Townsquare Media 10Q 2020 Q3 Quarterly report

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, 2020


☐			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 6, 2020, the registrant had 18,978,195 outstanding shares of common stock consisting of: (i)14,330,220 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 Septe mber 30, 2020 and December 31, 2019	2
	Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019	3
	Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 4.	Controls and Procedures	42

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44
	Signatures	46

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, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	79,112	$	84,667
Accounts receivable, net of allowance of $4,397 and $2,604, respectively	54,235		67,463
Prepaid expenses and other current assets	10,432		9,241
Total current assets	143,779		161,371
Property and equipment, net	112,314		114,142
Intangible assets, net	281,078		388,029
Goodwill	157,947		157,947
Investments	10,975		8,275
Operating lease right-of-use assets	49,185		49,503
Restricted cash	494		494
Other assets	1,395		638
Total assets	$	757,167	$	880,399
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,292	$	14,790
Current portion of long-term debt	0		9,929
Deferred revenue	9,169		8,086
Accrued compensation and benefits	12,038		10,714
Accrued expenses and other current liabilities	14,668		15,358
Operating lease liabilities, current	7,542		7,690
Financing lease liabilities, current	62		17
Accrued interest	10,762		4,558
Liabilities of discontinued operations	33		423
Total current liabilities	67,566		71,565
Long-term debt, less current portion (net of deferred finance costs of $2,718 and $3,840, respectively)	543,079		546,711
Deferred tax liability	944		34,347
Operating lease liability, net of current portion	45,342		44,957
Financing lease liabilities, net of current portion	137		31
Other long-term liabilities	4,354		352
Total liabilities	661,422		697,963
Stockholders’ equity:
Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 14,330,220 and 14,314,092 shares issued and outstanding, 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	369,200		367,540
Accumulated deficit	(276,669)		(188,034)
Non-controlling interest	3,024		2,740
Total stockholders’ equity	95,745		182,436
Total liabilities and stockholders’ equity	$	757,167	$	880,399

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,
	2020		2019		2020		2019

Net revenue	$	95,356	$	112,561	$	262,844	$	319,331

Operating costs and expenses:
Direct operating expenses	71,088		77,239		207,046		221,597
Depreciation and amortization	5,248		7,098		15,293		20,091
Corporate expenses	6,764		7,173		20,724		20,280
Stock-based compensation	430		532		1,611		2,068
Transaction costs	384		193		2,624		469
Business realignment costs	472		0		2,639		165
Impairment of intangible and long-lived assets	1,343		0		109,058		231
Net loss on sale and retirement of assets	92		143		80		141
Total operating costs and expenses	85,821		92,378		359,075		265,042
Operating income (loss)	9,535		20,183		(96,231)		54,289
Other expense:
Interest expense, net	7,692		8,524		23,713		25,645
Gain on repurchase of debt	0		0		(1,159)		0
Other expense (income), net	81		108		(653)		178
Income (loss) from continuing operations before income taxes	1,762		11,551		(118,132)		28,466
Provision (benefit) for income taxes	451		3,049		(33,044)		7,729
Net income (loss) from continuing operations	1,311		8,502		(85,088)		20,737
Net loss from discontinued operations, net of income taxes	0		(1,234)		0		(8,112)
Net income (loss)	$	1,311	$	7,268	$	(85,088)	$	12,625

Net income (loss) attributable to:
Controlling interests	$	795	$	6,711	$	(86,537)	$	11,128
Non-controlling interests	$	516	557		$	1,449	1,497

Basic income (loss) per share:
Continuing operations attributable to common shares	$	0.03	$	0.29	$	(4.68)	$	0.70
Continuing operations attributable to participating shares	$	0.03	$	0.29	$	0.08	$	0.70
Discontinued operations attributable to common shares	$	0	$	(0.04)	$	0	$	(0.29)
Discontinued operations attributable to participating shares	$	0	$	(0.04)	$	0	$	(0.29)

Diluted income (loss) per share:
Continuing operations	$	0.03	$	0.29	$	(4.68)	$	0.70
Discontinued operations	$	0	$	(0.04)	$	0	$	(0.29)

Weighted average shares outstanding:
Basic attributable to common shares	18,683		18,602		18,627		18,532
Basic attributable to participating shares	8,978		8,978		8,978		8,978
Diluted	27,688		27,581		27,605		27,510

Cash dividend declared per share	$	0	$	0.075	$	0.075	$	0.225

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		Accumulated Deficit			Non- Controlling Interest		Total
Balance at January 1, 2020	14,314,092	3,011,634	1,636,341	8,977,676	$	190	$	367,540	$	(188,034)		$	2,740	$	182,436
Net (loss) income	—	—	—	—	—		—		(60,154)			577		(59,577)
Dividend declared	—	—	—	—	—		—		(2,098)			—		(2,098)
Stock-based compensation	—	—	—	—	—		524		—			—		524
Common stock issued under share-based compensation plan	5,646	—	—	—	—		49		—			—		49
Issuance of restricted stock	10,482	—	—	—	—		—		—			—		0
Cash distributions to non-controlling interests	—	—	—	—	—		—		—		—	(1)		(1)
Balance at March 31, 2020	14,330,220	3,011,634	1,636,341	8,977,676	$	190	$	368,113	$	(250,286)		$	3,316	$	121,333
Net (loss) income	—	—	—	—	$	—	—		(27,178)			356		(26,822)
Stock-based compensation	—	—	—	—	—		657		—			—		657
Cash distributions to non-controlling interests	—	—	—	—	—		—		—			(1,164)		(1,164)
Balance at June 30, 2020	14,330,220	3,011,634	1,636,341	8,977,676	$	190	$	368,770	$	(277,464)		$	2,508	$	94,004
Net income	—	—	—	—	—		—		795			516		1,311
Stock-based compensation	—	—	—	—	—		430		—			—		430

Balance at September 30, 2020	14,330,220	3,011,634	1,636,341	8,977,676	$	190	$	369,200	$	(276,669)		$	3,024	$	95,745

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		Accumulated Deficit			Non- Controlling Interest		Total
Balance at January 1, 2019	14,297,066		3,011,634	1,636,341	8,977,676	$	190	$	365,835	$	(111,804)		$	1,287	$	255,508
Net (loss) income	—		—	—	—	—		—		(5,025)			447		(4,578)
Dividends declared	—		—	—	—	—		—		(2,095)			—		(2,095)
Stock-based compensation	—		—	—	—	—		876		—			—		876
Issuance of restricted stock	16,778		—	—	—	—		—		—			—		0
Cash distributions to noncontrolling interests	—		—	—	—	—		—		—		0	(1,287)		(1,287)
Balance at March 31, 2019	14,313,844		3,011,634	1,636,341	8,977,676	$	190	$	366,711	$	(118,924)		$	447	$	248,424
Net income	—		—	—	—	—		—		9,442			493		9,935
Dividends declared	—		—	—	—	—		—		(2,095)			—		(2,095)
Stock-based compensation	—		—	—	—	—		673		—			—		673
Sale of non-controlling interest	—		—	—	—	—		(430)		—			1,930		1,500
Cash distributions to noncontrolling interests	—		—	—	—	—		—		—			(13)		(13)
Balance at June 30, 2019	14,313,844		3,011,634	1,636,341	8,977,676	$	190	$	366,954	$	(111,577)		$	2,857	$	258,424
Net income	—		—	—	—	—		—		6,711			557		7,268
Dividends declared	—		—	—	—	—		—		(2,097)			—		(2,097)
Stock-based compensation	—		—	—	—	—		532		—			—		532
Sale of non-controlling interest	—		—	—	—	—		(44)		—			—		(44)
Cash distributions to noncontrolling interests	—		—	—	—	—		—		—			(1,282)		(1,282)
Balance at September 30, 2019	14,313,844	14313844	3,011,634	1,636,341	8,977,676	$	190	$	367,442	$	(106,963)		$	2,132	$	262,801

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in Thousands)

(unaudited)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net (loss) income	$	(85,088)	$	12,625
Loss from discontinued operations	0		(8,112)
(Loss) income from continuing operations	(85,088)		20,737
Adjustments to reconcile (loss) income from continuing operations to net cash flows from operating activities:
Depreciation and amortization	15,293		20,091
Amortization of deferred financing costs	1,173		1,036
Net deferred taxes and other	(33,403)		7,729
Provision for doubtful accounts	3,470		1,589
Stock-based compensation expense	1,611		2,068
Gain on repurchase of debt	(1,159)		0
Gain on insurance recoveries	(1,206)		0
Trade activity, net	(6,550)		(8,243)
Write-off of deferred financing costs	79		7
Impairment of intangible and long-lived assets	109,058		231
Net loss on sale of assets	80		141
Other	6		0
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	9,397		(4,609)
Prepaid expenses and other assets	6,813		5,105
Accounts payable	(3,103)		(1)
Accrued expenses	10,391		(12,430)
Accrued interest	6,204		4,517
Other long-term liabilities	(9,228)		(6,147)
Net cash provided by operating activities - continuing operations	23,838		31,821
Net cash used in operating activities - discontinued operations	(390)		(6,418)
Net cash provided by operating activities	23,448		25,403

Cash flows from investing activities:
Purchase of property and equipment	(11,254)		(14,545)
Purchase of investments	(400)		0
Proceeds from insurance recoveries	1,313		0
Payments for acquisitions, net of cash acquired	0		(711)
Proceeds from sale of assets	212		313
Net cash used in investing activities - continuing operations	(10,129)		(14,943)
Net cash provided by investing activities - discontinued operations	0		11,093
Net cash used in investing activities	(10,129)		(3,850)

Cash flows from financing activities:
Repayment of term loans	(9,951)		0
Borrowings under the revolving credit facility	50,000		0
Repayment of borrowings under the revolving credit facility	(50,000)		0
Dividend payments	(4,201)		(6,208)
Repurchase of notes	(3,573)		0
Proceeds from stock options exercised	49		0
Sale of noncontrolling interest	0		1,500
Cash distribution to noncontrolling interests	(1,164)		(2,582)
Deferred financing cost	0		(571)
Repayments of capitalized obligations	(34)		(16)
Net cash used in financing activities	(18,874)		(7,877)

Cash and cash equivalents and restricted cash:
Net (decrease) increase in cash and cash equivalents and restricted cash	(5,555)		13,676
Beginning of period	85,161		61,396
End of period	$	79,606	$	75,072

See Notes to Unaudited Consolidated Financial Statements

TOWNSQUARE MEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in Thousands)

(unaudited)


	Nine Months Ended September 30,
	2020		2019
Supplemental Disclosure of Cash Flow Information:
Cash payments:
Interest	$	16,780	$	20,916
Income taxes	1,311		715

Supplemental Disclosure of Non-cash Activities:
Dividends declared, but not paid during the period	$	22	$	2,153
Investments acquired in exchange for advertising	2,300		2,000
Accrued capital expenditures	826		977
Deferred payment for software licenses	853		0

Supplemental Disclosure of Cash Flow Information relating to Leases:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	8,236	$	8,825
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	9,416	$	4,509

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	79,112	$	74,189
Restricted cash	494		883
	$	79,606	$	75,072

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 21,900 small to medium sized businesses, a proprietary digital programmatic advertising platform (Townsquare Ignite), and numerous 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.

