TOWNSQUARE MEDIA, INC. filed this 10-Q on August 10, 2020
TOWNSQUARE MEDIA, INC. - 10-Q - 20200810 - FINANCIAL_STATEMENTS
Item 1.    Financial Statements
TOWNSQUARE MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share and Per Share Data)
(unaudited)



June 30,
2020
 
December 31,
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
70,015

 
$
84,667

Accounts receivable, net of allowance of $3,632 and $2,604, respectively
46,988

 
67,463

Prepaid expenses and other current assets
9,374

 
9,241

Total current assets
126,377

 
161,371

Property and equipment, net
114,040

 
114,142

Intangible assets, net
280,504

 
388,029

Goodwill
157,947

 
157,947

Investments
10,975

 
8,275

Operating lease right-of-use assets
48,693

 
49,503

Restricted cash
494

 
494

Other assets
1,226

 
638

Total assets
$
740,256

 
$
880,399

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
16,799

 
$
14,790

Current portion of long-term debt

 
9,929

Deferred revenue
9,195

 
8,086

Accrued compensation and benefits
8,234

 
10,714

Accrued expenses and other current liabilities
10,071

 
15,358

Operating lease liabilities, current
7,685

 
7,690

Financing lease liabilities, current
47

 
17

Accrued interest
4,473

 
4,558

Liabilities of discontinued operations
248

 
423

Total current liabilities
56,752

 
71,565

Long-term debt, less current portion (net of deferred finance costs of $3,088 and $3,840, respectively)
542,709

 
546,711

Deferred tax liability
613

 
34,347

Operating lease liability, net of current portion
44,246

 
44,957

Financing lease liabilities, net of current portion
106

 
31

Other long-term liabilities
1,826

 
352

Total liabilities
646,252

 
697,963

Stockholders’ equity:
 
 
 
Class A common stock, par value $0.01 per share; 300,000,000 shares authorized; 14,330,220 and 14,314,092 shares issued and outstanding, respectively
143

 
143

Class B common stock, par value $0.01 per share; 50,000,000 shares authorized; 3,011,634 shares issued and outstanding
30

 
30

Class C common stock, par value $0.01 per share; 50,000,000 shares authorized; 1,636,341 shares issued and outstanding
17

 
17

    Total common stock
190

 
190

    Additional paid-in capital
368,770

 
367,540

    Accumulated deficit
(277,464
)
 
(188,034
)
    Non-controlling interest
2,508

 
2,740

Total stockholders’ equity
94,004

 
182,436

Total liabilities and stockholders’ equity
$
740,256

 
$
880,399

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 
 June 30,
 
Six Months Ended 
 June 30,
 
2020
 
2019
 
2020
2019
 
 
 
 
 
 
 
Net revenue
$
74,055

 
$
113,088

 
$
167,488

$
206,770

 
 
 
 
 
 
 
Operating costs and expenses:
 
 
 
 
 
 
Direct operating expenses
64,408

 
75,590

 
135,958

144,358

Depreciation and amortization
4,761

 
6,947

 
10,045

12,993

Corporate expenses
7,570

 
7,370

 
13,960

13,107

Stock-based compensation
657

 
660

 
1,181

1,536

Transaction costs
1,213

 
128

 
2,240

276

Business realignment costs
456

 

 
2,167

165

Impairment of intangible and long-lived assets
28,655

 
231

 
107,715

231

Net gain on sale and retirement of assets
(10
)
 
(21
)
 
(12
)
(2
)
    Total operating costs and expenses
107,710

 
90,905

 
273,254

172,664

    Operating (loss) income
(33,655
)
 
22,183

 
(105,766
)
34,106

Other expense:
 
 
 
 
 
 
Interest expense, net
7,892

 
8,526

 
16,021

17,121

Gain on repurchase of debt
(1,159
)
 

 
(1,159
)

Other (income) expense, net
(961
)
 
37

 
(734
)
70

    (Loss) income from continuing operations before income taxes
(39,427
)
 
13,620

 
(119,894
)
16,915

(Benefit) provision for income taxes
(12,605
)
 
3,769

 
(33,495
)
4,680

Net (loss) income from continuing operations
(26,822
)
 
9,851

 
(86,399
)
12,235

Net income (loss) from discontinued operations, net of income taxes

 
84

 

(6,878
)
Net (loss) income
$
(26,822
)
 
$
9,935

 
$
(86,399
)
$
5,357

 
 
 
 
 
 
 
Net (loss) income attributable to:
 
 
 
 
 
 
     Controlling interests
$
(27,178
)
 
$
9,442

 
$
(87,332
)
$
4,417

     Non-controlling interests
$
356

 
493

 
$
933

940

 
 
 
 
 
 
 
Basic (loss) income per share:
 
 
 
 
 
 
    Continuing operations attributable to common shares
$
(1.46
)
 
$
0.34

 
$
(4.73
)
$
0.41

    Continuing operations attributable to participating shares
$

 
$
0.34

 
$
0.08

$
0.41

    Discontinued operations attributable to common shares
$

 
$

 
$

$
(0.25
)
    Discontinued operations attributable to participating shares
$

 
$

 
$

$
(0.25
)
 
 
 
 
 
 
 
Diluted (loss) income per share:
 
 
 
 
 
 
    Continuing operations
$
(1.46
)
 
$
0.34

 
$
(4.73
)
$
0.41

    Discontinued operations
$

 
$

 
$

$
(0.25
)
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
     Basic attributable to common shares
18,616

 
18,512

 
18,599

18,495

     Basic attributable to participating shares
8,978

 
8,978

 
8,978

8,978

     Diluted
27,594

 
27,490

 
27,577

27,473

 
 
 
 
 
 
 
Cash dividend declared per share
$

 
$
0.075

 
$
0.075

$
0.150


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 A
 
Class B
 
Class C
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Shares
 
Shares
 
Warrants
 
Common
Stock
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Non-
Controlling
Interest
 
Total
Balance at January 1, 2020
14,314,092

 
3,011,634

 
1,636,341

 
8,977,676

 
$
190

 
$
367,540

 
$
(188,034
)
 
$
2,740

 
$
182,436

Net (loss) income

 

 

 

 

 

 
(60,154
)
 
577

 
(59,577
)
Dividend declared

 

 

 

 

 

 
(2,098
)
 

 
(2,098
)
Stock-based compensation

 

 

 

 

 
524

 

 

