comScore, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited consolidated results. comScore provides audience, consumer behavior and advertising measurement and reports as one operating segment.
Financial performance and liquidity
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $88.0 | $94.3 | $266.0 | $293.5 |
| Gross margin | 47.2% | 49.7% | 48.4% | 47.9% |
| Operating loss | $(4.0) | $(9.8) | $(19.5) | $(304.6) |
| Net loss | $(11.1) | $(10.6) | $(34.7) | $(317.6) |
| Adjusted EBITDA (non-GAAP) | $7.3 | $6.4 | $22.9 | $0.7 |
| Operating cash flow | Not separately provided | Not separately provided | $(1.8) | $(3.1) |
Q3 basic and diluted loss per share was $0.16, unchanged from the prior-year quarter. Q3 operating margin was negative 4.6% versus negative 10.3%; net margin was negative 12.6% versus negative 11.2%. Nine-month comparisons are affected by 2019 goodwill and intangible-asset impairment charges totaling $241.6 million; there were no comparable charges in 2020.
- Revenue by solution, Q3: Ratings and Planning $62.7 million, down 4.0%; Analytics and Optimization $17.4 million, down 4.5%; Movies Reporting and Analytics $7.8 million, down 27.2% year over year.
- Cash and liquidity: Cash and cash equivalents were $32.2 million and restricted cash $19.6 million at September 30, for total cash, cash equivalents and restricted cash of $51.8 million. Current assets were $127.9 million versus current liabilities of $162.6 million.
- Debt: $217.0 million aggregate outstanding principal under the senior secured convertible notes and secured term note; balance-sheet carrying amounts were approximately $203.1 million in total. The convertible notes carry a 12% stated rate through February 1, 2021, subject to terms and a subsequent reset; the secured term note carries 9.75% and matures December 2021. Nine-month interest expense was $26.7 million.
- Cash uses: Nine-month investing cash outflow was $11.6 million, including $11.4 million of capitalized internal-use software costs. Financing cash outflow was $1.5 million. Total cash, cash equivalents and restricted cash declined $14.9 million from year-end 2019.
Material changes and management commentary
- Nine-month revenue declined 9.3% year over year. Management attributed lower syndicated digital revenue and weaker custom-solution deliveries partly to COVID-19. Movie theater closures materially reduced movie-related revenue and were expected to continue affecting it for the foreseeable future.
- TV revenue benefited from the LiveRamp partnership, additional national and addressable TV deliveries, political-customer demand, and new Local TV business. Syndicated digital enterprise customer retention remained high, but its revenue contribution to Ratings and Planning was lower.
- Operating expenses were reduced through lower headcount, compensation and discretionary spending. Management cited hiring freezes, vendor and lease reductions, consultant exits, and cuts to travel, marketing and recruiting. Cost reductions helped offset revenue declines.
- Q3 other income included $4.2 million, primarily non-cash gains from changes in the fair value of financing derivatives and warrants. Q3 foreign-currency transaction losses were $2.0 million.
- The company recorded a $4.7 million non-cash impairment charge in Q1 2020 on lease right-of-use and related long-lived assets, citing COVID-related real-estate market conditions and weaker expected sublease proceeds.
- Remaining performance obligations on non-cancelable contracts were approximately $210 million at September 30. Management expected to recognize about 22% in the remainder of 2020, 50% in 2021 and 21% in 2022, with the balance thereafter. This is not company revenue guidance.
- Management said available funding and cost actions were expected to support liquidity needs and covenant compliance for at least 12 months, but noted uncertainty around collections, the pandemic, financing access and lender actions. It reported covenant compliance at September 30; noteholders had questioned compliance with the notes’ minimum-cash requirement during Q2.
- On November 9, 2020, after quarter-end, the company disclosed advanced discussions with an anchor investor on a potential recapitalization that could significantly reduce debt and support commercial relationships. Completion, timing and outcome were not assured.
Risks, contingencies and other items
- The senior secured notes require a minimum cash balance of $40 million, calculated using cash, cash equivalents and restricted cash; the secured term note separately requires minimum cash collateral of $14.8 million. A covenant breach could trigger redemption at a premium and materially affect liquidity. Restricted cash is not freely available for general purposes.
- COVID-19-related contract delays, customer payment deferrals, reduced demand, theater closures and potential longer-term customer changes may pressure collections, revenue and liquidity. The company also cited possible limits on access to capital markets and risk of further asset impairments.
- The privacy class-action settlement received preliminary court approval in September 2020 and remained subject to final approval; insurance was expected to cover plaintiffs’ attorneys’ fees. A securities class action was dismissed with prejudice in July 2020.
- The company reported effective disclosure controls as of September 30, 2020 and no material quarterly change in internal control over financial reporting.
- In October 2020, the company paid $6.1 million of quarterly note interest using $3.1 million cash and 1,474,201 shares. Shares outstanding were 72,786,545 as of November 5, 2020.
Important facts for investors to verify
- Progress, final terms and closing prospects for the proposed recapitalization, and its effect on debt, dilution and commercial arrangements.
- Cash available for operations after excluding restricted cash, covenant calculations, and any further lender questions or waivers regarding minimum-cash tests.
- Customer collections, deferred or modified payment terms, and whether revenue and cash trends improve as COVID-19 effects evolve.
- Ongoing theater closures and their impact on Movies Reporting and Analytics, alongside performance of syndicated digital and TV offerings.
- Convertible-note interest payments and potential share issuance, including subsequent dilution and the rate reset after February 1, 2021.
- Realization timing of the $210 million remaining performance obligations and any developments in the privacy settlement requiring final court approval.