The COVID-19 pandemic has materially and adversely impacted the U.S. economy and financial markets, with legislative and regulatory responses including unprecedented monetary and fiscal policy actions across all sectors, and there continues to be uncertainty as to timing of stabilization and recovery. The COVID-19 pandemic and measures taken to contain it have subjected our business, results of operations, financial condition, stock price and liquidity to a number of material risks and uncertainties, all of which may continue or worsen. The effects of the COVID-19 pandemic began to impact our operations in early March 2020, and included significant advertising cancellations and material declines in the purchase of new advertising by our clients. Declines in forecasted traditional broadcast revenue in the markets we operate in contributed to further impairments to the carrying values of our FCC license intangible assets during the three months ended March 31, 2020. The Company realized an additional impairment charge during the three months ended June 30, 2020, primarily driven by changes in assumptions utilized in determining the discount rate applied in the valuation of our FCC licenses due to increases in the weighted average cost of capital as a direct result of the impact of the COVID-19 pandemic on market and economic conditions and the corresponding impacts to our risk premium. Additionally, the Company has canceled nearly all scheduled live events beginning in March 2020.

The Company also instituted immediate actions to address the potential impact to its consolidated financial position, consolidated results of operations, and liquidity, including significantly reducing our non-essential capital expenditures, and reducing our workforce through the termination or layoff of approximately 135 full-time employees. We have instituted wage reduction efforts, such as the temporary suspension of the Company’s match on employee contributions to the Company’s defined contribution plan and the deferral of the payment of certain payroll taxes until December 31, 2021 and 2022 under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Additionally, our board of directors has determined to cease payment of quarterly cash dividends, following the payment of our first quarter dividend of $2.1 million on May 15, 2020.

During the three months ended September 30, 2020, we experienced some recovery in advertising revenues from the declines that were observed during the end of the first quarter and into the second quarter of 2020, however it remained materially below the levels we experienced in the same period of 2019. The full extent of the COVID-19 pandemic impact will depend on future actions and outcomes, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the short-term and long-term economic impact of the outbreak (including the continued effect on advertising activity, consumer discretionary spending and our employees in the markets in which we operate), further actions taken to mitigate the impact of the virus, and the pace of economic and financial market recovery when the COVID-19 pandemic subsides, among others. At the time of this filing, several U.S. states are experiencing an increase in COVID-19 cases, which creates further uncertainty as to the future extent of the effects of the pandemic.

Basis of Presentation

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 Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 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 Generally Accepted Accounting Principles in the United States ("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. All adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of results of operations 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, 2020 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, 2020. The Consolidated Balance Sheet as of December 31, 2019 is derived from the audited Consolidated Financial Statements at that date. Results of operations for the three and nine months ended September 30, 2019, as presented herein, reflect the restatement of these periods that were included in the 2019 Annual Report on Form 10-K.

Use of 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, the Company evaluates its significant estimates, including those related to assumptions used in determining the fair value of assets and liabilities acquired in a business combination, impairment testing of intangible assets, valuation and impairment testing of long-lived tangible assets and investments, the present value of leasing arrangements, share-based payment expense and the calculation of allowance for doubtful accounts and income taxes. 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 2. Summary of Significant Accounting Policies

Except as stated below, there have been no significant changes in the Company’s accounting policies since December 31, 2019. For the Company's detailed accounting policies please refer to the Consolidated Financial Statements and related notes thereto included in the Company's 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on June 9, 2020.

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350, Intangibles - Goodwill and Other to determine which implementation costs to capitalize as assets or expense as incurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted and an entity can elect to apply the new guidance on a prospective or retrospective basis. The Company adopted this standard effective January 1, 2020, which did not have a material impact on the Company's 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 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 rate 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 adopted this standard effective January 1, 2020, which did not have a material impact on the Company’s Consolidated Financial Statements.

Recently Issued Standards That Have Not Yet Been Adopted

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848), which is intended to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contracts, hedge accounting and other transactions affected by the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This ASU is effective for all entities beginning on March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is continuing to assess the impact on its Consolidated Financial Statements.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815, which clarifies certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. If a company is applying the measurement alternative for an equity investment under Accounting Standards Codification ('ASC') Topic 321 and must transition to the equity method because of an observable transaction, it will remeasure its investment immediately before transition. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period, (1) for public business entities for periods for which financial statements have not yet been issued and (2) for all other entities for periods for which financial statements have not yet been made available for issuance. The adoption of this standard is not expected to have a material impact on the Company's Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, Accounting Standards Update 2019-12-Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not yet been made available for issuance. The Company is continuing to assess the impact on its Consolidated Financial Statements, if any.

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 smaller reporting companies for fiscal years beginning after December 15, 2022, 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 expects to adopt the new guidance in the first quarter of 2023. The Company is continuing to assess the impact on its Consolidated Financial Statements, if any.

Note 3. Revenue Recognition

The following tables present a disaggregation of our revenue by reporting segment and revenue from political sources and all other sources (in thousands) for the three months ended September 30, 2020 and 2019:


	Three Months Ended September 30, 2020								Three Months Ended September 30, 2019
	Advertising		Townsquare Interactive		Live Events		Total		Advertising		Townsquare Interactive		Live Events		Total
Net Revenue (ex Political)	$	72,659	$	18,181	$	66	$	90,906	$	92,458	$	15,880	$	3,595	$	111,933
Political	4,450		0		0		4,450		628		0		0		628
Net Revenue	$	77,109	$	18,181	$	66	$	95,356	$	93,086	$	15,880	$	3,595	$	112,561

The following tables present a disaggregation of our revenue by reporting segment and revenue from political sources and all other sources (in thousands) for the nine months ended September 30, 2020 and 2019:


	Nine Months Ended September 30, 2020								Nine Months Ended September 30, 2019
	Advertising		Townsquare Interactive		Live Events		Total		Advertising		Townsquare Interactive		Live Events		Total
Net Revenue (ex Political)	$	202,116	$	51,595	$	2,469	$	256,180	$	257,452	$	45,376	$	15,071	$	317,899
Political	6,664		0		0		6,664		1,432		0		0		1,432
Net Revenue	$	208,780	$	51,595	$	2,469	$	262,844	$	258,884	$	45,376	$	15,071	$	319,331

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 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.

Our net revenue varies throughout the year. Historically our first calendar quarter produces the lowest net revenue for the year, as advertising expenditures generally decline following the winter holidays. However, due to the COVID-19 pandemic, the seasonality of our net revenue has been materially impacted and to date, our second quarter has produced our lowest net revenue for 2020. 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.

Net revenue for broadcast commercials and digital advertisements are recognized as the commercials are broadcast 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. 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 local 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.

NaN impairment losses have arisen from any contracts with customers during the three and nine months ended September 30, 2020 and 2019.

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


	September 30, 2020		December 31, 2019
Receivables	$	54,235	$	67,463
Short-term contract liabilities (deferred revenue)	$	9,169	$	8,086
Contract Acquisition Costs	$	4,704	$	4,037


	September 30, 2019		December 31, 2018
Receivables	$	67,235	$	62,599
Short-term contract liabilities (deferred revenue)	$	7,508	$	7,922
Contract Acquisition Costs	$	4,043	$	2,970

We receive payments from customers based upon contractual billing schedules; accounts receivable are recognized 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 recorded $1.2 million and $3.5 million in bad debt expense during the three and nine months ended September 30, 2020, respectively. The Company recorded $0.6 million and $1.6 million in bad debt expense during the three and nine months ended September 30, 2019.

We record contract liabilities as deferred revenue in the accompanying consolidated balance sheets 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 and digital subscriptions in which payment is received in advance of the service and month. These contract liabilities are recognized as revenue as the related performance obligations are satisfied. As of September 30, 2020, and December 31, 2019, the balance in the contract liabilities was $9.2 million and $8.1 million, respectively. The increase in the contract liabilities balance at September 30, 2020 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $0.2 million and $6.6 million of recognized revenue for the three and nine months ended September 30, 2020, respectively. As of September 30, 2019, and December 31, 2018, the balance in the contract liabilities was $7.5 million and $7.9 million, respectively. The decrease in the contract liabilities balance at September 30, 2019 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 time frame of the satisfaction of contract liabilities have occurred during the three and nine months ended September 30, 2020.

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within direct operating expenses. Capitalized contract acquisition costs include amounts related to sales commissions paid for signed contracts with perceived durations exceeding one year. For these contracts, we defer the related sales commission costs and amortize such costs to expense in a manner that is consistent with how the related revenue is recognized over the duration of the related 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 expense these costs when incurred. Deferred commissions are recognized in prepaid expenses and other current assets in the accompanying consolidated balance sheets. As of September 30, 2020 and December 31, 2019, we had a balance of $4.7 million and $4.0 million, respectively, in deferred costs and recognized $1.0 million and $2.7 million of amortization for the three and nine months ended September 30, 2020. For the three and nine months ended September 30, 2019, we recognized $0.4 million and $1.4 million of amortization, respectively. NaN 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, 2020 and 2019, respectively.

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 4. Acquisitions, Divestitures & Discontinued Operations

Acquisitions

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 Company paid $0.1 million in transaction fees. The acquisition closed on July 31, 2019 and consideration was paid with cash on hand.

Divestitures & Discontinued Operations

During the first quarter of 2019, management concluded that the Company should exit its music festivals business, which consisted of 4 multi-day music festivals (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. During the first quarter of 2019, a $10.0 million impairment charge against the assets of the disposal group was recorded as a component of discontinued operations. The Company 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.