 
524

Common stock issued under share-based compensation plan
5,646

 

 

 

 

 
49

 

 

 
49

Issuance of restricted stock
10,482

 

 

 

 

 

 

 

 

Cash distributions to non-controlling interests

 

 

 

 

 

 


(1
)
 
(1
)
Balance at March 31, 2020
14,330,220

 
3,011,634

 
1,636,341

 
8,977,676

 
$
190

 
$
368,113

 
$
(250,286
)
 
$
3,316

 
$
121,333

Net (loss) income

 

 

 

 
$

 

 
(27,178
)
 
356

 
(26,822
)
Stock-based compensation

 

 

 

 

 
657

 

 

 
657

Cash distributions to non-controlling interests

 

 

 

 

 

 

 
(1,164
)
 
(1,164
)
Balance at June 30, 2020
14,330,220

 
3,011,634

 
1,636,341

 
8,977,676

 
190

 
$
368,770

 
$
(277,464
)
 
$
2,508

 
$
94,004



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 A
 
Class B
 
Class C
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Shares
 
Shares
 
Warrants
 
Common
Stock
 
Additional
Paid-in Capital
 
Accumulated
Deficit
 
Non-
Controlling
Interest
 
Total
Balance at January 1, 2019
14,297,066

 
3,011,634

 
1,636,341

 
8,977,676

 
$
190

 
$
365,835

 
$
(111,804
)
 
$
1,287

 
$
255,508

Net (loss) income

 

 

 

 

 

 
(5,025
)
 
447

 
(4,578
)
Dividends declared

 

 

 

 

 

 
(2,095
)
 

 
(2,095
)
Stock-based compensation

 

 

 

 

 
876

 

 

 
876

Issuance of restricted stock
16,778

 

 

 

 

 

 

 

 

Cash distributions to noncontrolling interests

 

 

 

 

 

 

 
(1,287
)
 
(1,287
)
Balance at March 31, 2019
14,313,844

 
3,011,634

 
1,636,341

 
8,977,676

 
$
190

 
$
366,711

 
$
(118,924
)
 
$
447

 
$
248,424

Net income

 

 

 

 

 

 
9,442

 
493

 
9,935

Dividends declared

 

 

 

 

 

 
(2,095
)
 

 
(2,095
)
Stock-based compensation

 

 

 

 

 
673

 

 

 
673

Sale of non-controlling interest

 

 

 

 

 
(430
)
 

 
1,930

 
1,500

Cash distributions to noncontrolling interests

 

 

 

 

 

 

 
(13
)
 
(13
)
Balance at June 30, 2019
14,313,844

 
3,011,634

 
1,636,341

 
8,977,676

 
$
190

 
$
366,954

 
$
(111,577
)
 
$
2,857

 
$
258,424



See Notes to Unaudited Consolidated Financial Statements

5



TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands)
(unaudited)
 
Six Months Ended 
 June 30,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(86,399
)
 
$
5,357

Loss from discontinued operations

 
(6,878
)
(Loss) income from continuing operations
(86,399
)
 
12,235

Adjustments to reconcile (loss) income from continuing operations to net cash flows from operating activities:
 
 
 
   Depreciation and amortization
10,045

 
12,993

   Amortization of deferred financing costs
759

 
639

   Net deferred taxes and other
(33,734
)
 
4,680

   Provision for doubtful accounts
2,246

 
963

   Stock-based compensation expense
1,181

 
1,536

   Gain on repurchase of notes
(1,159
)
 

   Gain on insurance recoveries
(1,065
)
 

   Trade activity, net
(4,352
)
 
(5,506
)
   Write-off of deferred financing costs
79

 
7

   Impairment of intangible and long-lived assets
107,715

 
231

   Net gain on sale of assets
(12
)
 
(2
)
Changes in assets and liabilities, net of acquisitions:
 
 
 
   Accounts receivable
17,993

 
(4,021
)
   Prepaid expenses and other assets
3,020

 
(1,154
)
   Accounts payable
420

 
(1,860
)
   Accrued expenses
(831
)
 
(13,714
)
   Accrued interest
(85
)
 
84

   Other long-term liabilities
(3,969
)
 
(244
)
Net cash provided by operating activities - continuing operations
11,852

 
6,867

Net cash used in operating activities - discontinued operations
(175
)
 
(3,464
)
Net cash provided by operating activities
11,677

 
3,403

 
 
 
 
Cash flows from investing activities:
 
 
 
   Purchase of property and equipment
(8,343
)
 
(8,928
)
   Purchase of investments
(400
)
 

   Proceeds from insurance recoveries
1,172

 

   Payments for acquisitions, net of cash acquired

 
(6
)
   Proceeds from sale of assets
102

 
171

Net cash used in investing activities - continuing operations
(7,469
)
 
(8,763
)
Net cash provided by investing activities - discontinued operations

 
11,093

Net cash (used in) provided by investing activities
(7,469
)
 
2,330

 
 
 
 
Cash flows from financing activities:
 
 
 
   Repayment of term loans
(9,951
)
 

   Borrowings under the revolving credit facility
50,000

 

   Repayment of borrowings under the revolving credit facility
(50,000
)
 

   Dividend payments
(4,201
)
 
(4,141
)
   Repurchase of notes
(3,573
)
 

   Proceeds from stock options exercised
49

 

   Sale of noncontrolling interest

 
1,500

   Cash distribution to noncontrolling interests
(1,164
)
 
(1,300
)
   Deferred financing cost

 
(421
)
   Repayments of capitalized obligations
(20
)
 
(3
)
Net cash (used in) provided by financing activities
(18,860
)
 
(4,365
)
 
 
 
 
  Cash and cash equivalents and restricted cash:
 
 
 
        Net (decrease) increase in cash and cash equivalents and restricted cash
(14,652
)
 
1,368

        Beginning of period
85,161

 
61,396

        End of period
$
70,509

 
$
62,764

See Notes to Unaudited Consolidated Financial Statements

6



TOWNSQUARE MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in Thousands)
(unaudited)
 
Six Months Ended 
 June 30,
 
2020
 
2019
Supplemental Disclosure of Cash Flow Information:
 
 
 
   Cash payments:
 
 
 
Interest
$
15,746

 
$
16,928

Income taxes
444

 
570

 
 
 
 
Supplemental Disclosure of Non-cash Activities:
 
 
 
