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2: EX-10.1 Material Contract HTML 25K
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4: EX-31.2 Certification -- §302 - SOA'02 HTML 23K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 20K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 20K
12: R1 Cover Page HTML 72K
13: R2 Condensed Consolidated Balance Sheets HTML 151K
14: R3 Condensed Consolidated Balance Sheets HTML 79K
(Parenthetical)
15: R4 Condensed Consolidated Statements of Operations HTML 152K
and Comprehensive Loss
16: R5 Condensed Consolidated Statements of Operations HTML 69K
and Comprehensive Loss (Parenthetical)
17: R6 Condensed Consolidated Statements of Convertible HTML 131K
Redeemable Preferred Stock and Stockholders'
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18: R7 Condensed Consolidated Statements of Cash Flows HTML 134K
19: R8 Organization HTML 23K
20: R9 Summary of Significant Accounting Policies HTML 70K
21: R10 Revenue Recognition HTML 71K
22: R11 Goodwill HTML 29K
23: R12 Convertible Redeemable Preferred Stock and HTML 30K
Stockholders' Equity
24: R13 Debt HTML 28K
25: R14 Fair Value Measurements HTML 79K
26: R15 Accrued Expenses HTML 30K
27: R16 Related Party Transactions HTML 59K
28: R17 Organizational Restructuring HTML 35K
29: R18 Commitments and Contingencies HTML 33K
30: R19 Summary of Significant Accounting Policies HTML 62K
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40: R29 Summary of Significant Accounting Policies - HTML 33K
Narrative (Details)
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Income, Net (Details)
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Securities Excluded From Earnings Per Share
Calculations (Details)
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Instruments Measured at Fair Value (Details)
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(Exact name of registrant as specified in its charter)
_____________________________________________
iDelaware
i54-1955550
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
i11950 Democracy Drive, Suite 600
iReston, iVirginiai20190
(Address of Principal Executive Offices)
(i703) i438-2000
(Registrant's Telephone Number, Including Area Code)
_____________________________________________
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
iCommon Stock, par value
$0.001 per share
iSCOR
iNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☑No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
iAccelerated
filer
☑
Non-accelerated filer
☐
Smaller reporting company
i☑
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☑
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of August 3, 2023, there were i95,086,334
shares of the registrant's Common Stock outstanding.
We may make certain statements, including in this Quarterly Report on Form 10-Q, or 10-Q, including the information contained in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and the information incorporated by reference in this 10-Q, that constitute forward-looking statements within the meaning of federal and state securities laws. Forward-looking statements are all statements other than statements of historical fact. We attempt to identify these forward-looking statements by words such as "may,""will,""should,""could,""might,""expect,""plan,""anticipate,""believe,""estimate,""target,""goal,""predict,""intend,""potential,""continue,""seek" and other comparable words. Similarly, statements that describe our business strategy, goals, prospects, opportunities, outlook, objectives, plans or intentions are also forward-looking statements. These statements may relate to, but are not limited to, expectations of future operating results or financial performance; expectations regarding the impact on our business of the coronavirus ("COVID-19") pandemic and global measures to mitigate the spread of the virus; expectations regarding our restructuring activities and cost-reduction initiatives; macroeconomic trends that we expect may influence our business, including any recession or changes in consumer behavior resulting from the COVID-19 pandemic; plans for financing and capital expenditures; expectations regarding liquidity, customer payments and compliance with debt and
financing covenants, dividend requirements and other payment obligations; expectations regarding enhanced commercial relationships and the development and introduction of new products; potential limitations on our net operating loss carryforwards and other tax assets; regulatory compliance and expected changes in the regulatory or privacy landscape affecting our business; compliance with Nasdaq continued listing standards; expected impact of contractual disputes, litigation and regulatory proceedings; and plans for growth and future operations, as well as assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These statements are based on expectations and assumptions as of the date of this 10-Q regarding future events and business performance and involve known and unknown risks, uncertainties and other factors that
may cause actual events or results to be materially different from any future events or results expressed or implied by these statements. These factors include those set forth in the following discussion and within Item 1A, "Risk Factors" of this 10-Q and elsewhere within this report; those identified within Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2022; and those identified in other documents that we file from time to time with the U.S. Securities and Exchange Commission, or SEC.
We
believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should not place undue reliance on forward-looking statements, which apply only as of the date of this 10-Q. You should carefully review the risk factors described in this 10-Q and in other documents that we file from time to time with the SEC. Except as required by applicable law, including the rules and regulations of the SEC, we undertake no obligation, and expressly disclaim any duty, to publicly update or revise forward-looking statements, whether as a result of any new information, future events or otherwise. Although we believe the expectations reflected in the forward-looking statements are reasonable as of the date of this 10-Q, our statements are not
guarantees of future results, levels of activity, performance, or achievements, and actual outcomes and results may differ materially from those expressed in, or implied by, any of our statements.
Accounts
receivable, net of allowances of $i864 and $i798, respectively ($i675
and $i1,034 of accounts receivable attributable to related parties, respectively)
i54,404
i68,457
Prepaid
expenses and other current assets
i13,852
i15,922
Total
current assets
i91,311
i104,821
Property
and equipment, net
i37,835
i36,367
Operating
right-of-use assets
i22,721
i23,864
Deferred
tax assets
i3,479
i3,351
Intangible
assets, net
i9,716
i13,327
Goodwill
i344,066
i387,973
Other
non-current assets
i10,350
i10,883
Total
assets
$
i519,478
$
i580,586
Liabilities,
Convertible Redeemable Preferred Stock and Stockholders' Equity
Current liabilities:
Accounts payable ($i14,103
and $i12,090 attributable to related parties, respectively)
$
i31,354
$
i29,090
Accrued
expenses ($i4,372 and $i4,297 attributable to related parties, respectively)
i38,237
i43,393
Contract
liabilities ($i1,026 and $i1,341 attributable to related parties, respectively)
i52,737
i52,944
Revolving
line of credit
i16,000
i—
Accrued
dividends (related parties)
i15,559
i7,863
Customer
advances
i9,567
i11,527
Current
portion of contingent consideration
i3,648
i7,134
Current
operating lease liabilities
i8,053
i7,639
Warrants
liability
i945
i718
Other
current liabilities
i2,255
i4,783
Total
current liabilities
i178,355
i165,091
Non-current
operating lease liabilities
i26,990
i29,588
Non-current
portion of accrued data costs ($i18,855 and $i15,471 attributable to related parties, respectively)
i28,918
i25,106
Non-current
revolving line of credit
i—
i16,000
Deferred
tax liabilities
i1,418
i2,127
Other
non-current liabilities
i7,128
i10,627
Total
liabilities
i242,809
i248,539
Commitments
and contingencies
i
i
Convertible redeemable preferred stock,
$ii0.001/ par value; i100,000,000
shares authorized and ii82,527,609/ shares issued and outstanding as of June 30,
2023 and iii82,527,609//
shares authorized, issued and outstanding as of December 31, 2022; aggregate liquidation preference of $i219,559 as of June 30, 2023, and $i211,863
as of December 31, 2022 (related parties)
Common
stock, $ii0.001/ par value; ii275,000,000/
shares authorized as of June 30, 2023 and December 31, 2022; i101,851,130 shares issued and i95,086,334 shares outstanding as of June 30,
2023, and i98,869,738 shares issued and i92,104,942 shares outstanding as of December 31, 2022
(1)
Excludes amortization of intangible assets, which is presented as a separate line item.
