comScore, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. comScore provides audience and advertising measurement and analytics, and reports as one operating segment. Financial amounts below are in U.S. dollars; “Q3” refers to the three-month period.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $94.3 million | $102.9 million | $293.5 million | $310.2 million |
| Gross profit / margin | $46.9 million / 49.7% | $53.4 million / 51.9% | $140.7 million / 48.0% | $162.0 million / 52.2% |
| Operating loss | $9.8 million | $17.5 million | $304.6 million | $115.4 million |
| Net loss | $10.6 million | $24.6 million | $317.6 million | $132.1 million |
| Adjusted EBITDA | $6.4 million | $5.2 million | $0.7 million | $10.1 million |
| Operating cash flow | Not stated for quarter | $(3.1) million | $(73.9) million |
Q3 revenue fell 8.3% year over year. Nine-month net loss included $224.3 million of goodwill impairment and $17.3 million of strategic-alliance intangible impairment, both recorded in Q2. Q3 results also included a $2.1 million net litigation settlement benefit; other income included non-cash fair-value gains on financing derivatives and warrants. Adjusted EBITDA is a company-defined non-GAAP measure.
- Revenue mix: Q3 Ratings and Planning revenue declined 7.3% to $65.3 million; Analytics and Optimization declined 17.8% to $18.3 million; Movies Reporting and Analytics increased 5.6% to $10.7 million. Management cited pressure on syndicated digital products from industry changes and consolidation, and lower digital custom marketing sales; Activation and movie products provided offsets.
- Cash and working capital: September 30 cash and cash equivalents were $53.8 million, plus $4.7 million restricted cash. Current assets were $134.1 million versus current liabilities of $175.8 million. Cash, cash equivalents and restricted cash together increased $8.3 million over nine months.
- Debt and financing: Senior secured convertible notes had $204.0 million face value and $182.7 million net carrying value, due January 2022. The notes bear 12% stated interest; effective interest rates were 18.6% and 14.7% for the two note tranches. Interest was paid in shares in April, July and October 2019, increasing potential dilution. The notes are secured and include a $40 million minimum-cash covenant; the company reported compliance at quarter-end.
- Other obligations: Contractual commitments totaled $405.1 million, including $78.4 million operating leases, $112.7 million MVPD data-purchase obligations and $204.0 million note principal. Lease liabilities under the new lease standard totaled $51.0 million for operating leases and $4.2 million for finance leases.
Material changes and management commentary
- Nine-month revenue declined 5.4%. Cost of revenue rose 3.1%, including higher data costs, while selling, research and development, and general and administrative expenses declined with lower headcount, stock compensation and other costs.
- Management cited a sustained share-price and market-cap decline, management changes, lower revenue and continued negative operating cash flows as factors in the Q2 impairment tests. Goodwill was reduced from $641.2 million at year-end 2018 to $415.8 million at September 30, 2019.
- The company raised $20.0 million gross in a June private placement of shares and warrants to CVI. CVI exercised Series C warrants after quarter-end, and comScore issued an additional 2,728,513 shares on October 14, 2019. Warrants and PIK interest shares create further dilution risk.
- Management said current funding sources and planned actions were expected to meet anticipated needs for at least 12 months after issuance of the financial statements, while cautioning that financing availability and liquidity outcomes were uncertain. No specific revenue or earnings guidance was provided. Remaining performance obligations were approximately $220 million, with about 22% expected to be recognized in the rest of 2019, 53% in 2020 and 18% in 2021.
- William Livek became CEO and Executive Vice Chairman on November 4, 2019, replacing Interim CEO Dale Fuller. The filing also disclosed the planned departure of the Chief Information and Technology Officer by year-end.
Risks, contingencies and unusual items
- Liquidity and debt: Cash must remain above the $40 million covenant threshold. A covenant breach could trigger redemption of notes at a premium. Paying interest in cash rather than shares would further use liquidity; additional financing could dilute shareholders.
- Legal and regulatory: The company settled an SEC investigation concerning 2014–2016 accounting and disclosure practices, agreeing to a $5.0 million civil penalty and cease-and-desist order without admitting or denying the allegations. The first $2.1 million payment was made in October 2019; the remaining penalty was payable in three installments plus interest. A former CEO paid a $2.1 million clawback to the company in September.
- Privacy class-action and securities class-action cases remained pending; management said material loss was not probable or estimable at September 30. OFAC closed its export-controls review without a penalty or further enforcement action.
- Further impairment is possible if operating forecasts, market conditions, discount rates or other valuation assumptions deteriorate. Management reported that the revenue-accounting material weakness identified in 2018 had been remediated as of September 30, 2019; disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether operating performance and revenue trends stabilize, particularly in syndicated digital and Analytics and Optimization products.
- Cash available against the $40 million minimum-cash covenant, future cash burn, and the company’s ability to refinance or service the $204 million notes.
- Actual dilution from PIK interest payments, CVI warrants and other equity-linked securities.
- Timing and cash impact of the remaining SEC penalty installments and the status or potential exposure of pending litigation.
- Whether restructuring savings and internal-control remediation are sustained, and whether future forecasts require additional impairment charges.