comScore, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Dollar amounts below are in millions unless stated otherwise. comScore provides audience, advertising and consumer analytics across media platforms and reports as one operating segment.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $92.5 | $88.0 | $270.5 | $266.0 |
| Cost of revenue | $49.2 | $46.5 | $153.3 | $137.2 |
| Gross margin | 46.8% | 47.2% | 43.3% | 48.4% |
| Operating loss | $(4.0) | $(4.0) | $(26.4) | $(19.5) |
| Net income (loss) | $2.0 | $(11.1) | $(52.9) | $(34.7) |
| Net loss available to common stockholders | $(1.9) | $(11.1) | $(61.6) | $(34.7) |
| Net cash used in operating activities | Not separately presented for Q3 | $(1.1) | $(1.8) |
- Q3 revenue increased 5.2%. Analytics and Optimization grew 29.0% to $22.5 million; Ratings and Planning declined 0.9% to $62.1 million; Movies Reporting and Analytics rose 0.9% to $7.9 million.
- Nine-month revenue increased 1.7%. Analytics and Optimization rose 16.3% to $58.0 million, while Movies Reporting and Analytics declined 15.4% to $22.2 million, reflecting pandemic-related theater disruption earlier in the year.
- Q3 net income included a $5.6 million gain from the change in fair value of warrants and a $1.2 million foreign-currency gain. Preferred-stock dividends of $3.9 million meant the quarter still produced a loss available to common stockholders. For the nine months, the company recorded a $9.6 million debt-extinguishment loss and a $10.9 million warrant fair-value loss.
- Cash and cash equivalents were $15.9 million and restricted cash was $0.8 million at September 30, 2021. Operating cash use was $1.1 million for the first nine months; investing cash use was $11.7 million and financing cash use was $20.5 million. Total cash, cash equivalents and restricted cash fell to $16.7 million from $50.7 million at year-end 2020.
- Current assets were $111.9 million and current liabilities were $170.2 million. The balance sheet reported $16.0 million outstanding on the revolving line of credit. At September 30, remaining revolver capacity was $6.1 million after letters of credit; subsequent transfers of additional letters of credit reduced available capacity to $5.7 million.
Material changes and capital structure
- In March 2021, Charter, Qurate and Pine invested $204.0 million gross for 82.5 million Series B convertible preferred shares; net proceeds were $188.2 million. The proceeds funded repayment of the $204.0 million senior secured convertible notes. The company also repaid its secured term note using restricted cash.
- The preferred shares carry a cumulative 7.5% annual dividend, convertible at the holders’ option, and have a change-of-control put and liquidation preference. Their carrying amount was $187.9 million, with an aggregate liquidation preference of $208.0 million at quarter-end. Preferred dividends totaled $8.7 million for the first nine months, including $4.8 million paid in June.
- In May, comScore entered a three-year, $25 million senior secured revolving credit facility, maturing May 5, 2024. It was in compliance with its financial covenants at September 30. The facility has minimum EBITDA and, from the specified later testing period, fixed-charge coverage requirements, plus restrictive covenants.
- Common shares outstanding were 82.2 million at September 30, versus 72.9 million at December 31, 2020. Preferred-stock conversion and outstanding warrants may add substantial dilution; the filing reports 82.5 million preferred shares and 5.5 million warrant shares outstanding, among other potential common shares.
Outlook, commentary and risks
- The filing gives no specific revenue, earnings or cash-flow guidance. Management stated it believed planned actions would provide adequate funding for estimated liquidity needs for at least one year after issuance of the financial statements, while noting outcomes and access to funding were uncertain.
- Management expected sequential recovery in Movies Reporting and Analytics as theaters reopened. It cited growth in activation and other Analytics and Optimization offerings, while noting pressure on syndicated digital revenue from industry changes and customer consolidation.
- COVID-19 effects included customer payment delays and contract-term requests, and disruption to theaters, movie releases and consumer behavior. Management warned these conditions could continue to affect demand, collections and cash flows.
- Management cited options to address liquidity, including improving performance, renegotiating covenants, postponing payments, refinancing or raising capital. A potential preferred-stock special dividend after January 1, 2022 could require additional borrowing and pressure liquidity or conflict with revolver restrictions.
- Long-term contractual fixed payment obligations disclosed at quarter-end included $373.4 million for MVPD data licenses, $64.3 million for leases and $22.1 million for cloud storage and bandwidth. These are contractual commitments, not amounts due immediately.
- Other notable items: the company completed implementation of a new ERP system in Q3 and capitalized $6.8 million of eligible implementation costs; CFO Gregory Fink resigned effective August 31, and Jonathan Carpenter was appointed to begin November 29, with CEO William Livek serving as interim principal financial officer. Management reported disclosure controls were effective and said it would continue monitoring controls under the new ERP system.
- A privacy class-action settlement received final court approval in April 2021; payment of plaintiffs’ attorneys’ fees was to be covered by insurance. The filing says other pending legal matters were not expected, based on then-current knowledge, to have a material adverse effect.
Investor verification priorities
- Track operating cash generation, receivable collections, trade payables and the availability of the $5.7 million remaining revolver capacity after the October letter-of-credit transfer.
- Review covenant calculations and headroom, especially minimum EBITDA requirements and the later fixed-charge coverage test, along with the facility’s restrictions on additional debt and dividends.
- Assess the preferred stock’s dividend burden, potential special dividend, liquidation preference and conversion dilution, as well as the potential dilution and fair-value volatility from warrants.
- Reconcile reported Q3 net income with the operating loss and non-cash warrant valuation gain; monitor gross-margin pressure from rising data and infrastructure costs.
- Monitor the pace of recovery in movies revenue, trends in syndicated digital products, and whether Analytics and Optimization growth continues to offset weakness elsewhere.