Dividends declared, but not paid during the period
$
22

 
$
2,124

Investments acquired in exchange for advertising
2,300

 
2,000

Accrued capital expenditures
810

 
504

 
 
 
 
Supplemental Disclosure of Cash Flow Information relating to Leases:
 
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
$
5,412

 
$
6,082

Right-of-use assets obtained in exchange for lease obligations:
 
 
 
Operating leases
$
3,193

 
$
3,622

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash
 
 
 
Cash and cash equivalents
$
70,015

 
$
61,884

Restricted cash
494

 
880

 
$
70,509

 
$
62,764

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 radio, digital media, entertainment and digital marketing solutions company principally focused on being the premier local advertising and marketing solutions platform in small and mid-sized markets across the U.S. Our assets include 321 radio stations and more than 330 local websites in 67 U.S. markets, a digital marketing solutions company (Townsquare Interactive) serving approximately 20,750 small to medium sized businesses, a proprietary digital programmatic advertising platform (Townsquare Ignite), and numerous local live events each year. Our brands include local media assets such as WYRK, KLAQ, K2 and NJ101.5; iconic local and regional events such as WYRK's Taste of Country, the Boise Music Festival, the Red Dirt BBQ & Music Festival and Taste of Fort Collins; and leading tastemaker music and entertainment websites such as XXLmag.com, TasteofCountry.com and Loudwire.com.
The COVID-19 pandemic has materially and adversely impacted the U.S. economy and financial markets, with legislative and regulatory responses including unprecedented monetary and fiscal policy actions across all sectors, and there continues to be uncertainty as to timing of stabilization and recovery. The COVID-19 pandemic and measures taken to contain it have subjected our business, results of operations, financial condition, stock price and liquidity to a number of material risks and uncertainties, all of which may continue or worsen. The effects of the COVID-19 pandemic began to impact our operations in early March 2020, and included significant advertising cancellations and material declines in the purchase of new advertising by our clients, which contributed to further impairments to the carrying values of our FCC license intangible assets during the three months ended March 31, 2020 following these declines in traditional broadcast revenues. The Company realized an additional impairment charge during the three months ended June 30, 2020, primarily driven by changes in assumptions utilized in determining the discount rate applied in the valuation of our FCC licenses due to increases in the weighted average cost of capital as a direct result of the impact of the COVID-19 pandemic on market and economic conditions and the corresponding impacts to our risk premium. Additionally, the Company has canceled a large number of live events, which were previously scheduled to occur in 2020.
The Company also instituted immediate actions to address the potential impact to its consolidated financial position, consolidated results of operations, and liquidity, including significantly reducing our non-essential capital expenditures, and reducing our workforce through the termination or layoff of approximately 135 full-time employees. We have instituted wage reduction efforts, such as the temporary suspension of the Company’s match on employee contributions to the Company’s defined contribution plan and the deferral of the payment of certain payroll taxes until December 31, 2021 and 2022 under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Additionally, our board of directors has determined to cease payment of quarterly cash dividends, following the payment of our first quarter dividend of $2.1 million on May 15, 2020.
The full extent of the COVID-19 pandemic impact will depend on future actions and outcomes, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the short-term and long-term economic impact of the outbreak (including the effect on advertising activity, consumer discretionary spending and our employees in the markets in which we operate), the actions taken to mitigate the impact of the virus, and the pace of economic and financial market recovery when the COVID-19 pandemic subsides, among others.
Basis of Presentation
The accompanying Unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Annual Report on Form 10-K"). The accompanying unaudited interim Consolidated Financial Statements include the consolidated accounts of the Company and its wholly-owned subsidiaries, with all significant intercompany balances and transactions eliminated in consolidation. These financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. All adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of results of operations and financial condition as of the end of the interim periods have been included.

8



The results of operations and cash flows for the three and six months ended June 30, 2020 and the Company’s financial condition as of such date are not necessarily indicative of the results of operations or cash flows that can be expected for, or the Company’s financial condition as of, any other interim period or for the fiscal year ending December 31, 2020. The Consolidated Balance Sheet as of December 31, 2019 is derived from the audited Consolidated Financial Statements at that date. Results of operations for the three and six months ended June 30, 2019, as presented herein, reflect such results as restated in connection with the restatement of our Consolidated Financial Statements as of the first three quarters of the year ended December 31, 2019, which were included in the 2019 Annual Report on Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, the Company evaluates its significant estimates, including those related to assumptions used in determining the fair value of assets and liabilities acquired in a business combination, impairment testing of intangible assets, valuation and impairment testing of long-lived tangible assets and investments, the present value of leasing arrangements, share-based payment expense and the calculation of allowance for doubtful accounts and income taxes. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the result of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual amounts and results may differ materially from these estimates under different assumptions or conditions.
Note 2. Summary of Significant Accounting Policies
Except as stated below, there have been no significant changes in the Company’s accounting policies since December 31, 2019. For the Company's detailed accounting policies please refer to the Consolidated Financial Statements and related notes thereto included in the Company's 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on June 9, 2020.
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350, Intangibles - Goodwill and Other to determine which implementation costs to capitalize as assets or expense as incurred. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted and an entity can elect to apply the new guidance on a prospective or retrospective basis. The Company adopted this standard effective January 1, 2020, which did not have a material impact on the Company's Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements, including eliminating the requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and requiring disclosure of the range and weighted average rate used to develop significant unobservable inputs for Level 3 fair value measurements. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption, either of the entire standard or only the provisions that eliminate or modify requirements, is permitted. The Company adopted this standard effective January 1, 2020, which did not have a material impact on the Company’s Consolidated Financial Statements.
Recently Issued Standards That Have Not Yet Been Adopted
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848), which is intended to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contracts, hedge accounting and other transactions affected by the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This ASU is effective for all entities beginning on March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is continuing to assess the impact on its Consolidated Financial Statements.


9



In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint  Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815, which clarifies certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. If a company is applying the measurement alternative for an equity investment under Accounting Standards Codification ('ASC') Topic 321 and must transition to the equity method because of an observable transaction, it will remeasure its investment immediately before transition. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period, (1) for public business entities for periods for which financial statements have not yet been issued and (2) for all other entities for periods for which financial statements have not yet been made available for issuance. The adoption of this standard is not expected to have a material impact on the Company's Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12, Accounting Standards Update 2019-12-Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not yet been made available for issuance. The Company is continuing to assess the impact on its Consolidated Financial Statements, if any.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument's contractual life. The new guidance is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption, either of the entire standard or only the provisions that eliminate or modify requirements, is permitted. The Company expects to adopt the new guidance in the first quarter of 2023. The Company is continuing to assess the impact on its Consolidated Financial Statements, if any.