(2) Transactions with related parties are included in the line items above as follows (refer to Footnote 9, Related Party Transactions, of the Notes to Condensed Consolidated Financial Statements for additional information):
(1)
Transactions for these line items were exclusively with related parties (refer to Footnote 5, Convertible Redeemable Preferred Stock and Stockholders' Equity and Footnote 9, Related Party Transactions, of the Notes to Condensed Consolidated Financial Statements for additional information).
See accompanying Notes to Condensed Consolidated Financial Statements.
Payments
for dividends on convertible redeemable preferred stock (1)
i—
(i15,512)
Other
(i254)
(i21)
Net
cash used in financing activities
(i2,179)
(i16,989)
Effect
of exchange rate changes on cash, cash equivalents and restricted cash
i580
(i1,208)
Net
increase (decrease) in cash, cash equivalents and restricted cash
i2,613
(i2,220)
Cash,
cash equivalents and restricted cash at beginning of period
i20,442
i22,279
Cash,
cash equivalents and restricted cash at end of period
$
i23,055
$
i20,059
(1)
Transactions for this line item were exclusively with related parties (refer to Footnote 9, Related Party Transactions, of the Notes to Condensed Consolidated Financial Statements for additional information).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.iOrganization
comScore,
Inc., together with its consolidated subsidiaries (collectively, "Comscore" or the "Company"), headquartered in Reston, Virginia, is a global information and analytics company that measures audiences, consumer behavior and advertising across media platforms.
Operating segments are defined as components of a business that can earn revenues and incur expenses for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker ("CODM"). The Company's CODM is its Chief Executive Officer ("CEO"), who decides how to allocate resources and assess performance. The Company has ione
operating segment. A single management team reports to the CODM, who manages the entire business. The Company's CODM reviews consolidated results of operations to make decisions, allocate resources and assess performance and does not evaluate the profit or loss from any separate geography or product line.
2.iSummary of Significant Accounting Policies
Basis
of Presentation and Consolidation
iThe accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned domestic and foreign subsidiaries. All intercompany transactions and balances are eliminated upon consolidation.
Reclassification
iCertain
amounts in the prior year financial statements have been reclassified to conform to the current year presentation. Specifically, accrued dividends have been separated from other current liabilities on the Condensed Consolidated Balance Sheets.
Unaudited Interim Financial Information
iThe interim Condensed Consolidated Financial Statements included in this quarterly report have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the United States Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for a quarterly report on Form 10-Q and are adequate to make the information presented not misleading. The interim Condensed Consolidated Financial Statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows
for the interim periods presented. These interim Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 10-K"). The Condensed Consolidated Results of Operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2023 or thereafter. All references to June 30,
2023 and 2022 in the Notes to Condensed Consolidated Financial Statements are unaudited.
Use of Estimates and Judgments in the Preparation of the Condensed Consolidated Financial Statements
i
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expense during the reporting periods. Significant estimates and judgments are inherent in the analysis and the measurement of management's standalone selling price, principal versus
agent revenue recognition, determination of performance obligations, determination of transaction price, including the determination of variable consideration and allocation of transaction price to performance obligations, deferred tax assets and liabilities, including the identification and quantification of income tax liabilities due to uncertain tax positions, the valuation and recoverability of goodwill, intangible and other long-lived assets, the determination of appropriate discount rates for lease accounting, the probability of exercising either lease renewal or termination clauses, the assessment of potential loss from contingencies, the fair value determination of contingent consideration from business combinations, financing-related liabilities and warrants, and the valuation of options, performance-based and market-based stock awards. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be
reasonable under the circumstances.
Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates. The Company evaluates its estimates and assumptions on an ongoing basis.
Goodwill
i
The Company tests goodwill for impairment
annually during the fourth quarter as of October 1, or more frequently when events or changes in circumstances indicate that fair value is below carrying value.
The Company has a single reporting unit. Accordingly, the impairment assessment for goodwill is performed at the enterprise level. Goodwill is reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair
value of the reporting unit below its carrying
value. The Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. The qualitative evaluation is an assessment of factors, including operating results and cost factors, as well as industry, market and macroeconomic conditions, to determine whether it is more likely than not that the fair value of the reporting unit is less than the respective carrying amount, including goodwill. If the Company chooses not to complete a qualitative assessment or if the initial assessment indicates that it is more likely than not that the carrying value of the reporting unit exceeds its estimated fair value, additional quantitative testing is required.
The
fair value of the reporting unit is determined utilizing a discounted cash flow model, and a market value approach is utilized to supplement the discounted cash flow model. The estimated fair value of a reporting unit is determined based on assumptions regarding estimated future cash flows, discount rates, long-term growth rates and market values. Additionally, the Company considers income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment charge.
The Company monitors for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, profitability, discount rates, volatility in the
Company's market capitalization, and general industry, market and macroeconomic conditions.
As of June 30, 2023, the Company concluded that it was more likely than not that the estimated fair value of its reporting unit was less than its carrying value. In its assessment, the Company considered the decline in the Company's stock price and market capitalization among other factors. The Company performed a quantitative goodwill impairment test using a discounted cash flow model, supported by a market approach. The
Company's reporting unit did not pass the goodwill impairment test, and as a result, the Company recorded a $i44.1 million non-cash impairment charge.
For further information refer to Footnote 4, Goodwill.
Preferred Stock
In
January 2021, the Company entered into separate Securities Purchase Agreements with each of Charter Communications Holding Company, LLC ("Charter"), Qurate Retail, Inc. (together with its affiliate Qurate SCOR, LLC, "Qurate") and Pine Investor, LLC ("Pine") (the "Securities Purchase Agreements") for the issuance and sale of shares of Series B Convertible Preferred Stock, par value $i0.001 ("Preferred Stock") described in Footnote
5, Convertible Redeemable Preferred Stock and Stockholders' Equity. iThe issuance of the Preferred Stock pursuant to the Securities Purchase Agreements (the "Transactions") and related matters were approved by the Company's stockholders on March 9, 2021 and completed on March 10, 2021.
On
May 16, 2023, Qurate sold i27,509,203 shares of Preferred Stock to Liberty Broadband Corporation ("Liberty") in a privately negotiated transaction.
The Preferred Stock is contingently redeemable upon certain deemed liquidation events, such as a change in control. Because a deemed liquidation event could constitute a redemption event outside of the Company's control, all shares of
Preferred Stock have been presented outside of permanent equity in mezzanine equity on the Condensed Consolidated Balance Sheets. The instrument was initially recognized at fair value net of issuance costs. The Company reassesses whether the Preferred Stock is currently redeemable, or probable to become redeemable in the future, as of each reporting date. If the instrument meets either of these criteria, the Company will accrete the carrying value to the redemption value. The Preferred Stock has not been adjusted to its redemption amount as of June 30, 2023 because a deemed liquidation event is not considered probable.
The Preferred Stock includes a change of control put option which allows the holders of
the Preferred Stock to require the Company to repurchase such holders' shares in cash in an amount equal to the initial purchase price plus accrued dividends. The change of control put option was determined to be a derivative liability. As of June 30, 2023, the probability of a change of control was determined to be remote and the fair value of the change of control derivative was determined to be negligible.
