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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number 001-36558
Townsquare Media, Inc.
(Exact name of registrant as specified in its charter)
Delaware
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, including Zip Code)
(203) 861-0900
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.01 par value per shareTSQThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 October 29, 2021, the registrant had 16,740,182 outstanding shares of common stock consisting of: (i) 12,463,545 shares of Class A common stock, par value $0.01 per share; (ii) 815,296 shares of Class B common stock, par value $0.01 per share; and (iii) 3,461,341 shares of Class C common stock, par value $0.01 per share.



TOWNSQUARE MEDIA, INC.

INDEX


1


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,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$31,289 $83,229 
Accounts receivable, net of allowance of $7,296 and $7,051, respectively
57,918 58,634 
Prepaid expenses and other current assets10,601 12,428 
Total current assets99,808 154,291 
Property and equipment, net106,117 111,871 
Intangible assets, net280,211 281,160 
Goodwill157,947 157,947 
Investments20,871 11,501 
Operating lease right-of-use assets44,646 48,290 
Other assets1,502 2,948 
Restricted cash494 494 
Total assets$711,596 $768,502 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$10,517 $9,056 
Deferred revenue
8,824 8,847 
Accrued compensation and benefits
11,304 12,462 
Accrued expenses and other current liabilities20,392 21,524 
Operating lease liabilities, current7,405 7,517 
Accrued interest6,301 6,350 
Total current liabilities64,743 65,756 
Long-term debt, net of deferred finance costs of $9,081 and $2,369, respectively
540,919 543,428 
Deferred tax liability16,396 10,326 
Operating lease liability, net of current portion40,369 44,661 
Other long-term liabilities3,357 3,576 
Total liabilities665,784 667,747 
Stockholders’ equity:
Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 12,440,045 and 14,436,065 shares issued and outstanding, respectively
124 144 
Class B common stock, par value $0.01 per share; 50,000,000 shares authorized; 815,296 and 2,966,669 shares issued and outstanding, respectively
8 30 
Class C common stock, par value $0.01 per share; 50,000,000 shares authorized; 3,461,341 and 1,636,341 shares issued and outstanding, respectively
35 17 
    Total common stock167 191 
    Additional paid-in capital300,879 369,672 
    Accumulated deficit(258,083)(272,602)
    Non-controlling interest2,849 3,494 
Total stockholders’ equity45,812 100,755 
Total liabilities and stockholders’ equity$711,596 $768,502 

See Notes to Unaudited Consolidated Financial Statements
2


TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in Thousands, Except Per Share Data)
(unaudited)
Three Months Ended 
September 30,
Nine Months Ended 
September 30, 2021
2021202020212020
Net revenue$111,280 $95,356 $307,379 $262,844 
Operating costs and expenses:
Direct operating expenses, excluding depreciation, amortization, and stock-based compensation75,719 71,088 211,837 207,046 
Depreciation and amortization4,821 5,248 14,546 15,293 
Corporate expenses6,410 6,764 15,996 20,724 
Stock-based compensation877 430 2,833 1,611 
Transaction costs2 384 5,107 2,624 
Business realignment costs484 472 740 2,639 
Impairment of long-lived and intangible assets 1,343 95 109,058 
Net (gain) loss on sale and retirement of assets(14)92 613 80 
    Total operating costs and expenses88,299 85,821 251,767 359,075 
    Operating income (loss)22,981 9,535 55,612 (96,231)
Other expense (income):
Interest expense, net9,816 7,692 29,780 23,713 
Loss (gain) on extinguishment and modification of debt  5,997 (1,159)
Other (income) expense, net(3,078)81 (3,455)(653)
Income (loss) from operations before tax16,243 1,762 23,290 (118,132)
  Income tax provision (benefit)3,349 451 6,431 (33,044)
Net income (loss)$12,894 $1,311 $16,859 $(85,088)
Net income (loss) attributable to:
     Controlling interests$12,405 $795 $15,288 $(86,537)
     Non-controlling interests$489 $516 $1,571 $1,449 
Basic income (loss) per share:
    Attributable to common shares$0.75 $0.03 $0.79 $(4.68)
    Attributable to participating shares$0.75 $0.03 $0.79 $0.08 
Diluted income (loss) per share$0.64 $0.03 $0.71 $(4.68)
Weighted average shares outstanding:
     Basic attributable to common shares16,386 18,683 16,917 18,627 
     Basic attributable to participating shares88 8,978 2,333 8,978 
     Diluted19,384 27,688 21,657 27,605 
Cash dividend declared per share$ $ $ $0.075 

See Notes to Unaudited Consolidated Financial Statements
3


TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in Thousands, Except Share Data)
(unaudited)

Shares of Common Stock
Class AClass BClass C
SharesSharesSharesWarrantsCommon
Stock
Additional
Paid-in Capital
Accumulated DeficitNon-
Controlling
Interest
Total
Balance at January 1, 202114,436,065 2,966,669 1,636,341 8,977,676 $191 $369,672 $(272,602)$3,494 $100,755 
Net (loss) income— — — — — — (6,549)440 (6,109)
Repurchase of securities (1)
(1,595,224)(2,151,373)— (8,814,980)(38)(81,912)— — (81,950)
Stock-based compensation— — — — — 1,062 — — 1,062 
Common stock issued under exercise of stock options1,022,283 — — — 10 7,936 — — 7,946 
Issuance of restricted stock11,428 — — — — — — — — 
Conversion of common shares800,000 — (800,000)— — — — — — 
Balance at March 31, 202114,674,552 815,296 836,341 162,696 $163 $296,758 $(279,151)$3,934 $21,704 
Net income— — — — — 9,432 642 10,074 
Stock-based compensation— — — — 894 — — 894 
Common stock issued under exercise of stock options209,873 — — — 21,861 — — 1,863 
Share repurchase (2)
(100,000)— — — (1)(630)(769)— (1,400)
Conversion of common shares (3)
(2,625,000)— 2,625,000 — — — — — 
Cash distributions to non-controlling interests— — — — — — (2,216)(2,216)
Balance at June 30, 202112,159,425 815,296 3,461,341 162,696 $164 $298,883 $(270,488)$2,360 $30,919 
Net income      12,405 489 12,894 
Stock-based compensation     877 — — 877 
Common stock issued under exercise of stock options128,546 — — — 11,121 — — 1,122 
Warrants exercised (4)
152,074 — — (152,074)2(2)— —  
Balance at September 30, 202112,440,045 815,296 3,461,341 10,622 $167 $300,879 $(258,083)$2,849 $45,812 

(1) On March 9, 2021, the Company repurchased all outstanding securities held by certain affiliates of Oaktree Capital Management L.P. (“Oaktree”), including 1,595,224 shares of Class A Common Stock, 2,151,373 shares of Class B Common Stock and 8,814,980 warrants. For further discussion on the repurchase, see Note 9, Stockholders' Equity, in our Notes to Consolidated Financial Statements.
(2) See Note 9, Stockholders' Equity, in our Notes to Consolidated Financial Statements for further discussion related to the share repurchase.
(3) On May 13, 2021, a direct holder of Class A Common Stock converted 2,625,000 shares into an equal number of Class C Common Stock. Except as expressly provided in our certificate of incorporation, the Class A common stock, Class B common stock and Class C common stock have equal economic rights and rank equally, share ratably and are identical in all respects as to all matters. Class C common stock is not redeemable, but is convertible 1:1 (including automatically upon certain transfers) into Class A common stock.

(4) See Note 9, Stockholders' Equity, in our Notes to Consolidated Financial Statements for further discussion related to warrants exercised during the period.

See Notes to Unaudited Consolidated Financial Statements


4


TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in Thousands, Except Share Data)
(unaudited)

Shares of Common Stock
Class AClass BClass C
SharesSharesSharesWarrantsCommon
Stock
Additional
Paid-in Capital
Accumulated
Deficit
Non-
Controlling
Interest
Total
Balance at January 1, 202014,314,092 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 exercise of stock options5,646 — — — — 49 — — 49 
Issuance of restricted stock10,482 — — — — — — — — 
Cash distributions to non-controlling interests— — — — — — — (1)(1)
Balance at March 31, 202014,330,220 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, 202014,330,220 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, 202014,330,220 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
5


TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands)
(unaudited)
Nine Months Ended September 30,
20212020
Cash flows from operating activities:
Net income (loss)$16,859 $(85,088)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
     Depreciation and amortization14,546 15,293 
     Amortization of deferred financing costs1,129 1,173 
     Non-cash lease income(106)(178)
     Net deferred taxes and other6,070 (33,403)
     Provision for doubtful accounts1,718 3,470 
     Stock-based compensation expense2,833 1,611 
     Loss (gain) on extinguishment and modification of debt5,997 (1,159)
     Write-off of deferred financing costs 79 
     Trade activity, net(9,994)(6,550)
     Impairment of long-lived and intangible assets95 109,058 
     Net loss on sale and retirement of assets613 80 
     Gain on insurance recoveries(362)(1,206)
     Gain on lease settlement(233) 
     Gain on sale of investment and investment related transactions(446) 
     Unrealized gain on investment(2,924) 
     Other289 6 
Changes in assets and liabilities, net of acquisitions:
   Accounts receivable(1,148)9,397 
   Prepaid expenses and other assets3,259 (2,032)
   Accounts payable1,409 (3,103)
   Accrued expenses(569)10,538 
   Accrued interest(49)6,204 
   Other long-term liabilities(789)(352)
Net cash provided by operating activities - continuing operations 38,197 23,838 
      Net cash used in operating activities - discontinued operations(33)(390)
Net cash provided by operating activities38,164 23,448 
Cash flows from investing activities:
   Purchase of property and equipment(7,840)(11,254)
   Purchase of investments(278)(400)
   Proceeds from insurance recoveries362 1,313 
   Proceeds from sale of investments and investment related transactions716  
   Proceeds from sale of assets955 212 
Net cash used in investing activities(6,085)(10,129)
Cash flows from financing activities:
   Repayment of term loans(272,381)(9,951)
Repurchase of 2023 Notes (273,416)(3,573)
Proceeds from the issuance of 2026 Notes550,000  
Prepayment fee on 2023 Notes(4,443) 
   Deferred financing costs(9,027) 
   Repurchase of Oaktree securities(80,394) 
   Transaction costs related to Oaktree securities repurchase(1,556) 
   Borrowings under the revolving credit facility 50,000 
Repayment of borrowings under the revolving credit facility (50,000)
   Dividend payments(60)(4,201)
   Proceeds from stock options exercised10,931 49 
   Repurchase of stock(1,400) 
   Cash distribution to non-controlling interests(2,216)(1,164)
   Repayments of capitalized obligations(57)(34)
      Net cash used in financing activities(84,019)(18,874)
  Cash and cash equivalents and restricted cash:
      Net decrease in cash, cash equivalents and restricted cash(51,940)(5,555)
      Beginning of period83,723 85,161 
      End of period$31,783 $79,606 
6


TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in Thousands)
(unaudited)
Nine Months Ended September 30,
20212020
Supplemental Disclosure of Cash Flow Information:
   Cash payments:
Interest$28,693 $16,780 
Income taxes634 1,311 
Supplemental Disclosure of Non-cash Activities:
Dividends declared, but not paid during the period$ $22 
Investments acquired in exchange for advertising (1)
6,438 2,300 
Property and equipment acquired in exchange for advertising (1)
1,945 3,648 
Accrued capital expenditures120 826 
Accrued financing fees150  
Deferred payment for software licenses 853
Supplemental Disclosure of Cash Flow Information relating to Leases:
Cash paid for amounts included in the measurement of operating lease liabilities, included in operating cash flows
$7,695 $8,236 
Right-of-use assets obtained in exchange for operating lease obligations
$2,246 $9,416 
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents$31,289 $79,112 
Restricted cash494 494 
$31,783 $79,606 

(1) Represents total advertising services to be provided by the Company in exchange for equity interests and property and equipment acquired during each of the nine months ended September 30, 2021 and 2020, respectively. As the advertising services are performed, revenue related to the services provided is reflected as a component of Trade activity, net within net cash provided by operating activities. As of September 30, 2021 and September 30, 2020, $0.1 million and $1.2 million, respectively, in advertising services remained to be provided in future periods in exchange for equity interests that were acquired during each of the nine months ended September 30, 2021 and 2020. Refer to Note 6, Investments, in the accompanying Notes to Consolidated Financial Statements for additional information related to our investments.

See Notes to Unaudited Consolidated Financial Statements

7


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 community-focused digital media, digital marketing solutions and radio company focused outside the Top 50 markets in the U.S. Our assets, as of September 30, 2021, include Townsquare Interactive, a digital marketing services subscription business providing websites, search engine optimization, social platforms and online reputation management for approximately 25,950 small to medium sized businesses; Townsquare Ignite, a proprietary digital programmatic advertising technology with an in-house demand and data management platform; and Townsquare Media, our portfolio of 322 local terrestrial radio stations in 67 cities with corresponding local news and entertainment websites and apps including legendary brands such as WYRK.com, WJON.com, and NJ101.5.com along with a network of national music brands including XXLmag.com, TasteofCountry.com, UltimateClassicRock.com and Loudwire.com.

The U.S. economy and financial markets may continue to experience volatility due to the COVID-19 pandemic, including as a result of the development of COVID-19 variants, vaccination rates and government legislative and regulatory responses. 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 in which we operate, the impact of the COVID-19 pandemic on market and economic conditions, and the corresponding impacts to our risk premium, contributed to approximately $107.1 million impairments to the carrying values of our FCC license intangible assets during the first half of 2020, of which $28.7 million and $78.4 million was recognized during the three months ended June 30, 2020 and March 31, 2020, respectively. Additionally, we canceled nearly all live events beginning in March 2020. At the end of the first quarter of 2020, we reduced our workforce through the termination or layoff of approximately 135 full-time employees.

As local public health conditions have improved, we experienced recoveries in advertising revenue, following the sequential improvements we observed during each of the third and the fourth quarters of 2020. However, revenue continues to remain below the levels we experienced during the same period in 2019, with the exception of our Townsquare Interactive segment. Net revenue for the Townsquare Interactive segment has increased $15.0 million, or 33%, as compared to the first nine months of 2019 due to continued net subscriber growth throughout the COVID-19 pandemic. While we resumed certain live events beginning in the second quarter of 2021, there continues to be a level of uncertainty surrounding the scheduling of live events.

During the first nine months of 2021, we continued the precautionary measures that were instituted in 2020 to address the potential impact to our consolidated financial position, consolidated results of operations, and liquidity, including wage reduction efforts such as the temporary suspension of the Company’s match on employee contributions to the Company’s defined contribution plan, 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”) and controlling non-essential capital expenditures. Additionally, our board of directors determined to cease payment of quarterly cash dividends, following the payment of our 2020 first quarter dividend of $2.1 million, paid on May 15, 2020.

The full extent of the COVID-19 pandemic impact will depend on future actions and outcomes, all of which remain fluid and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the short-term and long-term economic impacts of the COVID-19 pandemic (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 pandemic, and the pace of continued economic and financial market recovery when the COVID-19 pandemic subsides, among others.

8


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, 2020 (the "2020 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 for the three and nine months ended September 30, 2021, cash flows for the nine months ended September 30, 2021, 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, 2021. The Consolidated Balance Sheet as of December 31, 2020 is derived from the audited Consolidated Financial Statements at that date.

Reclassification

The presentation of non-cash lease (income) expense as a component of adjustments to reconcile net income to net cash flows from operating activities for the nine months ended September 30, 2020, has been reclassified to conform with the current period's presentation. The reclassification had no impact on net cash provided by operating activities.

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, 2020. For the Company's detailed accounting policies please refer to the Consolidated Financial Statements and related notes thereto included in the Company's 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 16, 2021.

Recently Adopted Accounting Standards

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. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company accounts for its equity securities without readily determinable fair values under the measurement alternative election of ASC 321, whereby the Company can elect to measure an equity security without a readily determinable fair value, that does not qualify for the practical expedient to estimate fair
9


value (net asset value), at its cost minus impairment, if any. The ASU also allows the use of a qualitative assessment when analyzing impairment of equity securities without readily determinable fair values. The Company adopted this standard effective January 1, 2021, which did not 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. The Company adopted this standard effective January 1, 2021, which did not have a material impact on the Company’s Consolidated Financial Statements.

Recently Issued Standards That Have Not Yet Been Adopted

In May 2021, the FASB issued Accounting Standards Update 2021-04, Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which requires that a modification of an equity-classified warrant that does not cause the warrant to become liability-classified to be accounted for as an exchange of the original warrant for a new warrant. This guidance applies whether the modification is structured as an amendment to the terms and conditions of the warrant or as termination of the original warrant and issuance of a new warrant. The effect of the modification is measured as the difference between the fair value of the modified warrant and the fair value of that warrant immediately before modification. The new guidance is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company expects to adopt this standard in the first quarter of 2022 and does not expect its adoption to have a material impact on the Company’s Consolidated Financial Statements.

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 and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30, 2021
Three Months Ended September 30, 2020
AdvertisingTownsquare InteractiveLive EventsTotalAdvertisingTownsquare InteractiveLive EventsTotal
Net Revenue (ex Political)$86,827 $21,130 $2,748 $110,705 $72,659 $18,181 $66 $90,906 
Political575   575 4,450   4,450 
Net Revenue$87,402 $21,130 $2,748 $111,280 $77,109 $18,181 $66 $95,356 

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Nine Months Ended September 30, 2021
Nine Months Ended September 30, 2020
AdvertisingTownsquare InteractiveLive EventsTotalAdvertisingTownsquare InteractiveLive EventsTotal
Net Revenue (ex Political)$241,305 $60,347 $3,949 $305,601 $202,116 $51,595 $2,469 $256,180 
Political1,778   1,778 6,664 $ $ 6,664 
Net Revenue$243,083 $60,347 $3,949 $307,379 $208,780 $51,595 $2,469 $262,844 

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, placement of internet-based advertising campaigns, performance of 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 offer digital marketing solutions on a subscription basis under the brand name Townsquare Interactive, 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. These live events include concerts, expositions and other experiential events. 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 for political advertisers. Contracted performance obligations under political contracts consist of the broadcast and placement of digital advertisements. Management views political revenue separately based on the episodic nature of election cycles 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 for the year ended December 31, 2020 was materially impacted and our second quarter 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 incurring 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 contractual performance obligations for Townsquare services are satisfied. We measure progress towards the satisfaction of our contractual performance obligations in accordance with the contractual arrangement. We recognize the associated contractual revenue as 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. 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
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honoring customer admissions and vendor event commitments. Live event ticket purchase prices are due at the point of purchase and are nonrefundable. Live event tickets are often sold in advance of the events; in the case of advanced ticket sales, we defer the recognition of consideration received until we satisfy the future performance obligation. Live event contractual arrangements do not include any variable consideration, financing components, or significant judgments.

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

No impairment losses arose from any contracts with customers during the three and nine months ended September 30, 2021 and 2020.

