comScore, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also reports unaudited fourth-quarter results. comScore provides subscription-led digital media measurement and analytics across web, mobile, video and other platforms; it served approximately 2,400 customers and operated in 23 countries.
Financial performance
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Revenue | $286.9 million | $255.2 million | +12.4% |
| Operating income (loss) | $3.1 million | $(7.8) million | Improved |
| Net income (loss) | $(2.3) million | $(11.8) million | Loss narrowed |
| Operating margin | 1.1% | (3.1)% | Improved |
| Operating cash flow | $44.6 million | $44.9 million | Slight decrease |
| Capital expenditures | $4.6 million | $7.6 million | Decreased |
| Adjusted EBITDA, non-GAAP | $60.1 million | $42.8 million | +40% |
Revenue growth reflected higher sales to existing customers, including growth in the vCE advertising product. Subscription revenue rose about $33.8 million; project revenue declined about $2.2 million. Subscriptions represented 87% of revenue, versus 85% in 2012. International revenue increased 17% to $84.1 million, or 29% of total revenue. Microsoft contributed approximately 7% of revenue, down from 8%.
Cost of revenue was 31.3% of revenue, compared with 33.9%, implying gross margins of approximately 68.7% and 66.1%, respectively. Research and development expense rose 20.7% to $41.0 million; general and administrative expense rose 21.8% to $46.4 million. Selling and marketing expense increased in dollars but declined to 34.8% of revenue from 36.0%.
Cash and cash equivalents were $67.8 million at year-end, compared with $61.8 million. Current assets were $178.8 million and current liabilities $135.0 million. Operating cash flow less capital expenditures was approximately $40.0 million. Capital lease obligations totaled $23.7 million; no revolving-credit borrowings were outstanding. The $100 million revolving facility matures in 2018, is secured by substantially all cash and cash equivalents, and carries financial and other covenants; comScore reported compliance at year-end.
Fourth-quarter results
Q4 2013 revenue was $76.5 million, versus $68.4 million in Q4 2012, an increase of approximately 11.9%. Operating income was $0.6 million versus an operating loss of $1.6 million. Net income was $0.2 million versus a net loss of $1.6 million.
Material changes and notable items
- Annual net loss narrowed substantially, but the company remained loss-making despite positive operating income. The $4.4 million income-tax provision contributed to the 2013 net loss.
- Operating cash flow was broadly flat year over year. Higher deferred revenue and accounts payable helped cash generation, while accounts receivable increased $22.6 million, reflecting revenue growth and fourth-quarter activity.
- Financing cash use increased to $32.9 million, including $13.1 million of program share repurchases and $9.3 million of shares repurchased for employee tax withholding. The board had authorized up to $50 million in program repurchases.
- In March 2013, comScore sold certain non-health ARS copy-testing and equity-tracking assets, received $1.0 million in proceeds and recorded a $0.2 million gain. It retained rights to serve health-related customers.
- FY 2013 included a $1.4 million net gain from patent litigation settlements and $27.0 million in stock-based compensation. Adjusted EBITDA is a non-GAAP measure and excludes stock compensation and other items.
- A fourth-quarter data-asset exchange generated $1.8 million of revenue with a related party whose board also included a comScore director. The filing says no expense was recorded for that transaction because the exchanged data assets had not yet been received.
Outlook, risks and contingencies
The filing does not provide specific 2014 revenue or earnings guidance. Management expected to invest approximately $8–$10 million in 2014 to expand cross-media market potential and anticipated continued international growth and investment in products and infrastructure. In January 2014, comScore agreed with Google to integrate vCE into DoubleClick. Serge Matta was scheduled to become CEO on March 1, 2014, with Magid Abraham becoming Executive Chairman.
Key risks include customer renewal and concentration, competitive pressure, maintaining representative panels and reliable measurement across devices, privacy regulation and data-security exposure, dependence on third-party data and hosting providers, international and currency risks, and the ability to commercialize cross-media products. A certified privacy class-action lawsuit was scheduled for trial in Q2 2014; comScore said it could not estimate a potential loss range. Management said it believed the claims lacked merit. The filing reports an unqualified audit opinion and effective internal control over financial reporting.
Most important facts for investors to verify
- Adjusted EBITDA discrepancy: The key-metrics table reports FY 2011 adjusted EBITDA of $47.1 million and a 20% margin, while the reconciliation reports $30.1 million and a 14% margin. The filing text does not explain this inconsistency; verify the correct comparative figures.
- Related-party exchange: Verify the valuation, delivery and eventual expense recognition for the $1.8 million of related-party data-exchange revenue.
- Class-action exposure: Track the 2014 trial, potential remedies and any subsequent estimate of loss; no range was disclosed here.
- Cash conversion and obligations: Monitor receivables and collections, capital-lease payments, and the portion of cash held abroad. $11.3 million of cash was held by foreign subsidiaries and could incur 5%–15% withholding taxes if repatriated.
- Profitability and dilution: Assess whether revenue growth can outpace rising R&D and administrative costs, including stock compensation; unrecognized compensation expense was $27.1 million at year-end.