Warrants Liability
i
In June 2019, the
Company issued warrants to CVI Investments, Inc. ("CVI") in connection with the private placement described in Footnote 5, Convertible Redeemable Preferred Stock and Stockholders' Equity. The warrants were determined to be freestanding financial instruments that qualify for liability treatment as a result of net cash settlement features associated with a cap on the issuance of shares, under certain circumstances, or upon a change of control. Changes in the fair value of these instruments are recorded in other income (expense), net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
The fair value of each warrant is estimated utilizing an option pricing model. Significant valuation inputs include the exercise
price, price and expected volatility of the Company's Common Stock, risk-free rate, and the remaining term of the warrants. As of June 30, 2023, the probability of a change of control was determined to be remote and did not require an enhancement to the valuation technique.
iOther
income (expense), net represents income and expenses incurred that are generally not recurring in nature or are not part of the Company's normal operations.iThe following is a summary of the components of other income (expense), net:
Three
Months Ended June 30,
Six Months Ended June 30,
(In thousands)
2023
2022
2023
2022
Change in fair value of warrants liability
$
i1,588
$
i4,560
$
(i227)
$
i6,995
Other
i21
(i3)
i24
(i5)
Total
other income (expense), net
$
i1,609
$
i4,557
$
(i203)
$
i6,990
Loss
Per Share
iThe Company uses the two-class method to calculate net loss per share. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. Under the two-class method, earnings for the period are allocated between common stockholders and participating security holders based on their respective rights to receive dividends as if all undistributed book earnings for the period were distributed.
Basic loss per share is computed by dividing total net loss available to common stockholders by the weighted-average number of common shares outstanding for the period. This includes the effect of vested and deferred stock units granted to members of the Company's Board of Directors ("Board") and certain employees. These awards are expected to be settled in shares of Common Stock and generally distributed upon the earlier of the individual's separation from service or a change of control. Diluted loss per share includes the effect of potential common shares, such as the Company's Preferred Stock, warrants, stock options and restricted stock units, and contingent consideration liability to the extent the effect is dilutive. In periods with
a net loss available to common stockholders, the anti-dilutive effect of these potential common shares is excluded and diluted net loss per share is equal to basic net loss per share.
i
The following is a summary of the Common Stock equivalents for the securities outstanding during the respective periods that have been excluded from the computation of diluted net loss per common share, as their effect would be anti-dilutive:
(1)
Includes the effect of potential Common Stock that would be issued to settle unpaid dividends accrued to holders of the Preferred Stock if they elected to convert their shares at the beginning of the period.
/
(2) A contingent consideration liability was recognized as part of the Company's acquisition of Shareablee, Inc. ("Shareablee") in December 2021. The liability payments may be settled in any combination of cash or shares of Common Stock (at the Company's election) based on the volume-weighted average trading price of the Common
Stock for the iten trading days prior to the date of each payment. Settlement of this liability in Common Stock could potentially dilute basic earnings per share in future periods. The Company paid $i3.6 million
of the total $i3.7 million first installment in cash through the second quarter of 2023. The remaining amount of the first installment will be settled in cash and is therefore excluded from Common Stock equivalents herein. The Company calculated a potential anti-dilutive share count based on the remaining expected payments totaling $i4.9 million
and the $i0.81 per share closing price of the Company's Common Stock on the Nasdaq Global Select Market on June 30, 2023. The Company calculated a potential anti-dilutive share count based on the expected payments totaling $i8.6 million
and the $i2.06 per share closing price of the Company's Common Stock on the Nasdaq Global Select Market on June 30, 2022.
Income Taxes
iA
significant portion of the Company's net operating loss carryforwards are subject to an annual limitation under Section 382 of the Internal Revenue Code. The Company anticipates the Transactions may have triggered further limitations but has not yet reached a final conclusion as to whether an ownership change occurred and to what extent its net operating loss carryforwards are further limited. If an ownership change occurred as a result of the Transactions, the annual limitation under Section 382 may cause a significant portion of the Company's net operating loss carryforwards to expire prior to use. Due to the Company's valuation
allowance position in the United States, the required revaluation of its deferred tax assets related to these limited U.S. federal and state net operating loss carryforwards is not expected to have a material impact on the Condensed Consolidated Financial Statements or related disclosures.
3.iRevenue Recognition
iThe
following table presents the Company's revenue disaggregated by solution group, geographical market and timing of transfer of products and services. The Company attributes revenue to geographical markets based on the location of the customer. The Company has ione reportable /
segment in accordance with ASC 280, Segment Reporting; as such, the disaggregation of revenue below reconciles directly to its unique reportable segment.
Three
Months Ended June 30,
Six Months Ended June 30,
(In thousands)
2023
2022
2023
2022
By solution group:
Digital Ad Solutions
$
i52,649
$
i51,630
$
i103,096
$
i104,767
Cross
Platform Solutions
i41,035
i39,804
i82,146
i80,633
Total
$
i93,684
$
i91,434
$
i185,242
$
i185,400
By
geographical market:
United States
$
i84,999
$
i81,631
$
i167,640
$
i165,713
Europe
i4,545
i4,475
i9,228
i9,682
Latin
America
i1,705
i2,136
i3,425
i3,926
Canada
i1,420
i2,174
i2,841
i3,993
Other
i1,015
i1,018
i2,108
i2,086
Total
$
i93,684
$
i91,434
$
i185,242
$
i185,400
By
timing of revenue recognition:
Products and services transferred over time
$
i78,968
$
i76,738
$
i156,624
$
i154,682
Products
and services transferred at a point in time
Significant
changes in the current contract liabilities balance are as follows:
Six Months Ended June 30,
(In thousands)
2023
2022
Revenue recognized that was included in the opening contract
liabilities balance
$
(i41,009)
$
(i43,405)
Cash
received or amounts billed in advance and not recognized as revenue
i40,832
i44,740
/
Remaining
Performance Obligations
As of June 30, 2023, approximately $i220 million of revenue is expected to be recognized from remaining performance obligations that are unsatisfied (or partially unsatisfied) for non-cancelable contracts with an original expected duration of longer than one year. The Company expects to recognize revenue
on approximately i28% of these remaining performance obligations during the remainder of 2023, approximately i39% in 2024, and approximately i18%
in 2025, with the remainder recognized thereafter.
4.iGoodwill
The Company tests goodwill for impairment annually during the fourth quarter as of October 1, or more frequently when events or changes in circumstances indicate that fair value is below carrying value. As of June 30,
2023, the Company concluded that it was more likely than not that the estimated fair value of its reporting unit was less than its carrying value. In its assessment, the Company considered the decline in the Company's stock price and market capitalization, among other factors. The Company performed quantitative testing on its reporting unit using a discounted cash flow model (a form of the income approach) utilizing Level 3 unobservable inputs, supported by a market approach. The Company relied in part on the work of an independent valuation
firm engaged by the Company to provide inputs as to the fair value of the reporting unit and to assist in the related calculations and analysis.
The Company's reporting unit did not pass the goodwill impairment test, and as a result the Company recorded a $i44.1 million impairment charge for the three months ended June
30, 2023.
5.iConvertible
Redeemable Preferred Stock and Stockholders' Equity
2021 Issuance of Preferred Stock
On March 10, 2021, the Company issued and sold i82,527,609 shares of Preferred Stock in exchange for aggregate gross proceeds of $i204.0
million. Net proceeds from the Transactions totaled $i187.9 million after deducting issuance costs.