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

September 30,
2021
December 31, 2020
Receivables$57,918 $58,634 
Short-term contract liabilities (deferred revenue)$8,824 $8,847 
Contract Acquisition Costs$5,412 $4,824 

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 

We receive payments from customers based upon contractual billing schedules; accounts receivable are recognized when the right to consideration becomes unconditional. Payment terms vary by the type and location of our customers and the products or services offered. Payment terms for amounts invoiced are typically net 30-60 days.

Our contract liabilities include cash payments received or due in advance of satisfying our performance obligations 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, 2021, and December 31, 2020, the balance in the contract liabilities was $8.8 million, respectively. The decrease in the contract liabilities balance at September 30, 2021 is primarily driven by $0.9 million and $7.4 million of recognized revenue for the three and nine months ended September 30, 2021, respectively, offset by cash payments received or due in advance of satisfying our performance obligations. For the three and nine months ended September 30, 2020, we recognized $0.2 million and $6.6 million of revenue that was previously included in our deferred revenue balance, respectively. No significant changes in the time frame of the satisfaction of contract liabilities have occurred during the three and nine months ended September 30, 2021.

Our capitalized contract acquisition costs include amounts related to sales commissions paid for signed contracts with perceived durations exceeding one year. 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. Capitalized contract acquisition costs are recognized in prepaid expenses and other current assets in the accompanying consolidated balance sheets. As of September 30, 2021 and December 31, 2020, we had a balance of $5.4 million and $4.8 million, respectively, in capitalized contract acquisition costs and recognized $1.1 million and $3.2 million of amortization for the three and nine months ended September 30, 2021, respectively. For the three and nine months ended September 30, 2020, we recognized $1.0 million and $2.7 million of amortization, respectively. No
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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, 2021 and 2020.

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.

Performance Obligations

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. Property and Equipment, net

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

September 30, 2021
December 31, 2020
Land and improvements
$20,521 $21,512 
Buildings and leasehold improvements
54,888 54,471 
Broadcast equipment
93,372 90,324 
Computer and office equipment
21,382 20,480 
Furniture and fixtures
22,012 21,657 
Transportation equipment
20,415 19,918 
Software development costs
33,796 30,721 
Total property and equipment, gross
266,386 259,083 
Less accumulated depreciation and amortization
(160,269)(147,212)
Total property and equipment, net
$106,117 $111,871 

Depreciation and amortization expense for property and equipment was $4.5 million and $5.0 million for the three months ended September 30, 2021 and 2020, respectively and $13.7 million and $14.6 million for the nine months ended September 30, 2021 and 2020, respectively.

During the three months ended September 30, 2021, a building and portion of land in the Boise, ID market was sold for $0.6 million, an amount consistent with its current net carrying values. During the nine months ended September 30, 2021 the Company sold a portion of land in Portsmouth, NH, recognizing a $0.6 million net loss on sale.

There were no impairment charges related to long-lived assets for the nine months ended September 30, 2021 and $1.2 million in total non-cash impairment charges related to long-lived assets for the nine months ended September 30, 2020 within the San Angelo, TX market and the Live Events business.

The Company had no material right of use assets related to its finance leases as of September 30, 2021 and December 31, 2020.

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Note 5. Goodwill and Other Intangible Assets

Indefinite-lived assets consist of goodwill and FCC broadcast licenses. For goodwill impairment testing, the Company has selected December 31st as the annual testing date. In addition to the annual impairment test, the Company regularly assesses whether a triggering event has occurred, which would require interim impairment testing. As of December 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 138%, 231%, 795%, 300% and 118%, respectively. The local advertising businesses reporting unit had no goodwill as of December 31, 2020 and September 30, 2021, respectively.

The Company considered whether any events have occurred or circumstances have changed from the last quantitative analysis performed as of December 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, 2021.

There were no changes in the carrying value of the Company's goodwill during the nine months ended September 30, 2021.

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

AdvertisingTownsquare
Interactive
Live EventsTotal
Balance at September 30, 2021
$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 continued declines in forecasted traditional broadcast revenue in the markets in which we operate in, as they continue to recover from the COVID-19 pandemic, the Company quantitatively evaluated the fair value of its FCC licenses at March 31, 2021. Based on the results of the impairment assessment of our FCC licenses as of March 31, 2021 we had no impairment charge for the three months ended March 31, 2021.

At September 30, 2021, the Company considered whether any events have occurred or circumstances have changed from the quantitative analysis performed as of March 31, 2021 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, 2021.

The key assumptions used in applying the direct valuation method as of March 31, 2021 are summarized as follows:

March 31, 2021
Discount Rate10.1%
Long-term Revenue Growth Rate0.0%
LowHigh
Mature Market Share*20.5%96.0%
Operating Profit Margin18.0%48.0%
* Market share assumption used when reliable third-party data is available. Otherwise, Company results and forecasts are utilized.

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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 as of the date of our last quantitative assessment would have caused the estimated fair values of our FCC licenses to decrease by $55.1 million, which would have resulted in an impairment charge of $5.6 million. 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 that 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, 2021 and December 31, 2020, respectively (in thousands):

September 30, 2021
Weighted Average Useful Life (in Years)Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Intangible Assets:
FCC licenses
Indefinite$276,991 $— $276,991 
Customer and advertising relationships
26,540 (5,283)1,257 
Leasehold interests
101,085 (993)92 
Tower space
2454 (444)10 
Trademarks
82,598 (1,274)1,324 
Software license fees
2853 (316)537 
Total
$288,521 $(8,310)$280,211 

December 31, 2020
Weighted Average Useful Life (in Years)Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Intangible Assets:
FCC licenses
Indefinite$277,013 $— $277,013 
Customer and advertising relationships
36,540 (4,793)1,747 
Leasehold interests
111,085 (970)115 
Tower space
3454 (439)15 
Trademarks
92,761 (1,218)1,543 
Software license fees
3853 (126)727 
Total
$288,706 $(7,546)$281,160 

Amortization expense for definite-lived intangible assets was $0.3 million for each of the three months ended September 30, 2021 and 2020, respectively and $0.8 million and $0.7 million for the nine months ended September 30, 2021 and 2020, respectively.

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Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of September 30, 2021 is as follows (in thousands):

2021 (remainder)$275 
20221,101 
2023837 
2024168 
2025168 
Thereafter 671
$3,220 

Note 6. Investments

Long-term investments primarily consists of minority holdings in early-stage businesses. 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, for investments without readily determinable fair values, the Company measures its equity securities at cost minus impairment, as 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 adjusts 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, 2021, the Company made two new investments in businesses for $1.1 million and acquired an additional $5.3 million and $0.3 million in additional interests in two existing investees, respectively. There were no impairment charges recorded for the three and nine months ended September 30, 2021 and 2020, respectively.

In early July 2021, the Company noted an observable price change in an orderly transaction for one of its investees following a series of transactions through which the investee completed its registration with the SEC of shares of its common stock. As a result, the Company's investment is no longer measured at cost minus impairment and the carrying value of the investment is measured at its fair value with changes in fair value reflected in net income. As of the date of the completion of the transactions, the fair value of the Company's investment was $7.6 million, as compared to it previous carrying value of $3.2 million.

Based on the market price of the investee's common stock as of September 30, 2021, the fair value of the Company's investment in the common stock of the investee was approximately $6.1 million, resulting in a total unrealized net gain of $2.9 million, during the three months September 30, 2021 included as a component of other income. Additionally, the Company received a $0.2 million cash payment in connection with the completion of the transactions related to the investee's registration of its common stock. The fair value of the investee's common stock as of September 30, 2021, was based upon quoted prices (unadjusted) in active markets for identical equity securities, Level 1 measurements under the fair value measurement hierarchy established under Fair Value Measurement (Topic 820).

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Note 7. Long-Term Debt

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

September 30,
2021
December 31,
2020
2026 Notes$550,000 $ 
2023 Notes 273,416 
Term Loans 272,381 
Debt before deferred financing costs$550,000 $545,797 
Deferred financing costs(9,081)(2,369)
Total long-term debt$540,919 $543,428 

On January 6, 2021, the Company completed the private offering and sale of $550.0 million aggregate principal amount of 6.875% senior secured notes due 2026 (the “2026 Notes”) at an issue price of 100.0%. The net proceeds from the 2026 Notes, together with cash on hand, were used to repay: (i) all outstanding borrowings under the 2015 senior secured credit facility, which included a seven year $275.0 million term loan facility (the “Term Loans”) with $272.4 million principal amount outstanding and $2.1 million in accrued interest, (ii) all of the outstanding $273.4 million of principal amount of 6.5% Unsecured Senior Notes due in 2023 (the “2023 Notes”), a prepayment premium of $4.4 million, and $5.1 million in accrued interest, and (iii) fees and expenses related thereto. The Company also terminated its revolving credit facility and all other obligations thereunder were repaid effective January 6, 2021. The 2026 Notes bear interest at a rate of 6.875% and mature on February 1, 2026. Interest on the 2026 Notes is payable semi-annually in cash in arrears on February 1 and August 1 of each year, commencing on August 1, 2021.

The Company incurred approximately $13.6 million of fees and expenses in connection with the issuance of the 2026 Notes, of which approximately $9.4 million were capitalized and are being amortized over the remaining term of the 2026 Notes using the effective interest method. The Company recognized a $4.9 million loss on the early extinguishment of debt during the three months ended March 31, 2021, comprised of a $3.1 million portion of the 2023 Notes prepayment premium and the write-off of $1.8 million of unamortized debt discount and deferred financing fees previously capitalized in connection with the senior secured credit facility and 2023 Notes. The Company recognized a $1.1 million loss on the modification of Terms Loans and 2023 Notes during the three months ended March 31, 2021, which is primarily related to a portion of fees and expenses incurred related to the issuance of the 2026 Notes.