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, 2020		December 31, 2019
Accounts payable	$	1	$	31
Accrued expenses and other current liabilities	32		392
Current liabilities of discontinued operations(1)	33		423

(1) The current liabilities of discontinued operations includes certain costs associated with the Music Festivals business which will be paid during the quarter ending December 31, 2020 and primarily relate to employee costs.

The following table shows the components of operations that are related to discontinued operations in the Company's Consolidated Statement of Operations (in thousands) for the three and nine months ended September 30, 2019:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2019		2019
Net revenue	$	6,849	$	20,368

Discontinued operating costs and expenses:
Direct operating expenses	8,181		22,970
Depreciation and amortization	0		207
Stock-based compensation	(111)		(99)
Transaction costs	228		238
Impairment of long lived and intangible assets	0		9,814
Net gain on sale and retirement of assets	(98)		(2,045)

Loss from discontinued operations before income taxes	(1,351)		(10,717)
Benefit for income taxes	(117)		(2,605)
Net loss from discontinued operations, net of income taxes	$	(1,234)	$	(8,112)

Note 5. Property and Equipment, net

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


	September 30, 2020		December 31, 2019
Land and improvements	$	21,512	$	21,423
Buildings and leasehold improvements	53,521		51,025
Broadcast equipment	89,123		86,910
Computer and office equipment	20,194		18,432
Furniture and fixtures	21,401		20,799
Transportation equipment	19,697		18,574
Software development costs	29,671		25,999
Total property and equipment, gross	255,119		243,162
Less accumulated depreciation and amortization	(142,805)		(129,020)
Total property and equipment, net	$	112,314	$	114,142

Depreciation and amortization expense for property and equipment was $5.0 million and $6.9 million for the three months ended September 30, 2020 and 2019, respectively and $14.6 million and $19.4 million for the nine months ended September 30, 2020 and 2019, respectively. During the three months ended September 30, 2020, the Company recorded $0.6 in non-cash impairment charges related to the disposal of certain long-lived assets utilized in the Live Events business. During the nine months ended September 30, 2020, the Company recorded $1.2 million in total non-cash impairment charges related to long-lived assets within the San Angelo, TX market and the Live Events business. There were 0 impairment charges related to long-lived assets for the three months ended September 30, 2019 and $0.1 million in impairment charges related to long-lived assets for the nine months ended September 30, 2019. The Company had 0 material right of use assets related to its finance leases as of September 30, 2020 and December 31, 2019.

Note 6. Lease Commitments

Our lease agreements are primarily for facilities, land, radio towers and other equipment used in our operations and contain renewal options through 2088 and escalating rent provisions and/or cost of living adjustments. The majority of our leases are operating leases; although, we have several finance leases for equipment as the lease term represents a significant portion of the useful life.

During the quarter ended September 30, 2020, the Company recognized a $0.7 million impairment charge to operating lease right-of-use assets for a facility in Princeton, NJ in connection with consolidating operations within the market.

Note 7. Goodwill and Other Intangible Assets

Indefinite-lived assets consist of FCC broadcast licenses and goodwill. For goodwill impairment testing, the Company has selected December 31st as the annual testing date. In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units. As a result, the Company performed a quantitative impairment assessment as of March 31, 2020 for each of its reporting units. Based upon such assessment, the Company determined that the fair value of the following reporting units exceeded their respective carrying amounts as of March 31, 2020. The fair values of our National Digital, Townsquare Ignite, Analytical Services, Townsquare Interactive and Live Events reporting units were in excess of their respective carrying values by approximately 58%, 171%, 520%, 216% and 145%, respectively. The local advertising businesses reporting unit had 0 goodwill following the December 31, 2019 $69.0 million non-cash goodwill impairment charge.

The Company considered whether any events have occurred or circumstances have changed from the last quantitative analysis performed as of March 31, 2020 that would indicate that the fair value of the Company's reporting units may be below their carrying amounts. Based on such analysis, the Company determined that there have been no indicators that the fair value of its reporting units may be below their carrying amounts as of September 30, 2020.

There were no changes in the carrying value of the Company's goodwill during the nine months ended September 30, 2020.

The following table represents goodwill by segment (in thousands):


	Advertising		Townsquare Interactive	Live Events	Total



Balance at September 30, 2020	$	76,964	77,000	3,983	$	157,947

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 evaluates its FCC licenses for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Due to the current and expected future economic and market conditions surrounding the COVID-19 pandemic and the results of the impairment assessment performed as of December 31, 2019, the Company quantitatively evaluated the fair value of its FCC licenses at March 31, 2020 and June 30, 2020.

The key assumptions used in applying the direct valuation method are summarized as follows:


	March 31, 2020
Discount Rate	11.0%
	Low		High
Long-term Revenue Growth Rate	(2.2)	%	6.0	%
Mature Market Share*	13.3	%	100.0	%
Operating Profit Margin	(19.4)	%	55.5	%
Mature Market Profit Margin	19.8	%	50.5	%


	June 30, 2020
Discount Rate	11.4%
	Low		High
Long-term Revenue Growth Rate	(2.2)	%	6.0	%
Mature Market Share*	13.3	%	100.0	%
Operating Profit Margin	(19.4)	%	55.5	%
Mature Market Profit Margin	19.8	%	50.5	%

* Excludes markets that Company results and forecasts were inputs into the valuation due to lack of reliable third party data. Excluding these markets, the highest mature market share was 75%.

Based on the results of the impairment assessment of our FCC licenses as of June 30, 2020 and March 31, 2020, we incurred an impairment charge of $28.7 million and $78.4 million, respectively, for FCC licenses in 35 and 46, respectively, of our 67 local markets for the three months ended June 30, 2020 and March 31, 2020, respectively. The impairment charge realized during the three months ended June 30, 2020 was primarily driven by changes in the market data utilized in determining the discount rate applied in the valuation of our FCC licenses which drove an increase in the weighted average cost of capital. The changes in data were driven by an increase in market volatility and industry bond yields, a direct result of the impact of the COVID-19 pandemic on market and economic conditions. The impairment charge realized during the three months ended March 31, 2020 was primarily due to declines in forecasted traditional broadcast revenue in the markets we operate in as a result of the COVID-19 pandemic.

At September 30, 2020, the Company considered whether any events have occurred or circumstances have changed from the quantitative analysis performed as of June 30, 2020 that would indicate further declines in the fair values of our FCC licenses. Our analysis included updates to the calculation of the weighted average cost of capital and the consideration of changes in the radio broadcast markets where our FCC licenses are utilized. Based on such analysis, the Company determined that there have been no indicators that our FCC licenses may be further impaired as of September 30, 2020.

Charges related to the impairment of the Company’s FCC licenses are included in Advertising segment results.

Unfavorable changes in key assumptions utilized in the impairment assessment of our FCC licenses may affect future testing results. For example, keeping all other assumptions constant, a 100-basis point increase in the weighted average cost of capital would cause the estimated fair values of our FCC licenses to decrease by $37.1 million as of September 30, 2020, which would have resulted in an additional impairment charge for the three and nine months ended September 30, 2020. Assumptions used to estimate the fair value of our FCC licenses are also dependent upon the expected performance and growth of our traditional broadcast operations. In the event our broadcast revenue experiences further actual or anticipated declines, including as a result of the COVID-19 pandemic, such declines will have a negative impact on the estimated fair value of our FCC licenses, and the Company could recognize additional impairment charges, which could be material.

The following tables present details of intangible assets as of September 30, 2020 and December 31, 2019, respectively (in thousands):


	September 30, 2020
	Weighted Average Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible Assets:
FCC licenses	Indefinite	$	276,652	$	—	$	276,652
Customer and advertising relationships	3	6,540		(4,630)		1,910
Leasehold interests	11	1,085		(963)		122
Tower space	3	454		(438)		16
Trademarks	10	2,761		(1,173)		1,588
Software licenses	3	853		(63)		790
Total		$	288,345	$	(7,267)	$	281,078


	December 31, 2019
	Weighted Average Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible Assets:
FCC licenses	Indefinite	$	383,738	—		$	383,738
Customer and advertising relationships	3	6,540		(4,139)		2,401
Leasehold interests	12	1,085		(940)		145
Tower space	4	454		(433)		21
Trademarks	10	2,761		(1,045)		1,716
Other intangibles	0.1	160		(152)		8
Total		$	394,738	$	(6,709)	$	388,029

Amortization expense for definite-lived intangible assets was $0.3 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively and $0.7 for each of the nine months ended September 30, 2020 and 2019, respectively.

Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of September 30, 2020 is as follows (in thousands):



2020 (remainder)	$	279
2021	1,115
2022	1,113
2023	848
2024	179
Thereafter	892
	$	4,426

Note 8. 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 not consolidated or accounted for under the equity method of accounting. The initial valuation of the equity securities was based upon an estimate of market value at the time of investment or upon a combination of a valuation analysis using observable inputs categorized as Level 2 and performing a discounted cash flows analysis, using unobservable inputs categorized as Level 3 within the ASC 820 framework. In accordance with ASC 321, Investments - Equity Securities, the Company measures its equity securities at cost minus impairment, as their fair values are not readily determinable and the investments do not qualify for the net asset value per share practical expedient. The Company monitors its investments for any subsequent observable price changes in orderly transactions for the identical or a similar investment of the same investee, at which time the Company would adjust the then current carrying values of the related investment. Additionally, the Company evaluates its investments for any indicators of impairment.

During the nine months ended September 30, 2020, the Company made certain investments in 3 small businesses totaling $2.3 million and an additional $0.4 million investment in an existing investee. There were 0 impairment charges or fair value adjustments recorded for the three or nine months ended September 30, 2020 and 2019, respectively.

Note 9. Long-Term Debt

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


	September 30, 2020		December 31, 2019
2023 Notes (1)	$	273,416	$	278,148
Term Loans (2)	272,381		282,332
Revolver (3)	0		0
Debt before deferred financing costs	545,797		560,480
Deferred financing costs	(2,718)		(3,840)
Total Debt	543,079		556,640
Less: current portion of long-term debt (4)	0		(9,929)
Total long-term debt	$	543,079	$	546,711

(1) See Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the 2019 Annual Report on Form 10-K for details regarding the $300.0 million of 6.5% Unsecured Senior Notes due in 2023 (the “2023 Notes”).

