comScore, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports unaudited results for the quarter ended December 31, 2011; it is an annual filing, not a standalone quarterly report.
Business context
comScore provides subscription-based digital audience, advertising, web, and mobile/network analytics. Its services combine data from a permission-based panel of approximately two million Internet users with website-server measurement. At year-end, it served more than 1,970 customers and operated in 23 countries.
Financial performance and liquidity
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $232.4 million | $175.0 million |
| Operating income (loss) | $(18.0) million | $(1.5) million |
| Net income (loss) | $(15.8) million | $(1.6) million |
| Operating cash flow | $26.8 million | $25.4 million |
| Capital expenditures | $7.2 million | $5.1 million |
| Cash and cash equivalents at year-end | $38.1 million | $33.7 million |
- Revenue rose 32.8%. Subscription revenue was 85% of total revenue in both 2011 and 2010. International revenue increased to $60.0 million, approximately 26% of total revenue, from $32.7 million, or 19%.
- Cost of revenue increased to 32.3% of revenue from 29.7%, implying gross margin of approximately 67.7%, versus 70.3%. Operating margin was approximately (7.8)%, versus (0.8)%; net margin was approximately (6.8)%, versus (0.9)%. These percentages are calculated from reported figures.
- Operating cash flow remained positive despite the net loss. It included substantial noncash charges; growth in receivables and lower deferred revenue were cash-flow offsets.
- Year-end current assets were $119.4 million and current liabilities $112.4 million. Capital-lease obligations totaled $13.0 million on the balance sheet. The company also disclosed $91.3 million of total future capital- and operating-lease payments, including $77.6 million of operating leases.
- A $50 million secured revolving credit facility was available, with no borrowings outstanding at year-end. The company reported compliance with its covenants. The facility is secured by substantially all company assets.
Material changes and unusual items
- Operating expenses grew about 42%, faster than revenue. Increases included personnel and infrastructure costs, acquisition-related amortization, professional fees, and a $5.2 million litigation-settlement charge.
- Acquisitions affected comparability: 2011 included a full year of the 2010 acquisitions and five months of AdXpose, acquired in August 2011. AdXpose contributed $1.5 million of reported 2011 revenue.
- The December 2011 Nielsen settlement resolved reciprocal patent litigation. comScore acquired patent rights, granted Nielsen worldwide licenses to certain comScore patents, and issued Nielsen 974,358 shares. The filing allocated $11.0 million of consideration to acquired patents and $5.2 million to settlement expense.
- Adoption of new multiple-deliverable revenue guidance resulted in $6.2 million of revenue and $1.4 million of expenses being recognized in 2011 that otherwise would have been recognized later; management said the guidance was not expected to have a material impact on 2011 financial statements.
- Fourth-quarter 2011 revenue was $62.6 million, up from $51.2 million in fourth-quarter 2010. Fourth-quarter operating loss was $3.9 million, compared with $1.3 million; net loss was $3.3 million, compared with $0.5 million.
Outlook, commentary, and risks
The filing provides no formal numerical revenue or earnings guidance. Management described plans to expand products, sales, and international operations and anticipated continued investment in panels, infrastructure, and technical personnel. It expected investment needs to be less than revenue growth over time, but results depend on execution and market conditions. Management reported subscription renewals above 90% in 2011, measured by dollars renewed.
- Renewal and concentration exposure: subscriptions generally have initial terms of about one year and customers are not obligated to renew. Microsoft represented approximately 10% of 2011 revenue; the top ten customers represented approximately 26%.
- Privacy and litigation: a putative class action filed in August 2011 alleges privacy and related statutory violations; damages are unspecified, and the company said it could not estimate a loss range. Management believes the claims lack merit and intends to defend them.
- Other material risks include data accuracy and system reliability, panel recruitment and retention, privacy regulation, competition, acquisition integration, international expansion, economic uncertainty, and foreign-exchange exposure.
- Federal, state, and foreign net operating loss carryforwards were approximately $50.8 million, $36.9 million, and $30.6 million, respectively; some are subject to expiration or limitations. The company recorded a $2.7 million valuation allowance against certain deferred tax assets.
Most important facts for investors to verify
- Whether customer renewals and expansion continue to support revenue growth, and whether Microsoft or other major customers reduce spending.
- Whether cost growth moderates and operating margins recover after acquisition, infrastructure, litigation, and personnel costs.
- Cash conversion and collections, particularly receivables growth, deferred revenue trends, and the sustainability of operating cash flow.
- Integration and returns from AdXpose and earlier acquisitions, including the effect of acquisition-related amortization and any further dilution.
- Developments in the privacy class action, regulatory requirements, and the company’s ability to maintain a sufficiently large, representative panel.
- Future lease and capital-lease commitments, credit-facility terms and covenants, and any need for additional financing.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded that controls were effective as of December 31, 2011.