The Company’s obligations under the 2026 Notes are guaranteed by substantially all of its subsidiaries and assets. The Company may redeem the 2026 Notes in whole or in part, at its option, at a redemption price equal to 100% of the principal amount, subject to the following redemption prices, plus accrued and unpaid interest, if any to, but excluding, the redemption date:

PeriodPrice
Prior to February 1, 2023at an applicable make-whole premium
Beginning February 1, 2023103.438 %
Beginning February 1, 2024101.719 %
Beginning February 1, 2025 and thereafter100.000 %

At any time prior to February 1, 2023, the Company may redeem up to 40% of the aggregate principal amount of the 2026 Notes with the net cash proceeds of one or more equity offerings, at a price equal to 106.875% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

Change of Control

If the Company experiences certain change of control events, holders of the 2026 Notes may require the Company to repurchase all or part of their 2026 Notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
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Certain Covenants

The 2026 Notes indenture contains restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things:

incur additional indebtedness;
declare or pay dividends, redeem stock or make other distributions to stockholders;
make investments; create liens or use assets as security in other transactions;
merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets;
enter into transactions with affiliates;
sell or transfer certain assets; and
agree to certain restrictions on the ability of restricted subsidiaries to make payments to the Company.

Certain of these covenants will be suspended if the 2026 Notes are assigned an investment grade rating by Standard & Poor’s Investors Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. and no event of default has occurred and is continuing.

The Company was in compliance with its covenants under the 2026 Notes indenture as of September 30, 2021.

As of September 30, 2021, based on available market information, the estimated fair value of the 2026 Notes was $579.6 million. 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, 2021 are as follows (in thousands):

2021 (remainder)$ 
2022 
2023 
2024 
2025 
2026550,000 
$550,000 

Note 8. Income Taxes

The Company's effective tax rate for the three months ended September 30, 2021 and 2020 was approximately 20.6% and 25.6%, respectively. The Company's effective tax rate for the nine months ended September 30, 2021 and 2020 was approximately 27.6% and 28.0%, respectively. The decrease in the effective tax rate for the three months ended September 30, 2021 is primarily driven by discrete items for the period, including changes in the valuation allowance due to the utilization of capital loss carryforwards and stock options exercised and forfeited.

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 9. Stockholders' Equity

The table below presents a summary, as of September 30, 2021, of our authorized and outstanding common stock, and securities convertible into common stock, excluding options issued under our 2014 Omnibus Incentive Plan.

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Security 1
Par Value Per ShareNumber AuthorizedNumber OutstandingDescription
Class A common stock$0.01 300,000,000 12,440,045
One vote per share.
Class B common stock$0.01 50,000,000 815,296
Ten votes per share.2
Class C common stock$0.01 50,000,000 3,461,341
No votes.2
Warrants10,622
Each warrant is exercisable for one share of Class A common stock, at an exercise price of $0.0001 per share. The aggregate exercise price for all warrants currently outstanding is $1.3
Total400,000,00016,727,304
1 Each of the shares of common stock, including the shares of Class A common stock issuable upon exercise of the warrants, have equal economic rights.
2 Each share converts into one share of Class A common stock upon transfer or at the option of the holder, subject to certain conditions, including compliance with FCC rules.
3 The warrants are fully vested and exercisable for shares of Class A common stock, subject to certain conditions, including compliance with FCC rules.

The foregoing share totals include 212,605 shares of restricted Class A common stock, subject to vesting terms, but exclude 4,829,289 of Class A common stock and 3,670,509 of Class B common stock issuable upon exercise of stock options which have an exercise price between $4.79 and $10.08 per share, as of September 30, 2021. Additionally, the Company is authorized to issue 50,000,000 shares of undesignated preferred stock.

Stock Repurchase Agreement

On January 24, 2021, the Company entered into a stock repurchase agreement with certain affiliates of Oaktree Capital Management L.P. (“Oaktree”) to repurchase 606,484 shares of the Company’s Class A common stock, 2,151,373 shares of the Company’s Class B common stock, and 7,242,143 warrants to purchase Class A Common Stock, or such greater number of securities as the Company may elect. On March 9, 2021, the repurchase was consummated and the Company elected to repurchase all of the outstanding securities held by Oaktree, including 1,595,224 shares of Class A Common Stock, 2,151,373 shares of Class B Common Stock and 8,814,980 warrants for an aggregate purchase price of $80.4 million, or $6.40 per security.

In connection with the closing under the stock repurchase agreement, on March 8, 2021, the Company and Oaktree entered into a settlement agreement (the “Settlement Agreement”), pursuant to which, among other things, the Company agreed to pay $4.5 million to Oaktree as follows: (i) $1.5 million on April 1, 2021; (ii) $1.0 million on July 1, 2021; (iii) $1.0 million on October 1, 2021; and (iv) $1.0 million on November 10, 2021. The Settlement Agreement also includes customary mutual releases from claims, demands, and damages related to the stock repurchase agreement. The $4.5 million due under the terms of the Settlement Agreement is reflected as a component of transaction costs for the nine months ended September 30, 2021. All amounts due under the terms of the Settlement Agreement were paid as of September 30, 2021.

Total consideration and fees in the aggregate amount of $82.0 million related to the repurchase of the shares and warrants from Oaktree are reflected as a reduction in capital during the nine months ended September 30, 2021. The shares were retired upon repurchase.

Stock Repurchase

On June 2, 2021, the Company repurchased 100,000 shares of Class A common stock from its Chief Executive Officer at a price of $14.00 per share. The shares were previously issued at a grant date fair value of $6.31. The difference between the grant date fair value and the repurchase price is reflected as an increase in accumulated deficit during the three months ended June 30, 2021.

Exercise of Warrants to Purchase Common Stock

On August 16, 2021, a warrant holder exercised 152,074 warrants at an exercise price of $0.0001 per share and received 152,074 shares of Class A common stock.

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Stock-based Compensation

The Company’s 2014 Omnibus Incentive Plan (the “2014 Incentive Plan”) provides grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards. Directors, officers and other employees of the Company and its subsidiaries, as well as others performing consulting or advisory services for the Company, are eligible for grants under the 2014 Incentive Plan. The purpose of the 2014 Incentive Plan is to provide incentives that will attract, retain and motivate high-performing officers, directors, employees and consultants by providing them with appropriate incentives and rewards either through a proprietary interest in our long-term success or compensation based on their performance in fulfilling their personal responsibilities.

On January 25, 2021, the Board of Directors determined that it was in the best interest of the Company and its stockholders to amend the Company’s 2014 Omnibus Incentive Plan to increase the number of shares of common stock available for grant under the 2014 Incentive Plan from 12,000,000 shares to 27,000,000 shares (the “Amendment”). Subsequently, on January 25, 2021, the Board of Directors submitted the Amendment to certain stockholders affiliated with Oaktree for approval. By written consent delivered to the Company on January 27, 2021, the Oaktree-affiliated stockholders, representing approximately 52.4% of the voting power of the Company, approved the Amendment. As of September 30, 2021, 16,624,382 shares were available for grant.

Stock Option Activity

During the first nine months of 2021, eligible option holders tendered 1,360,702 options to purchase 1,360,702 shares of Townsquare common stock.

The following table summarizes stock option activity during the nine months ended September 30, 2021:

OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual Life (years)Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 202011,234,078 $7.92 4.99$1,062 
  Granted45,000 $10.08 — — 
  Exercised(1,360,702)$8.03 — $3,950 
  Forfeited and expired(1,418,577)$8.46 — — 
Outstanding at September 30, 20218,499,799 $7.83 5.25$44,596 
Exercisable at September 30, 20215,356,257 $8.58 3.35$24,045 

The maximum contractual term of stock options is 10 years.

For the three months ended September 30, 2021 and 2020, the Company recognized approximately $0.9 million and $0.4 million, respectively, of stock-based compensation expense with respect to options and shares of restricted stock granted. For the nine months ended September 30, 2021 and 2020, the Company recognized approximately $2.8 million and $1.6 million, respectively. As of September 30, 2021, total unrecognized stock-based compensation expense related to our stock options and restricted stock was $6.0 million and $0.7 million, respectively, and is expected to be recognized over a weighted average period of 3.0 and 1.11 years, respectively.
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Note 10. 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, 2021 and 2020 (in thousands, except per share data):

Three Months Ended 
September 30,
Nine Months Ended September 30,
2021202020212020
Numerator:
Net income (loss)$12,894 $1,311 $16,859 $(85,088)
Net income from non-controlling interest489 516 1,571 1,449 
Net income (loss) attributable to controlling interest$12,405 $795 $15,288 $(86,537)
Denominator:
Weighted average shares of common stock outstanding16,386 18,683 16,917 18,627 
Weighted average shares of participating securities outstanding88 8,978 2,333 8,978 
Total weighted average basic shares outstanding16,474 27,661 19,250 27,605 
Effect of dilutive common stock equivalents2,910 27 2,407  
Weighted average diluted common shares outstanding19,384 27,688 21,657 27,605 
Basic income (loss) per share:
    Attributable to common shares$0.75 $0.03 $0.79 $(4.68)
    Attributable to participating shares (1)
$0.75 $0.03 $0.79 $0.08 
Diluted income (loss) per share$0.64 $0.03 $0.71 $(4.68)

(1) On March 9, 2021, the Company repurchased 8,814,980 warrants outstanding from Oaktree and on August 16, 2021, a warrant holder exercised 152,074 warrants, each as more fully discussed in Note 9, Stockholders' Equity. Income (loss) attributable to participating shares and diluted income (loss) per share for the nine months ended September 30, 2021 was calculated utilizing the weighted-average method.