The Preferred Stock is convertible at the option of the holders at any time into shares of Common Stock based on a conversion rate set in accordance with the Certificate of Designations of the Preferred Stock. The conversion right is subject to certain anti-dilution adjustments and customary provisions related to partial dividend periods. As of June 30, 2023, each
share of Preferred Stock would have been convertible into i1.076270 shares of Common Stock, with such assumed conversion rate scheduled to return to i1.00 upon payment of accrued dividends.
As of June 30,
2023, ino shares of Preferred Stock have been converted into Common Stock.
The holders of Preferred Stock are entitled to participate in all dividends declared on the Common Stock on an as-converted basis and are also entitled to a cumulative dividend at the rate of i7.5%
per annum, payable annually in arrears and subject to increase under certain circumstances. In addition, such holders are entitled to request, and the Company will take all actions reasonably necessary to pay, a one-time dividend ("Special Dividend") equal to the highest dividend that the Company's Board determines can be paid at the applicable time (or a lesser amount agreed upon by the holders), subject to additional conditions and limitations set forth in a Stockholders Agreement entered into by the Company and the holders on March 10, 2021 (the "Stockholders Agreement"). As set forth in the Stockholders Agreement, the
Company may be obligated to obtain debt financing in order to effectuate the Special Dividend.
At an annual meeting of stockholders of the Company held on June 15, 2023 (the "Annual Meeting"), the Company's stockholders approved proposals permitting the payment of annual dividends on the Preferred Stock in the form of cash, shares of Common Stock, additional shares of Preferred Stock, or a combination thereof. On the same date, each holder of Preferred Stock waived its right to receive on June 30, 2023 the annual dividends otherwise payable by the Company on that
date (the "Waivers"), and the Company's Board of Directors elected to defer the June 30, 2023 payment. Under the Waivers and the Certificate of Designations governing the Preferred Stock, the deferred dividends will accrue and accumulate at a rate of i9.5% per year from June 30, 2023 until declared and paid, with payment to occur on or before December 31, 2023 subject to certain
conditions. As of June 30, 2023, accrued dividends for the Preferred Stock totaled $i15.6 million.
2019 Issuance and Sale of Common Stock and Warrants
On June 23, 2019, the Company entered into a Securities Purchase Agreement with CVI, pursuant to which CVI agreed to purchase (i) i2,728,513
shares of Common Stock (the "Initial Shares"), at a price of i7.33 per share and (ii) Series A Warrants, Series B-1 Warrants, Series B-2 Warrants and Series C Warrants, for aggregate gross proceeds of $i20.0 million (the "Private
Placement"). The Private Placement closed on June 26, 2019 (the "CVI Closing Date"). The Series B-1 Warrants and Series B-2 Warrants expired in 2020.
The Series C Warrants were exercised on October 10, 2019. As a result of this exercise, the Company issued i2,728,513 shares of Common Stock to CVI on October
14, 2019. In addition, the number of shares issuable under the Company's Series A Warrants was increased by i2,728,513.
The Series A Warrants are exercisable by the holders for a period of ifive
years from the CVI Closing Date and are currently exercisable into i5,457,026 shares of Common Stock. The Series A Warrants may be exercised for cash or through a net settlement feature under certain circumstances.
The exercise price for the Series A Warrants is subject to anti-dilution adjustment in certain circumstances, including upon certain issuances of capital stock. Upon the issuance of the Preferred Stock in 2021, the
Company adjusted the exercise price of the Series A Warrants from $i12.00 to $i2.4719 per share, the closing price of the Transactions. On March
15, 2023, the Company granted Common Stock awards to certain non-executive employees valued at $i1.01 per share (the closing price of the Common Stock on March 15, 2023) under the Company's annual incentive compensation plan, resulting in a further adjustment of the Series A Warrants exercise price from $i2.4719
to $i1.01 per share. The estimated fair value of the Series A Warrants immediately after the exercise price adjustment on March 15, 2023 was $i1.7 million, reflecting
an increase of $i1.0 million compared to the value as of December 31, 2022.
CVI will not have the right to exercise any warrant that would result in CVI beneficially owning more than i4.99%
of the outstanding Common Stock after giving effect to such exercise. CVI has the right, in its discretion, to raise this threshold up to i9.99% with 60 days' notice to the Company. In addition, if and to the extent the exercise of any warrants would, together with the issuances of the Initial Shares and the shares
issued pursuant to the exercise of any other warrants, result in the issuance of i20.0% or more of the outstanding Common Stock of the Company on the CVI Closing Date, the Company intends to, in lieu of issuing such shares, settle the obligation
to issue such shares in cash.
The estimated fair value of the Series A Warrants as of June 30, 2023 was $i0.9 million. Refer to Footnote 7, Fair Value Measurements, for further information.
6.iDebt
Revolving
Credit Agreement
On May 5, 2021, the Company entered into a senior secured revolving credit agreement (the "Revolving Credit Agreement") among the Company, as borrower, certain subsidiaries of the Company, as guarantors, Bank of America N.A., as administrative agent (in such capacity, the "Agent"), and the lenders from time to time party thereto.
The Revolving Credit Agreement had an original borrowing capacity equal to $i25.0
million and bore interest on borrowings at a Eurodollar Rate (as defined in the Revolving Credit Agreement) that was based on LIBOR. The Company may also request the issuance of letters of credit under the Revolving Credit Agreement in an aggregate amount up to $i5.0 million, which reduces the amount of available borrowings by the amount of such issued and outstanding letters of credit. The facility has a maturity of ithree
years from the closing date of the agreement.
On February 25, 2022, the Company entered into an amendment (the "2022 Amendment") to the Revolving Credit Agreement to expand its aggregate borrowing capacity from $i25.0 million to $i40.0
million. The 2022 Amendment also replaced the Eurodollar Rate with a SOFR-based interest rate and modified the Applicable Rate definition in the Revolving Credit Agreement to increase the Applicable Rate payable on SOFR-based loans to i2.50%. Finally, the amendment modified certain financial covenants under the Revolving Credit Agreement.
On February 24, 2023, the Company entered into an additional amendment (the "2023 Amendment")
to the Revolving Credit Agreement. Among other things, the 2023 Amendment (i) increased the minimum Consolidated EBITDA and Consolidated Asset Coverage Ratio financial covenant requirements under the Revolving Credit Agreement, (ii) modified the measurement periods for certain financial covenants contained in the Revolving Credit Agreement, (iii) introduced a minimum liquidity covenant, and (iv) modified the Applicable Rate definition in the Revolving Credit Agreement to increase the Applicable Rate payable on SOFR-based loans to i3.50%.
As modified, the Revolving Credit
Agreement requires the Company to maintain:
•minimum Consolidated EBITDA (as defined in the Revolving Credit Agreement) of not less than $i22.0 million, $i24.0
million, $i32.0 million and $i35.0 million for the most recently ended four fiscal quarter period, tested as of the last day of the fiscal quarters ending on March 31, June 30, September 30 and December 31,
2023, respectively;
•a minimum Consolidated Asset Coverage Ratio (as defined in the Revolving Credit Agreement) of not less than i2.0 to 1.0, tested as of the last day of each calendar month through maturity of the Revolving Credit Agreement;
•a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Revolving Credit Agreement) of not less than i1.25
to 1.0 for the most recently ended four fiscal quarter period, tested as of the last day of each fiscal quarter ending on or after March 31, 2024; and
•minimum Liquidity (as defined in the Revolving Credit Agreement) of $i28.0 million, tested as of the last business day of each calendar month through maturity of the Revolving Credit Agreement.