Note 3. Revenue Recognition
The following tables present a disaggregation of our revenue by reporting segment and revenue from political sources and all other sources (in thousands) for the three months ended June 30, 2020 and 2019:

 
 
Three Months Ended 
June 30, 2020
 
Three Months Ended
June 30, 2019
 
 
Advertising
 
Townsquare Interactive
 
Live Events
 
Total
 
Advertising
 
Townsquare Interactive
 
Live Events
 
Total
Net Revenue
(ex Political)
 
$
56,251

 
$
16,886

 
$
32

 
$
73,169

 
$
90,977

 
$
15,288

 
$
6,317

 
$
112,582

Political
 
886

 

 

 
886

 
506

 

 

 
506

Net Revenue
 
$
57,137

 
$
16,886

 
$
32

 
$
74,055

 
$
91,483

 
$
15,288

 
$
6,317

 
$
113,088










10



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 six months ended June 30, 2020 and 2019:

 
 
Six Months Ended
June 30, 2020
 
Six Months Ended
June 30, 2019
 
 
Advertising
 
Townsquare Interactive
 
Live Events
 
Total
 
Advertising
 
Townsquare Interactive
 
Live Events
 
Total
Net Revenue
(ex Political)
 
$
129,459

 
$
33,413

 
$
2,403

 
$
165,275

 
$
164,995

 
$
29,495

 
$
11,476

 
$
205,966

Political
 
2,213

 

 

 
2,213

 
804

 

 

 
804

Net Revenue
 
$
131,672

 
$
33,413

 
$
2,403

 
$
167,488

 
$
165,799

 
$
29,495

 
$
11,476

 
$
206,770



Revenue from contracts with customers is recognized as an obligation until the terms of a customer contract are satisfied; generally, this occurs with the transfer of control as we satisfy contractual performance obligations over time. Our contractual performance obligations include the broadcast of commercials on our owned and operated radio stations, digital sales of internet-based advertising campaigns, digital marketing solutions, and the operation of live events. Revenue is measured at contract inception as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Our contracts are at a fixed price at inception and do not include any variable consideration or financing components by normal course of business practice. Sales, value add, and other taxes that are collected concurrently with revenue producing activities are excluded from revenue.
The primary sources of net revenue are the sale of advertising on our radio stations, owned and operated websites, third party websites, radio stations’ online streams, and mobile applications. We offer precision customer targeting solutions to advertisers through Townsquare Ignite, our digital programmatic advertising platform. We also offer on a subscription basis under the brand name Townsquare Interactive, digital marketing solutions to small and mid-sized local and regional businesses in small and mid-sized markets across the United States, including the markets in which we operate radio stations. In addition, we offer a diverse range of live events which we create, promote, and produce. This includes concerts, expositions and other experiential events within and beyond our markets. Our live events also generate net revenue through the sale of sponsorships, food and other concessions, merchandise and other ancillary products and services.
Political net revenue includes the sale of advertising on our owned and operated radio stations from contracts with political advertisers.  Contracted performance obligations under political contracts consist of the broadcast of advertisements across our locally owned and operated radio stations. Management views political revenue separately based on the episodic nature of the election cycle and local issues calendars.
Our net revenue varies throughout the year. Historically our first calendar quarter will produce the lowest net revenue for the year, as advertising expenditures generally decline following the winter holidays. However, due to the COVID-19 pandemic, the seasonality of our net revenue has been materially impacted and we do not expect our first quarter to produce our lowest net revenue for 2020. During even-numbered years, net revenue generally includes increased advertising expenditures by political candidates, political parties and special interest groups. Political spending is typically highest during the fourth quarter. Our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on net revenue generation until future periods, if at all.
Net revenue for broadcast commercials and digital advertisements are recognized as the commercials are broadcast and the contractual performance obligations for Townsquare services are satisfied. We measure progress towards the satisfaction of our contractual performance obligations via the output produced in accordance with the contractual arrangement. We recognize the associated contractual revenue as the delivery takes place and the right to invoice for services performed is met.
Our advertising contracts are short-term (less than one year) and payment terms are generally net 30-60 days for traditional customer contracts and net 60-90 days for national agency customer contracts. Our billing practice is to invoice customers on a monthly basis for services delivered to date (representing the right to invoice). Our contractual arrangements do not include rights of return and do not include any significant judgments by nature of the products and services.
Net revenue from digital subscription-based contractual performance obligations is recognized ratably over time as our performance obligations are satisfied. Subscription-based service fees are typically billed in advance of the month of service at a fixed monthly fee that is contractually agreed upon at contract inception. The measure of progress in such arrangements is the number of days of successful delivery of the contracted service.

11



Live events net revenue is recognized as events are conducted and our contractual performance obligations are satisfied. Our live events include mostly single day events, but some are multi-day in duration. We measure progress towards the satisfaction of contractual performance obligations on a daily basis, measured by the successful delivery of the event and honoring customer admissions and vendor event commitments. Live event ticket purchase prices are due at the point of purchase and are nonrefundable. Live event tickets are often sold in advance of the events; in the case of advanced ticket sales, we defer the recognition of consideration received until we satisfy the future performance obligation. Live event contractual arrangements do not include any variable consideration, financing components, or significant judgments.
For all customer contracts, we evaluate whether we are the principal (i.e., report revenue on a gross basis) or the agent (i.e., report revenue on a net basis). Generally, we report revenue for advertising placed on Townsquare properties on a gross basis (the amount billed to our customers is recorded as revenue, and the amount paid to our publishers is recorded as a cost of revenue). We are the principal because we control the advertising inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising inventory, being primarily responsible to our customers, having discretion in establishing pricing, or a combination of these factors. We also generate revenue through agency relationships in which revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for advertisers that use agencies.
No impairment losses have arisen from any contracts with customers during the three and six months ended June 30, 2020 and 2019.
The following tables provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
 
 
June 30,
2020
 
December 31, 2019
Receivables
 
$
46,988

 
$
67,463

Short-term contract liabilities (deferred revenue)
 
$
9,195

 
$
8,086

Contract Acquisition Costs
 
$
4,340

 
$
4,037


 
 