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,
2021202020212020
Stock options45 9,152 26 9,152 
Restricted Stock 210  296 
Warrants 8,978  8,978 
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Note 11. Segment Reporting

Operating segments are organized internally by type of products and services provided. Based on the information reviewed by the Company's CEO in his capacity as Chief Operating Decision Maker ("CODM"), the Company has identified three reportable operating segments, which are Advertising, which includes broadcast and digital advertising products and solutions, Townsquare Interactive, which is our digital marketing solutions business and Live Events, which is comprised of the Company’s live events, including concerts, expositions and other experiential events. The Company has concluded that each of these operating segments shall be presented separately. The Company operates in one 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 5, 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 tables present the Company's reportable segment results for the three months ended September 30, 2021 (in thousands):

AdvertisingTownsquare InteractiveLive EventsCorporate and Other Reconciling ItemsTotal
Net revenue$87,402 $21,130 $2,748 $ $111,280 
Direct operating expenses, excluding depreciation, amortization and stock-based compensation58,381 14,954 2,384  75,719 
Depreciation and amortization3,306 143 41 1,331 4,821 
Corporate expenses   6,410 6,410 
Stock-based compensation75 128 2 672 877 
Transaction costs   2 2 
Business realignment costs  7 477 484 
Net gain on sale and retirement of assets   (14)(14)
Operating income (loss)$25,640 $5,905 $314 $(8,878)$22,981 

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

AdvertisingTownsquare InteractiveLive EventsCorporate and Other Reconciling ItemsTotal
Net revenue$77,109 $18,181 $66 $ $95,356 
Direct operating expenses, excluding depreciation, amortization and stock-based compensation58,235 12,694 159  71,088 
Depreciation and amortization3,856 131 128 1,133 5,248 
Corporate expenses   6,764 6,764 
Stock-based compensation37 16 2 375 430 
Transaction costs   384 384 
Business realignment cost  284 188 472 
Impairment of long-lived and intangible assets768  575  1,343 
Net loss on sale and retirement of assets   92 92 
Operating income (loss)$14,213 $5,340 $(1,082)$(8,936)$9,535 

The following tables present the Company's reportable segment results for the nine months ended September 30, 2021 (in thousands):

AdvertisingTownsquare InteractiveLive EventsCorporate and Other Reconciling ItemsTotal
Net revenue$243,083 $60,347 $3,949 $ $307,379 
Direct operating expenses, excluding depreciation, amortization and stock-based compensation166,551 42,144 3,142  211,837 
Depreciation and amortization10,170 840 127 3,409 14,546 
Corporate expenses   15,996 15,996 
Stock-based compensation297 411 11 2,114 2,833 
Transaction costs   5,107 5,107 
Business realignment costs  25 715 740 
Impairment of long-lived and intangible assets   95 95 
Net loss on sale and retirement of assets   613 613 
Operating income (loss)$66,065 $16,952 $644 $(28,049)$55,612 


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

AdvertisingTownsquare InteractiveLive EventsCorporate and Other Reconciling ItemsTotal
Net revenue$208,780 $51,595 $2,469 $ $262,844 
Direct operating expenses, excluding depreciation, amortization and stock-based compensation168,527 36,414 2,105  207,046 
Depreciation and amortization10,740 398 393 3,762 15,293 
Corporate expenses   20,724 20,724 
Stock-based compensation116 63 7 1,425 1,611 
Transaction costs   2,624 2,624 
Business realignment costs  284 2,355 2,639 
Impairment of long-lived and intangible assets108,483  575  109,058 
Net loss on sale and retirement of assets   80 80 
Operating (loss) income$(79,086)$14,720 $(895)$(30,970)$(96,231)

Note 12. Related Party Transactions

The Company has a strategic partnership and services agreement with a company affiliated with the Chairman of Townsquare’s Board of Directors. Under the agreement, the Company provides certain professional and administrative services including, IT, accounting and human resources support, business development, and engineering and consulting services. Prior to April 2021, the Company received a monthly service fee of $5,000 and reimbursement of any direct expenses, as applicable, however, effective April 1, 2021, the agreement was terminated. During the three months ended September 30, 2020, the Company recorded total fees in the aggregate of approximately $0.01 million related to services provided under the terms of the agreement. For the nine months ended September 30, 2021 and 2020, the Company recorded total fees in the aggregate of approximately $0.02 million and $0.1 million, respectively related to services provided under the terms of the agreement.

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

The following management’s discussion and analysis is intended to provide the reader with an overall understanding of our financial condition, results of operations, cash flows and sources and uses of cash. This section also includes general information about our business and a discussion of our management’s analysis of certain trends, risks and opportunities in our industry. In addition, we also provide a discussion of accounting policies that require critical judgments and estimates. 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 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 or violence, the impact of several material weaknesses in internal control over financial reporting that have been identified, which resulted in the restatement of certain of our Consolidated Financial Statements and 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 2020 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 community-focused digital media, digital marketing solutions and radio company focused outside the Top 50 markets in the U.S. Our assets, as of September 30, 2021, include a digital marketing subscription business (Townsquare Interactive) providing websites, search engine optimization, social platforms and online reputation management for approximately 25,950 small to medium sized businesses, a proprietary digital programmatic advertising technology with an in-house demand and data management platform (Townsquare Ignite), a portfolio of 322 local terrestrial radio stations in 67 U.S. markets with more than 330 corresponding local news and entertainment websites and apps, along with a network of national music brands and websites. Many of our radio stations are considered market leaders and we also participate in the digital, mobile, video and social media arena. 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.
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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 but importantly not limited to 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 solutions, search engine organic traffic and online directory optimization services, online reputation monitoring, social media management, appointment scheduling services, email marketing services, and website retargeting often packaged together as a comprehensive digital marketing solution.

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. Legislative and regulatory responses to the COVID-19 pandemic required us to cancel nearly all live events beginning in March 2020. We resumed certain live events during the second quarter of 2021, however there continues to be uncertainty surrounding the scheduling of live events in light of the COVID-19 pandemic.




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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 for the year ended December 31, 2020 was materially impacted and our second quarter 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 U.S. economy and financial markets may continue to experience volatility due to the COVID-19 pandemic, including as a result of the development of COVID-19 variants, vaccination rates and government legislative and regulatory responses. 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 in which we operate, the impact of the COVID-19 pandemic on market and economic conditions, and the corresponding impacts to our risk premium, contributed to approximately $107.1 million impairments to the carrying values of our FCC license intangible assets during the first half of 2020, of which $28.7 million and $78.4 million was recognized during the three months ended June 30, 2020 and March 31, 2020, respectively. Additionally, we canceled nearly all live events beginning in March 2020. At the end of the first quarter of 2020, we reduced our workforce through the termination or layoff of approximately 135 full-time employees.

As local public health conditions have improved, we experienced recoveries in advertising revenue, following the sequential improvements we observed during each of the third and the fourth quarters of 2020. However, revenue continues to remain below the levels we experienced during the same period in 2019, with the exception of our Townsquare Interactive segment. Net revenue for the Townsquare Interactive segment has increased $15.0 million, or 33%, as compared to the first nine months of 2019 due to continued net subscriber growth throughout the COVID-19 pandemic. While we resumed certain live events during the second quarter of 2021, there continues to be a level of uncertainty surrounding the scheduling of live events.

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During the first nine months of 2021, we continued the precautionary measures that were instituted in 2020 to address the potential impact to our consolidated financial position, consolidated results of operations, and liquidity, including wage reduction efforts such as the temporary suspension of the Company’s match on employee contributions to the Company’s defined contribution plan, 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”) and controlling non-essential capital expenditures. Additionally, our board of directors determined to cease payment of quarterly cash dividends, following the payment of our 2020 first quarter dividend of $2.1 million, paid on May 15, 2020.

The full extent of the COVID-19 pandemic impact will depend on future actions and outcomes, all of which remain fluid and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the short-term and long-term economic impacts of the COVID-19 pandemic (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 pandemic, and the pace of continued economic and financial market recovery when the COVID-19 pandemic subsides, among others.

OVERVIEW OF OUR PERFORMANCE

Changes in our Business

Recent Developments

On January 6, 2021, the Company completed the private offering and sale of $550.0 million aggregate principal amount of 6.875% senior secured notes due 2026 (the “2026 Notes”) at an issue price of 100.0%. The net proceeds from the 2026 Notes, together with cash on hand, were used to repay: (i) all outstanding borrowings under the 2015 senior secured credit facility, which included a seven year $275.0 million term loan facility (the "Term Loans") with $272.4 million principal amount outstanding and $2.1 million in accrued interest, (ii) all of the outstanding $273.4 million of principal amount of 6.5% Unsecured Senior Notes due in 2023 (the “2023 Notes”), a prepayment premium of $4.4 million, and $5.1 million in accrued interest, and (iii) fees and expenses related thereto. The Company also terminated its revolving credit facility and all other obligations thereunder were repaid effective January 6, 2021.

The Company incurred approximately $13.6 million of fees and expenses in connection with the issuance of the 2026 Notes, of which approximately $9.4 million were capitalized and are being amortized over the remaining term of the 2026 Notes using the effective interest method. The Company recognized a $4.9 million loss on the early extinguishment of debt during the three months ended March 31, 2021, due to a $3.1 million portion of the 2023 Notes prepayment premium and the write-off of $1.8 million of unamortized debt discount and deferred financing fees previously capitalized in connection with the senior secured credit facility and 2023 Notes. The Company recognized a $1.1 million loss on the modification of Terms Loans and 2023 Notes during the three months ended March 31, 2021, which is primarily related to a portion of fees and expenses incurred related to the issuance of the 2026 Notes.