The Revolving Credit Agreement contains restrictive covenants that limit the
Company's ability to, among other things, incur additional indebtedness or liens, make investments and loans, enter into mergers and acquisitions, make or declare dividends and other payments, enter into certain contracts, sell assets and engage in transactions with affiliates. The Revolving Credit Agreement is also subject to customary events of default, including a change in control. If an event of default occurs and is continuing, the Agent or the Required Lenders may accelerate any amounts outstanding and terminate lender commitments. The Company was in compliance with the covenants under the amended Revolving Credit Agreement as of June 30, 2023.
The Revolving Credit Agreement is guaranteed
by the Company and its domestic subsidiaries (other than Excluded Subsidiaries (as defined in the Revolving Credit Agreement)) and is secured by a first lien security interest in substantially all assets of the Company and its domestic subsidiaries (other than Excluded Subsidiaries), subject to certain customary exclusions.
As of June 30, 2023,
the Company had outstanding borrowings of $i16.0 million, and issued and outstanding letters of credit of $i3.4 million, under the amended Revolving Credit Agreement, with
remaining borrowing capacity of $i20.6 million. During the three months ended June 30, 2023, the Company reclassified the outstanding borrowings to current liabilities from non-current liabilities as the facility matures in May 2024.
The
Company's financial instruments measured at fair value in the accompanying Condensed Consolidated Balance Sheets on a recurring basis consist of the following:
(1)
Level 1 cash equivalents are invested in money market funds that are intended to maintain a stable net asset value of $i1.00 per share by investing in liquid, high quality U.S. dollar-denominated money market instruments with maturities less than three months.
(2) The fair value of this liability as of June 30, 2023 and December 31, 2022 is derived from a technique which utilizes market-corroborated inputs that result in classification
as a Level 2 fair value measurement as of such date. The non-current portion of the contingent consideration liability is classified within non-current liabilities in the Condensed Consolidated Balance Sheets. The current portion of the contingent consideration liability was $i3.6 million and $i7.1 million
as of June 30, 2023 and December 31, 2022, respectively. The non-current portion of the contingent consideration liability was $i1.1 million as of June 30, 2023 and $i1.0 million
as of December 31, 2022.
/
(3) The fair value of this liability is derived from a technique which utilizes inputs, certain of which are significant and unobservable, that result in classification as a Level 3 fair value measurement. Warrants liability includes only the Series A warrants as of June 30, 2023 and December 31, 2022.
The elimination of the option pricing model used to value the contingent consideration liability reflected a change in the
Company's valuation technique during the three and six months ended June 30, 2022. There were no changes to the Company's valuation techniques or methodologies during the three and six months ended June 30, 2023.
i
The following tables present the changes in the Company's
recurring Level 3 fair valued instruments for the six months ended June 30, 2023 and 2022, respectively:
(1)
The loss on remeasurement of the warrants liability was recorded in other income (expense), net, in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
(1)
The loss due to remeasurement of the contingent consideration liability was recorded in general and administrative expense, and the gain on remeasurement of the warrants liability was recorded in other income (expense), net, in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
(2) The contingent consideration liability was transferred from Level 3 to Level 2 at the beginning of the second quarter of 2022 due to the resolution of the contingency regarding the amount of consideration payable.
/i
The
following table displays the valuation technique and the significant inputs, certain of which are unobservable, for the Company's Level 3 liabilities that existed as of June 30, 2023 and December 31, 2022 that are measured at fair value on a recurring basis:
iThe primary sensitivities in the valuation of the warrants liability are driven by the exercise price, the Common Stock price at the measurement date and the expected volatility of the Common Stock over the remaining term.
For the three months ended June 30, 2023, the Company recorded a goodwill impairment charge of $i44.1 million. Refer to Footnote 4, Goodwill
for further details. The remeasurement of goodwill is classified as a non-recurring Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value. The Company used a discounted cash flow model to determine the estimated fair value of the reporting unit. The Company made estimates and assumptions regarding future cash flows, discount rates, long-term growth rates and market values to determine the reporting unit's estimated fair value. It is possible that future changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of the reporting unit, would require the Company
to record additional non-cash impairment charges.
As of June 30, 2023 (based on public filings), WPP plc and its affiliates ("WPP") owned i11,319,363 shares of the Company's outstanding Common Stock, representing i11.9%
of the outstanding Common Stock. The Company provides WPP, in the normal course of business, services amongst its different product lines and receives various services from WPP supporting the Company's data collection efforts.
i
The Company's results from transactions with WPP, as reflected in the
Condensed Consolidated Statements of Operations and Comprehensive Loss, are as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(In thousands)
2023
2022
2023
2022
Revenues
$
i2,116
$
i3,369
$
i4,424
$
i6,710
Cost
of revenues
i2,387
i2,234
i5,123
i4,374
The
Company has the following balances related to transactions with WPP, as reflected in the Condensed Consolidated Balance Sheets:
Transactions
with Charter, Qurate, Liberty and Pine
Through May 15, 2023, Charter, Qurate, and Pine each held iii33.3//%
of the outstanding shares of Preferred Stock. On May 16, 2023, Qurate sold its Preferred Stock to Liberty, and as of June 30, 2023, Charter, Liberty and Pine each hold iii33.3//%
of the outstanding shares of Preferred Stock. Charter, Liberty and Pine are entitled to convert the Preferred Stock into shares of Common Stock and to vote as a single class with the holders of the Common Stock as set forth in the Certificate of Designations. As of June 30, 2023 (based on public filings), Pine also owned i2,193,088 shares of the Company's outstanding Common Stock, representing i2.3%
of the outstanding Common Stock. In addition, Charter, Liberty and Pine each designated two members of the Company's Board in accordance with the Stockholders Agreement.
At the Annual Meeting on June 15, 2023, the Company's stockholders approved proposals permitting the payment of annual dividends on the Preferred Stock in the form of cash, shares of Common Stock, additional shares of Preferred Stock, or a combination thereof. On the same date, each holder of Preferred Stock waived its right to receive on June 30, 2023 the annual dividends otherwise payable by the Company
on that date. The deferred dividends will accrue at a rate of i9.5% per year from June 30, 2023 until declared and paid, with payment to occur on or before December 31, 2023 subject to certain conditions.
As
of June 30, 2023, Charter, Liberty and Pine each owned iii27,509,203//
shares of Preferred Stock. As of June 30, 2023, total accrued dividends to the holders of Preferred Stock were $i15.6 million.
As of December 31, 2022, Charter, Qurate and Pine each owned iii27,509,203//
shares of Preferred Stock. Accrued dividends to the holders of Preferred Stock as of December 31, 2022 were $i7.9 million.
Concurrent with the closing of the Transactions on March 10, 2021, the Company entered into a iten-year
Data License Agreement ("DLA") with Charter Communications Operating, LLC ("Charter Operating"), an affiliate of Charter. Under the DLA, Charter Operating will bill the Company for license fees according to a payment schedule that gradually increases from $i10.0 million in the first year of the term to $i32.3 million
in the tenth year of the term. The Company recognizes expense for the license fees ratably over the term. On November 6, 2022, the Company and Charter Operating entered into an amendment to the DLA, pursuant to which the Company will receive license fee credits totaling $i7.0 million.