June 30,
2019
 
December 31, 2018
Receivables
 
$
67,354

 
$
62,599

Short-term contract liabilities (deferred revenue)
 
$
7,992

 
$
7,922

Contract Acquisition Costs
 
$
3,871

 
$
2,970


We receive payments from customers based upon contractual billing schedules; accounts receivable are recognized when the right to consideration becomes unconditional. Contract receivables are recognized in the period the Company provides services when the Company’s right to consideration is unconditional. Payment terms vary by the type and location of our customer and the products or services offered. Payment terms for amounts invoiced are typically net 30-60 days. The term between invoicing and when payment is due is not significant. The Company recorded $1.4 million and $2.2 million in bad debt expense during the three and six months ended June 30, 2020, respectively. The Company recorded $0.6 million and $1.0 million in bad debt expense during the three and six months ended June 30, 2019.
We record contract liabilities when cash payments are received or due in advance of satisfying our performance obligations. Our contract liabilities include cash payments received or due in advance 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 June 30, 2020, and December 31, 2019, the balance in the contract liabilities was $9.2 million and $8.1 million, respectively. The increase in the contract liabilities balance at June 30, 2020 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $0.5 million and $6.4 million of recognized revenue for the three and six months ended June 30, 2020, respectively. As of June 30, 2019, and December 31, 2018, the balance in the contract liabilities was $8.0 million and $7.9 million, respectively. The increase in the contract liabilities balance at June 30, 2019 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $0.8 million and $7.0 million of recognized revenue for the three and six months ended June 30, 2019, respectively. No significant changes in the time frame of the satisfaction of contract liabilities have occurred during the three and six months ended June 30, 2020.

12



We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within direct operating expenses. Capitalized contract acquisition costs include amounts related to sales commissions paid related to signed contracts with perceived durations exceeding one year. For these contracts, we defer the related sales commission costs and amortize such costs to expense in a manner that is consistent with how the related revenue is recognized over the duration of the related contracts. We have evaluated the average customer contract duration (initial term and any renewals) to determine the appropriate amortization period for these contractual arrangements. For contracts with a duration of less than one year, we expense these costs when incurred. As of June 30, 2020 and December 31, 2019, we had a balance of $4.3 million and $4.0 million, respectively, in deferred costs and recognized $0.9 million and $1.8 million of amortization for the three and six months ended June 30, 2020. For the three and six months ended June 30, 2019, we recognized $0.5 million and $1.0 million of amortization , respectively. No impairment losses have been recognized or changes made to the time frame for performance of the obligations related to deferred contract assets during the three and six months ended June 30, 2020 and 2019, respectively.
Arrangements with Multiple Performance Obligations
In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract inception. When multiple performance obligations are identified, we identify how control transfers to the customer for each distinct contract obligation and determine the period when the obligations are satisfied. If obligations are satisfied in the same period, no allocation of revenue is deemed to be necessary. In the event performance obligations within a bundled contract do not run concurrently, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or by using expected cost-plus margins. Performance obligations that are not distinct at contract inception are combined.
Practical Expedients and Exemptions
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed as amounts related to those performance obligations with expected durations of greater than one year are at a fixed price per unit and do not include any upfront or minimum payments requiring any estimation or allocation of revenue.    


13



Note 4. Acquisitions, Divestitures & Discontinued Operations

Acquisitions

On May 22, 2019, the Company entered into an Asset Purchase Agreement to acquire certain assets and liabilities related to a radio broadcast station in Tuscaloosa, AL for $0.7 million. The Company paid $0.1 million in transaction fees. The acquisition closed on July 31, 2019 and consideration was paid with cash on hand.

Divestitures & Discontinued Operations

During the first quarter of 2019, management concluded that the Company should exit its music festivals business, which consisted of four multi-day music festivals (the "Music Festivals"). On May 24, 2019, the Company closed on the sale of its Music Festivals to a subsidiary of Live Nation for $10.0 million. As part of the transaction, it was mutually agreed upon that the Company would operate the 2019 Music Festivals under a production services agreement for a pre-determined share of "Net Profits" as defined in the agreement. During the first quarter of 2019, a $10.0 million impairment charge against the assets of the disposal group was recorded as component of discontinued operations. The Company recorded a net gain on the disposal of the Music Festivals of $0.4 million, which is in net income (loss) from discontinued operations, net of income taxes in the Company's Consolidated Statement of Operations for the three and six months ended June 30, 2019.

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

The following table shows the components of assets and liabilities that are related to discontinued operations in the Company's Consolidated Balance Sheets (in thousands):    
 
June 30,
2020
 
December 31,
2019
Accounts payable
$
3

 
$
31

Accrued expenses and other current liabilities
245

 
392

Current liabilities of discontinued operations(1)
248

 
423

Net liabilities
$
(248
)
 
$
(423
)

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









14



The following table shows the components of operations that are related to discontinued operations in the Company's Consolidated Statement of Operations (in thousands) for the three and six months ended June 30, 2020 and 2019, respectively:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2020
2019
 
2020
2019
Net revenue
$

$
13,512

 
$

$
13,520

 
 
 
 
 
 
Discontinued operating costs and expenses:
 
 
 
 
 
Direct operating expenses

13,884

 

14,789

Depreciation and amortization


 

207

Stock-based compensation

13

 

13

Transaction costs

10

 

10

Impairment of long lived and intangible assets


 

9,812

Net gain on sale and retirement of assets

(509
)
 

(1,946
)
    Discontinued operating income (loss)

114

 

(9,365
)
    Income (loss) from discontinued operations before income taxes

114

 

(9,365
)
Provision (benefit) for income taxes

30

 

(2,487
)
Net income (loss) from discontinued operations, net of income taxes
$

$
84

 
$

$
(6,878
)

Note 5. Property and Equipment
Property and equipment consisted of the following (in thousands):
 
June 30,
2020
 
December 31,
2019
Land and improvements
$
21,504

 
$
21,423

Buildings and leasehold improvements
52,685

 
51,025

Broadcast equipment
88,225

 
86,910

Computer and office equipment
19,843

 
18,432

Furniture and fixtures
21,735

 
20,799

Transportation equipment
19,532

 
18,574

Software development costs
28,431

 
25,999

Total property and equipment, gross
251,955

 
243,162

Less accumulated depreciation and amortization
(137,915
)
 
(129,020
)
Total property and equipment, net
$
114,040

 
$
114,142


Depreciation and amortization expense for property and equipment was $4.5 million and $6.7 million for the three months ended June 30, 2020 and 2019, respectively and $9.6 million and $12.5 million for the six months ended June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020, the Company recorded $0.6 million in non-cash impairment charges to long-lived assets within the San Angelo, TX market. The Company had no material right of use assets related to its finance leases as of June 30, 2020 and December 31, 2019.

