comScore, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; interim financial statements are unaudited. comScore provides digital media analytics and measurement products. It served approximately 2,589 customers worldwide. Subscription-based products represented 92% of revenue, up from 90% a year earlier.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $87.3 million | $76.9 million |
| Operating loss | $9.2 million | $0.3 million |
| Net loss | $7.3 million | $0.8 million |
| Net loss per diluted share | $0.22 | $0.02 |
| Operating cash flow | $27.9 million | $19.4 million |
| Capital expenditures | $1.4 million | $1.9 million |
- Revenue increased 13.6%, principally from existing customers (+$9.3 million); new-customer revenue rose $1.1 million. Subscription revenue increased about $11.1 million, while project revenue declined about $0.7 million.
- Gross margin, calculated using cost of revenues excluding intangible amortization, was approximately 71.5%, compared with 69.5%. Operating margin deteriorated to approximately negative 10.6% from negative 0.4%; net margin was approximately negative 8.4% versus negative 1.0%.
- Management-reported adjusted EBITDA was $21.3 million, or 24% of adjusted pro forma revenue, versus $17.0 million, or 22%. This is a non-GAAP measure; it excludes the mobile operator analytics division and other specified items. Management cautions it is not a substitute for GAAP results or cash-flow analysis.
- Operating cash flow improved, but included $21.8 million of stock-based compensation added back as a noncash item and a $12.1 million cash benefit from accounts receivable changes. Cash declined $2.2 million during the quarter to $40.9 million.
- At March 31, total assets were $337.3 million and stockholders’ equity was $169.1 million. Current liabilities were $142.9 million, including $90.5 million of deferred revenue.
- Capital lease obligations totaled $27.3 million ($14.2 million current; $13.0 million long-term). No revolving-credit borrowings were outstanding; $3.6 million of letters of credit were outstanding under the $100 million facility. The company reported compliance with its credit covenants.
Changes, outlook and notable items
- Total operating expenses rose 25% to $96.5 million, outpacing revenue growth. Stock-based compensation increased $14.5 million, largely due to November 2014 market-based awards; employee costs and third-party data costs also increased. General and administrative expense rose 87% to $25.0 million, and research and development expense rose 44% to $18.0 million.
- Management said cash and operating cash flow should meet anticipated needs through the foreseeable future, while noting liquidity could be harmed by weaker demand. It expects continued investment in panels, technical infrastructure, personnel, products and international expansion; no quantified revenue or earnings guidance was provided.
- On April 1, 2015, after quarter-end, comScore completed agreements with WPP: it acquired Conniaco B.V. in exchange for 4.45% of comScore’s outstanding shares, and separately issued 4,438,353 shares to WPP for approximately $204.7 million. A strategic alliance covers cross-media audience measurement outside the U.S. The filing says further required disclosures would follow after the company completed its analysis.
- CSWS, the mobile operator analytics division, was classified as held for sale; its assets and liabilities remained on the balance sheet, and it was not presented as discontinued operations. Management’s adjusted EBITDA comparison excludes the division. A $9.7 million impairment of related intangible assets was recorded in 2014.
- Q1 included a $0.1 million net litigation gain. The company had previously settled a privacy class action, with a $14 million settlement fund contributed by comScore and insurers; $3.5 million of settlement loss was recorded in 2014. Management said pending legal matters were not expected to materially affect results, but litigation may still consume resources.
- Foreign-currency translation reduced comprehensive results by $4.4 million. The company held $10.9 million of cash overseas and stated repatriation could trigger taxes of 5% to 45%; it intended to keep foreign earnings invested abroad. It does not hedge foreign-currency risk.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter. Management identified no pending legal proceeding it believed would have a material adverse impact.
Key investor verification points
- Assess whether recurring subscription growth and customer renewals can sustain revenue growth, given customer concentration and the 92% subscription mix.
- Track operating expenses, especially stock-based compensation, data costs and headcount, and reconcile adjusted EBITDA trends with GAAP losses and cash generation.
- Review the completed WPP/Conniaco transactions for final accounting, share dilution, strategic benefits and any additional required disclosures.
- Monitor CSWS disposition progress and any further impairment, as well as the company’s capital-lease commitments and credit-facility covenants.
- Evaluate privacy, data accuracy, regulatory, litigation, panel-recruitment, third-party data, competition and foreign-exchange risks highlighted in the filing.