net cash provided by operating activities	25,403			11,203

Cash flows from investing activities:
Purchase of property and equipment	(14,545		)	(12,675		)
Payments for acquisitions, net of cash acquired	(711		)	(21,128		)
Proceeds from sale of assets	313			726
Net cash used in investing activities - continuing operations	(14,943		)	(33,077		)
Net cash provided by investing activities - discontinued operations	11,093			23,780
Net cash used in investing activities	(3,850		)	(9,297		)

Cash flows from financing activities:
Repayment of bank debt	—			(9,519		)
Dividend payments	(6,208		)	(4,120		)
Sale of non-controlling interest	1,500			—
Cash distribution to non-controlling interests	(2,582		)	(514		)
Deferred financing costs	(571		)	(2		)
Repayments of capitalized obligations	(16		)	(4		)
Net cash used in financing activities - continuing operations	(7,877		)	(14,159		)
Net cash used in financing activities - discontinued operations	—			(19		)
Net cash used in financing activities	(7,877		)	(14,178		)

Effect of exchange rate changes	—			(124		)
Net increase (decrease) in cash and cash equivalents and restricted cash	13,676			(12,396		)
Cash and cash equivalents and restricted cash:
Beginning of period	61,396			62,041
End of period	$	75,072		$	49,645

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in Thousands)

(unaudited)



	Nine Months Ended September 30,
	2019		2018
Supplemental Disclosure of Cash Flow Information:
Cash payments:
Interest	$	20,916	$	20,895
Income taxes	715		913

Supplemental Disclosure of Non-cash Activities:
Dividends declared, but not paid during the period	$	2,153	$	2,158
Non-cash investments	2,000		—

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Description of the Business

Townsquare Media, Inc. (together with its consolidated subsidiaries, except as the context may otherwise require, "we," "us," "our," "Company," or "Townsquare") is a radio, digital media, entertainment and digital marketing solutions company principally focused on being the premier local advertising and marketing solutions platform in small and mid-sized markets across the U.S. Our assets include 321 radio stations and more than 330 local websites in 67 U.S. markets, a digital marketing solutions company (Townsquare Interactive) serving approximately 18,150 small to medium sized businesses, a proprietary digital programmatic advertising platform (Townsquare Ignite), and approximately 200 local live events each year. Our brands include local media assets such as WYRK, KLAQ, K2 and NJ101.5; iconic local and regional events such as WYRK's Taste of Country, the Boise Music Festival, the Red Dirt BBQ & Music Festival and Taste of Fort Collins; and leading tastemaker music and entertainment websites such as XXLmag.com, TasteofCountry.com and Loudwire.com. For more information, please visit www.townsquaremedia.com, www.townsquareinteractive.com, and www.townsquareignite.com.

Note 2. Correction of Prior Period Financial Statements

Depreciation

In connection with the preparation of the Company's consolidated financial statements for the three and nine months ended September 30, 2019, the Company identified an error in the calculation of depreciation on software development costs. The Company has determined that certain of its development costs, as defined, in accordance with Accounting Standards Codification (“ASC”) Topic 350, Accounting for Internal-Use Software, along with certain other capitalized costs should have started being amortized in the first quarter of 2019. In accordance with Staff Accounting Bulletin (“SAB”) No. 99 Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the error and determined that the impact was not material to its results of operations or financial position for any prior annual or interim period.

The impacts to the amounts previously reported and revised in our Consolidated Statement of Operations as of the three months ended March 31, 2019 and June 30, 2019 and the six months ended June 30, 2019 are included in the tables below:



	Three Months Ended March 31, 2019
	As Reported			Adjustment			As Revised
Depreciation and amortization	$	6,508		$	371		$	6,879
Total operating costs and expenses	81,771			371			82,142
Operating income	11,911			(371		)	11,540
Income from continuing operations before income taxes	3,282			(371		)	2,911
Provision for income taxes	908			(103		)	805
Net income from continuing operations	2,374			(268		)	2,106
Net loss	(4,790		)	(268		)	(5,058		)

Basic income (loss) per share: (1)
Continuing operations attributable to common shares	0.07			(0.02		)	0.05
Discontinued operations attributable to common shares	(0.39		)	—			(0.39		)
Continuing operations attributable to participating shares	0.07			—			0.07
Discontinued operations attributable to participating shares	—			—			—
Diluted income (loss) per share: (1)
Continuing operations	0.07			(0.01		)	0.06
Discontinued operations	(0.26		)	—			(0.26		)

(1) Earnings per share amounts reflected as reported are as revised in our Quarterly Report on Form 10-Q filed on August 12, 2019



	Three Months Ended June 30, 2019
	As Reported		Adjustment			As Revised
Depreciation and amortization	$	5,897	$	946		$	6,843
Total operating costs and expenses	89,855		946			90,801
Operating income	23,233		(946		)	22,287
Income from continuing operations before income taxes	14,671		(946		)	13,725
Provision for income taxes	4,059		(262		)	3,797
Net income from continuing operations	10,612		(684		)	9,928
Net income	10,696		(684		)	10,012

Basic income (loss) per share:
Continuing operations attributable to common shares	0.37		(0.03		)	0.34
Discontinued operations attributable to common shares	—		—			—
Continuing operations attributable to participating shares	0.37		(0.03		)	0.34
Discontinued operations attributable to participating shares	—		—			—
Diluted income (loss) per share:
Continuing operations	0.37		(0.03		)	0.34
Discontinued operations	—		—			—



	Six Months Ended June 30, 2019
	As Reported			Adjustment			As Revised
Depreciation and amortization	$	12,405		$	1,317		$	13,722
Total operating costs and expenses	171,626			1,317			172,943
Operating income	35,144			(1,317		)	33,827
Income from continuing operations before income taxes	17,953			(1,317		)	16,636
Provision for income taxes	4,967			(365		)	4,602
Net income from continuing operations	12,986			(952		)	12,034
Net income	5,906			(952		)	4,954

Basic income (loss) per share:
Continuing operations attributable to common shares	0.44			(0.04		)	0.40
Discontinued operations attributable to common shares	(0.38		)	—			(0.38		)
Continuing operations attributable to participating shares	0.44			(0.04		)	0.40
Discontinued operations attributable to participating shares	—			—			—
Diluted income (loss) per share:
Continuing operations	0.44			(0.04		)	0.40
Discontinued operations	(0.26		)	—			(0.26		)

The impacts to the amounts previously reported in our Consolidated Balance Sheets as of March 31, 2019 and June 30, 2019 are included in the tables below:



	As of March 31, 2019							As of June 30, 2019
	As Reported		Adjustment			As Revised		As Reported		Adjustment			As Revised
Property and equipment, net	$	112,771	$	(371	)	$	112,400	$	112,923	$	(1,317	)	$	111,606
Total assets	1,013,231		(371		)	1,012,860		1,012,723		(1,317		)	1,011,406
Deferred tax liability	14,424		(103		)	14,321		18,513		(365		)	18,148
Total stockholders' equity	333,465		(268		)	333,197		344,226		(952		)	343,274

Leases

In addition to the correction of the error noted above, during the preparation of the Company's consolidated financial statements for the three and nine months ended September 30, 2019, the Company identified an error in the assessment of renewal options of operating leases at lease inception, which resulted in an incremental $3.7 million included within operating lease right-of-use assets and lease liabilities.

Earnings Per Share

In connection with the preparation of the Company's consolidated financial statements for the three and six months ended June 30, 2019, the Company identified an error in the presentation and calculation of its income (loss) per share. The

Company has determined that our Warrants are a participating security, as defined, in accordance with Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share. Although these Warrants are subject to restrictions on exercise, they participate in the undistributed earnings of the Company. The correction requires that the Company's Basic income (loss) per common share be presented under a two-class method. In accordance with Staff Accounting Bulletin (“SAB”) No. 99 Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the error and determined that the impact was not material to its results of operations or financial position for any prior annual or interim period. The impacts to the income (loss) per share amounts previously reported for three and nine months ended September 30, 2018 are included in the tables below:



	Three Months Ended September 30, 2018
	As Reported			Adjustment			Disc-ops ⁽¹⁾			As Revised
Basic income (loss) per share:
Continuing operations attributable to common shares	$	0.52		$	(0.18	)	$	(0.01	)	$	0.33
Discontinued operations attributable to common shares	$	(0.01	)	$	0.01		$	0.01		$	0.01
Continuing operations attributable to participating shares	$	—		$	0.34		$	(0.01	)	$	0.33
Discontinued operations attributable to participating shares	$	—		$	—		$	0.01		$	0.01

Diluted income (loss) per share:
Continuing operations	$	0.35		$	(0.01	)	$	(0.01	)	$	0.33
Discontinued operations	$	(0.01	)	$	0.01		$	0.01		$	0.01

Weighted average shares outstanding:
Basic attributable to common shares	18,941			(463		)	—			18,478
Basic attributable to participating shares	—			8,978			—			8,978
Diluted	27,919			(229		)	—			27,690



	Nine Months Ended September 30, 2018
	As Reported			Adjustment			Disc-ops ⁽¹⁾			As Revised
Basic income (loss) per share:
Continuing operations attributable to common shares	$	1.21		$	(0.42	)	$	(0.04	)	$	0.75
Discontinued operations attributable to common shares	$	(2.03	)	$	(0.02	)	$	0.06		$	(1.99	)
Continuing operations attributable to participating shares	$	—		$	0.79		$	(0.04	)	$	0.75
Discontinued operations attributable to participating shares	$	—		$	—		$	—		$	—

Diluted income (loss) per share:
Continuing operations	$	0.82		$	(0.03	)	$	(0.04	)	$	0.75
Discontinued operations	$	(1.37	)	$	(0.01	)	$	0.04		$	(1.34	)

