comScore, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The company provides audience, consumer-behavior and advertising measurement and analytics; it reports one operating segment. Figures below are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $87.7 million | $88.6 million | $178.0 million | $178.1 million |
| Gross profit / margin | $36.3 million / 41.4% | $43.6 million / 49.2% | $73.9 million / 41.5% | $87.3 million / 49.0% |
| Operating loss / margin | $10.9 million / (12.4%) | $2.7 million / (3.1%) | $22.3 million / (12.6%) | $15.5 million / (8.7%) |
| Net loss | $18.5 million | $10.4 million | $54.9 million | $23.6 million |
| Net loss per common share | $0.28 | $0.15 | $0.76 | $0.34 |
| Operating cash flow | Not separately presented for the quarter | $10.9 million | $(1.8) million |
Q2 operating expenses rose to $98.5 million from $91.3 million. Cost of revenue increased 14.3% to $51.4 million, with data costs and systems and bandwidth among the main increases. Six-month revenue was nearly flat year over year, while cost of revenue rose 14.7%. The six-month net loss includes a $9.6 million debt-extinguishment loss and a $16.5 million noncash loss from the change in fair value of warrants.
Revenue by solution group: In Q2, Ratings and Planning revenue was $62.4 million (down 2.1%), Analytics and Optimization was $17.8 million (up 5.1%), and Movies Reporting and Analytics was $7.5 million (down 5.3%). For the first half, those groups were $128.2 million (up 0.7%), $35.5 million (up 9.5%), and $14.3 million (down 22.3%), respectively.
Liquidity, financing and capital structure
- At June 30, cash and cash equivalents were $16.7 million and restricted cash was $1.0 million, down from combined cash and restricted cash of $50.7 million at December 31, 2020.
- Six-month investing cash outflow was $7.7 million, mainly for capitalized internal-use software. Financing cash outflow was $35.9 million, reflecting debt repayment and $4.8 million in preferred dividends, partly offset by preferred-stock proceeds.
- In March, the company issued $204.0 million of preferred stock to Charter, Qurate and Pine, receiving $188.2 million net of issuance costs. Proceeds funded repayment of the $204.0 million senior secured convertible notes; restricted cash funded repayment of the secured term note. Both were extinguished March 10, 2021.
- The preferred stock carries a cumulative 7.5% annual dividend, increasing to 9.5% if the annual dividend is not paid in cash on its payment date. Holders may request a special dividend after January 1, 2022, subject to conditions; financing it could require additional debt. The preferred stock is convertible and contingently redeemable and is presented outside permanent equity. Its June 30 liquidation preference was $204.0 million.
- A three-year, $25.0 million secured revolving credit facility was entered into in May. At June 30, $2.7 million of letters of credit left $22.3 million available; the company reported covenant compliance. In July it borrowed $8.0 million, leaving $14.3 million available. The facility is secured by substantially all assets of the company and certain domestic subsidiaries and has financial and restrictive covenants.
- At June 30, the company had a $19.4 million current warrant liability, valued using Level 3 inputs and subject to share-price and volatility changes. A 10% share-price increase would raise its estimated fair value by $2.5 million; a 10% decrease would lower it by $2.4 million.
Changes, outlook and risks
- Management attributed lower syndicated digital revenue mainly to smaller and international customers affected by industry changes in ad buying and consolidation. TV revenue benefited from new partnerships, agency adoption and higher data deliveries. Analytics and Optimization growth was driven by Activation products.
- Movies revenue remained affected by theater closures, delayed releases and changing consumer behavior related to COVID-19. Management expected those effects to continue in 2021, while anticipating improvement as major theater chains reopened. No numerical company-wide revenue or earnings guidance is provided in the filing.
- Management cited customer payment delays and requests to change payment terms as pandemic-related pressures. It also noted that long-term changes in consumer behavior could affect customer demand and payment capacity.
- Remaining performance obligations for qualifying noncancelable contracts longer than one year were approximately $215 million at June 30. The company expected to recognize about 34% in the remainder of 2021, 37% in 2022 and 14% in 2023, with the balance thereafter; these are not total revenue forecasts.
- Contractual fixed payment obligations disclosed at June 30 included $384.9 million for MVPD data agreements, $66.6 million for operating and finance leases, and $24.5 million for cloud storage and bandwidth arrangements.
- Key risks include meeting revolver covenants and other obligations, generating sufficient operating cash to pay trade payables, potential need for additional financing, preferred dividends and possible dilution. The company warned that a special dividend could require debt financing and may conflict with revolver restrictions.
- The company is implementing an ERP system intended to replace four legacy systems, with completion expected in Q3 2021. Management reported effective disclosure controls as of June 30 and no material quarterly change in internal control; it warned implementation delays or errors could disrupt reporting and operations.
- The privacy class action settlement received final court approval in April 2021, with no admission of liability; plaintiffs’ attorneys’ fees were to be covered by insurance. The filing says other pending matters are not expected, based on current knowledge, to have a material adverse effect, but legal outcomes remain uncertain.
Important facts for investors to verify
- Progress in operating cash generation, collections, trade-payable reduction and liquidity after the July revolver borrowing.
- Future compliance with the revolver’s EBITDA and fixed-charge coverage covenants, including the timing and definitions applicable to each test.
- The cost and funding implications of preferred-stock dividends, the possible special dividend, and the potential for conversion or redemption.
- Whether revenue stabilization and margin recovery follow from lower data and infrastructure cost growth, Activation expansion and movie-theater reopening.
- Warrant fair-value volatility, the ERP implementation outcome, and any changes in litigation, privacy or other contingent exposures.