Refer to Note 7, Long-term Debt, in the accompanying Notes to Consolidated Financial Statements for additional information related to our 2026 Notes.

Stock Repurchase

On January 24, 2021, the Company entered into a stock repurchase agreement with certain affiliates of Oaktree Capital Management L.P. (“Oaktree”) to repurchase 606,484 shares of the Company’s Class A common stock, 2,151,373 shares of the Company’s Class B common stock and 7,242,143 warrants to purchase Class A Common Stock, or such greater number of securities as the Company may elect. On March 9, 2021, the repurchase was consummated and the Company elected to repurchase all of the outstanding securities held by Oaktree, including 1,595,224 shares of Class A Common Stock, 2,151,373 shares of Class B Common Stock and 8,814,980 warrants for an aggregate purchase price of $80.4 million, or $6.40 per security.

In connection with the closing under the stock repurchase agreement, on March 8, 2021, the Company and Oaktree entered into a settlement agreement (the “Settlement Agreement”), pursuant to which, among other things, the Company agreed to pay $4.5 million to Oaktree as follows: (i) $1.5 million on April 1, 2021; (ii) $1.0 million on July 1, 2021; (iii) $1.0 million on October 1, 2021; and (iv) $1.0 million on November 10, 2021. The Settlement Agreement also includes
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customary mutual releases from claims, demands, and damages related to the stock repurchase agreement. All amounts due under the terms of the Settlement Agreement were paid as of September 30, 2021.

Refer to Note 9, Stockholders' Equity, in the accompanying Notes to Consolidated Financial Statements for additional information related to the stock repurchase.

Highlights of Our Financial Performance

Certain key financial developments in our business for the three months ended September 30, 2021 as compared to the same period in 2020 are summarized below:

Net revenue increased $15.9 million, or 16.7%, primarily driven by a $10.3 million increase in our Advertising net revenue as a result of increases in the purchase of new advertising by our clients, an increase of $2.9 million in our Townsquare Interactive net revenue as a result of additional subscribers, and an increase of $2.7 million in our Live Events net revenue as we resumed certain live events.

Excluding revenue related to political advertising of $0.6 million and $4.5 million, and Live Events net revenue of $2.7 million and $0.1 million for each of the three months ended September 30, 2021 and 2020, respectively, net revenue increased $17.1 million or 18.8% to $108.0 million.

Excluding revenue related to political advertising of $0.6 million and $4.5 million for the three months ended September 30, 2021 and 2020, respectively, net revenue increased $19.8 million, or 21.8% to $110.7 million and Advertising net revenue increased $14.2 million, or 19.5%, to $86.8 million.

Operating income increased $13.4 million, or 141.0%, for the three months ended September 30, 2021. Operating income increased due to an increase in net revenue of $15.9 million, partially offset by a $4.6 million increase in direct operating expenses. Our Advertising segment reported operating income of $25.6 million which represents an increase of $11.4 million as compared to operating income of $14.2 million for the three months ended September 30, 2020, primarily due to a $10.3 million increase in net revenue. Townsquare Interactive’s operating income for the three months ended September 30, 2021 was $5.9 million, an increase of $0.6 million from the same period in 2020, primarily due to growth in net subscribers. Our Live Events segment reported operating income of $0.3 million, as compared to an operating loss of $1.1 million for the three months ended September 30, 2020, an increase of $1.4 million as we resumed live events.

Certain key financial developments in our business for the nine months ended September 30, 2021, as compared to the same period in 2020 are summarized below:

Net revenue for the nine months ended September 30, 2021 as compared to the same period in 2020, increased $44.5 million, or 16.9%, primarily driven by an increase of $34.3 million in our Advertising net revenue as a result of an increase in the purchase of new advertising by our clients, an increase of $8.8 million in our Townsquare Interactive net revenue due to additional net subscribers, and a $1.5 million increase in our Live Events net revenue as a result of more live events held during the nine months ended September 30, 2021 than the prior year period.

Excluding revenue related to political advertising of $1.8 million and $6.7 million and Live Events net revenue of $3.9 million and $2.5 million for each of the nine months ended September 30, 2021 and 2020, respectively, net revenue increased $47.9 million, or 18.9%, to $301.7 million.

Excluding revenue related to political advertising of $1.8 million and $6.7 million for the nine months ended September 30, 2021 and 2020, respectively, net revenue increased $49.4 million, or 19.3% to $305.6 million and Advertising net revenue increased $39.2 million, or 19.4%, to $241.3 million.

Operating income increased $151.8 million as compared to an operating loss of $96.2 million for the nine months ended September 30, 2020 to operating income of $55.6 million for the nine months ended September 30, 2021. Operating income increased for the nine months ended September 30, 2021 due to an increase of $44.5 million in net revenue as discussed above; a decrease of $109.0 million of total impairment charges; and a decrease of $4.7 million of corporate expenses, primarily due to lower professional fees. Our Advertising segment reported operating
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income of $66.1 million which represents an increase of $145.2 million from the nine months ended September 30, 2020 due to a $34.3 million increase in net revenue as discussed above; impairment charges of $108.5 million in 2020 that did not repeat in 2021; and a decrease in direct operating expenses of $2.0 million. Townsquare Interactive’s operating income for the nine months ended September 30, 2021 was $17.0 million, an increase of $2.2 million from the same period in 2020 due to net subscriber growth. Our Live Events segment reported operating income of $0.6 million, an increase of $1.5 million from the nine months ended September 30, 2020 due to more live event activity.

Cash and cash equivalents decreased $51.9 million from $83.2 million as of December 31, 2020 to $31.3 million as of September 30, 2021. Excluding the $80.4 million in cash consideration paid for the repurchase of the Oaktree securities, cash and cash equivalents increased $28.5 million at September 30, 2021, as compared to December 31, 2020.


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Consolidated Results of Operations

Three months ended September 30, 2021 compared to three months ended September 30, 2020

The following table summarizes our historical consolidated results of operations:

($ in thousands)Three Months Ended September 30,
Statement of Operations Data:20212020$ Change% Change
Net revenue$111,280 $95,356 $15,924 16.7 %
Operating costs and expenses:
Direct operating expenses, excluding depreciation, amortization, and stock-based compensation75,719 71,088 4,631 6.5 %
Depreciation and amortization4,821 5,248 (427)(8.1)%
Corporate expenses6,410 6,764 (354)(5.2)%
Stock-based compensation877 430 447 104.0 %
Transaction costs384 (382)(99.5)%
Business realignment costs484 472 12 2.5 %
Impairment of long-lived and intangible assets— 1,343 (1,343)(100.0)%
Net (gain) loss on sale and retirement of assets(14)92 (106)**
    Total operating costs and expenses88,299 85,821 2,478 2.9 %
    Operating income22,981 9,535 13,446 141.0 %
Other expense (income):
Interest expense, net9,816 7,692 2,124 27.6 %
Other (income) expense, net(3,078)81 (3,159)**
Income from operations before tax16,243 1,762 14,481 **
Income tax provision3,349 451 2,898 **
      Net income$12,894 $1,311 $11,583 **
** 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, 2021 and 2020 (in thousands):

Net RevenueDirect Operating Expenses
Three Months Ended September 30,Three Months Ended September 30,
20212020$ Change% Change20212020$ Change% Change
Advertising$87,402 $77,109 $10,293 13.3 %$58,381 $58,235 $146 0.3 %
Townsquare Interactive21,130 18,181 2,949 16.2 %14,954 12,694 2,260 17.8 %
Live Events2,748 66 2,682 **2,384 159 2,225 **
Total$111,280 $95,356 $15,924 16.7 %$75,719 $71,088 $4,631 6.5 %


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Net Revenue

Net revenue for the three months ended September 30, 2021 increased $15.9 million, or 16.7%, as compared to the same period in 2020. Our Advertising net revenue for the three months ended September 30, 2021 increased $10.3 million, or 13.3%, as compared to the same period in 2020, as a result of increases in the purchase of new advertising by our clients, partially offset by lower political advertising revenues. Our Townsquare Interactive net revenue for the three months ended September 30, 2021 increased $2.9 million or 16.2%, as compared to the same period in 2020 primarily due to the addition of net subscribers, including approximately 1,000 additional net subscribers during the third quarter of 2021. Our Live Events net revenue increased $2.7 million in the three months ended September 30, 2021, as compared to the same period in 2020 as we resumed operating certain live events in 2021.

Direct Operating Expenses

Direct operating expenses for the three months ended September 30, 2021 increased by $4.6 million, or 6.5%, as compared to the same period in 2020. Our Advertising direct operating expenses for the three months ended September 30, 2021 increased $0.1 million, or 0.3%, essentially flat. Our Townsquare Interactive direct operating expenses for the three months ended September 30, 2021 increased $2.3 million, or 17.8%, as compared to the same period in 2020. The increase was primarily driven by increases in headcount related expenses to support revenue and subscriber growth. Our Live Events direct operating expenses for the three months ended September 30, 2021 increased $2.2 million as compared to the same period in 2020. The increase was primarily driven by resuming live events during the period.

Depreciation and Amortization

Depreciation and amortization expense for the three months ended September 30, 2021 decreased $0.4 million, or 8.1%, as compared to the same period in 2020, due to lower amortization of leasehold improvements.