Weighted average shares outstanding:
Basic attributable to common shares	18,690			(212		)	—			18,478
Basic attributable to participating shares	—			8,978			—			8,978
Diluted	27,668			(36		)	—			27,632

(1) Reflects the latest presentation of discontinued operations

The impacts to the income (loss) per share amounts previously reported for the years ended December 31, 2018, December 31, 2017 and December 31, 2016 are not reflective of the subsequent 2019 Music Festivals discontinued operations. See Note 17 entitled Discontinued Operations. The revised income (loss) per share amounts for these periods are included in the tables below:



	Year Ended December 31, 2018
	As Reported			Adjustment			As Revised
Basic income (loss) per share:
Continuing operations attributable to common shares	$	(0.03	)	$	(0.22	)	$	(0.25	)
Discontinued operations attributable to common shares	$	(1.68	)	$	—		$	(1.68	)
Continuing operations attributable to participating shares	$	—		$	0.30		$	0.30
Discontinued operations attributable to participating shares	$	—		$	—		$	—

Diluted income (loss) per share:
Continuing operations	$	(0.03	)	$	(0.22	)	$	(0.25	)
Discontinued operations	$	(1.68	)	$	—		$	(1.68	)

Weighted average shares outstanding:
Basic attributable to common shares	18,478			—			18,478
Basic attributable to participating shares	—			8,978			8,978
Diluted	27,502			—			27,502



	Year Ended December 31, 2017
	As Reported			Adjustment			As Revised
Basic income (loss) per share:
Continuing operations attributable to common shares	$	1.34		$	(0.47	)	$	0.87
Discontinued operations attributable to common shares	$	(1.90	)	$	—		$	(1.90	)
Continuing operations attributable to participating shares	$	—		$	0.87		$	0.87
Discontinued operations attributable to participating shares	$	—		$	—		$	—

Diluted income (loss) per share:
Continuing operations	$	0.89		$	(0.03	)	$	0.86
Discontinued operations	$	(1.26	)	$	—		$	(1.26	)

Weighted average shares outstanding:
Basic attributable to common shares	18,459			—			18,459
Basic attributable to participating shares	—			8,978			8,978
Diluted	27,855			—			27,855



	Year Ended December 31, 2016
	As Reported		Adjustment			As Revised
Basic income (loss) per share:
Continuing operations attributable to common shares	$	1.14	$	(0.39	)	$	0.75
Discontinued operations attributable to common shares	$	0.13	$	(0.04	)	$	0.09
Continuing operations attributable to participating shares	$	—	$	0.75		$	0.75
Discontinued operations attributable to participating shares	$	—	$	0.09		$	0.09

Diluted income (loss) per share:
Continuing operations	$	0.76	$	(0.01	)	$	0.75
Discontinued operations	$	0.09	$	—		$	0.09

Weighted average shares outstanding:
Basic attributable to common shares	18,255		—			18,255
Basic attributable to participating shares	—		8,978			8,978
Diluted	27,313		—			27,313

Note 3. Summary of Significant Accounting Policies

Except as stated below, there have been no significant changes in the Company’s accounting policies since December 31, 2018. 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, 2018 (the "2018 Annual Report on Form 10-K") filed with the Securities and Exchange Commission ("SEC") on March 12, 2019.

Recently Issued Accounting Standards

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which is intended to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The Company adopted this standard effective January 1, 2019, which did not have a material impact on the Company’s consolidated financial statements.

The Company also considered the following recent accounting pronouncements which were not yet adopted as of September 30, 2019:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument's contractual life. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption, either of the entire standard or only the provisions that eliminate or modify requirements, is permitted. The Company is continuing to assess the impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements, including the eliminating the requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and requiring disclosure of the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption, either of the entire standard or only the provisions that eliminate or modify requirements, is permitted. The Company has evaluated the disclosure requirements of this standard and does not expect it to have a material impact on the Company’s consolidated financial statements.

Change in Accounting Policy

Segment Reporting

Operating segments are organized internally by type of products and services provided. On January 2, 2019, the Company announced that its former Co-Chief Executive Officer (“CEO”) Dhruv Prasad resigned and that its other Co-CEO Bill Wilson would become the Company’s sole CEO. As a result of this organization change, Mr. Wilson also became the Company’s Chief Operating Decision Maker (“CODM”). Based on the information reviewed by Mr. Wilson in his capacity as CODM, the Company has identified three reportable operating segments, which are Advertising, which includes broadcast and digital advertising products and solutions, Townsquare Interactive, which is our digital marketing solutions business and Live Events, which is comprised of the Company’s live events, including concerts, expositions and other experiential events. The Company has concluded that each of these operating segments shall be presented separately. Prior year segment reporting has been restated to conform with the current year presentation.

Leases

leases would be different in accordance with ASC Topic 842, or (c) whether the unamortized initial direct costs before transition adjustments would have met the definition of initial direct costs in ASC Topic 842 at lease commencement. As a result of the adoption of the new lease accounting guidance, the Company recognized at adoption (a) a lease liability of approximately $49.4 million, which represents the present value of the remaining lease payments, discounted at a weighted average discount rate of 7.04%, and (b) a ROU asset of approximately $46.5 million which represents the lease liability of $49.4 million adjusted for accrued rent of approximately $2.9 million. The Company recorded an adjustment of $0.8 million at the adoption date of January 1, 2019 to stockholders' equity to properly account for the Company's operating lease ROU assets and operating lease liabilities. As of December 31, 2018, the Company has reclassified an immaterial amount of capitalized leases from Current portion of long-term debt to Short-term lease liabilities. The most significant impact of this standard was the recognition of ROU assets and lease obligations for operating leases.

Restricted Cash

As of September 30, 2019, restricted cash will be separately disclosed within the Consolidated Balance Sheet and the Consolidated Statements of Cash Flow. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash which requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Certain reclassifications have been made to the prior year presentation to conform to the current year presentation.

Note 4. Revenue Recognition

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



	Three Months Ended September 30, 2019								Nine Months Ended September 30, 2019
	Advertising		Townsquare Interactive		Live Events		Total		Advertising		Townsquare Interactive		Live Events		Total

Net Revenue (ex Political)	$	92,458	$	15,880	$	3,595	$	111,933	$	257,452	$	45,376	$	15,071	$	317,899
Political	628		—		—		$	628	1,432		—		—		$	1,432
Net Revenue	$	93,086	$	15,880	$	3,595	$	112,561	$	258,884	$	45,376	$	15,071	$	319,331



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

Net Revenue (ex Political)	$	86,161	$	12,608	$	4,945	$	103,714	$	241,988	$	35,089	$	17,918	$	294,995
Political	2,293		—		—		$	2,293	4,314		—		—		$	4,314
Net Revenue	$	88,454	$	12,608	$	4,945	$	106,007	$	246,302	$	35,089	$	17,918	$	299,309

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

The primary sources of net revenue are the sale of advertising on our radio stations, owned and operated websites, third party websites, radio stations’ online streams, and mobile applications. We offer precision customer targeting solutions to advertisers through Townsquare Ignite, our digital programmatic advertising platform. We also offer on a subscription basis

under the brand name Townsquare Interactive, digital marketing solutions to small and mid-sized local and regional businesses in small and mid-sized markets across the United States, including the markets in which we operate radio stations. In addition, we offer a diverse range of live events which we create, promote, and produce. This includes concerts, expositions and other experiential events within and beyond our markets. Our live events also generate substantial net revenue through the sale of sponsorships, food and other concessions, merchandise and other ancillary products and services.

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

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

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

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

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

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

No impairment losses have arisen from any contracts with customers during the three and nine months ended September 30, 2019 and 2018.

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



	September 30, 2019		December 31, 2018		September 30, 2018		At Adoption January 1, 2018
Receivables	$	67,235	$	62,459	$	65,103	$	60,492
Short-term contract liabilities (deferred revenue)	$	7,508	$	7,922	$	7,098	$	7,992

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

customer and the products or services offered. Payment terms for amounts invoiced are typically net 30-60 days. The term between invoicing and when payment is due is not significant. The Company had no material bad debt expense recorded during the three and nine months ended September 30, 2019 and 2018.

We record contract liabilities when cash payments are received or due in advance of satisfying our performance obligations. Our contract liabilities include cash payments received or due in advance related to ticket sales for events scheduled to take place over the course of the current year and digital subscriptions in which payment is received in advance of the service month. These contract liabilities are recognized as revenue as the related performance obligations are satisfied. The decrease in the contract liabilities balance that was included in the deferred revenue balance at adoption January 1, 2018 is primarily driven by $0.5 million and $7.4 million of recognized revenue for the three and nine months ended September 30, 2018, respectively, offset by cash payments received or due in advance of satisfying our performance obligations. The increase in the contract liabilities balance that was included in the deferred revenue balance at December 31, 2018 is primarily driven by $0.3 million and $7.3 million of recognized revenue for the three and nine months ended September 30, 2019, respectively, offset by cash payments received or due in advance of satisfying our performance obligations. No significant changes in the timeframe of the satisfaction of contract liabilities have occurred during the three and nine months ended September 30, 2019.

In connection with the adoption of Topic 606, we are required to capitalize certain contract acquisition costs consisting primarily of commissions paid when contracts are signed (previously such costs were expensed as incurred). Our capitalized contract acquisition costs include amounts related to sales commissions paid related to signed contracts with perceived durations exceeding one year. For these contracts, we defer the related sales commission costs and amortize such costs to expense consistent with how the related revenue is recognized over the duration of the contracts. We have evaluated the average customer contract duration (initial term and any renewals) to determine the appropriate amortization period for these contractual arrangements. For contracts with a duration of less than one year, we follow a Topic 606 practical expedient and expense these costs when incurred. As of January 1, 2018, we had a balance of $2.3 million in deferred costs and have recognized $0.4 million and $1.5 million of amortization for the three and nine months ended September 30, 2018. As of December 31, 2018, we had a balance of $3.0 million in deferred costs and have recognized $0.4 million and $1.4 million for the three and nine months ended September 30, 2019. No impairment losses have been recognized or changes made to the time frame for performance of the obligations related to deferred contract assets during the three and nine months ended September 30, 2019 and 2018.