(2) See Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the 2019 Annual Report on Form 10-K for details regarding the $320.0 million term loan facility (the “Term Loans”), net of issuance discount of $2.1 million, that matures in 2022.

(3) See Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the 2019 Annual Report on Form 10-K for details regarding the $50.0 million revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility matures on April 1, 2022 with a springing maturity six months prior to that date, if the Term Loans are not refinanced by such earlier date. The Term Loans and Revolving Credit Facility are together referred to as the "Senior Secured Credit Facility".

(4) At December 31, 2019, the Company classified $9.9 million as its current portion of long-term debt. This represented the required excess free cash flow payment to be made based on our results of operations for the year ended December 31, 2019. 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). The excess free cash flow payment was made on June 15, 2020.

As of September 30, 2020, the interest rate on the Term Loans was 4.0%, based on the current LIBOR rate, a LIBOR floor of 1.0% and an applicable margin of 300 basis points. The Revolving Credit Facility has an interest rate based either on LIBOR and an applicable margin of 250 basis points, or an alternative base rate and an applicable margin of 150 basis points.

The 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. In addition, the Senior Secured Credit Facility contains a requirement that, at the end of each calendar quarter, if we have drawn at least 30%, or $15 million, of the commitments under the Revolving Credit Facility, we must have a first lien leverage ratio (as defined under the Senior Secured Credit Facility) on such date of no greater than 3.75:1.00. On March 17, 2020, the Company borrowed $50.0 million under the Revolving Credit Facility portion of the Senior Secured Credit Facility, constituting the entire amount available for borrowing. As a result of our borrowings on March 17, 2020 under the Revolving Credit Facility, we became subject to this requirement and were in compliance as of March 31, 2020. On June 5, 2020, the Company repaid all amounts outstanding under the Revolving Credit Facility, with $50.0 million of available borrowing capacity following the repayment, and as a result, is no longer subject to the foregoing leverage requirement.

Based on our results of operations for the year ended December 31, 2019 we were required to make an excess free cash flow payment on our outstanding Term Loans of $9.9 million. The payment was made June 15, 2020. On April 13, 2020, the Company entered into an amendment under its existing credit agreement to extend the time period for delivery of the Company's audited financial statements for the fiscal year ended December 31, 2019 and certain related information and documentation until June 15, 2020, and also waived any default under the credit agreement resulting from the failure to comply with Section 6.1(c) of the credit agreement in connection with the failure to deliver the financial statements and related information required to be delivered on April 6, 2020. On June 9, 2020, the Company filed its 2019 Annual Report on Form 10-K and, as of the date thereof, was in compliance with its covenants under both the Senior Secured Credit Facility and the 2023 Notes indenture.

On May 19, 2020, the Company voluntarily repurchased $4.7 million of its 2023 Notes at a market price below par, plus accrued interest, recognizing a gain of $1.2 million. The repurchased notes were canceled by the Company. The Company wrote-off approximately $0.1 million of unamortized deferred financing costs in connection with the voluntary repurchase of its 2023 Notes.

The Company was in compliance with its covenants under the 2023 Notes indenture and Senior Secured Credit Facility as of September 30, 2020.

As of September 30, 2020, based on available market information, the estimated fair value of the 2023 Notes and the Term Loans were $250.5 million, and $257.4 million, respectively. The Company used Level 2 measurements under the fair value measurement hierarchy established under Fair Value Measurement (Topic 820).

Annual maturities of the Company's long-term debt as of September 30, 2020 are as follows (in thousands):



2020 (remainder)	$	0
2021	0
2022	272,381
2023	273,416
2024	0
Thereafter	0
	$	545,797

Note 10. Income Taxes

The Company's effective tax rate for the three months ended September 30, 2020 and 2019 was approximately 25.6% and 26.4%, respectively. The Company's effective tax rate for the nine months ended September 30, 2020 and 2019 was approximately 28.0% and 27.2%, 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% primarily relates to certain non-deductible items, state and local income taxes and the valuation allowance for deferred tax assets.

Note 11. Stockholders' Equity

The table below presents a summary, as of September 30, 2020, 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	14,330,220	NaN vote per share.
Class B common stock	$	0.01	50,000,000	3,011,634	NaN votes per share.2
Class C common stock	$	0.01	50,000,000	1,636,341	NaN votes.2
Warrants				8,977,676	Each warrant is exercisable for 1 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	27,955,871
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 1 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 295,545 shares of restricted Class A common stock, subject to vesting terms, but exclude 4,601,239 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 $4.79 and $9.63 per share. Additionally, the Company is authorized to issue 50,000,000 shares of undesignated preferred stock.

Note 12. Net Income (Loss) Per Share

Basic earnings (loss) per common share (“EPS”) is generally calculated as income available to common shareholders divided by the weighted average number of common shares outstanding. Diluted EPS is generally calculated as income available to common shareholders divided by the weighted average number of common shares outstanding plus the dilutive effect of common share equivalents. The Company has determined that our Warrants are a participating security, as defined, in accordance with ASC Topic 260, Earnings Per Share. Although these Warrants are subject to restrictions on exercise, they participate in the undistributed earnings of the Company and therefore, our presentation reflects the two-class method.

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, 2020 and 2019 (in thousands, except per share data).


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

Numerator:
Net income (loss)	$	1,311	$	7,268	$	(85,088)	$	12,625
Net income from non-controlling interest	516		557		1,449		1,497
Net income (loss) attributable to controlling interest	795		6,711		(86,537)		11,128

Net income (loss) from continuing operations	1,311		8,502		(85,088)		20,737
Net income from continuing operations attributable to non-controlling interest	516		557		1,449		1,497
Net income (loss) from continuing operations attributable to controlling interest	$	795	$	7,945	$	(86,537)	$	19,240
Net loss from discontinued operations, net of income taxes	$	0	$	(1,234)	$	0	$	(8,112)

Denominator:
Weighted average shares of common stock outstanding	18,683		18,602		18,627		18,532
Weighted average shares of participating securities outstanding	8,978		8,978		8,978		8,978
Total weighted average basic shares outstanding	27,661		27,580		27,605		27,510
Effect of dilutive common stock equivalents	27		1		0		0
Weighted average diluted common shares outstanding	27,688		27,581		27,605		27,510

Basic income (loss) per share:
Continuing operations attributable to common shares	$	0.03	$	0.29	$	(4.68)	$	0.70
Continuing operations attributable to participating shares	$	0.03	$	0.29	$	0.08	$	0.70
Discontinued operations attributable to common shares	$	0	$	(0.04)	$	0	$	(0.29)
Discontinued operations attributable to participating shares	$	0	$	(0.04)	$	0	$	(0.29)

Diluted income (loss) per share:
Continuing operations	$	0.03	$	0.29	$	(4.68)	$	0.70
Discontinued operations	$	0	$	(0.04)	$	0	$	(0.29)

The Company had the following dilutive securities that were not included in the computation of diluted net income (loss) per share as they were considered anti-dilutive (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Stock options	9,152	8,918	9,152	9,444
Restricted Stock	210	318	296	331

Note 13. 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 3 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. The Company operates in 1 geographic area. The Company's assets and liabilities are managed within the small and mid-sized markets across the United States where the Company conducts its business and are reported internally in the same manner as the Consolidated Financial Statements; thus, no additional information regarding assets and liabilities of the Company’s reportable segments is produced for the Company's CEO or included in these Consolidated Financial Statements. Intangible assets consist principally of FCC broadcast licenses and other definite-lived intangible assets and primarily support the Company’s Advertising segment. For further information see Note 7, Goodwill and Other Intangible Assets. The Company does not have any material inter-segment sales.

The Company's management evaluates segment operating income, which excludes unallocated corporate expenses and the impact of certain items that are not directly attributable to the reportable segments' underlying operating performance, and primarily includes expenses related to corporate stewardship and administration activities, transaction related costs and non-cash impairment charges.

The following table presents the Company's reportable segment results for the three months ended September 30, 2020 (in thousands):


	Advertising		Townsquare Interactive		Live Events		Corporate and Other Reconciling Items		Total
Net revenue	$	77,109	$	18,181	$	66	$	0	$	95,356
Direct operating expenses	58,235		12,694		159		0		71,088
Depreciation and amortization	3,856		131		128		1,133		5,248
Corporate expenses	0		0		0		6,764		6,764
Stock-based compensation	37		16		2		375		430
Transaction costs	0		0		0		384		384
Business realignment costs	0		0		284		188		472
Impairment of intangible and long-lived assets	768		0		575		0		1,343
Net loss on sale and retirement of assets	0		0		0		92		92
Operating income (loss)	$	14,213	$	5,340	$	(1,082)	$	(8,936)	$	9,535

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	$	0	$	112,561
Direct operating expenses	63,048		10,882		3,309		0		77,239
Depreciation and amortization	3,470		129		133		3,366		7,098
Corporate expenses	0		0		0		7,173		7,173
Stock-based compensation	36		24		2		470		532
Transaction costs	0		0		0		193		193

Net loss on sale and retirement of assets	0		0		0		143		143
Operating income (loss)	$	26,532	$	4,845	$	151	$	(11,345)	$	20,183

The following table presents the Company's reportable segment results for the nine months ended September 30, 2020 (in thousands):


	Advertising		Townsquare Interactive		Live Events		Corporate and Other Reconciling Items		Total
Net revenue	$	208,780	$	51,595	$	2,469	$	0	$	262,844
Direct operating expenses	168,527		36,414		2,105		0		207,046
Depreciation and amortization	10,740		398		393		3,762		15,293
Corporate expenses	0		0		0		20,724		20,724
Stock-based compensation	116		63		7		1,425		1,611
Transaction costs	0		0		0		2,624		2,624
Business realignment costs	0		0		284		2,355		2,639
Impairment of intangible and long-lived assets	108,483		0		575		0		109,058
Net loss on sale and retirement of assets	0		0		0		80		80
Operating (loss) income	$	(79,086)	$	14,720	$	(895)	$	(30,970)	$	(96,231)

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	$	0	$	319,331
Direct operating expenses	178,697		30,983		11,917		0		221,597
Depreciation and amortization	10,018		375		411		9,287		20,091
Corporate expenses	0		0		0		20,280		20,280
Stock-based compensation	169		83		27		1,789		2,068
Transaction costs	0		0		0		469		469
Business realignment costs	161		0		0		4		165
Impairment of intangible and long-lived assets	231		0		0		0		231
Net loss on sale and retirement of assets	0		0		0		141		141
Operating income (loss)	$	69,608	$	13,935	$	2,716	$	(31,970)	$	54,289

Note 14. Related Party Transactions

The Company has a strategic partnership and services agreement with a venture studio affiliated with the 2 of its directors. Under the agreement, the Company provides certain professional and administrative services including, accounting and human resources support, business development, engineering and consulting services for a monthly service fee of $15,000, and reimbursement of any direct expenses, as applicable. This monthly service fee is subject to a reduction based on the level of services being provided. During each of the three months ended September 30, 2020 and 2019, the Company received payments in the aggregate of approximately $0.01 million and $0.05 million, respectively related to services provided under the terms of the agreement. For the nine months ended September 30, 2020 and 2019, the Company received payments in the aggregate of approximately $0.1 million and $0.1 million, respectively related to services provided under the terms of the agreement.

