comScore, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. Fourth-quarter figures are unaudited. Amounts are in U.S. dollars.
Business context
comScore measures audiences, consumer behavior and advertising across digital, television and movie platforms. Its offerings include Ratings and Planning, Analytics and Optimization, and Movies Reporting and Analytics. The company reported one operating segment. In 2018 it appointed Bryan J. Wiener as CEO and Sarah Hofstetter as President, and its common stock returned to Nasdaq trading in June.
Financial performance
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $419.5 million | $403.5 million |
| Operating loss | $138.9 million | $295.5 million |
| Net loss | $159.3 million | $281.4 million |
| Net loss per diluted share | $2.76 | $4.90 |
| Cash used in operating activities | $72.6 million | $56.4 million |
| Adjusted EBITDA (non-GAAP) | $16.4 million | $(18.7) million |
Reported revenue increased 3.9%, but 2018 is not directly comparable with 2017 because comScore adopted ASC 606 using the modified retrospective method. The filing reports that ASC 606 reduced 2018 revenue by $1.0 million and increased net loss by $1.9 million versus the prior accounting treatment. GAAP gross margin was approximately 52.3% in 2018, versus 52.0% in 2017; cost of revenue rose 3.4% to $200.2 million.
By solution group, 2018 revenue was $285.4 million for Ratings and Planning (+2.6%), $92.4 million for Analytics and Optimization (+6.5%), and $41.7 million for Movies Reporting and Analytics (+7.9%). Management cited growth in TV and international cross-platform products, Activation, and movie products, offset partly by weaker syndicated digital products amid changes in ad buying and industry consolidation.
Fourth quarter: Revenue was $109.3 million, versus $102.9 million in Q4 2017. Gross profit was $57.3 million, or approximately 52.4% of revenue, versus $52.7 million, or approximately 51.2%. Operating loss was $23.5 million versus $79.8 million; net loss was $27.2 million versus $71.9 million. Q4 restructuring expense was $6.7 million.
Liquidity, debt and capital
At year-end, cash and cash equivalents were $44.1 million and restricted cash was $6.1 million, for total cash, cash equivalents and restricted cash of $50.2 million. Current assets were $145.8 million and current liabilities were $168.9 million. Operating cash outflow increased to $72.6 million, which the company attributed primarily to higher payments on liabilities, including investigation and audit costs, note interest and compensation liabilities. Investing activities used $13.8 million; financing activities provided $93.1 million, including $100.0 million of cash proceeds from note issuance.
Starboard-held senior secured convertible notes had $204.0 million principal outstanding at December 31, 2018, with a January 2022 maturity and a $31.29 conversion price. Their interest rate reset from 6% to 12% effective January 30, 2019. The notes are secured by substantially all company and guarantor assets, include restrictive covenants and require a minimum cash balance (then $20 million, with an increase to $40 million scheduled under specified timing conditions). The company was in covenant compliance at year-end. Note carrying value was $177.3 million after discounts and financing costs. Separately, capital lease obligations were $3.6 million.
Changes, outlook and key risks
- Net loss improved substantially year over year, but the company remained loss-making and used cash in operations. Investigation and audit costs declined to $38.3 million from $83.4 million; litigation settlement expense fell to $5.3 million from $82.5 million. These items materially affected year-to-year results.
- Management stated that funding sources were expected to meet anticipated requirements for at least the next 12 months, while acknowledging uncertainty about operating performance, legal and compliance costs, and access to additional financing. No specific revenue or earnings guidance is provided in the filing.
- The SEC is investigating allegations involving revenue recognition, internal controls, non-GAAP disclosures, tone at the top and whistleblower retaliation. The company is cooperating; the SEC had made no decision on whether violations occurred. The company expects ongoing legal costs, though it expected investigation and audit costs to be lower in 2019.
- Management concluded that internal control over financial reporting and disclosure controls were ineffective at December 31, 2018 because of an unremediated material weakness in revenue accounting. Deloitte issued an adverse opinion on internal control, while giving an unqualified opinion on the financial statements.
- The filing describes prior financial statement restatements and cautions against reliance on specified earlier filings and communications; investors are directed to rely on the adjusted or restated information in the 2017 10-K and subsequent filings, as applicable.
- Other exposures include privacy and data-protection regulation, third-party data access and pricing, customer concentration (top ten customers were 24% of 2018 revenue), competition, and potential dilution from convertible notes, warrants and equity awards. The company also disclosed a privacy class-action matter and possible export-sanctions exposure; it believed a material loss was not probable or estimable for either at year-end. BIS closed its review without finding an export-regulations violation; OFAC’s matter remained unresolved.
- Goodwill was $641.2 million. The 2018 annual impairment test found reporting-unit fair value exceeded carrying value by more than 100%, but future impairment remains possible if assumptions or market conditions change.
Important facts for investors to verify
- Progress in remediating revenue-accounting controls and whether the material weakness is resolved in subsequent filings.
- Cash burn, unrestricted liquidity, covenant minimum-cash requirements and the ability to fund operations and the 12% note interest.
- Whether the optional rights offering or other financing is pursued, and the resulting debt, dilution and liquidity effects.
- Resolution and potential costs of the SEC investigation, privacy litigation and any remaining regulatory matters.
- Underlying revenue trends in syndicated digital products versus TV, Activation and cross-platform offerings, accounting for the ASC 606 comparability change.
- Reconciliation of non-GAAP performance measures to GAAP results and the extent to which excluded costs continue to require cash payments.