comScore, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. comScore is a global audience, advertising and media measurement and analytics company with one operating segment.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $91.6 million | $94.0 million | Down 2.6% |
| Gross profit (revenue less cost of revenues) | $39.6 million | $41.0 million | Gross margin 43.3%, down from 43.7% |
| Operating loss | $3.8 million | $10.5 million | Operating margin improved to (4.2%) from (11.2%) |
| Net loss | $8.7 million | $9.3 million | Net margin (9.5%) vs. (9.9%) |
| Net loss available to common stockholders | $12.5 million | $13.1 million | Includes $3.8 million of preferred dividends in each period |
| Operating cash flow | $7.3 million | $12.4 million | Down $5.2 million |
| Cash used in investing activities | $5.8 million | $3.8 million | Higher software investment |
Digital Ad Solutions revenue declined 5.1% to $50.4 million; Cross Platform Solutions rose 0.7% to $41.1 million. U.S. revenue was $82.6 million. Revenue recognized over time was $77.7 million.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $20.3 million, plus $0.4 million of restricted cash. Current assets were $99.5 million and current liabilities were $167.5 million, implying negative working capital of approximately $68.0 million.
- Revolver borrowings were $16.0 million, with $3.4 million of letters of credit and $20.6 million of remaining borrowing capacity. The facility matures May 2024; the company reported covenant compliance at quarter-end.
- The February 2023 credit amendment increased the SOFR-based applicable rate to 3.50% and tightened financial covenants, including a $28.0 million minimum liquidity requirement. Minimum Consolidated EBITDA thresholds for 2023 range from $22 million to $35 million by quarter.
- Preferred stock is presented outside permanent equity. It carries a 7.5% cumulative annual dividend; accrued dividends were $11.7 million at March 31, with the next scheduled payment date June 30, 2023. Preferred holders may also request a special dividend subject to specified conditions.
- Fixed payment obligations for set-top-box and connected-TV data agreements total $299.9 million; the filing also identifies $48.1 million of fixed lease obligations and $7.0 million for cloud storage and bandwidth.
Material changes and management commentary
- Management attributed lower Digital Ad Solutions revenue to reduced custom digital deliverables and advertiser caution amid inflation, higher interest rates and supply-chain disruptions. It expects advertising-market softness to continue through 2023.
- Operating loss improved as operating expenses declined, notably general and administrative costs and intangible-asset amortization. Amortization fell to $2.8 million from $6.8 million; the prior-year period included a $2.3 million contingent-consideration remeasurement loss.
- Non-operating results were less favorable: a $1.8 million loss from warrant fair-value changes and a $1.5 million foreign-currency transaction loss compared with prior-year gains of $2.4 million and $0.4 million, respectively.
- Operating cash flow declined partly because the prior-year period benefited from collection of aged receivables. Cash used for capitalized internal-use software increased as the company invested in product infrastructure and innovation.
- The restructuring plan is expected to cost $10 million to $15 million, including workforce reductions, resource realignment and technology and data-center changes. Implementation, including cash payments, is expected to be substantially complete in Q4 2023; Q1 restructuring expense was $1.0 million.
Risks, contingencies and unusual items
- In April 2023, a TV data provider disputed payment calculations under a 2018 license agreement. Approximately $2.1 million was in dispute for periods through March 31; comScore disagrees with the provider and said potential loss, if any, could not be reasonably estimated.
- Management highlighted liquidity sensitivity to operating cash generation, payables, debt repayment or refinancing at the revolver’s 2024 maturity, and preferred dividend obligations. A special preferred dividend could require additional debt financing and affect liquidity.
- Potential dilution is substantial: preferred stock was convertible into approximately 87.3 million common shares at March 31, in addition to warrants, equity awards and possible Shareablee deferred consideration. The filing also describes proposed preferred-dividend and equity-plan amendments.
- U.S. net operating loss carryforwards may be subject to further Section 382 limitations; the company had not reached a final conclusion on whether an ownership change occurred.
- Disclosure controls and procedures were assessed as effective at March 31; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether advertising-market weakness continues and how it affects Digital Ad Solutions revenue and cash collections.
- Compliance with the amended revolver’s monthly liquidity and asset-coverage tests and quarterly EBITDA thresholds, including the minimum-liquidity calculation.
- Ability to meet the June 2023 preferred dividend and future cumulative dividend obligations, and any special-dividend financing implications.
- Final outcome and potential financial exposure of the TV data-provider dispute, which was not estimable at filing.
- Progress, total cash cost and expected savings from the restructuring plan, alongside the large long-term data-provider commitments and potential share dilution.