Arrangements with Multiple Performance Obligations

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

Practical Expedients and Exemptions

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

Note 5. Acquisitions & Divestitures

On June 4, 2019, the Company entered into an Asset Purchase Agreement to sell a radio broadcast station in Tuscaloosa, AL for $0.1 million. In connection with the transaction, which closed on July 31, 2019, we recorded an impairment charge against the long lived asset disposal group of $0.2 million, which is included in impairment of long lived and intangible assets in the Company's Consolidated Statement of Operations for the nine months ended September 30, 2019.

On May 22, 2019, the Company entered into an Asset Purchase Agreement to acquire certain assets and liabilities related to a radio broadcast station in Tuscaloosa, AL for $0.7 million. The acquisition closed on July 31, 2019 and consideration was paid with cash on hand.

During the first quarter of 2019, management concluded that the Company should exit its multi-day music festival business (the "Music Festivals") and commenced an active search for a buyer of the Music Festivals. On May 24, 2019, the Company closed on the sale of its Music Festivals to a subsidiary of Live Nation for $10.0 million. As part of the transaction, it was mutually agreed upon that the Company would operate the 2019 Music Festivals under a production services agreement for a pre-determined share of "Net Profits" as defined in the agreement. The Company has recorded a net gain on the disposal of the Music Festivals of $0.2 million and $0.6 million, which is in net income (loss) from discontinued operations, net of income taxes in the Company's Consolidated Statement of Operations for the three and nine months ended September 30, 2019, respectively.

On March 18, 2019, the Company closed on the sale of its Arizona Bridal Shows for $2.0 million. The Company realized a gain in connection with the sale of $1.4 million, which is included in net income (loss) from discontinued operations, net of income taxes in the Company's Consolidated Statement of Operations for the nine months ended September 30, 2019.

On May 24, 2018, the Company, through a subsidiary of Townsquare Live Events, LLC, sold all of the issued and outstanding membership interests of Heartland Group, LLC and its wholly owned subsidiary NAME to North American Fairs, LLC for $23.5 million. We recognized a loss on the sale of NAME of approximately $1.8 million within net loss from discontinued operations during the year ended December 31, 2018.

On June 29, 2018, the Company entered into an Agreement of Purchase and Sale to transfer its 70% controlling interest in Mountain Jam, LLC ("Mountain Jam") to Chet-5 Festivals ("Chet-5"), LLC and to acquire the 30% minority interest in Taste of Country Productions LLC from Chet-5. The purchase and sale were completed on the same day and included a payment of $1.3 million from the Company to Chet-5. The Company recognized a gain on the sale of Mountain Jam of approximately $1.2 million during the year ended December 31, 2018.

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

The Princeton Acquisition purchase price allocation is shown in the following table (in thousands):



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

Note 6. 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 2018 Annual Report on Form 10-K. The accompanying unaudited interim consolidated financial statements include the consolidated accounts of the Company and its wholly-owned subsidiaries, with all significant intercompany balances and transactions eliminated in consolidation. These financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of results of operations for and financial condition as of the end of the interim periods have been included. The results of operations and cash flows for the three and nine months ended September 30, 2019 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, 2019. The Consolidated Balance Sheet as of December 31, 2018 is derived from the audited financial statements at that date.

revenue generally includes increased advertising expenditures by political candidates, political parties and special interest groups. Political spending is typically highest during the fourth quarter. Our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on net revenue generation until future periods, if at all.

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

Note 7. Investments

Long-term investments consist of minority holdings in companies that management believes are synergistic with Townsquare. As management does not exercise significant control over operating and financial policies of the investees, the investments are reflected under the cost method of accounting. The initial equity valuations were based upon a combination of valuation analysis using observable inputs categorized as Level 2 and performing discounted cash flows analysis, using unobservable inputs categorized as Level 3 within the ASC 820 framework. Effective January 1, 2018, the Company adopted ASU 2016-01 which requires cost method investments to be measured at fair value, with any changes in value recognized in net income. The ASU also allows the use of a qualitative assessment when analyzing impairment of equity investments without readily determinable fair values. The Company elected to measure the equity investments at cost minus impairment as fair value is not readily determinable and they do not qualify for the practical expedient to estimate fair value.

During the nine months ended September 30, 2019 approximately $0.3 million of a convertible note receivable previously outstanding at December 31, 2018 converted into an investment. Additionally, during the nine months ended September 30, 2019, the Company made an investment in a small business totaling $2.0 million. The investments represent minority ownership positions that are accounted for under the cost method of accounting. These transactions were recorded as investments in the Company's Consolidated Balance Sheet as of September 30, 2019.

Note 8. Property and Equipment

Property and equipment consisted of the following (in thousands):



	September 30, 2019			December 31, 2018
Land and improvements	$	21,392		$	21,062
Buildings and leasehold improvements	48,573			43,525
Broadcast equipment (1)	85,584			81,690
Computer and office equipment (1)	17,687			14,801
Furniture and fixtures	18,692			15,789
Transportation equipment	18,329			16,899
Software development costs	25,004			21,332
Total property and equipment, gross	235,261			215,098
Less accumulated depreciation and amortization	(122,035		)	(102,721		)
Total property and equipment, net	$	113,226		$	112,377

Depreciation and amortization expense for property and equipment was $6.6 million and $4.2 million for the three months ended September 30, 2019 and 2018, respectively and $19.9 million and $12.4 million for the nine months ended September 30, 2019 and 2018, respectively. Depreciation and amortization expense for property and equipment included amounts related to finance lease assets for the three and nine months ended September 30, 2019 of $0.1 million, respectively.

(1) The following property and equipment balances included capital lease assets (in thousands):



	September 30, 2019
Computer and office equipment	$	13
Total property and equipment, gross	13
Less accumulated depreciation and amortization	(1		)
Total property and equipment, net	$	12

Note 9. 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 testing date.

In January 2019, management concluded that the Company should exit its music festival business and commenced an active search for a buyer. As a result of these actions, the music festival business met the criteria for assets held for sale which required the Company to measure its long-lived assets at the lower of carrying value or fair value less costs to sell. During the first quarter of 2019, management received indications of fair value. This assessment resulted in a $10.0 million impairment charge against the assets of the disposal group which have been recorded in discontinued operations for the nine months ended September 30, 2019. With the exception of reclassifications as a result of discontinued operations, there were no changes in the carrying value of goodwill for the three months ended September 30, 2019 and for the three and nine months ended September 30, 2018.

Intangible assets consist of the following (in thousands):



	Estimated Useful Life	September 30, 2019			December 31, 2018
Intangible Assets:
FCC licenses	Indefinite	$	473,890		$	473,412
Customer and advertising relationships	10 years	6,540			6,540
Leasehold interests	5 to 39 years	1,085			1,085
Tower space	3 to 9 years	454			454
Sports broadcast rights	1 to 2 years	665			665
Non-compete agreements	1 to 2 years	243			243
Trademarks	15 years	2,761			3,196
Other intangibles	3 years	161			161
Total		485,799			485,756
Less: Accumulated amortization		(7,394		)	(6,818)
Net amount		$	478,405		$	478,938

Amortization expense for definite-lived intangible assets was $0.2 million and $0.4 million for the three months ended September 30, 2019 and 2018, respectively and $0.7 million and $1.0 million for the nine months ended September 30, 2019 and 2018, respectively. FCC licenses include an impairment charge of $0.1 million for the nine months ended September 30, 2019.

Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of September 30, 2019 is as follows (in thousands):



2019 (remainder)	$	225
2020	849
2021	840
2022	836
2023	626
Thereafter	1,139
	$	4,515

Note 10. Long-Term Debt

Total debt outstanding is summarized as follows (in thousands):



	September 30, 2019			December 31, 2018
2023 Notes	$	278,148		$	278,148
Term Loans	282,332			282,332
Debt before deferred financing costs	560,480			560,480
Deferred financing costs	(4,639		)	(5,155		)
Total long-term debt	$	555,841		$	555,325

On April 1, 2015, the Company issued $300.0 million of 6.5% Unsecured Senior Notes due in 2023 (the "2023 Notes") and entered into a Senior Secured Credit Facility, which includes a seven years, $275.0 million term loan facility (together with the incremental term loans described below (the "Term Loans") and a five years, $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 drew incremental Term Loans of $45.0 million under the Senior Secured Credit Facility.

During the year ended December 31, 2018, the Company voluntarily repurchased $1.9 million of its 2023 Notes at a market price below par, including accrued interest and recognized a gain of $0.1 million. The repurchased notes were canceled by the Company. The Company recognized a loss of $0.04 million on the write-off of unamortized deferred financing costs in connection with the voluntary repurchases of its 2023 Notes.

As of September 30, 2019, the interest rate on the Term Loans was 5.04%, based on the current LIBOR rate and an applicable margin of 300 basis points. The Revolver has an interest rate based either on LIBOR and an applicable margin of 250 basis points, or an alternative base rate and an applicable margin of 150 basis points. As of September 30, 2019, the Company had no outstanding borrowings under the Revolver.

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

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

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

On April 30, 2019, the Company entered into an amendment under its existing credit agreement for the Senior Secured Credit Facility to, among other things, extend the maturity date of the existing revolving credit facility by two years to April 1, 2022, coterminous with the Term Loans maturity date (with a springing maturity six months inside of the maturity date of the Term Loans) and to amend certain asset sale provisions. The Term Loans mature on April 1, 2022. 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 free cash flow as defined in the credit agreement (subject to certain reductions). At December 31, 2018, we were not required to make an excess free cash flow payment on the outstanding Term Loans. 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. In connection with the amendment, the Company incurred financing costs of $0.4 million which are being amortized over the term of the revolving credit facility.

