comScore, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2012. The interim financial statements are unaudited. comScore provides subscription-based digital analytics, audience measurement, advertising, web, and mobile/network intelligence solutions using a SaaS model.
Financial performance and position
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $60.3 million | $58.1 million | $122.6 million | $111.0 million |
| Operating loss | $(6.0) million | $(6.2) million | $(4.9) million | $(8.7) million |
| Net loss | $(6.6) million | $(8.2) million | $(7.1) million | $(8.6) million |
| Basic and diluted loss per share | $(0.20) | $(0.26) | $(0.21) | $(0.27) |
| Gross margin | 66.2% | 66.8% | 66.7% | 67.2% |
| Operating margin | (9.9)% | (10.6)% | (4.1)% | (7.9)% |
- For the first six months, operating cash flow was $24.3 million, versus $19.7 million a year earlier. Investing cash use was $3.0 million and financing cash use was $9.2 million; cash increased $12.2 million to $50.3 million.
- At June 30, cash was $50.3 million, current assets were $134.0 million and current liabilities were $108.6 million. Working capital was approximately $25.4 million.
- No amounts were drawn on the $50 million secured revolving facility, which matures June 30, 2013. The company reported compliance with its covenants. Capital lease obligations totaled $12.3 million, including $6.9 million current. Operating lease commitments totaled $87.4 million.
- Deferred revenue was $74.0 million in total. Stockholders’ equity was $190.5 million; accumulated deficit was $76.1 million.
Material changes versus prior periods
- Revenue increased 3.8% in Q2 and 10.4% for the six-month period. Management attributed growth mainly to existing customers: their revenue rose $4.6 million in Q2 and $15.8 million year to date, while new-customer revenue declined $2.4 million and $4.2 million, respectively.
- Subscription revenue rose approximately $2.3 million in Q2 and $9.9 million for the first six months. Subscriptions represented 85% of revenue in the six-month period. International revenue grew 25% year over year to $34.0 million for the half.
- ARS copy-testing revenue declined $2.3 million in Q2 and $3.5 million for the first six months. A $3.3 million impairment of ARS intangible assets was recorded in Q2 after a significant revenue decline. The impairment reduced reported earnings per share by $0.10; the assets will be amortized over an estimated remaining 18 months.
- Operating expenses rose 3% in Q2 and 6% in the first half. Higher staffing, selling costs, bad-debt expense and the ARS impairment were partly offset by lower professional fees, including costs from patent litigation settled in Q4 2011. Selling and marketing expense increased faster than revenue.
- Management cited a significant reduction in forecast pretax book income and established a valuation allowance on certain state tax-loss carryforwards. The estimated annual effective tax rate at June 30 was 80.2%, versus 39.1% at March 31.
Outlook, commentary and risks
- The filing provides no specific revenue or earnings guidance. Management said it expects continued investment in products, infrastructure, personnel and international expansion, and anticipates infrastructure capital spending growth to be slower than revenue growth over time.
- Management is exploring strategic options to maximize ARS’s value, including a potential sale of some or all of the business. No transaction was reported as completed.
- Management reported subscription renewals above 90% historically by dollars renewed, but warned that economic weakness could reduce renewals and customer spending. Results may fluctuate, and historical periods may not indicate future performance.
- Key risks include dependence on subscriptions and major customers (Microsoft accounted for approximately 9% of first-half revenue), privacy and data-security regulation, panel recruitment and retention, measurement accuracy, competition, acquisition integration, international and currency exposure, and reliance on third-party data centers and data sources.
- A privacy class action alleges violations of federal and Illinois laws and seeks unspecified damages, injunctive relief and legal fees. The company considers the claims without merit, intends to defend itself, and said it cannot estimate a potential loss range.
- The company reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. It does not hedge foreign-currency risk; first-half foreign-currency transaction losses were $0.6 million.
Most important facts for investors to verify
- Whether existing-customer growth and subscription renewals can offset declining new-customer revenue and ARS weakness.
- Whether the ARS impairment assumptions and management’s potential-sale review lead to further charges or a disposition.
- Whether forecast earnings, state tax-loss carryforwards and the 80.2% estimated annual effective tax rate change materially.
- The status, potential exposure and progress of the privacy class action, for which the filing provides no estimable loss range.
- Liquidity and capital commitments: $50.3 million cash, $12.3 million capital lease obligations, $87.4 million operating lease commitments, and the June 2013 revolving-facility maturity.