In June 2023, the Company exchanged correspondence with counsel to Charter Operating regarding Charter Operating's compliance with certain terms of the DLA. In response, Charter Operating denied the Company's concerns and notified the Company of alleged breaches of the DLA by the Company. Charter Operating demanded that the Company cure the alleged breaches and pay outstanding balances to Charter Operating by August 6, 2023. If either party were to terminate the DLA, all amounts then due to
Charter Operating would be immediately due and payable, and Charter Operating could seek liquidated damages as set forth in the DLA. To date, however, neither party has indicated that it intends to terminate the DLA, and the parties are discussing a resolution to the matter.
The Company's results from transactions with Charter and its affiliates, as reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss, are detailed below:
Three
Months Ended June 30,
Six Months Ended June 30,
(In thousands)
2023
2022
2023
2022
Revenues
$
i514
$
i546
$
i999
$
i1,272
Cost
of revenues
i4,979
i5,539
i9,950
i11,067
The
Company has the following liability balances related to transactions with Charter and its affiliates, as reflected in the Condensed Consolidated Balance Sheet:
The
Company recognized revenues of $ii0.2/
million during the three months ended June 30, 2023 and 2022, and $ii0.4/
million during the six months ended June 30, 2023 and 2022 from transactions with Qurate and its affiliates in the normal course of business as reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
The Company had iiiiiiiino///////
transactions with Liberty and Pine for the three and six months ended June 30, 2023 and 2022.
10.iOrganizational Restructuring
On September 29, 2022, the
Company communicated a workforce reduction as part of its broader efforts to improve cost efficiency and better align its operating structure and resources with strategic priorities (collectively, the "Restructuring Plan"). In addition to employee terminations, the Restructuring Plan is expected to include the reallocation of commercial and product development resources; reinvestment in and modernization of key technology platforms; consolidation of data storage and processing activities to reduce the Company's data center footprint; and reduction of other operating expenses, including software and facility costs. The Company may also determine to exit certain activities in certain geographic regions in order to more effectively align resources with business priorities. In connection with
the Restructuring Plan, which was authorized by the Board on September 19, 2022, the Company will incur certain exit-related costs. These costs are estimated to range between $i10 million and $i15 million.
The Company expects implementation of the Restructuring Plan, including cash payments, to be substantially complete in the fourth quarter of 2023.
i
The table below summarizes the activity and balance of the restructuring liability as of June 30, 2023 and December 31, 2022, which is recorded in accrued expenses in the Condensed Consolidated Balance Sheets, and the changes in the accrued amounts for the six months ended
June 30, 2023:
The Company has certain long-term contractual arrangements that have fixed and determinable payment obligations including unconditional purchase obligations with multichannel video programming distributors ("MVPDs") and other providers for set-top box
and connected (Smart) television data. These agreements have remaining terms of less than ione year to ieight years. As of June 30, 2023, the total fixed payment obligations related to set-top box and connected television data agreements are $i286.0
million and $i4.4 million, respectively.
i
The information set forth below summarizes the contractual obligations, by year, as of June 30, 2023:
(In thousands)
2023
(remaining)
$
i18,490
2024
i29,966
2025
i29,756
2026
i37,006
2027
i37,506
Thereafter
i137,699
Total
$
i290,423
/
In
addition, the Company expects to make variable payments related to a set-top box data agreement totaling an estimated $i4.5 million by the end of 2023.
Contingencies
The Company is involved in various legal proceedings from time to time. The
Company establishes reserves for specific legal proceedings when management determines that the likelihood of an unfavorable outcome is probable, and the amount of loss can be reasonably estimated. The Company has also identified certain other legal matters where an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. In these cases, the Company does not establish a reserve until it can reasonably estimate the loss. Legal fees related to contingencies are expensed as incurred. The outcomes of legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to the Company's operating results and cash flows for a particular
period.
In April 2023, the Company received correspondence from counsel to a TV data provider disputing the manner in which payments by the Company to the data provider are calculated under a 2018 data license agreement between the parties. The aggregate amount in dispute for periods through June 30, 2023 is approximately $i2.9 million.
The Company disagrees with the data provider's interpretation of the license agreement and believes it has a strong position with respect to the calculation of payments during the term. As of June 30, 2023, the Company cannot reasonably estimate the potential loss, if any, that may be incurred in this matter.
Other Matters
The Company is, and may become, a party to a variety of legal proceedings from time to time that arise in the normal course of the Company's business. While the results of
such legal proceedings cannot be predicted with certainty, management believes that, based on current knowledge, the final outcome of any such current pending matters will not have a material effect on the Company's financial position, results of operations or cash flows. Regardless of the outcome, legal proceedings can have an adverse effect on the Company because of defense costs, diversion of management resources and other factors.
Indemnification
The Company has entered into indemnification agreements with each of the Company's directors
and certain officers, and the Company's amended and restated certificate of incorporation requires it to indemnify each of its directors and officers, to the fullest extent permitted by Delaware law, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Company. The Company has paid and may in the future pay legal counsel fees incurred by current and former directors and officers who are involved in legal proceedings that require indemnification.
Similarly,
certain of the Company's commercial contracts require it to indemnify contract counterparties under specified circumstances, and the Company may incur legal counsel fees and other costs in connection with these obligations.
ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, or 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events in future periods may differ materially from those anticipated or implied in these forward-looking statements as a result of many factors, including those discussed under Item 1A,
"Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 10-K"), under Item 1A, "Risk Factors" in this 10-Q and elsewhere in this 10-Q. See also "Cautionary Note Regarding Forward-Looking Statements" at the beginning of this 10-Q.
Overview
We are a global information and analytics company that measures advertising, content, and the consumer audiences of each, across media platforms. We create our products using a global data platform that combines information on digital platforms (connected
(Smart) televisions, mobile devices, tablets and computers), TV, direct to consumer applications, and movie screens with demographics and other descriptive information. We have developed proprietary data science that enables measurement of person-level and household-level audiences, removing duplicated viewing across devices and over time. This combination of data and methods enables a common standard for buyers and sellers to transact on advertising. This helps companies across the media ecosystem better understand and monetize their audiences and develop marketing plans and products to more efficiently and effectively reach those audiences. Our ability to unify behavioral and other descriptive data enables us to provide audience ratings, advertising verification, and granular consumer segments that describe hundreds of millions of consumers. Our customers include digital publishers, television networks, movie studios, content owners, brand advertisers, agencies and
technology providers.
The platforms we measure include televisions, mobile devices, computers, tablets, connected TV devices and movie theaters. The information we analyze crosses geographies, types of content and activities, including websites, mobile and over-the-top applications, video games, television and movie programming, e-commerce and advertising.
Results of Operations
The following table sets forth selected Condensed Consolidated Statements of Operations and Comprehensive Loss data as a percentage of total revenues for each of the periods indicated. Percentages may not add due to rounding.
Our products and services are organized around solution groups that address customer needs. Accordingly, we evaluate revenues around two solution groups:
•Digital Ad Solutions provide measurement of the behavior and characteristics of audiences across digital platforms, including computers, tablets, mobile and other connected devices. This solution group also includes custom offerings that provide end-to-end solutions for planning, optimization and evaluation of advertising campaigns and brand protection across digital platforms, including transactional outcome-based measurement driven by our Activation and Comscore Campaign Ratings products.