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

The Company is in compliance with its covenants under the 2023 Notes and Senior Secured Credit Facility as of September 30, 2019.

As of September 30, 2019, based on available market information, the estimated fair value of the 2023 Notes and the Term Loans were $277.5 million and $281.6 million, respectively.

Annual maturities of the Company's long-term debt as of September 30, 2019 are as follows (in thousands):



2019 (remainder)	$	—
2020	—
2021	—
2022	282,332
2023	278,148
Thereafter	—
	$	560,480

Note 11. Stockholders' Equity

The table below presents a summary, as of September 30, 2019, of our authorized and outstanding common stock, and securities convertible into common stock, excluding options issued under our 2014 Omnibus Incentive Plan.



Security¹	Par Value Per Share		Number Authorized	Number Outstanding	Description
Class A common stock	$	0.01	300,000,000	14,313,844	One vote per share.
Class B common stock	$	0.01	50,000,000	3,011,634	10 votes per share.²
Class C common stock	$	0.01	50,000,000	1,636,341	No votes.²
Warrants				8,977,676	Each warrant is exercisable for one share of Class A common stock, at an exercise price of $0.0001 per share. The aggregate exercise price for all warrants currently outstanding is $898.³
Total			400,000,000	27,939,495
¹ Each of the shares of common stock, including the shares of Class A common stock issuable upon exercise of the warrants, have equal economic rights.
² Each share converts into one share of Class A common stock upon transfer or at the option of the holder, subject to certain conditions, including compliance with FCC rules.
³ The warrants are fully vested and exercisable for shares of Class A common stock, subject to certain conditions, including compliance with FCC rules.

The foregoing share totals include 334,815 shares of restricted Class A common stock, subject to vesting terms, but exclude 4,745,237 of Class A common stock and 4,550,991 of Class B common stock issuable upon exercise of stock options which have an exercise price between $5.20 and $9.63 per share. Additionally, the Company is authorized to issue 50,000,000 shares of undesignated preferred stock.

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 1:1 (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. The Company’s Class C common stock is not redeemable, but is convertible 1:1 (including automatically upon certain transfers) into Class A common stock.

Stock-based Compensation

The Company’s 2014 Omnibus Incentive Plan (the “2014 Incentive Plan”) provides grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards. Directors, officers and other employees of the Company and its subsidiaries, as well as others performing consulting or advisory services for the Company, are eligible for grants under the 2014 Incentive Plan. The purpose of the 2014 Incentive Plan is to provide incentives that will attract, retain and motivate high performing officers, directors, employees and consultants by providing them with appropriate incentives and rewards either through a proprietary interest in our long-term success or compensation based on their performance in fulfilling their personal responsibilities. The aggregate number of shares of common stock which may be issued or used for reference purposes under the 2014 Incentive Plan or with respect to which awards may be granted may not exceed 12,000,000 shares. As of September 30, 2019, 2,177,339 shares were available for grant.

During the nine months ended September 30, 2019, the Company issued 16,778 shares of restricted Class A common stock, none of which were vested as of September 30, 2019. The fair value of the restricted grants was $5.96 share.

The following table summarizes stock option activity for the nine months ended September 30, 2019:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Outstanding at January 1, 2019	9,688,424		$	8.23	6.15	$	—
Granted	6,500
Exercised	—
Forfeited	(398,696	)
Outstanding at September 30, 2019	9,296,228		$	8.26	4.99	$	—

As of September 30, 2019, there were 334,815 shares of restricted Class A common stock outstanding with a weighted average grant date fair value per share of $6.94. The fair value of the restricted stock is equal to the closing share price on the date prior to the grant. The vesting term of the shares of restricted stock vary from 1 to 5 years.

Stock-based compensation expense was $0.5 million and $0.6 million for the three months ended September 30, 2019 and 2018, respectively and $2.1 million and $1.0 million for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, total unrecognized stock-based compensation expense related to our stock options and restricted stock was $2.8 million and $1.9 million, respectively, and is expected to be recognized over a weighted average period of 2.4 and 2.8 years, respectively.

Note 12. Net Income (Loss) Per Share

The following table sets forth the computations of basic and diluted net income (loss) per share for the three and nine months ended September 30, 2019 and 2018 (in thousands, except per share data).



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018

Numerator:
Net income (loss)	$	8,812		$	9,691	$	13,766		$	(15,265	)
Net income from non-controlling interest	557			433		1,497			950
Net income (loss) attributable to controlling interest	8,255			9,258		12,269			(16,215		)

Net income from continuing operations	9,146			9,513		21,180			21,572
Net income from continuing operations attributable to non-controlling interest	557			433		1,497			950
Net income from continuing operations attributable to controlling interest	$	8,589		$	9,080	$	19,683		$	20,622
Net (loss) income from discontinued operations, net of income taxes	$	(334	)	$	178	$	(7,414	)	$	(36,837	)

Denominator:
Weighted average shares of common stock outstanding	18,602			18,478		18,532			18,478
Weighted average shares of participating securities outstanding	8,978			8,978		8,978			8,978
Total weighted average basic shares outstanding	27,580			27,456		27,510			27,456
Effect of dilutive common stock equivalents	1			234		—			176
Weighted average diluted common shares outstanding	27,581			27,690		27,510			27,632

Basic income (loss) per share ⁽¹⁾:
Continuing operations attributable to common shares	$	0.31		$	0.33	$	0.72		$	0.75
Discontinued operations attributable to common shares	$	(0.02	)	$	0.01	$	(0.40	)	$	(1.99	)
Continuing operations attributable to participating shares	$	0.31		$	0.33	$	0.71		$	0.75
Discontinued operations attributable to participating shares	$	—		$	0.01	$	—		$	—

Diluted income (loss) per share:
Continuing operations	$	0.31		$	0.33	$	0.72		$	0.75
Discontinued operations	$	(0.01	)	$	0.01	$	(0.27	)	$	(1.34	)

Note 13. Income Taxes

The Company's effective tax rate for the three months ended September 30, 2019 and 2018 was approximately 26.5% and 27.4%, respectively. The effective tax rate may vary significantly from period to period, and can be influenced by many factors. These factors include, but are not limited to, changes to the statutory rates in the jurisdictions where the Company has operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 21% for the three months ended September 30, 2019 primarily relates to certain non-deductible items under the Tax Cuts and Jobs Act (the "Tax Act") provisions and state and local income taxes.

The Company's effective tax rate for the nine months ended September 30, 2019 and 2018 was approximately 27.1% and 27.3%, respectively. The effective tax rate may vary significantly from period to period, and can be influenced by many factors. These factors include, but are not limited to, changes to the statutory rates in the jurisdictions where the Company has operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and

the federal statutory rate of 21% for the nine months ended September 30, 2019 primarily relates to certain non-deductible items under the Tax Cuts and Jobs Act (the "Tax Act") provisions and state and local income taxes.

Note 14. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):



	September 30, 2019		December 31, 2018
Accrued compensation and benefits	$	7,419	$	14,863
Accrued professional fees	1,431		1,449
Accrued commissions	2,122		1,980
Accrued taxes	1,915		2,686
Accrued music and FCC licensing	1,781		2,315
Accrued publisher fees	2,969		2,213
Accrued national representation fees	1,111		1,276
Due to sellers, business combinations	—		26
Deferred rent	—		2,139
Dividends payable	2,240		2,162
Accrued other	1,896		1,640
	$	22,884	$	32,749

Note 15. Leases and Other Commitments

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.

In September 2015, the Company closed on the sale of 43 towers located on 41 sites in 28 markets to a subsidiary of Vertical Bridge, LLC ("Vertical Bridge") (the "Tower Sale"). The divested towers house antenna that broadcast certain of the Company’s radio stations. As part of this transaction, the Company leased a portion of the space on the sold towers that house certain of the Company's antenna. The lease is for a period of 35 years, including an initial term of twenty years and three optional 5-year renewal periods. The Company will pay $41 of rent per annum ($1 per site per annum) to Vertical Bridge for the right to house its existing antenna on the divested towers. In addition, the Company determined that the lease is an operating lease and is amortizing the long-term prepaid rent asset and deferred gain on the sale of towers as offsetting amounts over the lease term. The ending balances of the long-term prepaid rent asset and deferred gain as of December 31, 2018 of $6.6 million were included in the opening balance of the operating lease ROU assets and operating lease liabilities at January 1, 2019. The Company will continue to amortize these balances over the remaining lease term.