15



Note 6. Goodwill and Other Intangible Assets
Indefinite-lived assets consist of FCC broadcast licenses and goodwill. For goodwill impairment testing, the Company has selected December 31st as the annual testing date. In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units. As a result, the Company performed a quantitative impairment assessment as of March 31, 2020 for each of its reporting units. Based upon such assessment, the Company determined that the fair value of the following reporting units exceeded their respective carrying amounts as of March 31, 2020. The fair values of our National Digital, Townsquare Ignite, AnalyticOwl, Townsquare Interactive and Live Events reporting units were in excess of their respective carrying values by approximately 58%, 171%, 520%, 216% and 145%, respectively. The local advertising businesses reporting unit had no goodwill following the December 31, 2019 $69.0 million non-cash goodwill impairment charge.
The Company considered whether any events have occurred or circumstances have changed from the last quantitative analysis performed as of March 31, 2020 that would indicate that the fair value of the Company's reporting units may be below their carrying amounts. Based on such analysis, the Company determined that there have been no indicators that the fair value of its reporting units may be below their carrying amounts as of June 30, 2020.
There were no changes in the carrying value of the Company's goodwill during the six months ended June 30, 2020.
The following table represents goodwill by segment (in thousands):
 
 
Advertising
 
Townsquare
Interactive
 
Live Events
 
Total
Balance at June 30, 2020
 
$
76,964

 
77,000

 
3,983

 
$
157,947


FCC licenses represent a substantial portion of the Company’s total assets. The FCC licenses are renewable in the ordinary course of business, generally for a maximum of eight years. The fair value of FCC licenses is primarily dependent on the future cash flows of the radio markets and other assumptions, including, but not limited to, forecasted revenue growth rates, profit margins and a risk-adjusted discount rate.
The Company evaluates its FCC licenses for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Due to the current and expected future economic and market conditions surrounding the COVID-19 pandemic and the results of the impairment assessment performed as of December 31, 2019, the Company quantitatively evaluated the fair value of its FCC licenses at March 31, 2020 and June 30, 2020.
The key assumptions used in applying the direct valuation method are summarized as follows:
 
March 31, 2020
Discount Rate
11.0%
 
Low
High
Long-term Revenue Growth Rate
(2.2
)%
6.0
%
Mature Market Share
13.3
 %
100.0
%
Operating Profit Margin
(19.4
)%
55.5
%


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


16



Based on the results of the impairment assessment of our FCC licenses as of June 30, 2020 and March 31, 2020, we incurred an impairment charge of $28.7 million and $78.4 million, respectively, for FCC licenses in 35 and 46, respectively, of our 67 local markets for the three months ended June 30, 2020 and March 31, 2020, respectively. The impairment charge realized during the three months ended June 30, 2020 was primarily driven by changes in the market data utilized in determining the discount rate applied in the valuation of our FCC licenses which drove an increase in the weighted average cost of capital. The changes in data were driven by an increase in market volatility and industry bond yields, a direct result of the impact of the COVID-19 pandemic on market and economic conditions. The impairment charge realized during the three months ended March 31, 2020 was primarily due to declines in our traditional broadcast revenues, further amplified by the COVID-19 pandemic. Charges related to the impairment of the Company’s FCC licenses are included in Advertising segment results.
Unfavorable changes in key assumptions utilized in the impairment assessment of our FCC licenses may affect future testing results. For example, keeping all other assumptions constant, a 100-basis point increase in the weighted average cost of capital would cause the estimated fair values of our FCC licenses to decrease by $37.1 million as of June 30, 2020, which would have resulted in an increased impairment charge. Assumptions used to estimate the fair value of our FCC licenses are also dependent upon the expected performance and growth of our traditional broadcast operations. In the event our broadcast revenue experience 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 June 30, 2020 and December 31, 2019, respectively (in thousands):
 
June 30, 2020
 
Weighted Average Useful Life (in Years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible Assets:
 
 
 
 
 
 
 
FCC licenses
Indefinite
 
$
276,652

 
$

 
$
276,652

Customer and advertising relationships
3
 
6,540

 
(4,466
)
 
2,074

Leasehold interests
11
 
1,085

 
(955
)
 
130

Tower space
3
 
454

 
(436
)
 
18

Trademarks
10
 
2,761

 
(1,131
)
 
1,630

Total
 
 
$
287,492

 
$
(6,988
)
 
$
280,504



 
December 31, 2019
 
Weighted Average Useful Life (in Years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible Assets:
 
 
 
 
 
 
 
FCC licenses
Indefinite
 
$
383,738

 

 
$
383,738

Customer and advertising relationships
3
 
6,540

 
(4,139
)
 
2,401

Leasehold interests
12
 
1,085

 
(940
)
 
145

Tower space
4
 
454

 
(433
)
 
21

Trademarks
10
 
2,761

 
(1,045
)
 
1,716

Other intangibles
0.1
 
160

 
(152
)
 
8

Total
 
 
$
394,738

 
$
(6,709
)
 
$
388,029


Amortization expense for definite-lived intangible assets was $0.2 million and $0.2 million for the three months ended June 30, 2020 and 2019, respectively and $0.4 million and $0.5 million for the six months ended June 30, 2020 and 2019, respectively.