Note 15. Subsequent Events

On May 22, 2020, the Company entered into an Asset Purchase Agreement to acquire certain assets and liabilities related to a radio broadcast station in the Duluth, Minnesota market for $0.4 million. The acquisition closed on October 9, 2020 and consideration was paid with cash on hand.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis is intended to provide the reader with an overall understanding of our financial condition, results of operations, cash flows and sources and uses of cash. This section also includes general information about our business and a discussion of our management’s analysis of certain trends, risks and opportunities in our industry. In addition, we also provide a discussion of accounting policies that require critical judgments and estimates. This discussion should be read in conjunction with our Unaudited Consolidated Financial Statements and related notes appearing elsewhere in this quarterly report.

Note About Forward-Looking Statements

This report includes estimates, projections, statements relating to our business plans, objectives and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements often discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “believe,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and

other words and terms. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include the impact of general economic conditions in the United States, or in the specific markets in which we currently do business, including as a result of the COVID-19 pandemic, the impact of the COVID-19 pandemic (the extent of which will depend on future actions and outcomes that are highly uncertain and cannot be predicted, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic and financial market effects of the pandemic, the containment measures and the pace of the economic and financial market recovery), any civil unrest, violence or continuing uncertainty in connection with the 2020 election cycle, the impact of several material weaknesses in internal control over financial reporting that have been identified, which has resulted in the restatement of certain of our Consolidated Financial Statements and has created additional risks and uncertainties, including limiting our access to certain capital markets activities and increasing litigation risk; 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, including the COVID-19 pandemic, 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 2019 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. The forward-looking statements included in this report are made only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Format of Presentation

Townsquare is a 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. We own and operate 321 radio stations and more than 330 local websites in 67 U.S. markets, a digital marketing solutions company (Townsquare Interactive) serving approximately 21,900 small to medium sized businesses, a proprietary digital programmatic advertising platform (Townsquare Ignite), an e-commerce offering, and numerous local live events each year. Many of our radio stations are considered market leaders and we also participate in the digital, mobile, video and social media arenas. 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, we create, promote and produce a diverse range of live events, including, concerts, expositions and other experiential events within and beyond our radio markets.

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.

The Company has identified three operating segments, which are Advertising, including broadcast and digital advertising products and solutions, Townsquare Interactive, our digital marketing solutions business and Live Events, including concerts, expositions and other experiential events.

Advertising

Our Advertising segment includes the broadcast operations of our radio stations, together with our owned and operated websites and the various digital advertising solutions we offer, including Townsquare Ignite, our digital programmatic advertising platform. Our primary sources of net revenue are the sale of advertising on our radio stations, owned and operated websites, radio stations’ online streams and mobile applications. Additionally, we offer precision customer targeting solutions to advertisers through Ignite. 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.

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.

Townsquare Interactive

Townsquare Interactive offers 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 primary source of Townsquare Interactive net revenue is traditional and mobile-enabled website development and hosting services, e-commerce platforms, search engine and online directory optimization services, online reputation monitoring, and social media management, often packaged together as a comprehensive digital marketing solution. In addition, we offer website retargeting to our Townsquare Interactive subscribers.

Live Events

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

Overall

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 activities are 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. Historically, our first calendar quarter produces the lowest net revenue for the year, as advertising expenditures generally decline following the winter holidays. However, due to the COVID-19 pandemic, the seasonality of our net revenue has been materially impacted and to date, our second quarter has produced our lowest net revenue for 2020. 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

The COVID-19 pandemic and measures taken to contain it have subjected our business, results of operations, financial condition, stock price and liquidity to a number of material risks and uncertainties, all of which may continue or worsen. Our operations had performed strongly in the first two months of 2020 before the effects of COVID-19 began to impact our operations in early March 2020. While the COVID-19 pandemic did not have a material effect on our net revenue and expenses during the first quarter, the challenges that COVID-19 created for advertisers and consumers has materially and adversely impacted our net revenues since mid-March. In particular, our clients canceled a significant amount of advertising, and we experienced a material decline in the purchase of new advertising by our clients, as compared to the same period in the prior year. In addition, we have canceled a large number of our live events. While our Advertising revenue and Live Events revenue have significantly declined, Townsquare Interactive has continued its revenue growth. Political advertising in 2020 is expected to remain consistent with our expectations, and revenue is expected to be weighted to the second half of the year.

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. We took certain proactive initiatives to preserve financial flexibility, mitigate the impact of the recent and uncertain decline in net revenue, as well as position us for growth as advertising demand rebounds.

On March 17, 2020, the Company borrowed $50.0 million under the Revolving Credit Facility portion of the Senior Secured Credit Facility, constituting the entire amount available for borrowing as a precautionary measure in response to the COVID-19 pandemic and any related uncertainties. The Revolving Credit Facility 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. On June 5, 2020, the Company repaid all amounts outstanding under the Revolving Credit Facility, with $50.0 million of available borrowing capacity following the repayment and as of the date hereof.

The Company also instituted immediate actions to address the potential impact to its consolidated financial position, consolidated results of operations, and liquidity, including significantly reducing our non-essential capital expenditures and reducing our workforce through the termination or layoff of approximately 135 full-time employees. We instituted wage reduction efforts, such as the temporary suspension of the Company’s match on employee contributions to the Company’s defined contribution plan and the deferral of the payment of certain payroll taxes until December 31, 2021 and 2022 under the Coronavirus Aid, Relief, and Economic Security (“CARES Act”). Additionally, our board of directors determined to cease payment of quarterly cash dividends, following the payment of our first quarter dividend of $2.1 million on May 15, 2020.

The U.S. federal government responded to the COVID-19 pandemic on March 18, 2020 by enacting the Families First Coronavirus Response Act (“FFCRA”) and on March 27, 2020, the CARES Act. In addition to the deferral of the payment of certain payroll taxes until December 31, 2021 and 2022 noted above, the CARES Act amends the Tax Cut and Jobs Act of 2017 by modifying the amount of allowable interest expense deductions, allowing five-year carryback of net operating losses, and characterizing qualified improvement property as 15-year property eligible for bonus depreciation. The Company plans to avail itself of all applicable credits and deferrals, and continues to assess the impact the CARES Act may have on our business, however the FFCRA or the CARES Act is not expected to have a material impact on our financial condition, results of operations or liquidity.

Starting in late March, the majority of our employees began working remotely, with the exception of much of our on-air broadcast staff, whom remained in studio as our business is considered essential. Beginning in May 2020, the Company began opening offices when restrictions were lifted in each of the states and counties within which the Company operates and as of the third quarter of 2020, most of the Company’s radio station employees have returned to work in the

office, while most of its digital and TSI employees continue to work from home. Due to the nature of the Company’s products and services, remote operations have not had a material impact on results to date. We have implemented health and safety policies in accordance with applicable law, which include routine disinfection of all surfaces, limited and restricted use of common areas, the wearing of masks and provision of hand sanitizer and gloves and social distancing measures employed while in our office spaces. The implementation of these measures has not had a substantial impact on our operational performance to date.

The full extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the outbreak, and the impact on our clients, employees and the markets in which we operate, all of which are uncertain and cannot be predicted. As a result of the pandemic, there is a reasonable possibility that actual results could differ from estimates and such differences could be material to the financial position and results of operations, specifically impairment testing of intangible assets, valuation and impairment testing of long-lived tangible assets, the present value of leasing arrangements and the Company’s calculation of allowance for doubtful accounts. At this point, the full extent to which the pandemic will impact our financial condition or results of operations is uncertain, but it has been and may continue to be material.

Highlights of Our Financial Performance

Certain key financial developments in our business for the three months ended September 30, 2020, as compared to the same period in 2019 are summarized below:

•Net revenue for the three months ended September 30, 2020 as compared to the same period in 2019, decreased $17.2 million, or 15.3%, primarily driven by a $16.0 million decline in our Advertising net revenue as a result of declines in the purchase of new advertising by our clients, primarily as a result of the COVID-19 pandemic, and a decrease of $3.5 million in our Live Events net revenue as a result of the cancellation of a number of live events also due to the COVID-19 pandemic, partially offset by an increase of $2.3 million in our Townsquare Interactive net revenue as a result of additional subscribers.

•Excluding revenue related to political advertising of $4.5 million and $0.6 million for the three months ended September 30, 2020 and 2019, respectively, net revenue for the three months ended September 30, 2020 as compared to the same period in 2019 decreased $21.0 million, or 18.8% to $90.9 million and Advertising net revenue decreased $19.8 million, or 21.4%, to $72.7 million.

•Operating income decreased $10.6 million from $20.2 million for the three months ended September 30, 2019 to $9.5 million for the three months ended September 30, 2020. Operating income for the three months ended September 30, 2020 was impacted by the $17.2 million decrease in net revenue as compared to same period in the prior year, partially offset by a decrease of $6.2 million in direct operating expenses due to lower compensation, declines in live event expenses due to cancellations, and a decrease of $1.9 million in the amortization of capitalized software development costs. Our Advertising segment reported operating income of $14.2 million which represents a decrease of $12.3 million as compared to $26.5 million for the three months ended September 30, 2019, primarily due to the decrease in net revenue of $16.0 million as discussed above, partially offset by a decrease in direct operating expenses of $4.8 million, primarily due to lower compensation costs. Townsquare Interactive’s operating income for the three months ended September 30, 2020 was $5.3 million, an increase of $0.5 million from the same period in 2019, primarily due to growth in net subscribers. Our Live Events segment reported an operating loss of $1.1 million, as compared operating income of $0.2 million for the three months ended September 30, 2019, a decrease of $1.2 million due to the cancellation of events.