The below table summarizes the impact on the Company's Consolidated Balance Sheet at the adoption date of January 1, 2019 and as of September 30, 2019, respectively (dollars in thousands):



	Classification	At Adoption January 1, 2019⁽¹⁾⁽²⁾			September 30, 2019
Operating lease assets	Operating lease right-of-use assets	$	46,501		$	45,736
Finance lease assets	Property and equipment, net	—			12
Total lease right-of-use-assets		$	46,501		$	45,748

Deferred rent	Accrued expenses and other current liabilities	$	(2,111	)	$	—
Operating lease liabilities	Short-term lease liabilities	—			7,410
Capital lease liabilities	Short-term lease liabilities	5			7
Total current liabilities		(2,106		)	7,417
Operating lease liabilities	Long-term lease liabilities	49,418			41,273
Capital lease liabilities	Long-term lease liabilities	5			5
Total liabilities		47,317			48,695
Retained deficit		(816		)	—
Total liabilities and stockholders' equity		$	46,501		$	48,695

Weighted Average Remaining Lease Term
Finance Leases		—			15.73 years
Operating leases		6.36 years			7.38 years
Weighted Average Discount Rate
Finance Leases		—			7.51		%
Operating leases		7.04		%	7.28		%

(1) Excludes $2.6 million operating lease right-of-use-assets and operating lease liabilities related to discontinued operations

(2) In connection with Note 2, entitled Correction of Prior Period Financial Statements, includes incremental $3.7 million within operating lease assets and operating lease liabilities

Maturities of lease liabilities for operating leases are as follows as of September 30, 2019 (in thousands):



2019 (remainder)	$	8,967
2020	8,539
2021	7,488
2022	6,576
2023	5,282
Thereafter	19,004
Total operating lease payments	55,856
Less: imputed interest	(13,631		)
Add: deferred gain sale leaseback transaction	6,458
Total	$	48,683

Maturities of lease liabilities for financing leases are as follows as of September 30, 2019 (in thousands):



2019 (remainder)	$	3
2020	7
2021	1
2022	1
2023	1
Thereafter	—
Total finance lease payments	13
Less: imputed interest	(1		)
Total	$	12

The components of lease expense recorded to operating and corporate expense are as follows (dollars in thousands):



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	2,713	$	8,651
Short-term lease cost	12		42
Variable lease cost	—		8
Total lease cost	$	2,725	$	8,701

Supplemental cash flow information related to leases are as follows (dollars in thousands):



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,742	$	8,825
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	887	$	4,509

As of September 30, 2019, we have additional operating leases, primarily for office space that have not yet commenced totaling $2.1 million. These operating leases will commence in 2019 with lease terms of 20 years.

Other Commitments: The radio broadcast industry’s principal ratings service is Nielsen Holdings N.V. ("Nielsen"), which publishes surveys for domestic radio markets. The Company’s remaining aggregate obligation under the agreements with Nielsen as of September 30, 2019 is approximately $11.6 million and is expected to be paid in accordance with the agreements through September 2021. In addition, the Company has aggregate commitments of $0.4 million for other broadcasting services through December 2019 and aggregate commitments of $9.0 million for a business management platform through 2023.

Note 16. Segment Reporting

Operating segments are organized internally by type of products and services provided. On January 2, 2019, the Company announced that its Co-CEO Bill Wilson would become the Company’s sole CEO. As a result of this organization change, Mr. Wilson also became the Company’s Chief Operating Decision Maker (“CODM”). Based on the information reviewed by Mr. Wilson in his capacity as CODM, the Company has identified three reportable operating segments, which are Advertising, which includes broadcast and digital advertising products and solutions, Townsquare Interactive, which is our digital marketing solutions business and Live Events, which is comprised of the Company’s live events, including concerts, expositions and other

experiential events. The Company has concluded that each of these operating segments shall be presented separately. Prior year segment reporting has been restated to conform with the current year presentation.

The following table presents the Company's reportable segment results for the three months ended September 30, 2019 (in thousands):



	Advertising		Townsquare Interactive		Live Events		Corporate and Other Reconciling Items			Total
Net revenue	$	93,086	$	15,880	$	3,595	$	—		$	112,561
Direct operating expenses	62,421		10,882		3,309		—			76,612
Depreciation and amortization	3,471		129		133		3,108			6,841
Corporate expenses	—		—		—		7,173			7,173
Stock-based compensation	36		24		2		470			532
Transaction costs	—		—		—		193			193
Net loss on sale and retirement of assets	—		—		—		143			143
Operating income (loss)	$	27,158	$	4,845	$	151	$	(11,087	)	$	21,067
Capital expenditures	$	4,291	$	83	$	—	$	1,243		$	5,617

The following table presents the Company's reportable segment results for the three months ended September 30, 2018 (in thousands):



	Advertising		Townsquare Interactive		Live Events			Corporate and Other Reconciling Items			Total
Net revenue	$	88,454	$	12,608	$	4,945		$	—		$	106,007
Direct operating expenses	58,702		8,954		4,514			—			72,170
Depreciation and amortization	2,899		107		243			1,395			4,644
Corporate expenses	—		—		—			6,863			6,863
Stock-based compensation	53		10		4			530			597
Transaction costs	—		—		—			166			166
Business realignment costs	—		—		(207		)	—			(207		)
Net gain on sale and retirement of assets	—		—		—			(3		)	(3		)
Operating income (loss)	$	26,800	$	3,537	$	391		$	(8,951	)	$	21,777
Capital expenditures	$	2,120	$	183	$	1		$	1,615		$	3,919

The following table presents the Company's reportable segment results for the nine months ended September 30, 2019 (in thousands):



	Advertising		Townsquare Interactive		Live Events		Corporate and Other Reconciling Items			Total
Net revenue	$	258,884	$	45,376	$	15,071	$	—		$	319,331
Direct operating expenses	177,929		30,983		11,919		—			220,831
Depreciation and amortization	9,728		375		411		10,049			20,563
Corporate expenses	—		—		—		20,130			20,130
Stock-based compensation	168		82		28		1,790			2,068
Transaction costs	—		—		—		469			469
Business realignment costs	—		—		—		4			4
Impairment of long lived and intangible assets	231		—		—		—			231
Net gain on sale and retirement of assets	—		—		—		141			141
Operating income (loss)	$	70,828	$	13,936	$	2,713	$	(32,583	)	$	54,894
Capital expenditures	$	9,573	$	282	$	1	$	4,689		$	14,545

The following table presents the Company's reportable segment results for the nine months ended September 30, 2018 (in thousands):



	Advertising		Townsquare Interactive		Live Events			Corporate and Other Reconciling Items			Total
Net revenue	$	246,302	$	35,089	$	17,918		$	—		$	299,309
Direct operating expenses	169,935		24,767		14,546			—			209,248
Depreciation and amortization	8,272		331		514			4,319			13,436
Corporate expenses	—		—		—			19,802			19,802
Stock-based compensation	120		25		13			875			1,033
Transaction costs	—		—		—			1,003			1,003
Business realignment costs	—		—		(207		)	—			(207		)
Net gain on sale and retirement of assets	—		—		—			(401		)	(401		)
Operating income (loss)	$	67,975	$	9,966	$	3,052		$	(25,598	)	$	55,395
Capital expenditures	$	7,559	$	269	$	7		$	4,840		$	12,675

Note 17. Discontinued Operations

During the first quarter of 2019, management concluded that the Company should exit the Music Festivals and commenced an active search for a buyer of the Music Festivals. On May 24, 2019, the Company closed on the sale of its Music Festivals to a subsidiary of Live Nation for $10.0 million. As part of the transaction, it was mutually agreed upon that the Company would operate the 2019 Music Festivals under a production services agreements for a pre-determined share of "Net Profits" as defined in the agreement. The Company has recorded a net gain on the disposal of the Music Festivals of $0.2 million and $0.6 million, which is in net income (loss) from discontinued operations, net of income taxes in the Company's Consolidated Statement of Operations for the three and nine months ended September 30, 2019, respectively.

On May 24, 2018, the Company, through a subsidiary of Townsquare Live Events, LLC, sold all of the issued and outstanding membership interests of Heartland Group, LLC and its wholly owned subsidiary NAME to North American Fairs, LLC for $23.5 million. We recognized a loss on the sale of NAME of approximately $1.8 million within net loss from discontinued operations during the year ended December 31, 2018. In addition, on June 29, 2018, the Company entered into an

Agreement of Purchase and Sale to transfer its 70% controlling interest in Mountain Jam, LLC ("Mountain Jam") to Chet-5 Festivals ("Chet-5"), LLC and to acquire the 30% minority interest in Taste of Country Productions LLC from Chet-5. The purchase and sale were completed on the same day and included a payment of $1.3 million from the Company to Chet-5. The Company recognized a gain on the sale of Mountain Jam of approximately $1.2 million during the year ended December 31, 2018.

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



	September 30, 2019			December 31, 2018
Accounts receivable	$	—		$	9
Prepaid expenses and other current assets	12			435
Property and equipment, net	—			1,874
Intangible assets, net	—			3,843
Goodwill	—			13,602
Current assets of discontinued operations	12			19,763
Accounts payable	—			89
Deferred revenue	—			6,688
Accrued expenses and other current liabilities	868			361
Current liabilities of discontinued operations	868			7,138
Net (liabilities) assets	$	(856	)	$	12,625

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



	Three Months Ended September 30,					Nine Months Ended September 30, 2019
	2019			2018		2019			2018
Net revenue	$	6,849		$	8,067	$	20,369		$	38,234

Discontinued operating costs and expenses:
Direct operating expenses	7,282			6,691		22,068			46,969
Depreciation and amortization	—			209		208			2,822
Stock-based compensation	(110		)	—		(97		)	10
Transaction costs	228			—		238			—
Impairment of long lived and intangible assets	—			—		10,016			37,973
Net (gain) loss on sale and retirement of assets	(99		)	—		(2,045		)	422
Discontinued operating income (loss)	(452		)	1,167		(10,019		)	(49,962		)
Other expenses:
Interest expense, net	—			—		—			1
Other income, net	—			—		—			(24		)
Income (loss) from discontinued operations before income taxes	(452		)	1,167		(10,019		)	(49,985		)
Provision (benefit) for income taxes	(118		)	989		(2,605		)	(13,148		)
Net income (loss) from discontinued operations, net of income taxes	$	(334	)	$	178	$	(7,414	)	$	(36,837	)

Note 18. Subsequent Events

Dividend

On November 4, 2019 the Board of Directors approved a dividend of $0.075 per share. The dividend will be paid to holders of record as of December 27, 2019. The estimated $2.1 million dividend will be paid on February 14, 2020.

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. This discussion should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this quarterly report.

On July 2, 2018, the Company acquired certain assets and liabilities related to three radio stations in Princeton, NJ (“the Princeton Acquisition”) from Connoisseur Media, LLC. We use the term “pro forma” in this section to refer to results that include the Princeton Acquisition as if it had been completed on January 1, 2018.