17



Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of June 30, 2020 is as follows (in thousands):
2020 (remainder)
$
432

2021
863

2022
859

2023
625

2024
179

Thereafter
894

 
$
3,852


Note 7. Investments
Long-term investments consist of minority holdings in companies that management believes are synergistic with Townsquare. As management does not exercise significant control over operating and financial policies of the investees, the investments are not consolidated or accounted for under the equity method of accounting. The initial valuation of the equity securities was based upon an estimate of market value at the time of investment or upon a combination of a valuation analysis using observable inputs categorized as Level 2 and performing a discounted cash flows analysis, using unobservable inputs categorized as Level 3 within the ASC 820 framework. In accordance with ASC 321, Investments - Equity Securities, the Company measures its equity securities at cost minus impairment, as their fair values are not readily determinable and the investments do not qualify for the net asset value per share practical expedient. The Company monitors its investments for any subsequent observable price changes in orderly transactions for the identical or a similar investment of the same investee, at which time the Company would adjust the then current carrying values of the related investment. Additionally, the Company evaluates its investments for any indicators of impairment.
During the six months ended June 30, 2020, the Company made certain investments in three small businesses totaling $2.3 million and an additional $0.4 million investment in an existing investee. There were no impairment charges or fair value adjustments recorded for the three or six months ended June 30, 2020 and 2019, respectively.
Note 8. Long-Term Debt
Total debt outstanding is summarized as follows (in thousands):
 
June 30,
2020
 
December 31,
2019
2023 Notes (1)
$
273,416

 
$
278,148

Term Loans (2)
272,381

 
282,332

Revolver (3)

 

Debt before deferred financing costs
545,797

 
560,480

Deferred financing costs
(3,088
)
 
(3,840
)
Total Debt
542,709

 
556,640

Less: current portion of long-term debt (4)

 
(9,929
)
Total long-term debt
$
542,709

 
$
546,711


(1) See Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the 2019 Annual Report on Form 10-K for details regarding the $300.0 million of 6.5% Unsecured Senior Notes due in 2023 (the “2023 Notes”).
(2) See Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the 2019 Annual Report on Form 10-K for details regarding the $320.0 million term loan facility (the “Term Loans”) that matures in 2022.
(3) See Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the 2019 Annual Report on Form 10-K for details regarding the $50.0 million revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility matures on April 1, 2022 with a springing maturity six months prior to that date, if the Term Loans are not refinanced by such earlier date. The Term Loans and Revolving Credit Facility are together referred to as the "Senior Secured Credit Facility".

18



(4) At December 31, 2019, the Company classified $9.9 million as its current portion of long-term debt. This represented the required excess free cash flow payment to be made based on our results of operations for the year ended December 31, 2019. Borrowings under the Senior Secured Credit Facility are subject to mandatory prepayments equal to the net proceeds to the Company of any additional debt issuances or asset sales, as well as half of the annual excess free cash flow as defined in the credit agreement (subject to certain reductions). The excess free cash flow payment was made on June 15, 2020.
As of June 30, 2020, the interest rate on the Term Loans was 4.0%, based on the current LIBOR rate, a LIBOR floor of 1.0% and an applicable margin of 300 basis points. The Revolving Credit Facility has an interest rate based either on LIBOR and an applicable margin of 250 basis points, or an alternative base rate and an applicable margin of 150 basis points.
The Senior Secured Credit Facility contains covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to incur additional indebtedness or liens; engage in mergers or other fundamental changes; sell certain property or assets; pay dividends or other distributions; make acquisitions, investments, loans and advances; prepay certain indebtedness including the 2023 Notes; change the nature of its business; engage in certain transactions with affiliates and incur restrictions on interactions between the Company and its subsidiaries, or limit actions in relation to the Senior Secured Credit Facility. In addition, the Senior Secured Credit Facility contains a requirement that, at the end of each calendar quarter, if we have drawn at least 30%, or $15 million, of the commitments under the Revolving Credit Facility, we must have a first lien leverage ratio (as defined under the Senior Secured Credit Facility) on such date of no greater than 3.75:1.00. On March 17, 2020, the Company borrowed $50.0 million under the Revolving Credit Facility portion of the Senior Secured Credit Facility, constituting the entire amount available for borrowing. As a result of our borrowings on March 17, 2020 under the Revolving Credit Facility, we became subject to this requirement and were in compliance as of March 31, 2020. On June 5, 2020, the Company repaid all amounts outstanding under the Revolving Credit Facility, with $50.0 million of available borrowing capacity following the repayment, and as a result, is no longer subject to the foregoing leverage requirement.
Based on our results of operations for the year ended December 31, 2019 we were required to make an excess free cash flow payment on our outstanding Term Loans of $9.9 million. The payment was made June 15, 2020. On April 13, 2020, the Company entered into an amendment under its existing credit agreement to extend the time period for delivery of the Company's audited financial statements for the fiscal year ended December 31, 2019 and certain related information and documentation until June 15, 2020, and also waived any default under the credit agreement resulting from the failure to comply with Section 6.1(c) of the credit agreement in connection with the failure to deliver the financial statements and related information required to be delivered on April 6, 2020. On June 9, 2020, the Company filed its 2019 Annual Report on Form 10-K and, as of the date thereof, was in compliance with its covenants under both the Senior Secured Credit Facility and the 2023 Notes indenture.
On May 19, 2020, the Company voluntarily repurchased $4.7 million of its 2023 Notes at a market price below par, plus accrued interest, recognizing a gain of $1.2 million. The repurchased notes were canceled by the Company. The Company wrote-off approximately $0.1 million of unamortized deferred financing costs in connection with the voluntary repurchase of its 2023 Notes.
The Company was in compliance with its covenants under the 2023 Notes indenture and Senior Secured Credit Facility as of June 30, 2020.
As of June 30, 2020, based on available market information, the estimated fair value of the 2023 Notes and the Term Loans were $239.6 million, and $260.1 million, respectively. The Company used Level 2 measurements under the fair value measurement hierarchy established under Fair Value Measurement (Topic 820).
Annual maturities of the Company's long-term debt as of June 30, 2020 are as follows (in thousands):
2020 (remainder)
$

2021

2022
272,381

2023
273,416

2024

Thereafter

 
$
545,797


Note 9. Income Taxes
The Company's effective tax rate for the three months ended June 30, 2020 and 2019 was approximately 32.0% and 27.7%, respectively. The Company's effective tax rate for the six months ended June 30, 2020 and 2019 was approximately 27.9% and 27.7%, respectively. The effective tax rate may vary significantly from period to period, and can be influenced by

19



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 10. Stockholders' Equity
The table below presents a summary, as of June 30, 2020, of our authorized and outstanding common stock, and securities convertible into common stock, excluding options issued under our 2014 Omnibus Incentive Plan.
Security1
 
Par Value Per Share
 
Number Authorized
 
Number Outstanding
 
Description
Class A common stock
 
$
0.01

 
300,000,000

 
14,330,220

 
One vote per share.
Class B common stock
 
$
0.01

 
50,000,000

 
3,011,634

 
10 votes per share.2
Class C common stock
 
$
0.01

 
50,000,000

 
1,636,341

 
No votes.2
Warrants
 
 
 
 
 
8,977,676

 
Each warrant is exercisable for one share of Class A common stock, at an exercise price of $0.0001 per share. The aggregate exercise price for all warrants currently outstanding is $898.3
Total
 
 
 
400,000,000

 
27,955,871

 
 
1 Each of the shares of common stock, including the shares of Class A common stock issuable upon exercise of the warrants, have equal economic rights.
2 Each share converts into 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 295,545 shares of restricted Class A common stock, subject to vesting terms, but exclude 4,663,090 of Class A common stock and 4,550,991 of Class B common stock issuable upon exercise of stock options which have an exercise price between $4.79 and $9.63 per share. Additionally, the Company is authorized to issue 50,000,000 shares of undesignated preferred stock.