Certain key financial developments in our business for the nine months ended September 30, 2020, as compared to the same period in 2019 are summarized below. We use the term 'pro forma' in this section to refer to results that exclude the Arizona Bridal Show divestment as if it had been completed on January 1, 2019:

•Net revenue for the nine months ended September 30, 2020 as compared to the same period in 2019, decreased $56.5 million, or 17.7%, primarily driven by a decrease of $50.1 million in our Advertising net revenue as a result of advertising cancellations and declines in the purchase of new advertising and a $12.6 million decline in our Live Events net revenue as a result of the cancellation of live events, both primarily due to the COVID-19 pandemic, partially offset by an increase of $6.2 million in our Townsquare Interactive net revenue due to additional net subscribers, as compared to the same period in 2019.

•Excluding revenue related to political advertising of $6.7 million and $1.4 million for the nine months ended September 30, 2020 and 2019, respectively, net revenue for the nine months ended September 30, 2020 as compared to the same period in 2019 decreased $61.7 million, or 19.4%.

•Pro forma net revenue for the nine months ended September 30, 2020 decreased $55.8 million, or 17.5% to $262.8 million as compared to $318.6 million in the same period last year. Pro forma Advertising net revenue decreased $50.1 million, or 19.4%, to $208.8 million, pro forma Townsquare Interactive net revenue increased $6.2 million, or 13.7%, to $51.6 million, and pro forma Live Events net revenue decreased $11.9 million, or 82.8%, to $2.5 million each as compared to the same period last year. Excluding political revenue, pro forma net revenue decreased $61.0 million, or 19.2%, to $256.2 million, and pro forma Advertising net revenue decreased $55.3 million, or 21.5%, to $202.1 million.

•Operating loss increased $150.5 million as compared to operating income of $54.3 million for the nine months ended September 30, 2019 to an operating loss of $96.2 million for the nine months ended September 30, 2020. Operating loss for the nine months ended September 30, 2020 was impacted by a decrease of $56.5 million in net revenue as discussed above; total impairment charges of $109.1 million; an increase in transaction costs of $2.2 million, primarily due to fees incurred related to the amendment of our $320.0 million term loan facility (the “Term Loans”); an increase of $2.5 million in business realignment cost compared to the same period in 2019 due to the COVID-19 related reduction in workforce; partially offset by a decrease in direct operating expenses of $14.6 million and a decrease of $4.8 million in depreciation and amortization expense. Our Advertising segment reported an operating loss of $79.1 million which represents a decrease of $148.7 million from the nine months ended September 30, 2019, due to a $50.1 million decrease in net revenue as discussed above and FCC license impairment charges of $108.5 million, partially offset by a decrease in direct operating expenses of $10.2 million. Our Live Events segment reported an operating loss of $0.9 million, a decrease of $3.6 million from the nine months ended September 30, 2019 as a result of the cancellation of events. Townsquare Interactive’s operating income for the nine months ended September 30, 2020 was $14.7 million, an increase of $0.8 million from the same period in 2019.

•Cash and cash equivalents decreased to $79.1 million from $84.7 million as of September 30, 2020 and December 31, 2019, respectively.

Consolidated Results of Operations

Three months ended September 30, 2020 compared to three months ended September 30, 2019

The following table summarizes our historical consolidated results of operations:


($ in thousands)	Three Months Ended September 30,
Statement of Operations Data:	2020		2019		$ Change		% Change
Net revenue	$	95,356	$	112,561	$	(17,205)	(15.3)	%

Direct operating expenses	71,088		77,239		(6,151)		(8.0)	%
Depreciation and amortization	5,248		7,098		(1,850)		(26.1)	%
Corporate expenses	6,764		7,173		(409)		(5.7)	%
Stock-based compensation	430		532		(102)		(19.2)	%
Transaction costs	384		193		191		99.0	%
Business realignment costs	472		—		472		**
Impairment of intangible and long-lived assets	1,343		—		1,343		**
Net loss on sale and retirement of assets	92		143		(51)		(35.7)	%
Total operating costs and expenses	85,821		92,378		(6,557)		(7.1)	%
Operating income	9,535		20,183		(10,648)		(52.8)	%
Other expense:
Interest expense, net	7,692		8,524		(832)		(9.8)	%

Other expense, net	81		108		(27)		(25.0)	%
Income from continuing operations before income taxes	1,762		11,551		(9,789)		(84.7)	%
Provision for income taxes	451		3,049		(2,598)		(85.2)	%
Net income from continuing operations	1,311		8,502		(7,191)		(84.6)	%
Net loss from discontinued operations, net of income taxes	—		(1,234)		1,234		**
Net income	$	1,311	$	7,268	$	(5,957)	(82.0)	%

** not meaningful

Segment Results

The following table presents the Company's reportable segment net revenue and direct operating expenses for the three months ended September 30, 2020 and 2019 (in thousands):


	Net Revenue								Direct Operating Expenses
	Three Months Ended September 30,								Three Months Ended September 30,
	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change
Advertising	$	77,109	$	93,086	$	(15,977)	(17.2)	%	58,235		$	63,048	$	(4,813)	(7.6)	%
Townsquare Interactive	18,181		15,880		2,301		14.5	%	12,694		10,882		1,812		16.7	%
Live Events	66		3,595		(3,529)		(98.2)	%	159		3,309		(3,150)		(95.2)	%
Total	$	95,356	$	112,561	$	(17,205)	(15.3)	%	$	71,088	$	77,239	$	(6,151)	(8.0)	%

Net Revenue

Net revenue for the three months ended September 30, 2020 decreased $17.2 million, or 15.3%, as compared to the same period in 2019. Our Advertising net revenue for the three months ended September 30, 2020 decreased $16.0 million, or 17.2%, as compared to the same period in 2019, as a result of advertising cancellations and a material decline in the purchase of new advertising by our clients primarily due to the impact of the COVID-19 pandemic. Our Live Events segment revenue decreased $3.5 million, or 98.2%, in the three months ended September 30, 2020, as compared to the same period in 2019 driven by the cancellation of events as a result of the COVID-19 pandemic. Our Townsquare Interactive net revenue for the three months ended September 30, 2020 increased $2.3 million, or 14.5%, as compared to the same period in 2019 primarily due to the addition of net subscribers, including approximately 1,150 additional net subscribers during the third quarter of 2020.

Direct Operating Expenses

Direct operating expenses for the three months ended September 30, 2020 decreased by $6.2 million, or 8.0%, as compared to the same period in 2019. Our Advertising direct operating expenses for the three months ended September 30, 2020 decreased $4.8 million, or 7.6%, as compared to the same period in 2019. This decrease was primarily driven by lower compensation as a result of lower commissions and certain wage reduction efforts implemented as part of our COVID-19 response, which were partially offset by higher operating expenses due to the COVID-19 pandemic. Our Live Events direct operating expenses for the three months ended September 30, 2020 decreased $3.2 million, or 95.2%, as compared to the same period in 2019. The decrease was primarily driven by the cancellation of live events as a result of the COVID-19 pandemic. Our Townsquare Interactive direct operating expenses for the three months ended September 30, 2020 increased $1.8 million, or 16.7%, as compared to the same period in 2019. The increase was primarily driven by increases in headcount related expenses to support revenue and subscriber growth.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended September 30, 2020 decreased $1.9 million, or 26.1%, as compared to the same period in 2019, primarily related to lower amortization of capitalized software development costs due to the significance of a project that was launched at the end of 2018 to support our digital platform, the costs for which were amortized in 2019.

Corporate Expenses

Corporate expenses are of a general corporate nature or managed on a corporate basis. These costs (net of allocations to the business segments) primarily represent corporate stewardship and administration activities. Corporate expenses for the three months ended September 30, 2020 decreased $0.4 million, or 5.7%, as compared to the same period in 2019.

Stock-based Compensation

Stock-based compensation expense for the three months ended September 30, 2020 declined $0.1 million, or 19.2%, due to forfeitures in 2020.

Transaction Costs

Transaction costs for the three months ended September 30, 2020 increased $0.2 million, as compared to the same period in 2019 due to fees related to the acquisition of a radio station which closed in early October 2020.

Business Realignment Costs

Business realignment costs of $0.5 million for the three months ended September 30, 2020 primarily include employee-related costs incurred as a result of headcount reductions in response to the COVID-19 pandemic.

Impairment of Intangible and Long-Lived Assets

Impairment charges pertaining to long-lived assets for the three months ended September 30, 2020 were $1.3 million, as compared to no impairment charges to long-lived assets in the same period in 2019, primarily driven by impairment of operating lease right-of-use assets in our Princeton, NJ market due to the consolidation of office space as well as the disposal of certain long-lived assets utilized in the Live Events business.

Other Expense

The primary component of other expense in the three months ended September 30, 2020 and 2019 is interest expense, net. The following table illustrates the components of our interest expense, net for the periods indicated (in thousands):


	Three Months Ended September 30,
	2020		2019

Unsecured Senior Notes	$	4,443	$	4,520
Term Loans	2,877		3,879

Capital leases and other	5		23
Deferred financing costs and discounts	414		397
Interest income	(47)		(295)
Interest expense, net	$	7,692	$	8,524

On May 19, 2020, the Company voluntarily repurchased $4.7 million of its 6.5% Unsecured Senior Notes (the “2023 Notes”) at a market price below par, plus accrued interest, which were then canceled, recognizing a net gain of $1.2 million, included as a component of other expense for the three months ended September 30, 2020.

Provision for income taxes

We recognized a provision for income taxes of $0.5 million for the three months ended September 30, 2020. Our effective tax rate for the period was approximately 25.6%. 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 21.0%, primarily relates to certain non-deductible items, state and local income taxes and the valuation allowance for deferred tax assets.

Net loss from discontinued operations, net of tax

Net loss from discontinued operations, net of tax includes both the results of operations for the music festival business, as well as the gain or loss recognized upon its ultimate sale. The components of net loss from discontinued operations, net of tax for the three months ended September 30, 2019 relate to the results of operations of this business.