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, 2021 decreased $0.4 million, or 5.2%, as compared to the same period in 2020 primarily due to lower professional fees.

Stock-based Compensation

Stock-based compensation expense for the three months ended September 30, 2021 increased $0.4 million, or 104.0%, primarily due to options granted in December of 2020.

Transaction Costs

Transaction costs for the three months ended September 30, 2021 decreased $0.4 million as compared to the same period in 2020 due to fees incurred in 2020 related to the acquisition of a radio station which closed in early October 2020.

Impairment of Long-Lived and Intangible Assets

The Company did not record any impairment charges related to our intangible and long-lived assets during the three months ended September 30, 2021. During the three months ended September 30, 2020, the Company recorded $1.3 million of impairment charges related to 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.



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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,
20212020
2026 Notes$9,348 $— 
2023 Notes— 4,443 
Term Loans2,877 
Capital leases and other
Deferred financing costs and discounts455 414 
Interest income— (47)
      Interest expense, net$9,816 $7,692 

Other Income, net

Other income, net includes unrealized gains related to measuring the fair value of one of the Company's investees that completed its registration with the SEC of shares of its common stock. Based on the market price of the investee's common stock as of September 30, 2021, the fair value of the Company's investment in the common stock of the investee was approximately $6.1 million, as compared to it previous carrying value of $3.2 million, resulting in an unrealized gain of $2.9 million, as of September 30, 2021. Additionally, the Company also received a $0.2 million cash payment during the three months ended September 30, 2021, in connection with the completion of the transactions related to the investee's registration of its common stock. See Note 6, Investments, in our Notes to Consolidated Financial Statements for further discussion related to this investment.

Provision for income taxes

We recognized an income tax provision of $3.3 million for the three months ended September 30, 2021, as compared to $0.5 million for the same period in 2020. Our effective tax rate for the three months ended September 30, 2021 and 2020 was approximately 20.6% and 25.6%, respectively. The decrease in the effective tax rate is primarily driven by discrete items for the period, including changes in the valuation allowance due to the utilization of capital loss carryforwards and stock options exercised and forfeited.


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%, primarily relates to certain non-deductible items, state and local income taxes and the valuation allowance for deferred tax assets.


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Consolidated Results of Operations

Nine months ended September 30, 2021 compared to nine months ended September 30, 2020

The following table summarizes our historical consolidated results of operations:

($ in thousands)Nine Months Ended 
September 30,
Statement of Operations Data:20212020$ Change% Change
Net revenue$307,379 $262,844 $44,535 16.9 %
Direct operating expenses, excluding depreciation, amortization, and stock-based compensation211,837 207,046 4,791 2.3 %
Depreciation and amortization14,546 15,293 (747)(4.9)%
Corporate expenses15,996 20,724 (4,728)(22.8)%
Stock-based compensation2,833 1,611 1,222 75.9 %
Transaction costs5,107 2,624 2,483 94.6 %
Business realignment costs740 2,639 (1,899)(72.0)%
Impairment of long-lived and intangible assets95 109,058 (108,963)**
Net loss on sale and retirement of assets613 80 533 **
    Total operating costs and expenses251,767 359,075 (107,308)(29.9)%
    Operating income (loss)55,612 (96,231)151,843 **
Other expense (income):
Interest expense, net29,780 23,713 6,067 25.6 %
Loss (gain) on extinguishment and modification of debt5,997 (1,159)7,156 **
Other income, net(3,455)(653)(2,802)429.1 %
   Income (loss) from continuing operations before income taxes23,290 (118,132)141,422 **
Income tax provision (benefit)6,431 (33,044)39,475 **
Net income (loss)$16,859 $(85,088)$101,947 **
** 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, 2021 and 2020 (in thousands):

Net RevenueDirect Operating Expenses
Nine Months Ended 
September 30,
Nine Months Ended 
September 30,
20212020$ Change% Change20212020$ Change% Change
Advertising$243,083 $208,780 $34,303 16.4 %$166,551 $168,527 $(1,976)(1.2)%
Townsquare Interactive60,347 51,595 8,752 17.0 %42,144 36,414 5,730 15.7 %
Live Events3,949 2,469 1,480 59.9 %3,142 2,105 1,037 49.3 %
Total$307,379 $262,844 $44,535 16.9 %$211,837 $207,046 $4,791 2.3 %


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Net Revenue

Net revenue for the nine months ended September 30, 2021, increased $44.5 million, or 16.9%, as compared to the same period in 2020. Our Advertising net revenue for the nine months ended September 30, 2021, increased $34.3 million, or 16.4%, as compared to the same period in 2020 as a result of increases in the purchase of new advertising by our clients, partially offset by lower political advertising revenues. Our Townsquare Interactive net revenue for the nine months ended September 30, 2021, increased $8.8 million, or 17.0%, as compared to the same period in 2020 primarily due to incremental net subscribers, including approximately 3,200 net subscribers added during the nine months ended September 30, 2021. Our Live Events segment revenue increased $1.5 million, or 59.9%, in the nine months ended September 30, 2021, as compared to the same period in 2020 driven by an increase in certain live events held during the period.

Direct Operating Expenses

Direct operating expenses for the nine months ended September 30, 2021, increased by $4.8 million, or 2.3%, as compared to the same period in 2020. Our Townsquare Interactive direct operating expenses for the nine months ended September 30, 2021, increased $5.7 million, or 15.7%, as compared to the same period in 2020. The increase was primarily driven by increases in headcount related expenses to support revenue and subscriber growth. Our Advertising direct operating expenses for the nine months ended September 30, 2021, decreased $2.0 million, or 1.2%, as compared to the same period in 2020. This decrease was primarily driven by lower music license fees and lower provisions for bad debt. Our Live Events direct operating expenses for the nine months ended September 30, 2021, increased $1.0 million, or 49.3%, as compared to the same period in 2020. This increase was primarily driven by an increase in certain live events activity held during the period, as compared to the same period a year ago where events were cancelled beginning in March 2020, as a result of the COVID-19 pandemic.

Depreciation and Amortization

Depreciation and amortization expense for the nine months ended September 30, 2021, decreased $0.7 million, or 4.9%, as compared to the same period in 2020 due to decreases in the amortization of software development costs due to the timing of new projects launched as compared to the same period a year ago, the disposal of certain long-lived assets previously utilized in the Live Events business in the third quarter of 2020, and lower amortization of leasehold improvements.

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, 2021, decreased $4.7 million, or 22.8%, as compared to the same period in 2020, primarily due to lower compensation costs and professional fees.

Stock-based Compensation

Stock-based compensation expense for the nine months ended September 30, 2021, increased $1.2 million, or 75.9%, as compared to the same period in 2020 primarily due to options granted in December of 2020.

Transaction Costs

Transaction costs for the nine months ended September 30, 2021, increased $2.5 million as compared to the same period in 2020 primarily due to $4.5 million due under the terms of the Settlement Agreement, partially offset by fees incurred in 2020 to amend the Company's Term Loans.

Business Realignment Costs

Business realignment costs for the nine months ended September 30, 2021, decreased $1.9 million or 72.0% as compared to the same period in 2020, primarily as a result of employee-related costs incurred during the nine months ended September 30, 2020 as a result of headcount reductions in response to the COVID-19 pandemic that did not recur in 2021.

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Impairment of Long-Lived and Intangible Assets

The Company did not record any material impairment charges related to our intangible and long-lived assets during the nine months ended September 30, 2021, as compared to total impairment charges of $109.1 million for the nine months ended September 30, 2020, primarily as a result of FCC license impairment charges of $28.7 million and $78.4 million that were recognized during the three months ended June 30, 2020 and March 31, 2020, respectively. The $28.7 million impairment charge recorded during the three months ended June 30, 2020 related to FCC licenses in 35 of our 67 local markets, and 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. During the three months ended March 31, 2020, the Company recorded $78.4 million of FCC license impairment charges in 46 of our 67 local markets due to declines in the purchase of advertising by our clients, primarily as a result of the COVID-19 pandemic.

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 as of the date of our last quantitative assessment performed as of March 31, 2021 would have caused the estimated fair values of our FCC licenses to decrease by $55.1 million, which would have resulted in an impairment charge of $5.6 million. 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 that 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 Company also recorded total impairment charges of $2.0 million related to long-lived assets in certain markets, including the disposal of certain long-lived assets previously utilized in the Live Events business during the nine months ended September 30, 2020.

Net Loss on Sale of Assets

During the nine months ended September 30, 2021, the Company recognized a $0.6 million loss on the sale of a portion of land in Portsmouth, NH.

Interest Expense, net

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

Nine Months Ended 
September 30,
20212020
2026 Notes$27,834 $— 
2023 Notes642 13,449 
Term Loans161 9,178 
Revolver— 351 
Capital leases and other33 14 
Deferred financing costs and discounts1,129 1,252 
Interest income(19)(531)
      Interest expense, net$29,780 $23,713 

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Loss / gain on Extinguishment and Modification of Debt

During the nine months ended September 30, 2021, the Company recognized a $4.9 million and a $1.1 million loss on the early extinguishment and modification of debt, respectively. The $4.9 million loss on the early extinguishment of debt is comprised of a $3.1 million portion of the 2023 Notes prepayment premium and the write-off of $1.8 million of unamortized debt discount and deferred financing fees previously capitalized in connection with the senior secured credit facility and the 2023 Notes. The $1.1 million loss on the modification of debt was primarily related to a portion of fees and expenses related to the issuance of the 2026 Notes.

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 during the nine months ended September 30, 2020.

