comScore, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual filing; fourth-quarter figures are included where relevant. Unless noted, financial amounts are in U.S. dollars.
Business context
comScore provides subscription-based digital audience and advertising measurement, analytics and enterprise software to media, advertising and marketing clients. It served approximately 2,550 customers worldwide and operated in 24 countries. Subscription revenue represented 90% of FY2014 revenue. The company reported one operating segment.
Key financial metrics
| Metric | FY2014 | FY2013 | Change / context |
|---|---|---|---|
| Revenue | $329.2 million | $286.9 million | Up 14.7% |
| Operating income (loss) | $(14.8) million | $3.1 million | Operating margin was (4.5%), versus 1.1% |
| Net income (loss) | $(9.9) million | $(2.3) million | Loss per diluted share: $(0.29), versus $(0.07) |
| Operating cash flow | $49.5 million | $44.6 million | Up from the prior year |
| Cash and cash equivalents | $43.0 million | $67.8 million | Down $24.8 million |
| Capital expenditures | $7.6 million | $4.6 million | Investing cash outflow also included $3.9 million for acquisitions |
| Adjusted EBITDA (non-GAAP) | $75.9 million | $61.3 million | Margin 23%, versus 22%; management’s measure excludes specified items and adjusts for the mobile operator division and previously divested products |
Cost of revenue was 29.6% of revenue, implying a gross margin of approximately 70.4%, compared with 68.7% in 2013. Current assets were $178.9 million and current liabilities $151.6 million. Total liabilities were $178.7 million. The company had no borrowings under its $100 million revolving credit facility at year-end, but had $26.4 million of capital lease obligations, including $13.4 million current.
Fourth-quarter revenue was $90.1 million, versus $76.5 million in Q4 2013. Q4 net loss was $2.7 million, compared with net income of $0.2 million in the prior-year quarter.
Material changes versus the prior comparable period
- Revenue growth came principally from existing customers, especially sales of newer products such as vCE. Existing-customer revenue rose $44.4 million; revenue from new customers fell $2.1 million. Subscription revenue increased approximately $48.0 million, while project revenue declined approximately $5.6 million.
- Operating expenses rose 21%, or $60.2 million. Key drivers included higher stock-based compensation, third-party data costs, employee costs, data and bandwidth costs, litigation expense and a $9.7 million impairment charge.
- Research and development expense increased 47% to $60.4 million, including $14.5 million of third-party data costs to support product development.
- Operating cash flow improved, but financing activities used $59.1 million, largely reflecting $37.2 million of share repurchases, $15.7 million of shares withheld for employee taxes and $12.1 million of capital-lease payments. Foreign-exchange movements reduced cash by $3.6 million.
Outlook, commentary, risks and unusual items
- Outlook: No specific revenue, earnings or cash-flow guidance is provided. Management describes growth opportunities in cross-media measurement, advertising effectiveness and international markets, while noting continuing investment needs.
- Strategic developments: The company acquired MdotLabs for $4.5 million in cash to strengthen detection of invalid advertising traffic. In February 2015, it announced a strategic alliance with WPP/Kantar, acquisition of a portion of WPP’s European internet audience measurement business for 4.45% of comScore’s outstanding shares, and a WPP tender offer for up to 15.45% of shares. These arrangements were subject to closing conditions; the filing does not establish their eventual completion.
- Held-for-sale business: The mobile operator analytics division, CSWS, was classified as held for sale. A $9.7 million non-cash impairment reduced its intangible assets to zero; the division did not qualify for discontinued-operations presentation, and comScore expected continuing involvement with a buyer.
- Privacy litigation: A class-action settlement received final court approval in October 2014 and required a $14 million settlement fund, funded by comScore and insurers. The company’s share was $3.5 million; required changes include updates to privacy policies and protocols.
- Noncash data exchanges: FY2014 included $16.3 million of revenue and $16.3 million of expense from nonmonetary transactions. A related-party counterparty accounted for $10.7 million of revenue and $14.3 million of expense. The filing attributes the difference in timing and amounts to the exchanged data assets.
- Principal risks: Customer nonrenewals and concentration (top ten customers generated 21% of revenue), competition, data accuracy and methodology acceptance, panel recruitment and retention, privacy regulation and security, reliance on third-party data and infrastructure, international and currency exposure, acquisition integration, and ongoing losses. The company had a $9.9 million net loss and a $93.1 million accumulated deficit.
- Controls and audit: Management and the independent auditor concluded internal control over financial reporting was effective as of year-end; the auditor issued unqualified opinions on the financial statements and internal controls.
Investor verification points
- Confirm the subsequent status, ownership dilution and economic terms of the WPP/Kantar transactions and tender offer.
- Assess whether subscription growth, renewals and vCE adoption can sustain revenue growth, particularly given lower new-customer revenue and declining project revenue.
- Reconcile non-GAAP Adjusted EBITDA with GAAP losses and evaluate the scale and persistence of stock-based compensation, which was $42.0 million in 2014.
- Review cash conversion and working-capital trends, especially the $16.7 million increase in accounts receivable, alongside remaining cash, capital-lease payments and lease commitments.
- Track the CSWS sale process, any further impairment or separation costs, and the effect of continuing involvement on reported results.
- Review the privacy settlement’s final costs and compliance obligations, and monitor data-privacy, security and measurement-methodology risks.