Consolidated Results of Operations

Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019

The following table summarizes our historical consolidated results of operations:


($ in thousands)	Nine Months Ended September 30,
Statement of Operations Data:	2020		2019		$ Change		% Change
Net revenue	$	262,844	$	319,331	$	(56,487)	(17.7)	%

Direct operating expenses	207,046		221,597		(14,551)		(6.6)	%
Depreciation and amortization	15,293		20,091		(4,798)		(23.9)	%
Corporate expenses	20,724		20,280		444		2.2	%
Stock-based compensation	1,611		2,068		(457)		(22.1)	%
Transaction costs	2,624		469		2,155		**
Business realignment costs	2,639		165		2,474		**
Impairment of intangible and long-lived assets	109,058		231		108,827		**
Net loss on sale and retirement of assets	80		141		(61)		(43.3)	%
Total operating costs and expenses	359,075		265,042		94,033		35.5	%
Operating (loss) income	(96,231)		54,289		(150,520)		**
Other expense:
Interest expense, net	23,713		25,645		(1,932)		(7.5)	%
Gain on repurchase of debt	(1,159)		—		(1,159)		**
Other (income) expense, net	(653)		178		(831)		**
(Loss) income from continuing operations before income taxes	(118,132)		28,466		(146,598)		**
(Benefit) provision for income taxes	(33,044)		7,729		(40,773)		**
Net (loss) income from continuing operations	(85,088)		20,737		(105,825)		**
Net loss from discontinued operations, net of income taxes	—		(8,112)		8,112		**
Net (loss) income	$	(85,088)	$	12,625	$	(97,713)	**

** not meaningful

Segment Results

The following table presents the Company's reportable segment net revenue and direct operating expenses for the nine months ended September 30, 2020 and 2019 (in thousands):


	Net Revenue								Direct Operating Expenses
	Nine Months Ended September 30,								Nine Months Ended September 30,
	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change
Advertising	$	208,780	$	258,884	$	(50,104)	(19.4)	%	$	168,527	$	178,697	$	(10,170)	(5.7)	%
Townsquare Interactive	51,595		45,376		6,219		13.7	%	36,414		30,983		5,431		17.5	%
Live Events	2,469		15,071		(12,602)		(83.6)	%	2,105		11,917		(9,812)		(82.3)	%
Total	$	262,844	$	319,331	$	(56,487)	(17.7)	%	$	207,046	$	221,597	$	(14,551)	(6.6)	%

Net Revenue

Net revenue for the nine months ended September 30, 2020 decreased $56.5 million, or 17.7%, as compared to the same period in 2019. Our Advertising net revenue for the nine months ended September 30, 2020 decreased $50.1 million, or 19.4%, as compared to the same period in 2019 as a result of advertising cancellations and a material decline in the purchase of new advertising by our clients primarily due to the impact of the COVID-19 pandemic. Our Live Events segment revenue decreased $12.6 million, or 83.6%, in the nine months ended September 30, 2020, as compared to the same period in 2019 driven by the cancellation of events due to the COVID-19 pandemic. Our Townsquare Interactive net revenue for the nine months ended September 30, 2020 increased $6.2 million, or 13.7%, as compared to the same period in 2019 primarily due to incremental net subscribers, including approximately 2,900 net subscribers added during the nine months ended September 30, 2020.

Direct Operating Expenses

Direct operating expenses for the nine months ended September 30, 2020 decreased by $14.6 million, or 6.6%, as compared to the same period in 2019. Our Advertising direct operating expenses for the nine months ended September 30, 2020 decreased $10.2 million, or 5.7%, as compared to the same period in 2019. This decrease was primarily driven by lower compensation, partially offset by higher operating expenses due to the COVID-19 pandemic. Our Live Events direct operating expenses for the nine months ended September 30, 2020 decreased $9.8 million, or 82.3%, as compared to the same period in 2019. The decrease was primarily driven by the cancellation of live events in response to the COVID-19 pandemic. Our Townsquare Interactive direct operating expenses for the nine months ended September 30, 2020 increased $5.4 million, or 17.5%, as compared to the same period in 2019. The increase was primarily driven by increases in headcount related expenses to support subscriber and revenue growth.

Depreciation and Amortization

Depreciation and amortization expense for the nine months ended September 30, 2020 decreased $4.8 million, or 23.9%, as compared to the same period in 2019, primarily related to lower amortization of capitalized software development costs.

Corporate Expenses

Corporate expenses are of a general corporate nature or managed on a corporate basis. These costs (net of allocations to the business segments) primarily represent corporate stewardship and administration activities. Corporate expenses for the nine months ended September 30, 2020 increased $0.4 million, or 2.2%, as compared to the same period in 2019, primarily due to an increase in professional fees.

Stock-based Compensation

Stock-based compensation expense for the nine months ended September 30, 2020 decreased $0.5 million, or 22.1%, as compared to the same period in 2019 due to options that vested in January of 2019.

Transaction Costs

Transaction costs for the nine months ended September 30, 2020 increased $2.2 million and includes debt related fees in addition to fees incurred as a result of the amendment of the Company's Term Loans related to the waiver of any default under the credit agreement, as more fully described in Note 8, Long-term Debt.

Business Realignment Costs

Business realignment costs for the nine months ended September 30, 2020 increased $2.5 million as compared to the same period in 2019, primarily due to employee-related costs incurred as a result of headcount reductions in response to the COVID-19 pandemic.

Impairment of Intangible and Long-Lived Assets

Total impairment charges pertaining to FCC licenses for the nine months ended September 30, 2020 were $107.1 million, which were based on the results of the impairment assessment of our FCC licenses as of June 30, 2020 and March 31, 2020, as a result of which we incurred an impairment charge of $28.7 million and $78.4 million, respectively, for FCC licenses in 35 and 46, respectively, of our 67 local markets for the three months ended June 30, 2020 and March 31, 2020, respectively. These charges were due to declines in the purchase of advertising by our clients and changes in the market data utilized in determining the discount rate applied in the valuation of our FCC licenses which drove an increase in the weighted average cost of capital. The changes in data were driven by an increase in market volatility and industry bond yields, a direct result of the impact of the COVID-19 pandemic on market and economic conditions.

Unfavorable changes in key assumptions utilized in the impairment assessment of our FCC licenses may affect future testing results. For example, keeping all other assumptions constant, a 100-basis point increase in the weighted average cost of capital would cause the estimated fair values of our FCC licenses to decrease by $37.1 million as of September 30, 2020, which would have resulted in an additional impairment charge for the nine months ended September 30, 2020. Assumptions used to estimate the fair value of our FCC licenses are also dependent upon the expected performance and growth of our traditional broadcast operations. In the event our broadcast revenue experiences further actual or anticipated declines, including as a result of the COVID-19 pandemic, such declines will have a negative impact on the estimated fair value of our FCC licenses, and the Company could recognize additional impairment charges. Assumptions used to estimate the fair value of our FCC licenses are dependent upon the expected performance and growth of our traditional broadcast operations. In the event our broadcast revenue experiences further actual or anticipated declines, such declines will have a negative impact on the estimated fair value of our FCC licenses, and the Company could recognize additional impairment charges, which could be material.

The Company also recorded total impairment charges related to long-lived assets in certain markets during the nine months ended September 30, 2020 of $2.0 million.

Other Expense

The primary component of other expense in the nine months ended September 30, 2020 and 2019 is interest expense, net and the gain on repurchase of debt. The gain on debt repurchase is more fully described in Note 8, Long-term Debt. The following table illustrates the components of our interest expense, net for the periods indicated (in thousands):


	Nine Months Ended September 30,
	2020		2019

Unsecured Senior Notes	$	13,449	$	13,560
Term Loans	9,178		11,851
Revolver	351		—
Capital leases and other	14		28
Deferred financing costs and discounts	1,252		1,043
Interest income	(531)		(837)
Interest expense, net	$	23,713	$	25,645

On May 19, 2020, the Company voluntarily repurchased $4.7 million of its 2023 Notes at a market price below par, plus accrued interest, which were then canceled, recognizing a net gain of $1.2 million, which is included as a component of other expense for the nine months ended September 30, 2020.

Benefit from income taxes

We recognized a benefit from income taxes of $33.0 million for the nine months ended September 30, 2020, as compared to a provision for income taxes of $7.7 million for the nine months ended September 30, 2019. Our effective tax rate for the period was approximately 28.0% for the nine months ended September 30, 2020, as compared to 27.2% for the nine months ended September 30, 2019. 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 21.0%, primarily relates to certain non-deductible items, state and local income taxes and the valuation allowance for deferred tax assets.

Net loss from discontinued operations, net of tax

Net loss from discontinued operations, net of tax includes both the results of operations for the music festival business, as well as the gain or loss recognized upon the ultimate sale of the music festival and the bridal show businesses. The components of net loss from discontinued operations, net of tax for the three months ended September 30, 2019 relate to the results of operations of these businesses, the sale of which was completed on May 24, 2019 for the music festival business and March 18, 2019 for the bridal show business, respectively.

Supplemental Pro Forma Net Revenue

For comparative purposes and to enable the reader to adequately compare net revenue for the nine months ended September 30, 2020 and 2019, the following discussion and table present pro forma net revenue for the Arizona Bridal Show divestment disclosed in more detail in our Notes to Unaudited Consolidated Financial Statements contained elsewhere in this Quarterly Report. The following table presents our historical results, which exclude the results of the Arizona Bridal Show divestment as if it had been sold by Townsquare from the first day of the period.


	Nine Months Ended September 30,
	2020		2019
Townsquare net revenue	$	262,844	$	319,331
Arizona Bridal Show divestment	—		(726)
Total Pro forma net revenue	$	262,844	$	318,605

On a pro forma basis, net revenue for the nine months ended September 30, 2020 decreased by $55.8 million, or 17.5%, as compared to the same period in 2019. The decrease was primarily driven by a decrease in our Advertising net revenue as a result of advertising cancellations and a material decline in the purchase of new advertising by our clients and the cancellation of live events beginning in March 2020, which were both primarily due to the impact of the COVID-19 pandemic. These decreases were partially offset by an increase in our customer and subscriber base for our Townsquare Interactive business and higher political advertising revenues.