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 ability to develop and maintain digital technologies and hire and retain technical and sales talent, 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 2018 Annual Report on Form 10-K, as well as other risks discussed from time to time in our filings with the SEC. Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Discontinued Operations

During the first quarter of 2019, management concluded that the Company should exit its music festival business and it would therefore be discontinued. The Company commenced a search for a buyer of the music festivals. The assets, liabilities and results of operations of this business have been reclassified as discontinued operations and assets held for sale. Refer to Note 17 in the accompanying Consolidated Financial Statements for additional information.

On May 24, 2019, the Company closed on the sale of four multi-day music festivals (the "Music Festivals") for $10.0 million. Additionally, the Company and the buyer of the Music Festivals entered into a production services agreement stating that the Company will operate the 2019 festivals on the purchaser's behalf. The Company acted as an independent contractor while performing the services and earned a fixed percentage of profits from the festivals.

On May 24, 2018, the Company, through a subsidiary of Townsquare Live Events, LLC, sold all of the issued and outstanding membership interests of Heartland Group, LLC and its wholly owned subsidiary North American Midway Entertainment ("NAME") to North American Fairs, LLC for $23.5 million. In addition, on June 29, 2018, the Company entered into an Agreement of Purchase and Sale to transfer its 70% controlling interest in Mountain Jam, LLC ("Mountain Jam") to Chet-5 Festivals ("Chet-5"), LLC and to acquire the 30% minority interest in Taste of Country Productions LLC from Chet-5. Refer to Note 17 in the accompanying Consolidated Financial Statements for additional information.

Format of Presentation

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

Townsquare owns and operates 321 radio stations and over 330 local websites serving 67 small and mid-sized markets, a digital marketing solutions company, a digital programmatic advertising platform and an e-commerce offering. Almost all of our radio stations have local companion websites that utilize the station brands and are populated with proprietary, original content created or curated by our local media personalities. In addition, Townsquare owns and operates a diverse range of live events which we create, promote and produce. This includes concerts, expositions and other experiential events within and beyond our radio markets.

Our discussion is presented on both a consolidated and segment basis. The Company has identified three operating segments, which are Advertising, which includes broadcast and digital advertising products and solutions, Townsquare Interactive, our digital marketing solutions business and Live Events, which is comprised of the Company's live events, including concerts, expositions and other experiential events.

Advertising

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

In addition, we offer precision customer targeting solutions to advertisers through Townsquare Ignite, our digital programmatic advertising platform. Combining first and third party audience and geographic location data, Ignite is able to hyper-target audiences for our local, regional and national advertisers, providing them the ability to reach a high percentage of their online audience. Ignite delivers these solutions across desktop, mobile, connected TV, email, paid search and social media platforms utilizing display, video and native executions.

Townsquare Interactive

Through our Townsquare Interactive segment, we offer digital marketing solutions, on a subscription basis, to small and mid-sized local and regional businesses in small and mid-sized markets across the United States, including the markets in which we operate radio stations. Our digital marketing solutions include traditional and mobile-enabled website development and hosting services, e-commerce platforms, search engine and online directory optimization services, online reputation management, social media management, and website retargeting.

Live Events

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

We strive to maximize our net revenue by managing our advertising inventory and adjusting prices based on supply and demand, and by broadening our base of advertisers and subscribers. Our selling and pricing activity is based on demand for

our advertising inventory and, in general, we respond to this demand by varying prices rather than by varying our target inventory levels. The optimal number of advertisements available for sale depends on the platform and in the case of our radio stations, their online streams and mobile applications, the programming format of a particular radio station. Each of our advertising products has a general target level of available inventory. We seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across our platforms, thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group.

Our advertising contracts are generally short-term. In the media industry, companies, including ours, sometimes utilize barter agreements that exchange advertising time for goods or services such as travel or lodging, instead of cash.

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

A portion of our expenses are variable. These variable expenses primarily relate to sales costs, such as commissions, as well as certain programming costs, such as music license fees, and certain costs related to production. Marketing and promotions expenses are discretionary and are primarily incurred in an effort to maintain and/or increase our audience share. Other programming, digital, engineering and general and administrative expenses are primarily fixed costs.

Seasonality

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. 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.

Macroeconomic Indicators

Our advertising revenue for our businesses may be highly correlated to changes in gross domestic product (“GDP”), as advertising spending has historically trended in line with, and in our experience often lags, changes in GDP. According to the U.S. Department of Commerce estimate as of October 30, 2019, U.S. GDP grew at an annual rate of 1.9% in the third quarter of 2019.

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. Based on the applicable regulations, we will no longer qualify as an emerging growth company as of December 31, 2019. We are also a “smaller reporting company,” which allows us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We may continue as a smaller reporting company for as long as our public float (consisting of common stock held by non-affiliates) is less than $250 million as of the last business day of our second fiscal quarter and for a transition period thereafter.

Executive Summary

The key developments in our business for the three months ended September 30, 2019, as compared to the same period in 2018 are summarized below:


•	Net revenue for the three months ended September 30, 2019 increased $6.6 million, or 6.2%.


◦	Excluding political revenue, net revenue increased $8.2 million, or 7.9%.


◦	Advertising net revenue increased $4.6 million, or 5.2%.


◦	Townsquare Interactive net revenue increased $3.3 million, or 26.0%.


◦	Live Events net revenue declined $1.4 million, or 27.3%.

The key developments in our business for the nine months ended September 30, 2019, as compared to the same period in 2018 are summarized below:


•	Net revenue for the nine months ended September 30, 2019 increased $20.0 million, or 6.7%.


◦	Excluding political revenue, net revenue increased $22.9 million, or 7.8%.


◦	Advertising net revenue increased $12.6 million, or 5.1%.


◦	Townsquare Interactive net revenue increased $10.3 million, or 29.3%.


◦	Live Events net revenue decreased $2.8 million, or 15.9%.


•	Pro forma net revenue for the nine months ended September 30, 2019 increased $16.4 million, or 5.4%.


◦	Excluding political revenue, pro forma net revenue increased $19.3 million, or 6.5%.


◦	Pro forma Advertising net revenue increased $9.1 million, or 3.6%.


◦	Pro forma Townsquare Interactive net revenue increased $10.3 million, or 29.3%.


◦	Pro forma Live Events net revenue decreased $3.0 million, or 16.5%.

Consolidated Results of Operations

Three Months Ended September 30, 2019 compared to Three Months Ended September 30, 2018

The following table summarizes our historical consolidated results of operations (in thousands):



	Three Months Ended September 30,
	2019			2018			$ Change			% Change
Advertising net revenue	$	93,086		$	88,454		$	4,632		5.2	%
Townsquare Interactive net revenue	15,880			12,608			3,272			26.0	%
Live Events net revenue	3,595			4,945			(1,350		)	(27.3	)%
Net revenue	112,561			106,007			6,554			6.2	%
Direct operating expenses:
Advertising direct operating expenses	62,421			58,702			3,719			6.3	%
Townsquare Interactive direct operating expenses	10,882			8,954			1,928			21.5	%
Live Events direct operating expenses	3,309			4,514			(1,205		)	(26.7	)%
Direct operating expenses	76,612			72,170			4,442			6.2	%
Depreciation and amortization	6,841			4,644			2,197			47.3	%
Corporate expenses	7,173			6,863			310			4.5	%
Stock-based compensation	532			597			(65		)	(10.9	)%
Transaction costs	193			166			27			16.3	%
Business realignment costs	—			(207		)	207			—	%
Net loss (gain) on sale and retirement of assets	143			(3		)	146			NM
Total operating costs and expenses	91,494			84,230			7,264			8.6	%
Operating income	21,067			21,777			(710		)	(3.3	)%
Other expense:
Interest expense, net	8,524			8,640			(116		)	(1.3	)%
Other expense, net	107			41			66			161.0	%
Income from continuing operations before income taxes	12,436			13,096			(660		)	(5.0	)%
Provision for income taxes	3,290			3,583			(293		)	(8.2	)%
Net income from continuing operations	9,146			9,513			(367		)	(3.9	)%
Net (loss) income from discontinued operations, net of income taxes	(334		)	178			(512		)	(287.6	)%
Net income	$	8,812		$	9,691		$	(879	)	(9.1	)%

Net Revenue

Net revenue for the three months ended September 30, 2019 increased $6.6 million, or 6.2%, as compared to the same period in 2018.

Advertising net revenue for the three months ended September 30, 2019 increased $4.6 million, or 5.2%, as compared to the same period in 2018. The increase was primarily driven by revenue gains in our digital programmatic business as a result of a larger customer base.

Townsquare Interactive net revenue for the three months ended September 30, 2019 increased $3.3 million, or 26.0%, as compared to the same period in 2018. The increase was due to a larger subscriber base.

Live Events net revenue for the three months ended September 30, 2019 decreased $1.4 million, or 27.3%, as compared to the same period in 2018. The decrease was primarily driven by the elimination of certain events.

Direct Operating Expenses

Direct operating expenses for the three months ended September 30, 2019 increased by $4.4 million, or 6.2%, as compared to the same period in 2018.

Advertising operating expenses for the three months ended September 30, 2019 increased $3.7 million, or 6.3%, as compared to the same period in 2018. The increase was primarily driven by increases in headcount related expenses to support the growth of our digital programmatic business.

Townsquare Interactive operating expenses for the three months ended September 30, 2019 increased $1.9 million, or 21.5%, as compared to the same period in 2018. The increase was primarily driven by increases in headcount related expenses to support the revenue growth.

Live Events operating expenses for the three months ended September 30, 2019 decreased $1.2 million, or 26.7%, as compared to the same period in 2018. The decrease was primarily driven by the elimination of certain events.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended September 30, 2019 increased $2.2 million, or 47.3%, as compared to the same period in 2018, primarily related to amortization of capitalized software development costs.

