comScore, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise stated. The company is a global audience, advertising and media measurement and analytics provider with one operating segment.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $92.8 | $92.5 | $278.2 | $270.5 |
| Gross profit / gross margin | $41.3 / 44.5% | $43.3 / 46.8% | $122.3 / 44.0% | $117.2 / 43.3% |
| Operating loss / margin | $(56.4) / (60.8)% | $(4.0) / (4.3)% | $(78.3) / (28.1)% | $(26.4) / (9.7)% |
| Net loss | $(52.4) | Net income $2.0 | $(66.7) | $(52.9) |
| Net loss per common share | $(0.60) | $(0.02) | $(0.85) | $(0.77) |
| Operating cash flow | Not separately provided for the quarter | $36.5 | $(1.1) | |
| Investing cash flow | Not separately provided for the quarter | $(13.2) | $(11.7) | |
| Financing cash flow | Not separately provided for the quarter | $(17.6) | $(20.5) |
- At September 30, 2022, cash and cash equivalents were $25.1 million, plus $0.4 million restricted cash. Current assets were $88.9 million and current liabilities were $155.6 million.
- Revolving credit borrowings were $16.0 million; $3.4 million of letters of credit left $20.6 million available under the $40.0 million facility. The company reported covenant compliance at quarter-end.
- Preferred stock, presented outside permanent equity, had a $187.9 million carrying value and $208.0 million aggregate liquidation preference. It accrues a 7.5% annual dividend; $15.5 million was paid in June 2022, and the next scheduled payment is June 30, 2023.
- Stockholders’ equity was $142.0 million, down from $223.2 million at December 31, 2021. Goodwill was $386.2 million, compared with $435.7 million at year-end.
Material changes versus prior periods
- Q3 revenue was nearly flat, up 0.3%; nine-month revenue grew 2.8%. Digital Ad Solutions declined 8.2% in Q3 and 3.4% year to date, while Cross Platform Solutions rose 14.0% and 12.2%, respectively.
- Q3 cost of revenue increased 4.8%, reducing gross margin to 44.5% from 46.8%. Systems and bandwidth costs were a notable driver. Nine-month gross margin improved to 44.0% from 43.3%.
- Q3 operating results included a $46.3 million non-cash goodwill impairment and $5.8 million of restructuring expense; neither was recorded in Q3 2021. The impairment followed a decline in the company’s stock price and market capitalization.
- Nine-month operating cash flow improved to $36.5 million from a $1.1 million use, reflecting improved collections and working-capital movements, partly offset by payments to reduce payables and accrued expenses.
- Other income included an $8.5 million nine-month gain from revaluing warrants, compared with a $10.9 million loss in the prior-year period. Foreign-currency transaction gains were $5.7 million versus $1.9 million.
Outlook, commentary and risks
- Management provided no specific revenue or earnings guidance. It cited inflation, rising interest rates and supply-chain disruption as factors contributing to reduced or delayed advertiser spending and weaker demand for certain digital products.
- The September 2022 restructuring includes workforce reductions, resource reallocation, technology modernization, data-center consolidation and other cost reductions. Estimated exit-related costs are $13 million to $18 million, with implementation and cash payments expected to be substantially complete in Q4 2023. The company had recognized $5.8 million of expense by September 30.
- Remaining performance obligations for non-cancelable contracts longer than one year were approximately $195 million at September 30. The company expects to recognize about 17% during the rest of 2022, 45% in 2023 and 19% in 2024, with the balance thereafter.
- On November 6, 2022, Charter extended its endorsement of comScore as preferred local measurement provider from five to seven years at no additional cost, with a conditional opportunity to extend through the ten-year term. The amendment also provides $7.0 million of license-fee credits for 2022 and 2023 and additional data rights.
- Liquidity risks include ongoing operating losses, substantial contractual data and lease obligations, annual preferred-stock dividends and possible financing needs. The preferred-stock holders may request a special dividend, which could require additional borrowing and affect liquidity or the revolving facility.
- Fixed obligations include $301.9 million for set-top-box data agreements, $9.8 million for connected-TV data agreements, $53.2 million for leases and $12.2 million for cloud storage and bandwidth. The disclosed data obligations do not reflect the subsequent Charter fee credits.
- The company noted potential dilution from preferred-stock conversion, warrants, equity awards and Shareablee-related consideration. It also identified macroeconomic, restructuring-execution, COVID-19-related, foreign-exchange, cybersecurity and geopolitical risks. Pending legal matters were not considered likely to materially affect results based on management’s current knowledge.
- CEO and CFO changes took effect in July 2022; a COO and Chief Innovation Officer were appointed in August. Disclosure controls were assessed as effective, and no material quarterly change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the restructuring achieves expected savings without disrupting operations, and whether total costs remain within the $13–$18 million estimate.
- Whether operating cash generation and collections can sustain liquidity, payables and contractual obligations; monitor revolving-facility availability and covenant compliance.
- The cash requirements and timing of preferred-stock dividends, including any special-dividend request, and the resulting financing or dilution implications.
- Whether the goodwill impairment assumptions remain supportable and whether additional impairment charges may be required.
- Performance of Digital Ad Solutions and the durability of Cross Platform Solutions growth, including the effect of advertising-market conditions and the Charter amendment’s credits and data benefits.
- Potential dilution from the convertible preferred stock, warrants, equity awards and Shareablee consideration; the filing reports 92,009,609 common shares outstanding as of November 4, 2022.