Business Context and Reporting Period
Company: comScore, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: January 16, 2018
Reporting Period: The filing reports on events occurring on January 16, 2018 (Closing Date), with references to financial expectations for the nine months ended September 30, 2017, and the twelve months ended December 31, 2016.
Key Financial Metrics and Capital Structure
This filing details a significant capital restructuring rather than standard operating results. Key financial terms include:
- Debt Issuance: Sale of $150.0 million in aggregate principal amount of senior secured convertible notes (the "Notes") to funds affiliated with Starboard Value LP.
- Consideration Received: $85.0 million in cash and 2,600,000 shares of Common Stock owned by the Buyers.
- Interest Rates: Minimum 6.0% per year through January 30, 2019, and 4.0% thereafter, subject to upward adjustment to 12.0% based on conversion premiums. A 2.0% penalty interest rate applies if audited financial statements for 2015-2017 are not filed by April 30, 2018.
- Warrants: Issuance of warrants exercisable for 250,000 shares of Common Stock at $0.01 per share.
- Option Notes: Grant of an option to purchase up to an additional $50.0 million in Notes.
- Previous Debt: Voluntary termination of a Credit Agreement with Bank of America, N.A. on January 11, 2018. $3.5 million in letters of credit remain outstanding and are cash collateralized.
- Liquidity: The filing does not provide specific cash balance figures or liquidity ratios as of the reporting date.
Material Changes Versus Prior Period
The primary material change is the entry into a definitive agreement with Starboard Value LP to restructure the company's capital base. This replaces the terminated Credit Agreement with a new senior secured convertible note structure. Additionally, the company is addressing a backlog of regulatory filings, with a specific covenant requiring the filing of Form 10-Ks for 2015, 2016, and 2017 by April 30, 2018, to avoid penalty interest.
Guidance, Outlook, Risks, and Contingencies
Guidance and Outlook: The company issued a press release containing preliminary expectations for select financial metrics for the nine months ended September 30, 2017, and the twelve months ended December 31, 2016. These figures are subject to material adjustment pending the completion of financial review and audit procedures. The company retains the right to conduct a rights offering of up to $150.0 million in notes to all stockholders following the filing of the Form 10-K.
Risks and Contingencies: The filing highlights significant legal and regulatory contingencies:
- SEC Investigation: The SEC is investigating allegations regarding revenue recognition, internal controls, non-GAAP disclosures, and whistleblower retaliation. No decision has been made regarding violations.
- Derivative Litigation Settlement: A proposed settlement for shareholder derivative actions involves the company receiving $10.0 million from insurers and contributing $8.0 million in common stock for attorneys' fees. Final court approval is pending.
- Securities Class Action: A proposed settlement for federal securities class action litigation involves a total of $27.2 million in cash (funded by insurers) and $82.8 million in comScore common stock. Final court approval is expected in mid-2018.
- Rentrak Merger Litigation: Settled for $19.0 million total; comScore contributed $1.7 million, with the remainder covered by insurance. The settlement is final.
- Nielsen Dispute: Nielsen has filed for arbitration and a civil complaint alleging unauthorized use of data. The company intends to vigorously defend itself.
- Privacy Demand Letters: Received regarding COPPA violations; no lawsuit filed as of the report date.
Important Facts for Investor Verification
- Verify the status of the Form 10-K filings for fiscal years 2015, 2016, and 2017, as failure to file by April 30, 2018, triggers a 2.0% interest rate penalty on the new notes.
- Confirm the final court approval status of the $82.8 million stock settlement for the federal securities class action litigation.
- Monitor the outcome of the ongoing SEC investigation into revenue recognition and internal controls.
- Assess the impact of the $150 million convertible notes on future dilution, given the conversion price floor of $28.00 per share and the potential for PIK (Payment-in-Kind) interest shares.
- Review the preliminary financial expectations released in the press release (Exhibit 99.1) once the audit process is complete to understand the actual financial condition.