Corporate Expenses

Corporate expenses for the three months ended September 30, 2019 increased $0.3 million, or 4.5%, as compared to the same period in 2018.

Stock-based Compensation

Stock-based compensation expense for the three months ended September 30, 2019 decreased $0.1 million, or 10.9%, as compared to the same period in 2018.

Transaction Costs

Transaction costs for the three months ended September 30, 2019 remained relatively consistent as compared to the same period in 2018.

Business Realignment Costs

Business realignment costs for the three months ended September 30, 2019 increased $0.2 million as compared to the same period in 2018.

Net Loss (Gain) on Sale and Retirement of Assets

Net loss (gain) on sale and retirement of assets for the three months ended September 30, 2019 declined $0.1 million as compared to the same period in 2018.

Other Expense

Interest expense, net is the major recurring component of other expense. Interest expense, net decreased $0.1 million, or 1.3%, as compared to the same period in 2018.

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



	Three Months Ended September 30,
	2019		2018

2023 Notes	$	4,520	$	4,551
Term Loans	3,879		3,764
Capital loans and other	23		2
Loan origination costs	397		378
Interest income	(295)		(55)
Interest expense, net	$	8,524	$	8,640

Provision for income taxes

We recognized a provision for income taxes of $3.3 million for the three months ended September 30, 2019. Our effective tax rate for the period was approximately 26.5%. Our effective tax rate may vary significantly from period to period and can be influenced by many factors. These factors include, but are not limited to, changes to statutory rates in the jurisdictions where we have operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 21% for the three months ended September 30, 2019 primarily relates to certain non-deductible items under the Tax Act provisions and state and local income taxes.

Consolidated Results of Operations

Nine Months Ended September 30, 2019 compared to Nine Months Ended September 30, 2018

The following table summarizes our historical consolidated results of operations (in thousands):



	Nine Months Ended September 30,
	2019			2018			$ Change			% Change
Advertising net revenue	$	258,884		$	246,302		$	12,582		5.1	%
Townsquare Interactive net revenue	45,376			35,089			10,287			29.3	%
Live Events net revenue	15,071			17,918			(2,847		)	(15.9	)%
Net revenue	319,331			299,309			20,022			6.7	%
Direct operating expenses:
Advertising direct operating expenses	177,929			169,935			7,994			4.7	%
Townsquare Interactive direct operating expenses	30,983			24,767			6,216			25.1	%
Live Events direct operating expenses	11,919			14,546			(2,627		)	(18.1	)%
Direct operating expenses	220,831			209,248			11,583			5.5	%
Depreciation and amortization	20,563			13,436			7,127			53.0	%
Corporate expenses	20,130			19,802			328			1.7	%
Stock-based compensation	2,068			1,033			1,035			100.2	%
Transaction costs	469			1,003			(534		)	(53.2	)%
Business realignment costs	4			(207		)	211			NM
Impairment of long lived and intangible assets	231			—			231			NM
Net loss (gain) on sale and retirement of assets	141			(401		)	542			NM
Total operating costs and expenses	264,437			243,914			20,523			8.4	%
Operating income	54,894			55,395			(501		)	(0.9	)%
Other expense:
Interest expense, net	25,645			25,600			45			0.2	%
Other expense, net	177			121			56			46.3	%
Income from continuing operations before income taxes	29,072			29,674			(602		)	(2.0	)%
Provision for income taxes	7,892			8,102			(210		)	(2.6	)%
Net income from continuing operations	21,180			21,572			(392		)	(1.8	)%
Net loss from discontinued operations, net of income taxes	(7,414		)	(36,837		)	29,423			79.9	%
Net income (loss)	$	13,766		$	(15,265	)	$	29,031		190.2	%

Net Revenue

Net revenue for the nine months ended September 30, 2019 increased $20.0 million, or 6.7%, as compared to the same period in 2018.

Advertising net revenue for the nine months ended September 30, 2019 increased $12.6 million, or 5.1%, as compared to the same period in 2018. The increase was primarily driven by revenue gains in our digital programmatic business as a result of a larger customer base.

Townsquare Interactive net revenue for the nine months ended September 30, 2019 increased $10.3 million, or 29.3%, as compared to the same period in 2018. The increase was due to a larger subscriber base.

Live Events net revenue for the nine months ended September 30, 2019 decreased $2.8 million, or 15.9%, as compared to the same period in 2018. The decrease was primarily driven by the elimination of certain events.

Direct Operating Expenses

Direct operating expenses for the nine months ended September 30, 2019 increased by $11.6 million, or 5.5%, as compared to the same period in 2018.

Advertising operating expenses for the nine months ended September 30, 2019 increased $8.0 million, or 4.7%, as compared to the same period in 2018. The increase was primarily driven by increases in headcount related expenses to support the growth of our digital programmatic business.

Townsquare Interactive operating expenses for the nine months ended September 30, 2019 increased $6.2 million, or 25.1%, as compared to the same period in 2018. The increase was primarily driven by increases in headcount related expenses to support the revenue growth.

Live Events operating expenses for the nine months ended September 30, 2019 decreased $2.6 million, or 18.1%, as compared to the same period in 2018. The decrease was primarily driven by the elimination of certain events.

Depreciation and Amortization

Depreciation and amortization expense for the nine months ended September 30, 2019 increased $7.1 million, or 53.0%, as compared to the same period in 2018, primarily related to amortization of capitalized software development costs.

Corporate Expenses

Corporate expense for the nine months ended September 30, 2019 increased $0.3 million, or 1.7%, as compared to the same period in 2018.

Stock-based Compensation

Stock-based compensation expense for the nine months ended September 30, 2019 increased $1.0 million, or 100.2%, as compared to the same period in 2018, primarily due to new options and restricted stock grants in 2018.

Transaction Costs

Transaction costs for the nine months ended September 30, 2019 decreased $0.5 million, or 53.2%, as compared to the same period in 2018.

Business Realignment Costs

Business realignment costs for the nine months ended September 30, 2019 increased $0.2 million as compared to the same period in 2018.

Impairment of Long Lived and Intangible Assets

Impairment of long lived and intangible assets for the nine months ended September 30, 2019 increased $0.2 million as compared to the same period in 2018.

Net Loss (Gain) on Sale and Retirement of Assets

Net loss (gain) on sale and retirement of assets for the nine months ended September 30, 2019 increased $0.5 million as compared to the same period in 2018.

Other Expense

Interest expense, net is the major recurring component of other expense. Interest expense, net, was relatively constant in the nine months ended September 30, 2019, as compared to the same period in 2018.

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



	Nine Months Ended September 30,
	2019		2018

2023 Notes	$	13,560	$	13,653
Term Loans	11,851		10,770
Capital loans and other	28		7
Loan origination costs	1,043		1,237
Interest income	(837)		(67)
Interest expense, net	$	25,645	$	25,600

Provision for income taxes

We recognized a provision for income taxes of $7.9 million for the nine months ended September 30, 2019. Our effective tax rate for the period was approximately 27.1%. Our effective tax rate may vary significantly from period to period and can be influenced by many factors. These factors include, but are not limited to, changes to statutory rates in the jurisdictions where we have operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 21% for the nine months ended September 30, 2019 primarily relates to certain non-deductible items under the Tax Act provisions and state and local income taxes.

Supplemental Pro Forma Net Revenue

For comparative purposes and to enable the reader to adequately compare prior year with current year results, the following discussion and tables present net revenue for Townsquare pro forma for the Princeton Acquisition disclosed in more detail in our Consolidated Financial Statements contained elsewhere in this quarterly report. The following tables present our historical results, which include the results of the Princeton Acquisition for the period after acquisition, and add the results of the Princeton Acquisition for the periods prior to acquisition as if they had been a part of Townsquare from the first day of the period (in thousands).



	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	Townsquare		Princeton Acquisition		Townsquare Pro Forma for the Princeton Acquisition		Townsquare		Princeton Acquisition		Townsquare Pro Forma for the Princeton Acquisition		$ Change			% Change
Advertising net revenue	$	258,884	$	—	$	258,884	$	246,302	$	3,476	$	249,778	$	9,106		3.6	%
Townsquare Interactive net revenue	45,376		—		45,376		35,089		—		35,089		10,287			29.3	%
Live Events net revenue	15,071		—		15,071		17,918		133		18,051		(2,980		)	(16.5	)%
Net Revenue	$	319,331	$	—	$	319,331	$	299,309	$	3,609	$	302,918	$	16,413		5.4	%

On a pro forma basis, net revenue for the nine months ended September 30, 2019 increased by $16.4 million, or 5.4%, as compared to the same period in 2018.

On a pro forma basis, Advertising net revenue for the nine months ended September 30, 2019 increased $9.1 million, or 3.6%, as compared to the same period in 2018. The increase was primarily driven by revenue gains in our digital programmatic business as a result of a larger customer base.

On a pro forma basis, Townsquare Interactive net revenue for the nine months ended September 30, 2019 increased $10.3 million, or 29.3%, as compared to the same period in 2018. The increase was primarily due to a larger subscriber base.

On a pro forma basis, Live Events net revenue for the nine months ended September 30, 2019 decreased $3.0 million, or 16.5%, as compared to the same period in 2018. The decrease was primarily driven by the elimination of certain events.