Other Income, net

Other income, net includes unrealized gains related to measuring the fair value of one of the Company's investees that completed its registration with the SEC of shares of its common stock. Based on the market price of the investee's common stock as of September 30, 2021, the fair value of the Company's investment in the common stock of the investee was approximately $6.1 million, as compared to it previous carrying value of $3.2 million, resulting in an unrealized gain of $2.9 million, as of September 30, 2021. Additionally, the Company also received an $0.2 million cash payment during the three months ended September 30, 2021, in connection with the completion of the transactions related to the investee's registration of its common stock. See Note 6, Investments, in our Notes to Consolidated Financial Statements for further discussion related to this investment.

Provision (benefit) for income taxes

We recognized an income tax provision of $6.4 million for the nine months ended September 30, 2021, as compared to an income tax benefit of $33.0 million for the same period in 2020. Our effective tax rate for the period was approximately 27.6% for the nine months ended September 30, 2021 as compared to 28.0% for the nine months ended September 30, 2020.

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.

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Liquidity and Capital Resources

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

Nine Months Ended September 30,
20212020
Cash and cash equivalents
$31,289 $79,112 
Restricted cash
494 494 
Cash provided by operating activities
38,164 23,448 
Cash used in investing activities
(6,085)(10,129)
Cash used in financing activities
(84,019)(18,874)
Net decrease in cash and cash equivalents and restricted cash
$(51,940)$(5,555)

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, 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, 2021, we had $540.9 million of outstanding indebtedness, net of deferred financing costs of $9.1 million. Based on the terms of our 2026 Notes, as of September 30, 2021, we expect our debt service requirements to be approximately $37.8 million over the next twelve months. In addition, as of September 30, 2021 we had $31.3 million of cash and cash equivalents, and $57.9 million of receivables from customers, which historically have had an average collection cycle of approximately 55 days. We had restricted cash of $0.5 million at September 30, 2021 and December 31, 2020, 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.

During the nine months ended September 30, 2021, the Company repurchased all of the outstanding securities held by Oaktree, including 1,595,224 shares of Class A Common Stock, 2,151,373 shares of Class B Common Stock and 8,814,980 warrants to purchase Class A common stock for an aggregate purchase price of $80.4 million, or $6.40 per security, and incurred fees related to the repurchase of the securities in the amount of $1.6 million.

In connection with the closing under the stock repurchase agreement, on March 8, 2021, the Company and Oaktree entered into the Settlement Agreement, pursuant to which, among other things, the Company agreed to pay $4.5 million to Oaktree as follows: (i) $1.5 million on April 1, 2021; (ii) $1.0 million on July 1, 2021; (iii) $1.0 million on October 1, 2021; and (iv) $1.0 million on November 10, 2021. The $4.5 million due under the terms of the Settlement Agreement is reflected as a component of transaction costs for the nine months ended September 30, 2021. All amounts due under the terms of the Settlement Agreement were paid as of September 30, 2021.

Our anticipated uses of cash in the near term include working capital needs, interest payments, other obligations, and capital expenditures. The Company believes that the cash generated by its operations should be sufficient to meet its liquidity needs for at least the next 12 months. 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.

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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 maintained certain precautionary measures that were instituted in 2020 to address the potential impact to our consolidated financial position, consolidated results of operations, and liquidity, including wage reduction efforts such as the temporary suspension of the Company’s match on employee contributions to the Company’s defined contribution plan, 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”) and controlling non-essential capital expenditures. 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 $38.2 million for the nine months ended September 30, 2021, as compared to $23.4 million for the same period in 2020. This increase was primarily related to: net income in 2021 of $16.9 million, as compared to a net loss of $85.1 million in 2020; partially offset by changes in working capital due to changes in accounts receivable in 2021, as compared to 2020 as a result of the COVID-19 pandemic and the impact on advertising revenue in the prior period; increases in payments for accrued expenses primarily due to the timing of payments and lower accrued interest due to the timing of the August 1 interest payment on the 2026 Notes.

Investing Activities

Net cash used in investing activities was $6.1 million for the nine months ended September 30, 2021 as compared to $10.1 million for the same period in 2020. The decrease in net cash used in investing activities was primarily due to decreases in the purchase of property and equipment.

Financing Activities

Net cash used in financing activities was $84.0 million for the nine months ended September 30, 2021, as compared to $18.9 million for the same period in 2020. Net cash used in financing activities during 2021 was due to: the repayment of $557.4 million of principal amount of the 2023 Notes and Term Loans, including total accrued interest of $7.2 million and a $4.4 million prepayment premium; cash consideration for the Company's repurchase of the outstanding shares and warrants of Oaktree in the amount of $80.4 million; offset by the issuance of $550.0 million of the 2026 Notes, net of fees and expenses and proceeds from stock option exercises. Net cash used by financing activities during the nine months ended September 30, 2020 included 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, see Note 7, Long-Term Debt in the Notes to Unaudited Consolidated Financial Statements.

2026 Notes

On January 6, 2021, the Company completed the private offering and sale of $550.0 million aggregate principal amount of 6.875% senior secured notes due 2026, the 2026 Notes, at an issue price of 100.0%. The net proceeds from the 2026 Notes, together with cash on hand, were used to repay: (i) all outstanding borrowings under the 2015 senior secured credit facility, which included seven year $275.0 million Term Loans with $272.4 million principal amount outstanding and $2.1 million in accrued interest, (ii) all of the outstanding $273.4 million of principal amount of 2023 Notes, a prepayment
39


premium of $4.4 million, and $5.1 million in accrued interest, and (iii) fees and expenses related thereto. The Company also terminated its revolving credit facility and all other obligations thereunder were repaid effective January 6, 2021. The 2026 Notes bear interest at a rate of 6.875% and mature on February 1, 2026. Interest on the 2026 Notes is payable semi-annually in cash in arrears on February 1 and August 1 of each year, commencing on August 1, 2021.

The Company’s obligations under the 2026 Notes are guaranteed by substantially all of its subsidiaries and assets. The Company may redeem the 2026 Notes in whole or in part, at its option, at a redemption price equal to 100% of the principal amount, subject to the following redemption prices, plus accrued and unpaid interest, if any to, but excluding, the redemption date:

PeriodPrice
Prior to February 1, 2023at an applicable make-whole premium
Beginning February 1, 2023103.438 %
Beginning February 1, 2024101.719 %
Beginning February 1, 2025 and thereafter100.000 %

At any time prior to February 1, 2023, the Company may redeem up to 40% of the aggregate principal amount of the 2026 Notes with the net cash proceeds of one or more equity offerings, at a price equal to 106.875% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company experiences certain change of control events, holders of the 2026 Notes may require the Company to repurchase all or part of their 2026 Notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

Change of Control

If the Company experiences certain change of control events, holders of the 2026 Notes may require the Company to repurchase all or part of their 2026 Notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

Certain Covenants

The 2026 Notes indenture contains restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things:

incur additional indebtedness;
declare or pay dividends, redeem stock or make other distributions to stockholders;
make investments; create liens or use assets as security in other transactions;
merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets;
enter into transactions with affiliates;
sell or transfer certain assets; and
agree to certain restrictions on the ability of restricted subsidiaries to make payments to the Company.

Certain of these covenants will be suspended if the 2026 Notes are assigned an investment grade rating by Standard & Poor’s Investors Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. and no event of default has occurred and is continuing.

The Company was in compliance with its covenants under the 2026 Notes indenture as of September 30, 2021.

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
40


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 2020 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.
41


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, 2021. 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, 2021 due to the material weaknesses in internal control over financial reporting summarized below and disclosed in our 2020 Annual Report on Form 10-K.

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 2020 Annual Report on Form 10-K, we identified several material weaknesses in our internal control over financial reporting which included:

Control Activities - Management did not have adequate selection and development of effective control activities, general controls over technology and effective policies and procedures. These deficiencies attributed to the following individual control activities:

Ineffective Information Technology General Controls - The Company’s information technology general controls over certain key IT systems were not designed properly and did not operate effectively. Specifically: (i) user access controls did not restrict users’ access privileges commensurate with their assigned authority and responsibility; and (ii) user access reviews were not performed sufficiently throughout the period related to certain key IT systems.

Ineffective detective controls over Revenue Recognition - a lack of effectively designed and implemented detective controls over recorded revenue, including procedures over the existence, completeness and accuracy of data used to support accounts related to revenue and accounts receivable included in the financial statement close process.

Income Tax - Inadequate design and controls over the documentation and review relating to income tax accounting and disclosures for the significant components of deferred tax assets and liabilities and assessment of the company’s valuation allowance.

Inadequate design and maintenance of effective detective controls over Period end Financial Reporting, including review controls over journal entries, reconciliations and account analyses - lack of effectively designed and implemented monitoring controls to detect potential misstatements to period end financial statements.

These deficiencies are attributed to various ineffective controls design and control activities, which are fully disclosed in our 2020 Annual Report on Form 10-K. 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 2020 Annual Report on Form 10-K. 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, 2021.
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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, 2021 and our financial condition as of such date, in accordance with U.S. GAAP.

Changes in Internal Control Over Financial Reporting

Except in connection with our remediation plans, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2021 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.

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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, 2021. 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 2020 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.

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Item 6. Exhibits

See Exhibit Index.

EXHIBIT INDEX
Exhibit
Description
31.1*
31.2*
32.1**
32.2**
101.INSXBRL 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.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith
** Furnished herewith


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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.
Date: November 5, 2021
By:/s/ Stuart Rosenstein
Name: Stuart Rosenstein
Title: Executive Vice President & Chief Financial Officer
By:/s/ Robert Worshek
Name: Robert Worshek
Title: Senior Vice President, Chief Accounting Officer

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