Business context and reporting period
Comscore, Inc. (NASDAQ: SCOR) is a media measurement and analytics company covering digital, television, connected devices and movie audiences. This Form 10-K reports the fiscal year ended December 31, 2019; the fourth-quarter figures below are unaudited.
Financial performance and condition
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $388.6 million | $419.5 million |
| Gross profit / gross margin | $189.0 million / 48.6% | $219.3 million / 52.3% |
| Operating loss | $310.5 million | $138.9 million |
| Net loss | $339.0 million | $159.3 million |
| Adjusted EBITDA (non-GAAP) | $6.2 million | $16.4 million |
| Net cash used in operating activities | $4.6 million | $72.6 million |
| Cash, cash equivalents and restricted cash | $66.8 million, including $20.2 million restricted | $50.2 million |
Revenue fell 7.4%. Ratings and Planning revenue declined 4.8% to $271.6 million, Analytics and Optimization declined 19.1% to $74.7 million, and Movies Reporting and Analytics increased 1.3% to $42.3 million. Cost of revenue was nearly flat in dollars, but rose to 51.4% of revenue from 47.7%, compressing gross margin.
In Q4 2019, revenue was $95.2 million versus $109.3 million in Q4 2018, a decline of about 12.9%. Gross profit was $48.3 million (50.8% margin), compared with $57.3 million (52.4%). Net loss narrowed to $21.4 million from $27.2 million; operating loss was $5.9 million versus $23.5 million.
At year-end, total assets were $723.7 million and total liabilities $464.7 million. Current assets of $154.0 million were below current liabilities of $190.2 million. Debt included $204.0 million face value of senior secured convertible notes (carrying value $184.1 million) and a $13.0 million secured term note (carrying value $12.5 million). The notes bear 12% interest currently and mature January 2022; the term note bears 9.75% and matures December 2021. The notes require a minimum cash balance of $40.0 million. The company reported covenant compliance at year-end.
Material changes versus prior comparable period
- Revenue declined from 2018, driven mainly by weaker syndicated digital products and lower digital custom, survey and lift sales. Management cited industry changes in ad buying and consolidation, along with lower measured vCE impressions during the transition toward premium video through CCR. Cross-platform, local TV and Activation revenue provided offsets.
- FY 2019 net loss increased substantially, principally because of non-cash impairment charges of $224.3 million for goodwill and $17.3 million for the WPP strategic-alliance intangible asset. These charges followed lower revenue, management changes, a sustained stock-price decline and weaker international prospects.
- Operating cash use improved to $4.6 million from $72.6 million, reflecting lower investigation-related costs and headcount, extended trade payables and payment of some note interest in shares rather than cash. Financing cash flow included $20.0 million gross proceeds from a CVI private placement, $13.0 million from the secured term note and $4.3 million from a sale-leaseback financing.
- Interest expense rose to $31.5 million from $16.5 million, primarily following the notes’ interest-rate reset. Comscore issued 4.1 million shares to pay note interest in 2019, contributing to dilution.
Outlook, risks, contingencies and unusual items
The filing provides no quantified revenue or earnings guidance. Management said funding sources were expected to cover anticipated needs and support covenant compliance for at least 12 months after the financial statements were issued, while cautioning that liquidity and financing outcomes remain uncertain. The company was pursuing strategic alternatives, including a possible sale, but gave no assurance that a transaction would occur or create greater value.
- Key risks include continuing revenue declines, substantial losses, limited liquidity, high-cost debt, covenant requirements and potential dilution from convertible notes, interest paid in shares and warrants. The company also identified dependence on third-party data, competition, customer renewals, privacy regulation and cybersecurity as material risks.
- In September 2019, Comscore settled an SEC investigation into accounting and disclosure practices from 2014–2016. It agreed to a $5.0 million penalty and a cease-and-desist order without admitting or denying the allegations; a $2.1 million former-CEO clawback partly offset the penalty. The company expected investigation-related costs to be minimal in 2020.
- A securities class action alleging omissions about a business-strategy disagreement remained pending; management said a material loss was not probable or estimable at year-end. A privacy class action was settled in February 2020, after year-end, with injunctive relief and attorneys’ fees covered by insurance. OFAC closed its export-controls review without a penalty or further enforcement action.
- Management reported that the prior revenue-accounting material weakness had been remediated by September 30, 2019. Management and the auditor concluded internal control over financial reporting was effective at year-end; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether revenue trends stabilize, particularly in syndicated digital and Analytics and Optimization, and whether newer cross-platform, TV and Activation offerings can offset declines.
- Liquidity available for operations after accounting for restricted cash, the $40.0 million minimum-cash covenant, debt service, lease commitments and $102.6 million of multichannel video data purchase obligations.
- The terms, potential dilution and cash implications of the $204.0 million convertible notes, including the 12% interest rate, any future interest paid in shares and change-of-control redemption provisions.
- Progress and costs associated with strategic alternatives, restructuring and the ability to sustain positive operating cash flow and Adjusted EBITDA.
- Developments in the securities litigation, privacy compliance, remaining SEC penalty payments and any further control or reporting issues.