comScore, Inc. — Q1 2021 Form 10-Q
Business and period: comScore provides audience, consumer behavior and advertising measurement across media platforms. This unaudited report covers the three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. The company reports as one operating segment.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $90.3 million | $89.5 million; up 0.9% |
| Cost of revenue | $52.7 million; 58.3% of revenue | $45.8 million; 51.2% |
| Gross margin | 41.7% | 48.8% |
| Operating loss | $11.5 million | $12.8 million |
| Net loss | $36.4 million; $0.49 per share | $13.2 million; $0.19 per share |
| Operating cash flow | $17.9 million provided | $4.8 million used |
| Investing cash flow | $3.7 million used | $3.9 million used |
| Cash, cash equivalents and restricted cash | $33.9 million, including $4.8 million restricted | $50.7 million at Dec. 31, 2020 |
Operating expenses totaled $101.8 million, or 112.7% of revenue, versus $102.3 million, or 114.2%, a year earlier. Interest expense was $7.0 million, down from $8.8 million. The quarter’s net loss included a $9.6 million debt-extinguishment loss and $10.0 million non-cash loss from the increase in warrant fair value; the latter was primarily driven by an anti-dilution adjustment to the warrant exercise price.
At March 31, the balance sheet showed total assets of $643.6 million and total liabilities of $237.0 million. The company had repaid its senior secured convertible notes and secured term note, leaving no balance in those debt line items. The $188.2 million net proceeds from issuing preferred stock funded the note repayment; the preferred stock is presented outside permanent equity and carries a 7.5% cumulative annual dividend, increasing to 9.5% if unpaid on the annual payment date. Preferred holders may also request a conditional special dividend after January 1, 2022.
Changes and business drivers
- Ratings and Planning revenue rose 3.6% to $65.8 million, supported by higher TV revenue and international cross-platform services, partly offset by lower syndicated digital revenue.
- Analytics and Optimization revenue increased 14.2% to $17.7 million, reflecting higher custom-solutions and Activation deliveries.
- Movies Reporting and Analytics revenue fell 35.1% to $6.8 million as theater closures, delayed releases and changing consumer behavior continued to affect the business.
- Cost of revenue increased 15.1%, principally due to higher data licensing, European cross-platform license, and systems and bandwidth costs. Selling and marketing and general and administrative expenses declined, while R&D was broadly stable.
- Operating cash flow improved year over year, in part because $6.1 million of note interest was paid in shares rather than cash and working-capital changes were more favorable. Cash used in financing included debt repayments, offset by preferred-stock proceeds.
Outlook, risks and unusual items
- Management expected movie revenue to improve during 2021 as major theater chains reopened, while cautioning that pandemic-related effects would continue. COVID-19 also affected contract execution, customer collections and payment terms; further effects on demand and cash collection remained possible.
- No quantified full-year revenue or earnings guidance is provided in the filing. Remaining performance obligations were approximately $235 million; management expected to recognize about 46% during the remainder of 2021, 31% in 2022 and 11% in 2023.
- On May 5, 2021, after quarter-end, the company entered a three-year, $25 million secured revolving credit facility; it had no borrowings or letters of credit outstanding at filing. Borrowing is subject to conditions and financial covenants, including minimum EBITDA of $20 million for applicable quarters before June 30, 2022 and a minimum fixed-charge coverage ratio of 1.25 thereafter.
- The preferred-stock financing repaid debt carrying 12% annual interest, but substituted a 7.5% cumulative dividend obligation. A special dividend could require additional borrowing. The financing also triggered anticipated limits on use of tax-loss carryforwards under Section 382.
- Key exposures include continued media-industry and COVID-19 disruption, customer payment delays, data and licensing commitments, dilution from convertible preferred stock and warrants, and warrant fair-value volatility. The company disclosed $396.3 million of fixed payment obligations under MVPD data agreements, $67.3 million under leases and $26.8 million under cloud storage and bandwidth arrangements.
- The privacy class-action settlement received final court approval on April 12, 2021; the company said attorneys’ fees were covered by insurance. Management also disclosed plans to implement a new ERP system in the second half of 2021 and warned that delay or implementation errors could disrupt operations and reporting.
Investor verification checklist
- Track revenue growth and gross-margin recovery, particularly data costs and the performance of syndicated digital, TV, Activation and movie products.
- Verify cash generation and collection trends, including the sustainability of Q1 working-capital benefits and the level of restricted cash.
- Review preferred-stock dividend accruals, conversion and change-of-control terms, any special-dividend request, and resulting dilution.
- Monitor revolving-credit availability, covenant compliance, and the company’s ability to meet contractual data, lease and technology commitments.
- Assess the impact of warrant revaluation, the new Charter data-license arrangement, Section 382 tax-loss limitations, and ERP implementation progress.