comScore, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The company provides subscription-based digital audience measurement and analytics, advertising verification, digital business analytics, and mobile-operator analytics. It served more than 2,150 customers worldwide; Microsoft represented about 8% of revenue. Subscription products generated 85% of revenue.
Financial performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $255.2 million | $232.4 million |
| Gross margin | 66.1% | 67.7% |
| Operating loss / margin | $7.8 million / (3.1%) | $18.0 million / (7.8%) |
| Net loss / diluted loss per share | $11.8 million / $0.35 | $15.8 million / $0.49 |
| Cash from operations | $44.9 million | $26.8 million |
| Capital expenditures | $7.6 million | $7.2 million |
| Cash and cash equivalents at year-end | $61.8 million | $38.1 million |
Revenue grew 9.8%, compared with 32.8% growth in 2011. Existing-customer revenue rose $25.4 million, while revenue from new customers fell $2.6 million. Subscription revenue increased about $19.2 million and project revenue about $3.6 million. International revenue rose 20% to $71.8 million, or 28% of total revenue.
Cost of revenue grew faster than sales, reducing gross margin by 1.6 percentage points; selling and marketing rose 17.3%, partly reflecting investment in sales capacity and international growth. General and administrative expense declined 21.4%, primarily because 2011 included patent-litigation costs and a $5.2 million settlement charge. Operating results in 2012 included a $3.3 million impairment charge on ARS intangible assets.
Operating cash flow increased to $44.9 million, supported in part by higher deferred revenue. Cash less capital expenditures was approximately $37.3 million. Current assets were $148.9 million and current liabilities $121.3 million at year-end, a current ratio of approximately 1.23. Capital-lease obligations totaled $14.5 million; no revolving-credit borrowings were outstanding at year-end. The company had a $50 million secured revolving facility, maturing June 30, 2013, and was compliant with its covenants.
Outlook, commentary, and risks
- The filing provides no formal revenue or earnings guidance. Management expected continued investment in products, panels, infrastructure, and international expansion, while anticipating that capital-expenditure growth would be lower than revenue growth over time.
- Management reported annual subscription renewals above 90% measured by dollars renewed, but noted that economic weakness had led some customers to delay, reduce, or not renew purchases.
- Following declining ARS revenue, comScore recorded the impairment and explored strategic alternatives, including a possible sale of some or all of ARS. No sale was completed or expected to have a material financial-statement impact at the filing date. ARS revenue fell to $9.4 million from $15.7 million in 2011.
- A privacy-related class action remained pending; plaintiffs sought unspecified damages and injunctive relief. The company disputed the claims, and stated it could not estimate a potential loss range. A ruling on class certification was expected in the first half of 2013.
- Key risks include customer renewals and concentration, accuracy and acceptance of measurement methodologies, privacy regulation and panel retention, competition, acquisition integration, international and foreign-currency exposure, and reliance on third-party data centers and data sources.
- The company reported effective disclosure controls and internal control over financial reporting; the independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether revenue growth and customer renewals sustain, particularly as new-customer revenue declined and Microsoft remained a significant customer.
- Whether cost growth moderates and gross margin recovers after the 2012 decline.
- Whether operating cash flow remains strong and deferred-revenue growth continues to support cash generation.
- Whether ARS is sold or performs below assumptions underlying its remaining intangible-asset value and amortization.
- Developments in the privacy class action, privacy rules, and their potential effect on data collection and panel participation.
- Renewal or replacement of the revolving-credit facility, which was scheduled to mature in June 2013, and the company’s lease and capital-lease commitments.
- Whether management’s taxable-income forecasts support realization of U.S. deferred tax assets; the filing identifies that realization as dependent on future taxable income.