comScore, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. comScore provides audience, advertising and consumer analytics across media platforms. It reports one operating segment, with revenue grouped into Digital Ad Solutions and Cross Platform Solutions.
Financial performance
Amounts below are in millions, except percentages. Comparisons are with the corresponding 2022 periods.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $91.0 | $92.8 | $276.2 | $278.2 |
| Gross margin | 44.5% | 44.5% | 43.8% | 44.0% |
| Operating income (loss) | $2.1 | $(56.4) | $(49.1) | $(78.3) |
| Net income (loss) | $2.6 | $(52.4) | $(51.0) | $(66.7) |
| Net loss available to common stockholders | $(1.7) | $(56.3) | $(62.9) | $(78.3) |
| Operating cash flow | Not presented separately | Not presented separately | $30.3 | $36.5 |
- Q3 revenue declined 1.9%; nine-month revenue declined 0.7%. Digital Ad Solutions revenue fell 3.6% in Q3 and 2.2% year to date, while Cross Platform Solutions was nearly flat in Q3 and up 1.3% year to date.
- Q3 operating results improved substantially year over year mainly because Q3 2022 included a $46.3 million goodwill impairment. The first nine months of 2023 included a $44.1 million goodwill impairment, versus $46.3 million in 2022. Excluding these charges, reported operating losses remain a relevant measure of underlying performance; the filing does not provide a formal adjusted-profit measure here.
- Q3 2023 net income does not translate into income for common stockholders: preferred dividends of $4.3 million resulted in a $1.7 million common-stockholder loss. Nine-month preferred dividends were $12.0 million.
- For the first nine months, operating cash flow was $30.3 million. Investing used $17.8 million, primarily for capitalized internal-use software; financing used $2.7 million. Cash, cash equivalents and restricted cash ended at $30.3 million, up from $20.4 million at year-end 2022.
Financial position and liquidity
- At September 30, cash and cash equivalents were $30.1 million and restricted cash was $0.2 million. Current assets were $90.6 million and current liabilities $178.9 million.
- Revolving-credit borrowings were $16.0 million, with $3.4 million of letters of credit and $20.6 million of remaining borrowing capacity. The facility matures in May 2024; the SOFR-based applicable rate is 3.50%. Borrowings are classified as current.
- The company reported compliance with its amended credit covenants at quarter-end. Requirements include minimum liquidity of $28 million and quarterly minimum EBITDA tests through 2023. The filing warns that inability to generate sufficient operating cash or repay/refinance the facility at maturity could pressure liquidity.
- Preferred stock is presented outside permanent equity. Its $223.8 million liquidation preference is accompanied by $19.8 million of accrued dividends at quarter-end. The preferred securities are convertible and may materially dilute common shareholders.
Changes, outlook and material items
- Management said advertising-market softness, associated with inflation, higher interest rates and recession concerns, may continue through the end of 2023 and into 2024; weaker ad conditions could harm results and liquidity. No quantified revenue or earnings guidance is provided.
- The restructuring plan is expected to cost $10–$15 million in total, with implementation and cash payments expected to be substantially complete in Q4 2023. The company recorded $5.5 million of restructuring expense in the first nine months of 2023 and had a $1.9 million accrual remaining.
- In Q3, the company recorded a $1.5 million impairment charge relating to abandoned leased office space. Goodwill fell to $343.5 million after the $44.1 million impairment recorded in Q2; further impairment remains possible if valuation assumptions or market conditions deteriorate.
- Annual preferred dividends were deferred in June 2023. The deferred amount accrues at 9.5% from June 30 and was scheduled for payment on or before December 31, 2023, subject to conditions. Cash payment could materially affect liquidity; the preferred stock also carries a cumulative 7.5% annual dividend and a potential special-dividend obligation.
- A dispute with Charter Operating concerning the related-party data license agreement remained under discussion at quarter-end. Termination could make amounts then due immediately payable and could expose the company to liquidated damages. Neither party had indicated an intent to terminate. The agreement’s license fees increase over its ten-year term; the filing describes $7 million of credits under a 2022 amendment.
- A separate vendor payment dispute was considered resolved after September 30, 2023, when the company and the TV data provider entered into a new license agreement.
- Fixed payment obligations for set-top-box and connected-TV data agreements totaled $282.0 million, including $279.5 million for set-top-box data; the schedule extends beyond 2027. The company also disclosed $45.0 million of lease obligations.
- Nasdaq notified the company in July 2023 that its share price had not met the $1.00 minimum bid requirement for 30 consecutive business days. The initial compliance period ended January 8, 2024. A reverse stock split was under consideration, subject to shareholder approval; delisting could impair share liquidity and capital-raising capacity.
- Management reported effective disclosure controls as of September 30, 2023 and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether operating performance and cash generation can sustain covenants and meet the May 2024 revolver maturity, including the company’s liquidity against the $28 million covenant threshold.
- The status and payment form of deferred preferred dividends, the special-dividend provisions, and the resulting cash needs or dilution. Preferred shares were convertible into approximately 90.6 million common shares at September 30, 2023.
- Progress on the restructuring plan, remaining costs, and whether cost savings offset revenue softness and increased systems and bandwidth costs.
- Resolution and potential financial consequences of the Charter Operating data-license dispute, as well as the company’s substantial long-term data-provider commitments.
- Nasdaq listing compliance and any reverse-stock-split decision; also monitor potential dilution from preferred stock, warrants, equity awards and Shareablee consideration.
- The assumptions supporting goodwill valuation and any indicators of further impairment, particularly given the company’s market capitalization decline and ongoing operating losses.