COMSCORE, INC. annual report, FY2022

comScore, Inc. — FY2022 Form 10-K

Reporting period: Year ended December 31, 2022. comScore provides audience, content and advertising measurement and analytics across digital, television and movie platforms. The filing reports annual results, not standalone fourth-quarter financials.

Financial performance and liquidity

• Revenue grew 2.6%. Digital Ad Solutions revenue fell 4.3% to $212.5 million; Cross Platform Solutions rose 13.0% to $163.9 million.
• Operating expenses included a $46.3 million non-cash goodwill impairment and $5.8 million of restructuring expense. The impairment followed a decline in comScore’s share price and market capitalization.
• Interest expense fell to $0.9 million from $7.8 million, largely because the company repaid its senior secured convertible notes and secured term note in 2021. Other income included a $9.8 million gain from the change in fair value of warrants.
• Operating cash flow improved with higher revenue, shorter billing cycles and better collections; restructuring payments of $4.6 million partly offset the increase. Investing cash outflow was $17.8 million, including $16.7 million for capitalized internal-use software.
• At year-end, total current assets were $104.8 million and current liabilities were $165.1 million. Revolving-credit borrowings were $16.0 million, with $3.4 million of letters of credit and stated remaining borrowing capacity of $20.6 million. The facility matures May 5, 2024.
• Fixed payment obligations for set-top-box and connected-TV data agreements totaled $308.0 million; estimated variable payments of $8.8 million under a set-top-box agreement were expected by end-2023. Lease obligations totaled $50.0 million.

Material changes versus the prior year

• Digital Ad Solutions declined due mainly to lower Activation usage, weaker syndicated digital products and custom digital deliveries, and a $2.4 million European license fee recognized in 2021 that did not recur.
• Cross Platform Solutions growth reflected new TV partnerships, higher renewal values, greater agency adoption, $4.1 million more revenue from reimbursed cloud and processing costs, and recovery in movie theaters.
• Revenue outside the U.S. declined to $38.6 million from $45.1 million. The top 10 customers accounted for 34% of revenue, versus 35% in 2021.
• Gross margin improved modestly, but the operating loss widened substantially because of the goodwill impairment, restructuring charges and other operating costs. Net loss also increased.
• Cash provided by operations rose materially, while total cash, cash equivalents and restricted cash decreased by $1.8 million during 2022. The company paid $15.5 million in preferred dividends.

Outlook, risks and unusual items

• No formal revenue or earnings guidance is provided. Management expects advertising-market softness to continue affecting the business in 2023, particularly usage- or impression-based products, and expects non-U.S. revenue to decline as a share of total revenue.
• The September 2022 restructuring includes workforce reductions, resource reallocation, technology modernization, data-center consolidation and other cost reductions. Estimated total exit-related costs are $13 million to $18 million; implementation and cash payments were expected to be substantially complete in Q4 2023. Savings and execution are not assured.
• A February 24, 2023 credit amendment increased the SOFR-based applicable rate to 3.50%, revised financial covenant requirements and introduced a $28.0 million minimum-liquidity covenant. The facility also requires specified minimum EBITDA and asset-coverage levels; covenant compliance remains a key risk.
• Series B preferred stock carries a cumulative 7.5% annual dividend, with $7.9 million accrued at year-end and the next scheduled payment on June 30, 2023. Holders can request a special dividend subject to contractual conditions. Preferred stock was convertible into about 85.7 million common shares at year-end, creating significant potential dilution.
• Key risks include persistent losses, customer and advertising-market concentration, third-party data access and costs, competition, privacy regulation, cybersecurity, panel recruitment, foreign-exchange exposure and potential further goodwill impairment. The company had $388.0 million of goodwill remaining at year-end.
• Management said pending legal matters were not expected, based on current knowledge, to have a material adverse effect; outcomes remain uncertain. The auditor issued unqualified opinions on the financial statements and internal controls. Revenue recognition for complex contracts and goodwill impairment were identified as critical audit matters.

Investor verification priorities

1. Review the 2023 credit amendment, covenant definitions and actual monthly liquidity and covenant headroom, particularly against the $28.0 million minimum-liquidity requirement.
2. Assess whether operating cash flow is sustainable, including collection trends, working-capital movements, capitalized software spending and outstanding trade payables.
3. Track restructuring cash costs against the $13 million to $18 million estimate and determine whether savings are realized without impairing product development or customer retention.
4. Evaluate preferred-dividend funding, any special-dividend request, the 2024 revolver maturity and the dilution potential from preferred conversion, warrants and equity awards.
5. Monitor digital revenue trends, advertising-market conditions, large-customer renewals, data-license commitments and assumptions supporting goodwill valuation.