comScore, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual filing, not a standalone Q4 filing; quarterly figures below are unaudited. The filing was made March 23, 2018, after a prolonged reporting delay and accounting investigation. comScore measures audiences and advertising across digital, television, and movie platforms.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $403.5 million | $399.5 million |
| Gross profit and gross margin | $209.9 million; 52.0% | $226.4 million; 56.7% |
| Operating loss | $(295.5) million | $(131.8) million |
| Net loss | $(281.4) million; $(4.90) per share | $(117.2) million; $(2.10) per share |
| Adjusted EBITDA and margin | $(18.7) million; (4.6)% | $24.5 million; 6.2% |
| Cash used in operating activities | $(56.4) million | $(55.9) million |
Q4 2017 revenue was $102.9 million versus $106.9 million in Q4 2016; quarterly net loss was $71.9 million versus $31.9 million. Annual revenue grew 1.0%, but operating expenses rose 31.6% to $699.1 million. Cost of revenue increased faster than sales, and cost of revenue as a share of sales rose to 48.0% from 43.3%.
At year-end, cash and cash equivalents were $37.9 million, plus $7.3 million restricted cash; no marketable securities remained. Current assets were $179.6 million and current liabilities $250.5 million. Total liabilities were $365.9 million. The company had $13.2 million of capital-lease and software-license obligations and no other debt outstanding at December 31, 2017. It reported $56.4 million of operating cash outflow and a $43.2 million decline in cash, cash equivalents, and restricted cash.
Changes versus comparable periods
- Revenue was nearly flat year over year: growth in TV and Cross-Platform (up 21.4%) and Movies (up 18.5%) was offset by declines in Digital Audience (down 6.2%) and Advertising (down 6.1%).
- Net loss widened by $164.2 million. FY 2017 included $83.4 million of investigation and audit-related expense, $82.5 million of net litigation settlement expense, and $10.5 million of restructuring expense. Adjusted EBITDA also moved from positive to negative.
- FY 2016 included 11 months of Rentrak results; FY 2017 included a full year. The company completed the Rentrak merger in January 2016 and sold its Digital Analytix business in January 2016.
- The filing restates selected 2013 and 2014 data and adjusts 2015 data. Previously filed financial reports for affected periods were declared unreliable; the company says investors should rely on this 10-K and its concurrently filed 2017 quarterly reports instead.
Outlook, risks, and unusual items
- Management expected Digital Audience revenue declines to continue to some extent into 2018, but at a slower pace; it expected higher Advertising revenue and flat legacy Advertising revenue. Management also expected data and panel investment costs to continue increasing.
- A December 2017 restructuring targeted approximately 10% of staff and exit from certain regions. The company recorded $10.5 million of charges and expected total exit costs of up to $12.0 million, with additional costs in early 2018.
- Management said cash, operations, restructuring, and the January 2018 financing were expected to meet anticipated needs for at least 12 months, while warning that liquidity could be pressured by weaker demand, operating losses, compliance costs, and litigation.
- In January 2018, the company issued Starboard $150 million of senior secured convertible notes for $85 million cash and 2.6 million shares. Notes carry 6% interest initially, mature in 2022, and are secured by substantially all company and guarantor assets. Starboard also received an option for up to $50 million more; a rights offering of up to $150 million and related backstop were contemplated. The financing creates dilution and covenant risks.
- A proposed federal securities class-action settlement was accrued at $110 million: $27.2 million cash was expected to be insurer-funded and $82.8 million payable in company shares or, at the company’s option, cash. It remained subject to final court approval. A separate proposed derivative settlement included a $10 million insurer-funded payment to the company and an $8 million stock contribution toward attorneys’ fees.
- The SEC was investigating revenue recognition, internal controls, non-GAAP disclosures, and whistleblower-retaliation allegations; no decision on violations had been made. The company also voluntarily disclosed possible export-control and sanctions violations involving survey data from embargoed countries; the review was ongoing and potential penalties were not estimable.
- The company’s stock was delisted from Nasdaq in 2017 and traded on OTC Pink. Management intended to seek relisting but gave no assurance of success. The company reported material weaknesses in revenue accounting, business-combination accounting, financial close and reporting, and tax processes. Management and Deloitte concluded internal control over financial reporting was ineffective at year-end, although the financial statements received an unqualified audit opinion.
Investor verification priorities
- Confirm the final status, funding, and share impact of the securities and derivative litigation settlements, including insurer recoveries.
- Review the terms, cash proceeds, collateral, covenants, conversion, and dilution implications of the Starboard notes, options, warrants, and any rights offering.
- Track remediation and independent testing of the disclosed material weaknesses, and whether the company files timely reports and regains Nasdaq eligibility.
- Assess whether Digital Audience customer losses and revenue trends stabilize, and whether growth in TV, Movies, and newer Advertising products offsets declines.
- Monitor operating cash burn, unrestricted cash, restructuring savings and charges, compliance/legal spending, and the outcomes of SEC and export-control reviews.