comScore, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. comScore is a global audience, consumer-behavior and advertising measurement and analytics company with one operating segment. Financial statements are unaudited.
Financial performance
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $88.6 million | $96.9 million | $178.1 million | $199.2 million |
| Gross margin | 49.2% | 46.3% | 49.0% | 47.1% |
| Operating loss | $2.7 million | $272.2 million | $15.5 million | $294.8 million |
| Net loss | $10.4 million | $279.5 million | $23.6 million | $307.0 million |
| Adjusted EBITDA (non-GAAP) | $9.2 million | $(3.2) million | $15.6 million | $(5.7) million |
| Non-GAAP net loss | $2.8 million | $10.8 million | $8.6 million | $24.9 million |
Q2 revenue fell 8.6% year over year; first-half revenue declined 10.6%. In Q2, Ratings and Planning revenue decreased 7.5%, Analytics and Optimization decreased 2.3%, and Movies Reporting and Analytics decreased 26.0%. The company reported a $1.0 million one-time recovery of revenue-sharing fees in Analytics and Optimization. Operating expenses were lower, reflecting reduced headcount and other cost reductions; Q2 cost of revenue fell 13.5%.
For the first half, net cash used in operating activities was $1.8 million, compared with $10.7 million in 2019. Investing activities used $7.9 million, and financing activities used $1.0 million. Cash, cash equivalents and restricted cash decreased $11.3 million to $55.5 million, including $35.9 million unrestricted cash and $19.6 million restricted cash. Capitalized internal-use software spending was $7.8 million.
Balance sheet, debt and liquidity
At June 30, 2020, total assets were $683.6 million and total liabilities were $443.6 million. Current assets of $134.3 million were below current liabilities of $168.7 million, a $34.4 million working-capital deficit. Accounts receivable, net, was $64.0 million; the allowance for doubtful accounts increased to $2.8 million, including $1.6 million of first-half bad-debt expense.
Debt principal outstanding was $217.0 million: $204.0 million of senior secured convertible notes and a $13.0 million secured term note. Their balance-sheet carrying amounts were $188.3 million and $12.5 million, respectively. The convertible notes carry a 12.0% stated interest rate through February 2021, mature in January 2022, and have a $40.0 million minimum cash balance covenant. The term note bears 9.75% interest, is cash-collateralized, and matures in December 2021. The company paid $13.6 million of interest in cash in the first half.
Management said it was in compliance with debt covenants at June 30, including restricted cash in the relevant cash calculation, and expected available funding and cost actions to meet anticipated needs for at least 12 months after issuance of the financial statements. However, holders of the convertible notes questioned compliance with the minimum cash requirement during Q2. A covenant breach could trigger redemption at a premium and materially affect liquidity. The company reported $69.2 million of operating lease obligations and $93.1 million of unconditional MVPD data-purchase commitments.
Changes, outlook and risks
- COVID-19 affected contract execution and renewals, customer collections and payment terms, and movie-theater-related demand. Management expected continuing effects but said the future magnitude could not be quantified.
- Management took cost and liquidity actions, including hiring and contractor restrictions, vendor and lease reductions, and compensation and discretionary-spending cuts. It also deferred certain payroll taxes and claimed employee-retention credits under the CARES Act.
- Movie-theater closures reduced Movies Reporting and Analytics revenue, and management expected this impact to continue for the foreseeable future; uncertainty about reopenings delayed some renewals. The company signed or renewed contracts with eight significant customers in Q2.
- In Q1 2020, the company recorded a $4.7 million non-cash impairment charge on lease right-of-use assets and related improvements, mainly due to weaker sublease expectations amid COVID-related real-estate market conditions. No comparable impairment occurred in 2019. Conversely, the 2019 comparison included $224.3 million of goodwill impairment and $17.3 million of intangible-asset impairment.
- The 2020 first-half results included $8.7 million of net other income, primarily non-cash gains from fair-value changes in financing derivatives and warrants. These valuations can fluctuate.
- The privacy class-action settlement reached in February 2020 was subject to court approval, with insurance expected to cover plaintiffs’ attorneys’ fees. A securities class action was dismissed with prejudice in July 2020. The filing says other proceedings could still entail costs and management distraction.
No specific revenue or earnings guidance was provided. Management’s liquidity outlook depends on cost controls, collections, customer demand, financing access and continued covenant compliance; it cautioned that outcomes and the effects of the pandemic remain uncertain.
Important facts for investors to verify
- Whether the company maintains the convertible notes’ $40.0 million minimum cash covenant and resolves noteholder concerns; confirm how restricted cash is treated.
- Cash collection trends, receivables quality and any further customer requests to alter payment terms.
- Revenue trends by solution group, particularly syndicated digital products and movie-related services, and the status of delayed renewals.
- Cash interest requirements, debt maturities, refinancing options and potential dilution from equity or warrant-related financing.
- Whether COVID-19 conditions lead to further asset impairments, contract losses, litigation exposure or additional liquidity needs.