•Cross Platform Solutions provide measurement
of content and advertising audiences across local, national and addressable television, including consumption through connected (Smart) televisions, and are designed to help customers find the most relevant viewing audience whether that viewing is linear, non-linear, online or on-demand. This solution group also includes custom offerings that provide end-to-end solutions for planning, optimization and evaluation of advertising campaigns across platforms. In addition, this solution group includes products that measure movie viewership and box office results by capturing movie ticket sales in real time or near real time and includes box office analytics, trend analysis and insights for movie studios and movie theater operators worldwide.
We categorize our revenue along these two solution groups; however, our cost structure is tracked at the corporate level and not by our solution groups. These costs include, but are not limited
to, employee costs, purchased data, operational overhead, data storage and technology that supports multiple solution groups.
Revenues for the three months ended June 30, 2023 and 2022 were as follows:
Three
Months Ended June 30,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Variance
% Variance
Digital Ad Solutions
$
52,649
56.2
%
$
51,630
56.5
%
$
1,019
2.0
%
Cross
Platform Solutions
41,035
43.8
%
39,804
43.5
%
1,231
3.1
%
Total revenues
$
93,684
100.0
%
$
91,434
100.0
%
$
2,250
2.5
%
Digital
Ad Solutions revenue increased primarily due to higher usage of our Activation product, as well as an increase in certain custom digital product deliveries to multiple customers. These increases were partially offset by lower revenue from our syndicated digital products primarily driven by lower renewals.
Cross Platform Solutions revenue increased primarily due to higher local TV from renewals and new business, partially offset by lower national TV revenue due to lower renewals. Movies revenue also increased from the continued return of consumers to theaters in markets worldwide.
Revenues for the six months ended June 30, 2023 and 2022 were as follows:
Six
Months Ended June 30,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Variance
% Variance
Digital Ad Solutions
$
103,096
55.7
%
$
104,767
56.5
%
$
(1,671)
(1.6)
%
Cross
Platform Solutions
82,146
44.3
%
80,633
43.5
%
1,513
1.9
%
Total revenues
$
185,242
100.0
%
$
185,400
100.0
%
$
(158)
(0.1)
%
Digital
Ad Solutions revenue decreased primarily due to lower revenue from our syndicated digital products and certain custom digital products. The decline in syndicated digital revenue was primarily due to lower renewals. These decreases were offset by an increase in Activation revenue driven by higher usage from multiple customers.
Cross Platform Solutions revenue increased primarily due to higher local TV and movies revenues, offset by lower national TV revenue. Local TV increased due to higher renewals and new business. Our movies revenue increased primarily due to the continued return of consumers to theaters in markets worldwide. These increases were offset by lower revenue from national TV due to lower renewals and a one-time custom deliverable in the first quarter of 2022.
Cost
of Revenues
Cost of revenues consists primarily of expenses related to producing our products, operating our network infrastructure, the recruitment, maintenance and support of our consumer panels and amortization of capitalized fulfillment costs. These expenses include employee costs for salaries, benefits, stock-based compensation and other related personnel costs of network operations, survey operations, custom analytics and technical support, all of which are expensed as they are incurred. Cost of revenues also includes costs to obtain MVPD data sets and panel, census-based and other data sets used in our products as well as operational costs associated with our data centers, including depreciation expense associated with computer equipment and internally developed software that supports our panels and systems. Additionally, cost of revenues includes allocated overhead, which is comprised of lease expense and other facilities-related
costs, and depreciation expense generated by general purpose equipment and software.
Cost of revenues for the three months ended June 30, 2023 and 2022 were as follows:
Three
Months Ended June 30,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Change
% Change
Data costs
$
18,078
19.2
%
$
18,933
20.7
%
$
(855)
(4.5)
%
Systems
and bandwidth costs
10,321
11.0
%
7,210
7.9
%
3,111
43.1
%
Employee costs
9,910
10.6
%
10,745
11.8
%
(835)
(7.8)
%
Lease
expense and depreciation
5,507
5.9
%
5,297
5.8
%
210
4.0
%
Panel costs
3,539
3.8
%
3,696
4.0
%
(157)
(4.2)
%
Professional
fees
1,707
1.8
%
1,418
1.6
%
289
20.4
%
Sample and survey costs
1,646
1.8
%
1,879
2.1
%
(233)
(12.4)
%
Technology
1,023
1.1
%
1,301
1.4
%
(278)
(21.4)
%
Royalties
and resellers
960
1.0
%
705
0.8
%
255
36.2
%
Other
267
0.3
%
283
0.3
%
(16)
(5.7)
%
Total
cost of revenues
$
52,958
56.5
%
$
51,467
56.3
%
$
1,491
2.9
%
Systems and bandwidth costs increased primarily due to cloud computing and processing costs attributable
to certain custom TV data set deliveries.
Cost of revenues for the six months ended June 30, 2023 and 2022 were as follows:
Six
Months Ended June 30,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Change
% Change
Data costs
$
36,207
19.6
%
$
36,980
19.9
%
$
(773)
(2.1)
%
Employee
costs
19,616
10.6
%
21,221
11.4
%
(1,605)
(7.6)
%
Systems and bandwidth costs
19,198
10.4
%
16,877
9.1
%
2,321
13.8
%
Lease
expense and depreciation
11,025
6.0
%
10,630
5.7
%
395
3.7
%
Panel costs
7,461
4.0
%
7,433
4.0
%
28
0.4
%
Professional
fees
3,565
1.9
%
2,907
1.6
%
658
22.6
%
Sample and survey costs
3,226
1.7
%
3,624
2.0
%
(398)
(11.0)
%
Technology
2,101
1.1
%
2,563
1.4
%
(462)
(18.0)
%
Royalties
and resellers
1,930
1.0
%
1,626
0.9
%
304
18.7
%
Other
558
0.3
%
524
0.3
%
34
6.5
%
Total
cost of revenues
$
104,887
56.6
%
$
104,385
56.3
%
$
502
0.5
%
Systems and bandwidth costs increased primarily due to cloud computing and processing costs attributable
to certain custom TV data set deliveries. Employee costs decreased primarily due to an increase in employee compensation capitalized in 2023 in relation to capitalized software projects as we are allocating more resources to product development this year.
Selling and Marketing
Selling and marketing expenses consist primarily of employee costs for salaries, benefits, commissions, stock-based compensation and other related costs for personnel associated with sales and marketing activities, as well as costs related to online and offline advertising, industry conferences, promotional materials, public relations, other sales and marketing programs and allocated overhead, which is comprised of lease expense and other facilities-related costs, and depreciation expense generated by general purpose equipment and software.