20



Note 11. 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 six months ended June 30, 2020 and 2019 (in thousands, except per share data).
 
Three Months Ended 
 June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net (loss) income
$
(26,822
)
 
$
9,935

 
$
(86,399
)
 
$
5,357

Net income from non-controlling interest
356

 
493

 
933

 
940

Net (loss) income attributable to controlling interest
(27,178
)
 
9,442

 
(87,332
)
 
4,417

 
 
 
 
 
 
 
 
Net (loss) income from continuing operations
(26,822
)
 
9,851

 
(86,399
)
 
12,235

Net income from continuing operations attributable to non-controlling interest
356

 
493

 
933

 
940

Net (loss) income from continuing operations attributable to controlling interest
$
(27,178
)
 
$
9,358

 
$
(87,332
)
 
$
11,295

Net income (loss) from discontinued operations, net of income taxes
$

 
$
84

 
$

 
$
(6,878
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding
18,616

 
18,512

 
18,599

 
18,495

Weighted average shares of participating securities outstanding
8,978

 
8,978

 
8,978

 
8,978

Total weighted average basic shares outstanding
27,594

 
27,490

 
27,577

 
27,473

Effect of dilutive common stock equivalents

 

 

 

Weighted average diluted common shares outstanding
27,594

 
27,490

 
27,577

 
27,473

 
 
 
 
 
 
 
 
Basic (loss) income per share:
 
 
 
 
 
 
 
    Continuing operations attributable to common shares
$
(1.46
)
 
$
0.34

 
$
(4.73
)
 
$
0.41

    Continuing operations attributable to participating shares
$

 
$
0.34

 
$
0.08

 
$
0.41

    Discontinued operations attributable to common shares
$

 
$

 
$

 
$
(0.25
)
    Discontinued operations attributable to participating shares
$

 
$

 
$

 
$
(0.25
)
 
 
 
 
 
 
 
 
Diluted (loss) income per share:
 
 
 
 
 
 
 
    Continuing operations
$
(1.46
)
 
$
0.34

 
$
(4.73
)
 
$
0.41

    Discontinued operations
$

 
$

 
$

 
$
(0.25
)


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The Company had the following dilutive securities that were not included in the computation of diluted net loss per share as they were considered anti-dilutive (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
2019
Stock options
9,214

 
9,468

 
9,214

9,468

Restricted Stock
296

 
383

 
296

383


Note 12. Segment Reporting

Operating segments are organized internally by type of products and services provided.  On January 2, 2019, the Company announced that its Co-CEO Bill Wilson would become the Company’s sole CEO.  As a result of this organization change, Mr. Wilson also became the Company’s Chief Operating Decision Maker (“CODM”).  Based on the information reviewed by Mr. Wilson in his capacity as CODM, the Company has identified three reportable operating segments, which are Advertising, which includes broadcast and digital advertising products and solutions, Townsquare Interactive, which is our digital marketing solutions business and Live Events, which is comprised of the Company’s live events, including concerts, expositions and other experiential events.  The Company has concluded that each of these operating segments shall be presented separately. 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 6, Goodwill and Other Intangible Assets. The Company does not have any material inter-segment sales.
The Company's management evaluates segment operating income, which excludes unallocated corporate expenses and the impact of certain items that are not directly attributable to the reportable segments' underlying operating performance, and primarily includes expenses related to corporate stewardship and administration activities, transaction related costs and non-cash impairment charges.
The following table presents the Company's reportable segment results for the three months ended June 30, 2020 (in thousands):
 
Advertising
 
Townsquare Interactive
 
Live Events
 
Corporate and Other Reconciling Items
 
Total
Net revenue
$
57,137

 
$
16,886

 
$
32

 
$

 
$
74,055

Direct operating expenses
52,572

 
11,742

 
94

 

 
64,408

Depreciation and amortization
3,722

 
133

 
130

 
776

 
4,761

Corporate expenses

 

 

 
7,570

 
7,570

Stock-based compensation
28

 
22

 
2

 
605

 
657

Transaction costs

 

 

 
1,213

 
1,213

Business realignment costs

 

 

 
456

 
456

Impairment of intangible and long-lived assets
28,655

 

 

 

 
28,655

Net gain on sale and retirement of assets

 

 

 
(10
)
 
(10
)
Operating (loss) income
$
(27,840
)
 
$
4,989

 
$
(194
)
 
$
(10,610
)
 
$
(33,655
)


22



The following table presents the Company's reportable segment results for the three months ended June 30, 2019 (in thousands):    
 
Advertising
 
Townsquare Interactive
 
Live Events
 
Corporate and Other Reconciling Items
 
Total
Net revenue
$
91,483

 
$
15,288

 
$
6,317

 
$

 
$
113,088

Direct operating expenses
60,621

 
10,274

 
4,695

 

 
75,590

Depreciation and amortization
3,079

 
125

 
133

 
3,610

 
6,947

Corporate expenses

 

 

 
7,370

 
7,370

Stock-based compensation
41

 
23

 
2

 
594

 
660

Transaction costs

 

 

 
128

 
128

Impairment of intangible and long-lived assets
231

 

 

 

 
231

Net gain on sale and retirement of assets

 

 

 
(21
)
 
(21
)
Operating income (loss)
$
27,511

 
$
4,866

 
$
1,487

 
$
(11,681
)
 
$
22,183


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

 
Advertising
 
Townsquare Interactive
 
Live Events
 
Corporate and Other Reconciling Items
 
Total
Net revenue
$
131,672

 
$
33,413

 
$
2,403

 
$

 
$
167,488

Direct operating expenses
110,292

 
23,720

 
1,946