Liquidity and Capital Resources

The following table summarizes our change in cash and cash equivalents (in thousands):



	Nine Months Ended September 30,
	2019			2018
Cash provided by operating activities	$	25,403		$	11,203
Cash used in investing activities	(3,850		)	(9,297		)
Cash used in financing activities	(7,877		)	(14,178		)
Net effect of foreign currency exchange rate changes	—			(124		)
Net increase (decrease) in cash and cash equivalents and restricted cash	$	13,676		$	(12,396	)

We fund our working capital requirements through a combination of cash flows from our operating, investing and financing activities. Based on current and anticipated levels of operations and conditions in our markets and industry, we believe that our cash on hand and cash flows from our operating, investing and financing activities, together with funds available under our revolving credit facility, will enable us to meet our working capital, capital expenditures, debt service, dividend and other funding requirements for at least one year from the date of this report. As of September 30, 2019, we had $555.8 million of outstanding indebtedness, net of deferred financing costs of $4.6 million. Based on interest rates in effect as of September 30, 2019, we expect our debt service requirements to be approximately $34.3 million over the next twelve months. In addition, as of September 30, 2019 we had $74.2 million of cash and cash equivalents, $67.2 million of receivables from customers, which historically have had an average collection cycle of approximately 54 days, and $50.0 million of available borrowing capacity under our revolving credit facility. We had restricted cash of $0.9 million at September 30, 2019 and December 31, 2018, that was held as collateral in connection with certain agreements. From time to time, such restricted funds could be returned to us or we could be required to pledge additional cash.

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

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

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

Cash Flows from Operating Activities

Net cash provided by operating activities was $25.4 million for the nine months ended September 30, 2019 compared to $11.2 million for the same period in 2018. The increase was primarily due to a decrease in cash used in operating activities - discontinued operations due to the timing of the sale of NAME.

Cash Flows from Investing Activities

Net cash used in investing activities was $3.9 million for the nine months ended September 30, 2019 compared to $9.3 million for the same period in 2018. The decrease was primarily due to a reduction in payments for acquisitions, offset by proceeds received from the sale of Music Festivals and NAME, which are presented in net cash provided by investing activities - discontinued operations.

Cash Flows from Financing Activities

Net cash used in financing activities was $7.9 million for the nine months ended September 30, 2019, as compared to $14.2 million for the same period in 2018. The decrease was primarily due to the required excess free cash flow payment on our outstanding Term Loan. In the first nine months of 2018, our required payment was $9.5 million. In the first nine months of 2019, we did not have a required payment.

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 March 20, 2018, the Company made an excess cash flow payment on the outstanding Term Loans of $9.5 million and recognized an expense of $0.1 million on the accelerated depreciation of unamortized deferred financing costs in the first quarter of 2018.

On December 3, 2018, the Company voluntarily repurchased and canceled $1.9 million of our 2023 Notes outstanding at a market price below par, including accrued interest.

As of September 30, 2019, the Company had $282.3 million of Term Loan borrowings, and no outstanding borrowings under the Revolver. As of September 30, 2019, 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.

On April 30, 2019, the Company entered into an amendment under its existing credit agreement to, among other things, extend the maturity date of the existing revolving credit facility by two years to April 1, 2022, coterminous with the Term Loan maturity date (with a springing maturity six months inside of the maturity date of the Term Loan) and to amend certain asset sale provisions.

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 2018 Annual Report on Form 10-K reflects our more significant judgments and estimates used in the preparation of the consolidated financial statements. Except as stated below, there have been no material changes to the critical accounting policies and estimates as filed in such report.

Change in Accounting Policy

Segment Reporting

Operating segments are organized internally by type of products and services provided. On January 2, 2019, we announced that our Co-CEO Bill Wilson would become our sole CEO. As a result of this organization change, Mr. Wilson also became our Chief Operating Decision Maker (“CODM”). Based on the information reviewed by Mr. Wilson in his capacity as CODM, we have identified three reportable operating segments, which are Advertising, which includes broadcast and digital advertising products and solutions, Townsquare Interactive, which is our digital marketing solutions business and Live Events, which is comprised of our live events, including concerts, expositions and other experiential events. We have concluded that

each of these operating segments shall be presented separately. Prior year segment reporting has been restated to conform with the current year presentation.

Leases

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 ("ROU") 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 840. The standard is effective for fiscal years beginning after December 15, 2018, and allows a number of practical expedients that the Company has elected to apply. The guidance ASU 2018-11, Leases (Topic 842): Targeted Improvements, which amends ASC 842 provides entities with an optional transition method for adopting the new lease standard by allowing entities to apply the new guidance at the adoption date by recognizing a cumulative-effect adjustment to the opening balance of retained earnings and not to restate comparative periods presented. We adopted the standard using the optional transition method as of January 1, 2019, using the package of practical expedients as well as several other permitted practical expedients that allow for a more simplified transition. Accordingly, we accounted for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease under ASC Topic 842, (b) whether classification of the operating leases would be different in accordance with ASC Topic 842, or (c) whether the unamortized initial direct costs before transition adjustments would have met the definition of initial direct costs in ASC Topic 842 at lease commencement. As a result of the adoption of the new lease accounting guidance, we recognized at adoption (a) a lease liability of approximately $49.4 million, which represents the present value of the remaining lease payments, discounted at a weighted average discount rate of 7.04%, and (b) a ROU asset of approximately $46.5 million which represents the lease liability of $49.4 million adjusted for accrued rent of approximately $2.9 million. We recorded an adjustment of $0.8 million at the adoption date of January 1, 2019 to stockholders' equity to properly account for the Company's operating lease ROU assets and operating lease liabilities. The most significant impact of this standard was the recognition of ROU assets and lease obligations for operating leases.

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 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of the end of the quarter ended September 30, 2019. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2019 due to the material weaknesses in internal control over financial reporting noted below that are disclosed in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.

Material Weakness

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. As disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, we identified a material weakness in our internal control over financial reporting related to a deficiency in the design of the Company's controls over the calculation of earnings per share. Specifically, the Company did not properly disclose the basic earnings per share for the outstanding warrants utilizing the two-class method. During the quarter ended September 30, 2019, additional material weaknesses were identified as a result of deficiencies in (i) the internal communication regarding timing of when internally developed software is placed into service, which impacted the timing to begin depreciation of such software, and (ii) the assessment of renewal options of operating leases at lease inception. See Note 2. Correction of Prior Period Financial Statements to our Unaudited Consolidated Financial Statements.

Remediation Plans

To remediate the above material weaknesses, management has:

•Earnings per share: Enhanced the level of detail employed in the calculation of earnings per share under the two-class method and implemented enhanced review and documentation procedures.

•Internally developed software: Redesigned controls to enhance procedures to determine when completed internally developed software is placed into service and to ensure the timely communication thereof.

•Lease renewal options: Established a formal process to assess renewal options of lease agreements to determine reasonable certainty of extension and to quantify the impact of such extension on the Company’s right of use assets and liabilities.

We believe these measures will remediate the control deficiencies, but management is assessing the need for any additional steps to remediate the underlying causes that give rise to these material weaknesses. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. There is no assurance that additional remediation steps will not be necessary. Accordingly, the material weaknesses in our internal control over financial reporting had not been fully remediated as of September 30, 2019.

Notwithstanding the identified material weaknesses, management believes the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our results of operations and cash flows for the three and nine months ended September 30, 2019 and our financial condition as of such date, in accordance with U.S. GAAP.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except for changes in connection with the implementation of the remediation plans described above.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There is no current material pending litigation to which we are a party and no material legal proceedings were terminated, settled or otherwise resolved during the three and nine months ended September 30, 2019. 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

An investment in Townsquare involves a variety of risks and uncertainties that could cause our actual results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or presented elsewhere in future Securities and Exchange Commission reports or statements made by our management from time to time. These factors may have a material adverse effect on our business, financial condition, operating results and cash flows, and should be carefully considered. For information regarding factors that could impact our business, results of operations, financial condition and liquidity, see Part I, Item 1A, "Risk Factors" in our 2018 Annual Report on Form 10-K. We may update these factors in our future periodic reports and the following risk factor updates the risk factors disclosed in our 2018 Annual Report on Form 10-K. 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.

Failure to comply with requirements to design, implement and maintain effective internal controls could have a material adverse effect on our business and stock price.

As a public company, we have significant requirements for the design, implementation and testing of internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, as amended. The process of designing and implementing effective internal controls, and the related testing thereof, is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We may incur significant costs, and need to hire additional employees or consultants, to assist us in this process.

As an emerging growth company, our auditor previously was not required to make a formal assessment of the effectiveness of our internal control over financial reporting in our 2018 Annual Report on Form 10-K. However, due to our loss of such status no later than December 31, 2019, our auditor will be required to provide such assessment for the year ended December 31, 2019 and present its attestation report in our Annual Report on Form 10-K for the year then ended.

If we are unable to establish or maintain effective internal control over financial reporting, it could cause us to fail to accurately report our financial results, fail to prevent fraud, fail to meet our SEC reporting obligations on a timely basis, result in material misstatements in our Consolidated Financial Statements and harm our operating results or investor confidence, all of which could have a material adverse effect on the trading price of our stock. In addition, the foregoing could subject us to sanctions or investigations by the NYSE, the SEC or other regulatory authorities, or result in the breach of covenants in our debt agreements, any of which could have a material adverse impact on our operations and your investment in our common stock.

Our management has determined that we have three material weaknesses in our internal control over financial reporting, as further described in Part I, Item 4 of this Quarterly Report, and in Part I, Item 4 of our Quarterly Report on Form 10-Q filed with the SEC on August 12, 2019. One material weakness is related to a deficiency in the design of the Company’s calculations of earnings per share, the second material weakness is related to a deficiency in the communication regarding timing of placing internally developed software into service to begin depreciation and the third material weakness relates to the assessment of renewal options of operating leases at lease inception. We are currently implementing measures designed to improve our internal control over financial reporting to remediate these material weaknesses.

We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal controls in the future, or that we can remediate our existing, or any future, material weaknesses or significant deficiencies on a timely basis.

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

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

See Exhibit Index.

EXHIBIT INDEX



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

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

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

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

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

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith

** Furnished herewith

SIGNATURES

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




	TOWNSQUARE MEDIA, INC.

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

Date: November 8, 2019