comScore, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. The interim financial statements are unaudited. comScore provides digital media analytics and audience measurement services, primarily through subscription products.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $92.4 million | $82.1 million | $271.1 million | $239.0 million |
| Operating income (loss) | $2.2 million | $(6.0) million | $(9.8) million | $(8.6) million |
| Net income (loss) | $1.0 million | $(3.3) million | $(11.2) million | $(7.2) million |
| Operating margin | 2.4% | (7.3)% | (3.6)% | (3.7)% |
| Operating cash flow | Not separately presented | Not separately presented | $47.8 million | $42.0 million |
Revenue increased 12.5% in Q3 and 13.4% year to date. Subscription revenue grew to $84.8 million in Q3 and $248.6 million for nine months; project revenue declined modestly. Cost of revenue rose faster than sales, to 33.4% of revenue in Q3 and 31.1% year to date, versus 29.8% in each prior-year period. Selling and marketing expense declined, while research and development, general and administrative expense, and acquired-intangible amortization increased.
Management’s non-GAAP adjusted EBITDA was $23.4 million for Q3 and $67.6 million for nine months; reported adjusted EBITDA margins were 25% and 25%, respectively (23% for nine months 2014). The filing cautions that this measure excludes, among other things, stock compensation, capital expenditure requirements and working-capital changes; it should be considered alongside GAAP results and cash flows.
At September 30, cash and cash equivalents were $141.8 million, versus $43.0 million at year-end 2014. Current assets were $263.6 million and current liabilities $131.7 million. The company had no borrowings under its $100 million revolving credit facility and reported compliance with its covenants. Capital lease obligations totaled $31.1 million, including $16.4 million current and $14.7 million long-term. Cash from operations was $47.8 million; investing activities used $15.9 million and financing activities provided $68.3 million for the first nine months.
Material changes and notable items
- Revenue growth was driven mainly by existing customers and subscription offerings. Subscription products represented 92% of revenue for the first nine months, compared with 90% in the prior-year period.
- Cash and equity increased substantially following the WPP/Kantar transactions: comScore issued shares and received approximately $201.3 million net cash, while acquiring European audience-measurement operations and entering a strategic alliance. WPP held approximately 16% of comScore at quarter-end.
- Proximic was acquired for $9.5 million cash. The European IAM and Proximic acquisitions contributed to higher goodwill and intangible assets; net intangible assets rose to $111.3 million from $15.8 million at year-end, with increased future amortization expected.
- The company sold certain mobile operator analytics assets in May, recording a $5.2 million loss. No impairment charge was recorded in 2015; the prior-year period included a $6.9 million intangible-asset impairment.
- Share repurchases totaled $105.9 million for the first nine months. The May 2015 authorization was for up to $150 million; the program was suspended pending the Rentrak merger. WPP’s share issuance and other equity activity increased outstanding shares.
- Subsequent to quarter-end, comScore agreed to sell certain Digital Analytix Enterprise assets and operations to Adobe for $45 million cash, subject to closing conditions and expected to close in Q4 2015.
Outlook, risks and contingencies
No specific numerical earnings or revenue guidance is provided. Management stated that cash and expected operating cash generation should meet anticipated requirements for the foreseeable future. It expects continued investment in its user panels, technology infrastructure and personnel, and expects international revenue to grow faster than U.S. revenue over time. Management noted historical fourth-quarter subscription renewals are higher than in other quarters.
The proposed stock-for-stock merger with Rentrak, announced September 29, remained subject to shareholder approvals and other closing conditions. The filing identifies execution and integration risks, potential delays or failure to close, and a possible $57 million termination fee in specified circumstances. Four putative shareholder lawsuits challenged the transaction; comScore said it believed claims against it were without merit and could not estimate a loss range.
Key business risks include customer subscription nonrenewals and customer concentration, competitive pressure, privacy and data-security regulation, accuracy and reliability of measurement data, dependence on third-party data and infrastructure, foreign-exchange exposure, and acquisition and integration risks. The company reported $9.3 million of cash held by foreign subsidiaries that could incur withholding taxes if repatriated. It also reported no material changes to internal control over financial reporting and effective disclosure controls.
Nonmonetary exchanges contributed $9.1 million of Q3 revenue and $5.1 million of Q3 expense; for the first nine months they contributed $23.7 million of revenue and $14.3 million of expense. The company reported net losses for the first nine months and an accumulated deficit of $104.2 million.
Investor verification points
- Check progress and final terms of the Rentrak merger, including approvals, litigation outcomes, integration plans and potential termination-fee exposure.
- Reconcile GAAP revenue and the adjusted/pro forma revenue figures in management’s key-metrics table, which exclude the divested mobile operator analytics business and use management estimates.
- Assess the sustainability and cash conversion of subscription growth, including renewal rates, customer concentration and the contribution of nonmonetary transactions.
- Monitor operating-cost growth, margins, stock-based compensation, capital-lease commitments and expected amortization from acquired intangibles.
- Verify closing and proceeds from the Adobe asset sale and the effects of the WPP transactions, share issuance and suspended repurchase program on ownership and liquidity.