Business Context and Reporting Period
Company: comScore, Inc.
Filing Type: Form 8-K (Current Report)
Reporting Date: October 4, 2017 (Earliest event reported: September 28, 2017)
Context: The filing details a material settlement agreement with activist investor Starboard Value LP, significant changes to the Board of Directors, the termination of a poison pill provision, and a change in the independent registered public accounting firm.
Key Financial Metrics and Liquidity
Revenue and Profit: The filing does not provide current period revenue, profit, or margin data. It references historical revenue of approximately $340,000 (2016) and $325,000 (first eight months of 2017) from transactions with 360i/Vizeum, a customer of a newly appointed director.
Debt and Liquidity: The Company has no outstanding borrowings under its Credit Agreement. However, the revolving commitments were reduced to approximately $3.6 million, which is limited to the amount available for outstanding standby letters of credit. No new letters of credit or extensions may be requested.
Cash Flow: No specific cash flow figures are provided in this filing.
Material Changes Versus Prior Period
- Board Composition: The Board size increased from five to eight members. Three new independent directors (Wesley Nichols, Paul Reilly, Bryan Wiener) were appointed, with additional nomination rights granted to Starboard Value LP contingent on ownership thresholds and financial filing deadlines.
- Accounting Firm: The Company terminated its engagement with Ernst & Young LLP (EY) for the 2017 fiscal year and engaged Deloitte & Touche LLP. EY will continue to audit fiscal years 2015 and 2016.
- Corporate Governance: The Tax Asset Protection Rights Agreement (poison pill) was terminated effective September 28, 2017, and the associated Series A Preferred Stock was eliminated.
- Legal Status: Starboard Value LP agreed to dismiss its current litigation against the Company.
Guidance, Outlook, Risks, and Unusual Items
Financial Reporting Status: The Company is in the process of restating financial statements for fiscal years 2015, 2016, and 2017 due to previously disclosed misstatements. The Company expects to file these audited statements in a consolidated filing by March 2018. The filing anticipates disclosure of material weaknesses in internal controls and disclosure controls and procedures.
Outlook and Contingencies:
- Starboard Value LP retains the right to recommend additional board nominees if the Company fails to file the required audited financial statements by March 31, 2018.
- New directors are eligible for equity awards of $125,000 each, contingent upon the Company regaining compliance with financial reporting requirements.
- The Company has agreed to offer Starboard participation rights in future equity offerings, provided Starboard maintains a minimum ownership threshold.
Important Facts for Investor Verification
- Verify the timeline for the filing of restated audited financial statements for 2015, 2016, and 2017 (expected March 2018).
- Confirm the specific nature of the material weaknesses in internal controls to be disclosed in the upcoming filing.
- Monitor Starboard Value LP's ownership percentage to determine if they meet the threshold to appoint additional board members.
- Review the terms of the Eleventh Amendment to the Credit Agreement regarding the $3.6 million limit on standby letters of credit.
- Assess the impact of the new board composition on future strategic direction and governance.