Liquidity and Capital Resources

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


	Nine Months Ended September 30,
	2020		2019
(in thousands)
Cash and cash equivalents	$	79,112	$	74,189
Restricted cash	$	494	$	883

Cash provided by operating activities	$	23,448	$	25,403
Cash used in investing activities	(10,129)		(3,850)
Cash used in financing activities	(18,874)		(7,877)
Net (decrease) increase in cash and cash equivalents and restricted cash	$	(5,555)	$	13,676

We fund our working capital requirements through a combination of cash flows from our operating, investing and financing activities. Based on current and anticipated levels of operations and conditions in our markets and industry, we believe that our cash on hand and cash flows from our operating, investing and financing activities, together with funds available under our revolving credit facility, will enable us to meet our working capital, capital expenditures, debt service and other funding requirements for at least one year from the date of this report. These historical sources of funds have been and could continue to be impacted by the COVID-19 pandemic. Future capital requirements may be materially different than those currently planned in our budgeting, and forecasting activities and depend on many factors, some of which are beyond our control. In particular during the period of uncertainty related to the COVID-19 pandemic, we have focused on and will continue to monitor our liquidity as described further under “COVID-19 Response” below. As of September 30, 2020, we had $543.1 million of outstanding indebtedness, net of deferred financing costs of $2.7 million. Based on interest rates in effect as of September 30, 2020, we expect our debt service requirements to be approximately $28.9 million over the next twelve months for the 2023 Notes, Term Loan and Revolver. In addition, as of September 30, 2020 we had $79.1 million of cash and cash equivalents, and $54.2 million of receivables from customers, which historically have had an average collection cycle of approximately 55 days. We have observed an increase in collection times during the COVID-19 pandemic, which has increased the average collection cycle to approximately 58 days and has also resulted in increases to our allowance for doubtful accounts. We had restricted cash of $0.5 million at September 30, 2020 and December 31, 2019, that was held as collateral in connection with certain agreements. From time to time, such restricted funds could be returned to us or we could be required to pledge additional cash.

Our anticipated uses of cash in the near term include working capital needs, debt payments, other obligations, and capital expenditures. However, our ability to fund our working capital needs, debt payments, other obligations, capital expenditures, and to comply with 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. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders, while the incurrence of debt financing would result in debt service obligations. Such debt instruments also could introduce covenants that might restrict our operations. We cannot assure you that we could obtain additional financing on favorable terms or at all.

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.

COVID-19 Response

In response to the ongoing challenges and uncertainty in the U.S. economy and financial markets, and the Company’s business, resulting from the COVID-19 pandemic, we have taken proactive initiatives to preserve financial

flexibility and liquidity and mitigate the impact of the recent and uncertain decline in net revenue to operate through this period of disruption, as well as position us for growth as the U.S. general economy and advertising demand rebounds.

On March 17, 2020, we borrowed $50.0 million, constituting all amounts available under our Revolving Credit Facility. On June 5, 2020, the Company repaid all amounts outstanding under the Revolving Credit Facility, with $50.0 million of available borrowing capacity following the repayment.

The Company also instituted immediate actions to address the potential impact to its consolidated financial position, consolidated results of operations, and liquidity, including significantly reducing our non-essential capital expenditures, and reducing our workforce through the termination or layoff of approximately 135 full-time employees. We instituted wage reduction efforts, such as the temporary suspension of the Company’s match on employee contributions to the Company’s defined contribution plan and the deferral of the payment of certain payroll taxes until December 31, 2021 and 2022 under the CARES Act. Additionally, our board of directors determined to cease payment of quarterly cash dividends, following the payment of our first quarter dividend of $2.1 million on May 15, 2020.

Operating Activities

Net cash provided by operating activities was $23.4 million for the nine months ended September 30, 2020 compared to $25.4 million for the same period in 2019. This decrease was primarily related to net income in 2019 as compared to net loss in 2020, which includes total impairment charges of $109.1 million that did not occur in 2019 and a decrease in net deferred taxes, partially offset by changes in working capital and less cash used in discontinued operations. Working capital changes were driven by decreases in payments for accrued expenses primarily due to the timing of payments, partially offset by decreases in accounts payable, as compared to the same period a year ago.

Investing Activities

Net cash used in investing activities was $10.1 million for the nine months ended September 30, 2020 as compared to net cash provided by investing activities of $3.9 million for the same period in 2019. The increase in net cash used in investing activities was primarily due to cash provided by discontinued operations during the nine months ended September 30, 2019 as a result of proceeds received related to the sales of our music festivals business and bridal shows.

Financing Activities

Net cash used in financing activities was $18.9 million for the nine months ended September 30, 2020, as compared to net cash used in financing activities of $7.9 million for the same period in 2019. The increase in net cash used in financing activities was due to the required $9.9 million 2019 excess free cash flow payment on our Term Loan and the May 2020 voluntary repurchase of $4.7 million of our 2023 Notes for $3.6 million.

Financing Facilities

The following is a discussion of significant factors affecting our liquidity and use of capital resources. For further discussion of the financing facilities, see Note 9, Long-Term Debt in the Notes to Unaudited Consolidated Financial Statements.

2023 Unsecured Senior Notes

In April 2015, the Company issued $300.0 million of 6.5% Unsecured Senior Notes, the 2023 Notes, due in 2023. On May 19, 2020, the Company voluntarily repurchased $4.7 million of its 2023 Notes at a market price below par, plus accrued interest, which were then canceled. During the years ended December 31, 2016 and 2018, we repurchased $19.9 million and $1.9 million, respectively of the 2023 Notes at a market price below par, including accrued interest, and canceled the repurchased notes.

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.

As of September 30, 2020, the aggregate principal amount outstanding under the 2023 Notes was $273.4 million and we were in compliance with all of the covenants under the 2023 Notes indenture.

Senior Secured Credit Facility

In April 2015, we 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.

Term Loans

In September 2015, we incurred an additional $45.0 million in Term Loans under the Senior Secured Credit Facility. Our Term Loans mature on April 1, 2022. Since our amendment of the Senior Secured Credit Facility on February 8, 2017, the Term Loans incur interest based on an applicable margin of LIBOR plus 300 basis points with a LIBOR floor of 1.0%.

We made an excess free cash flow payment of $9.9 million on June 15, 2020 based on our results of operations for the year ended December 31, 2019. We were not required to make an excess free cash flow payment in 2019. As of September 30, 2020, the balance of the Term Loans was $272.4 million with a current interest rate of 4.0%.

Revolving Credit Facility

In April 2019, we amended our existing 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 Revolving Credit Facility has an interest rate based either on LIBOR and an applicable margin of 250 basis points, or an alternative base rate and an applicable margin of 150 basis points. The Revolving Credit Facility also carries an unused commitment fee equal to 0.50% per annum.

On March 17, 2020, the Company borrowed all amounts available, $50.0 million, under the Revolving Credit Facility as a precautionary measure in response to the COVID-19 pandemic and any related uncertainties. On June 5, 2020, the Company repaid all amounts outstanding under the Revolving Credit Facility, with $50.0 million of available borrowing capacity following the repayment. As of September 30, 2020 and December 31, 2019, there were no borrowings under the Revolving Credit Facility.

On April 13, 2020, we entered into the Amendment to our existing Senior Secured Credit Facility that extended the time period for delivery of our audited financial statements for the fiscal year ended December 31, 2019 and certain related information until June 15, 2020, and also waived any default resulting from the failure to deliver the financial statements and related information and documentation required to be delivered on April 6, 2020.

As of September 30, 2020, we were in compliance with all of the covenants under the Senior Secured Credit Facility.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with 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 determining the fair value of assets and liabilities acquired in a business combination, impairment testing of intangible assets, valuation and impairment testing of long-lived tangible assets, the present value of leasing arrangements, share-based payment expense and the calculation of allowance for doubtful accounts and income taxes. 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. Our estimates may change, however, as new events occur and additional information is obtained, and any such changes will be recognized in the Consolidated Financial Statements. Actual results could differ from such estimates, and any such differences may be material to our financial statements.

We believe the accounting policies and estimates discussed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Annual Report on Form 10-K reflects our more significant judgments and estimates used in the preparation of the Consolidated Financial Statements. There have been no material changes to the critical accounting policies and estimates as filed in such report.

Recent Accounting Standards

For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please refer to Note 2, Summary of Significant Accounting Policies 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, 2020. 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, 2020 due to the material weaknesses in internal control over financial reporting summarized below and have been disclosed in our Annual Report on Form 10-K for the year ended December 31, 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 Annual Report on Form 10-K for the year ended December 31, 2019, we identified several material weaknesses in our internal control over financial reporting which included:

•not maintaining appropriately designed entity-level controls impacting the control environment, risk assessment procedures and effective monitoring controls to detect or prevent material misstatements to the financial statements; and

•the lack of adequate selection and development of effective control activities, general controls over technology and effective policies and procedures.

These deficiencies are attributed to various ineffective controls design and control activities, which are fully disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. These material weaknesses, individually or in the aggregate, could result in misstatements of accounts or disclosures that would each result in a material misstatement of the interim or annual Consolidated Financial Statements that would not be prevented or detected.

Remediation Plans

Management is actively engaged in the implementation of remediation plans to address the controls contributing to the material weaknesses. Our remediation actions are outlined in our Annual Report on Form 10-K for the year ended December 31, 2019. We believe those measures will remediate the control deficiencies, but management continues to assess the need for any additional steps to remediate the underlying causes that give rise to the 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, 2020.

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, 2020 and our financial condition as of such date, in accordance with U.S. GAAP.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

There are inherent limitations in the effectiveness of any control system, including the potential for human error and the possible circumvention or overriding of controls and procedures. Additionally, judgments in decision-making can be faulty and breakdowns can occur because of a simple error or mistake. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Accordingly, the management of the Company, including its Chief Executive Officer and Chief Financial Officer, does not expect that the control system can prevent or detect all error or fraud. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies or procedures.

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, 2020. In the normal course of business, the Company is subject to various regulatory proceedings, lawsuits, claims and other matters related to intellectual property, personal injury, employee, or other matters. These matters are subject to many uncertainties and outcomes are not predictable with assurance. However, we do not believe that the ultimate resolution of these matters will have a material adverse effect on our financial position or results of operations.

Item 1A. Risk Factors

Please refer to Part I, Item 1A, “Risk Factors,” in our 2019 Annual Report on Form 10-K for information regarding known material risks that could affect our results of operations, financial condition and liquidity. In addition to these risks, other risks that we presently do not consider material, or other unknown risks, could materially adversely impact our business, financial condition and results of operations in a future period.

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

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

See Exhibit Index.

EXHIBIT INDEX


Exhibit						Description

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 9, 2020

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Townsquare Media (TSQ) 10-Q2020 Q3 Quarterly report

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