comScore, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. comScore measures audiences, consumer behavior and advertising across media platforms. The filing was signed May 7, 2020.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $89.5 million | $102.3 million; down 12.5% |
| Gross profit / margin | $43.7 million / 48.8% | $48.9 million / 47.8% |
| Operating loss | $12.8 million | $22.6 million |
| Net loss | $13.2 million; $0.19 per share | $27.5 million; $0.46 per share |
| Adjusted EBITDA (non-GAAP) | $6.4 million | $(2.5) million |
| Operating cash flow | $(4.8) million | $(1.6) million |
| Cash, cash equivalents and restricted cash | $56.6 million, including $19.7 million restricted | $66.8 million at Dec. 31, 2019 |
| Current assets / current liabilities | $139.0 million / $178.9 million | Working-capital deficit of $39.9 million |
Investing cash outflow was $3.9 million and financing cash outflow was $0.5 million. Total cash, cash equivalents and restricted cash declined $10.2 million during the quarter. Capitalized internal-use software costs were $3.9 million.
Debt outstanding was $217.0 million at face value: $204.0 million of senior secured convertible notes and a $13.0 million secured term note. Their combined carrying value was approximately $198.5 million. The convertible notes carry a 12% stated interest rate through February 2021, subject to conditions; their reported effective rates were 18.8% and 14.9%. The company paid $6.1 million of quarterly note interest in cash. Contractual obligations totaled $404.1 million, including debt, data purchase commitments and lease obligations.
Material changes versus Q1 2019
- Revenue fell $12.8 million. Ratings and Planning declined 10.0% to $63.5 million, primarily due to lower syndicated digital and national TV revenue. Analytics and Optimization fell 27.8% to $15.5 million on lower sales and deliveries. Movies Reporting and Analytics rose 2.4% to $10.5 million.
- Operating expenses declined $22.6 million overall, reflecting lower employee costs and professional fees, partly offset by a new $4.7 million non-cash impairment charge on lease right-of-use assets and leasehold improvements.
- Operating loss narrowed to $12.8 million from $22.6 million; net loss narrowed to $13.2 million from $27.5 million. Other income included $7.0 million of non-cash gains, mainly fair-value changes in warrants and financing derivatives.
- Interest expense rose to $8.8 million from $6.8 million, mainly following the notes’ rate increase to 12% and issuance of the secured term note.
- Operating cash use worsened by $3.2 million, principally due to higher cash interest and working-capital movements, including customer collection delays.
Outlook, risks and unusual items
- COVID-19 and collections: Management reported no severe direct revenue impact through Q1, but customer payment delays and requests for revised terms were affecting liquidity and were expected to have a more significant impact in Q2. The company could not estimate the pandemic’s future effect on revenue, cash flows or liquidity.
- Covenants and liquidity: At March 31, the company reported compliance with debt covenants, including a $40.0 million minimum cash-balance covenant calculated using cash, cash equivalents and restricted cash. After quarter-end, noteholders questioned compliance with that minimum. A breach could trigger redemption at a premium and materially affect liquidity. Management said it did not anticipate a breach under its current plans, but noted substantial uncertainty and stated funding was expected to meet needs for at least 12 months.
- Mitigation: The company described hiring and spending freezes, vendor and lease cost reductions, and use of CARES Act payroll-tax deferrals and planned employee-retention credits. In May, executives agreed to temporary salary reductions of 30% or 50%, and directors agreed to reduce cash retainers by 20%.
- Asset impairment: The $4.7 million non-cash charge reflected weaker expected sublease proceeds and longer marketing times for properties amid COVID-related real estate market changes.
- Legal matters: A privacy class-action settlement was reached in February, subject to court approval; insurance was expected to cover plaintiffs’ attorneys’ fees. A securities class action remained pending; management said a material loss was not probable or estimable as of March 31.
- Other: Beginning April 1, certain custom-agreement revenue was to be reclassified between solution groups prospectively, with no material impact expected to either group. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Subsequent developments on the noteholders’ challenge to minimum cash covenant compliance, including any waiver, amendment, default or financing transaction.
- Unrestricted cash, restricted-cash availability and the company’s ability to maintain the $40.0 million covenant threshold while meeting vendor, interest and other obligations.
- Q2 and later customer collections, contract payment modifications, bad-debt reserves and any resulting changes in demand or revenue.
- Progress and realized savings from cost reductions, and the actual CARES Act tax deferrals or credits claimed.
- Any additional lease or goodwill impairments, and developments in the privacy settlement and securities class action.
Management provided no numerical revenue or earnings guidance in this filing.