comScore, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited. comScore is a global audience, consumer behavior and advertising measurement and analytics company with one operating segment.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $93.7 million | $91.4 million | $185.2 million | $185.4 million |
| Gross profit and margin | $40.7 million; 43.5% | $40.0 million; 43.7% | $80.4 million; 43.4% | $81.0 million; 43.7% |
| Operating loss | $47.4 million | $11.3 million | $51.2 million | $21.9 million |
| Net loss | $44.9 million | $5.1 million | $53.6 million | $14.3 million |
| Net loss per common share | $0.51 | $0.10 | $0.65 | $0.24 |
| Operating cash flow | Not presented quarterly | $16.2 million | $24.2 million |
Q2 revenue rose 2.5% year over year: Digital Ad Solutions increased 2.0% to $52.6 million and Cross Platform Solutions increased 3.1% to $41.0 million. First-half revenue was essentially flat: Digital Ad Solutions fell 1.6% to $103.1 million while Cross Platform Solutions rose 1.9% to $82.1 million. Management cited stronger Activation usage, local TV and movie-related revenue, offset by lower renewals in syndicated digital and national TV products.
Q2 operating results included a $44.1 million non-cash goodwill impairment and $4.1 million of restructuring expense. Excluding these items, the reported operating loss was still higher than the prior-year quarter; the filing does not provide a non-GAAP adjusted operating result. General and administrative expense fell, partly reflecting lower stock compensation and the absence of prior-year former-CEO severance expense. Systems and bandwidth costs increased, primarily from cloud processing for custom TV data deliveries.
Cash, debt and liquidity
- At June 30, cash and cash equivalents were $22.7 million, plus $0.4 million restricted cash. Current assets were $91.3 million and current liabilities $178.4 million.
- The revolving credit facility had $16.0 million drawn and $3.4 million of letters of credit outstanding, leaving $20.6 million of borrowing capacity. It matures in May 2024; borrowings were classified as current. The facility’s SOFR-based applicable rate is 3.50%.
- Comscore reported compliance with its amended credit covenants at quarter-end. Requirements include minimum liquidity of $28.0 million, monthly asset-coverage testing, and minimum EBITDA requirements for 2023. The filing states the company does not anticipate a breach based on current plans.
- First-half cash flow: $16.2 million provided by operations, $12.0 million used in investing and $2.2 million used in financing. Investing outflow increased, mainly due to higher capitalized internal-use software costs. Operating cash flow declined from the prior year.
- Convertible redeemable preferred stock had a $187.9 million carrying value and a $219.6 million liquidation preference. Accrued dividends were $15.6 million. The June payment was deferred; dividends accrue at 9.5% from June 30 and are due on or before December 31, 2023, subject to conditions. Cash payment could materially affect liquidity.
Material changes, outlook and risks
- Goodwill fell to $344.1 million after the $44.1 million impairment. Management cited a decline in share price and market capitalization; the valuation depended on estimated cash flows, discount rates, growth rates and market inputs. Further impairment remains possible if assumptions or conditions change.
- The restructuring plan is expected to cost $10 million to $15 million in total, including workforce reductions, operating-cost reductions and technology/data infrastructure changes. Implementation and cash payments are expected to be substantially complete in Q4 2023.
- Management said advertising-market softness, associated with inflation, higher interest rates and advertiser caution, continued into 2023 and is expected to affect the business in the second half of 2023. No numerical revenue or earnings guidance is provided.
- Non-cancelable set-top box and connected-TV data agreements represent $290.4 million of fixed obligations, with remaining terms from less than one year to eight years; an estimated $4.5 million of variable set-top-box payments is expected by year-end. Remaining performance obligations were approximately $220 million, with about 28% expected to be recognized in the remainder of 2023.
- Charter Operating disputed the company’s compliance with terms of a related-party data license agreement and demanded cure and payment by August 6, 2023. Charter also alleged company breaches. Neither party had indicated an intent to terminate as of the filing; discussions were ongoing. Termination could accelerate amounts due and expose the company to liquidated damages.
- A TV data provider dispute concerns approximately $2.9 million of payments through June 30. The company disputes the provider’s interpretation and said it could not reasonably estimate any potential loss.
- On July 11, 2023, Nasdaq notified comScore it was below the $1.00 minimum bid-price requirement after 30 consecutive business days. The initial 180-day period to regain compliance ends January 8, 2024; delisting could affect liquidity, share price and access to capital.
- Potential dilution is significant: preferred stock was convertible into approximately 88.8 million common shares at June 30, compared with 95.1 million common shares outstanding. Warrants, equity awards and potential share settlement of other obligations could add dilution.
Investor facts to verify
- Progress against the advertising softness outlook, customer renewals and revenue trends across both solution groups.
- Cash generation, trade-payable management, covenant headroom and refinancing or repayment plans before the May 2024 revolver maturity.
- How the $15.6 million accrued preferred dividends will be settled by the stated deadline and whether any special dividend or additional financing is required.
- Resolution and financial impact of the Charter license-agreement dispute and the $2.9 million data-provider dispute.
- Whether the company regains Nasdaq minimum-bid compliance by the applicable deadline, and any resulting dilution or capital-raising actions.
- Goodwill valuation assumptions and whether further impairment or restructuring costs arise.