Selling and marketing expenses for the three months ended June 30, 2023 and 2022 were as follows:
Three
Months Ended June 30,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Change
% Change
Employee costs
$
13,904
14.9
%
$
14,085
15.4
%
$
(181)
(1.3)
%
Technology
777
0.8
%
850
0.9
%
(73)
(8.6)
%
Professional
fees
725
0.8
%
577
0.6
%
148
25.6
%
Lease expense and depreciation
672
0.7
%
955
1.0
%
(283)
(29.6)
%
Marketing
and advertising
639
0.7
%
561
0.6
%
78
13.9
%
Other
319
0.3
%
457
0.5
%
(138)
(30.2)
%
Total
selling and marketing expenses
$
17,036
18.2
%
$
17,485
19.1
%
$
(449)
(2.6)
%
Selling and marketing expenses for the six months ended June
30, 2023 and 2022 were as follows:
Six Months Ended June 30,
(In
thousands)
2023
% of Revenue
2022
% of Revenue
$ Change
% Change
Employee costs
$
27,751
15.1
%
$
28,295
15.3
%
$
(544)
(1.9)
%
Technology
1,555
0.8
%
1,697
0.9
%
(142)
(8.4)
%
Lease
expense and depreciation
1,517
0.8
%
1,901
1.0
%
(384)
(20.2)
%
Professional fees
1,513
0.8
%
1,085
0.6
%
428
39.4
%
Marketing
and advertising
1,105
0.6
%
892
0.5
%
213
23.9
%
Other
749
0.4
%
781
0.4
%
(32)
(4.1)
%
Total
selling and marketing expenses
$
34,190
18.5
%
$
34,651
18.7
%
$
(461)
(1.3)
%
Research and Development
Research and
development expenses include product development costs, consisting primarily of employee costs for salaries, benefits, stock-based compensation and other related costs for personnel associated with research and development activities, third-party expenses to develop new products and third-party data costs and allocated overhead, which is comprised of lease expense and other facilities-related costs, and depreciation expense related to general purpose equipment and software.
Research and development expenses for the three months ended June 30, 2023 and 2022 were as follows:
Three
Months Ended June 30,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Change
% Change
Employee costs
$
7,160
7.6
%
$
7,676
8.4
%
$
(516)
(6.7)
%
Technology
837
0.9
%
1,020
1.1
%
(183)
(17.9)
%
Lease
expense and depreciation
549
0.6
%
721
0.8
%
(172)
(23.9)
%
Professional fees
97
0.1
%
339
0.4
%
(242)
(71.4)
%
Other
147
0.2
%
161
0.2
%
(14)
(8.7)
%
Total
research and development expenses
$
8,790
9.4
%
$
9,917
10.8
%
$
(1,127)
(11.4)
%
Employee costs decreased primarily due to an increase in employee compensation
capitalized in 2023 in relation to capitalized software projects as we are allocating more resources to product development this year.
Research and development expenses for the six months ended June 30, 2023 and 2022 were as follows:
Six
Months Ended June 30,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Change
% Change
Employee costs
$
14,144
7.7
%
$
15,131
8.2
%
$
(987)
(6.5)
%
Technology
1,718
0.9
%
2,011
1.1
%
(293)
(14.6)
%
Lease
expense and depreciation
1,188
0.6
%
1,435
0.8
%
(247)
(17.2)
%
Professional fees
353
0.2
%
587
0.3
%
(234)
(39.9)
%
Other
306
0.2
%
285
0.2
%
21
7.4
%
Total
research and development expenses
$
17,709
9.6
%
$
19,449
10.5
%
$
(1,740)
(8.9)
%
Employee costs decreased primarily due to an increase in employee compensation
capitalized in 2023 in relation to capitalized software projects as we are allocating more resources to product development this year.
General and Administrative
General and administrative expenses consist primarily of employee costs for salaries, benefits, stock-based compensation and other related costs, and related expenses for executive management, finance, human capital, legal and other administrative functions, as well as professional fees,
overhead, including allocated overhead, which is comprised of lease expense and other facilities-related
costs, depreciation expense related to general purpose equipment and software, amortization of cloud-computing implementation costs, changes in the fair value of our contingent consideration liability, Board of Directors compensation and expenses incurred for other general corporate purposes.
General and administrative expenses for the three months ended June 30, 2023 and 2022 were as follows:
Three
Months Ended June 30,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Change
% Change
Employee costs
$
6,961
7.5
%
$
9,523
10.4
%
$
(2,562)
(26.9)
%
Professional
fees
3,598
3.8
%
4,386
4.8
%
(788)
(18.0)
%
Technology
840
0.9
%
839
0.9
%
1
0.1
%
Lease
expense and depreciation
311
0.3
%
406
0.4
%
(95)
(23.4)
%
Other
1,564
1.7
%
1,949
2.1
%
(385)
(19.8)
%
Total
general and administrative expenses
$
13,274
14.2
%
$
17,103
18.7
%
$
(3,829)
(22.4)
%
Employee costs decreased primarily due to severance expense related to the
retirement of our former CEO recognized during the three months ended June 30, 2022 and a decrease in stock-based compensation expense during the three months ended June 30, 2023.
General and administrative expenses for the six months ended June 30, 2023 and 2022 were as follows:
Six
Months Ended June 30,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Change
% Change
Employee costs
$
14,197
7.7
%
$
18,000
9.7
%
$
(3,803)
(21.1)
%
Professional
fees
7,408
4.0
%
8,622
4.7
%
(1,214)
(14.1)
%
Technology
1,703
0.9
%
1,679
0.9
%
24
1.4
%
Lease
expense and depreciation
679
0.4
%
841
0.5
%
(162)
(19.3)
%
Other
2,861
1.5
%
6,078
3.3
%
(3,217)
(52.9)
%
Total
general and administrative expenses
$
26,848
14.5
%
$
35,220
19.0
%
$
(8,372)
(23.8)
%
Employee costs decreased primarily due to severance expense related to the
retirement of our former CEO recognized during the six months ended June 30, 2022 and a decrease in stock-based compensation expense during the six months ended June 30, 2023. Professional fees decreased due to a decrease in audit and other consulting fees. Other expense decreased primarily due to a $0.2 million loss resulting from the change in fair value of contingent consideration during the six months ended June 30, 2023 compared to a $2.4 million loss during the six months ended June 30, 2022.
Impairment of Goodwill
As of June 30, 2023, as a result of a decline in our stock price and market capitalization, among other factors, we
performed an interim impairment review of our goodwill. Our reporting unit did not pass the goodwill impairment test, and as a result we recorded a $44.1 million non-cash impairment charge in the three months ended June 30, 2023. For further information on our goodwill, refer to Footnote 4, Goodwill in this 10-Q and Item 7, "Critical Accounting Estimates" within our 2022 10-K.
Organizational Restructuring
In
September 2022, we communicated and began to implement a restructuring plan that included a workforce reduction. Certain other initiatives are expected to be completed as part of the restructuring plan, as described in Footnote 10, Organizational Restructuring. We incurred $4.1 million and $5.1 million of restructuring expenses during the three and six months ended June 30, 2023, respectively, related to the plan and expect restructuring costs to continue through the remainder of 2023 as other initiatives are completed. No restructuring expenses were incurred during the corresponding periods in 2022.
Other
Income (Expense), Net
Other income (expense), net represents income and expenses incurred that are generally not recurring in nature or are not part of our regular operations. The following is a summary of other income (expense), net for the three and six months ended June 30, 2023 and 2022:
Three
Months Ended June 30,
Six Months Ended June 30,
(In thousands)
2023
2022
2023
2022
Change in fair value of warrants liability
$
1,588
$
4,560
$
(227)
$
6,995
Other
21
(3)
24
(5)
Total
other income (expense), net
$
1,609
$
4,557
$
(203)
$
6,990
The change in other income (expense), net for the three and six months ended June 30, 2023 as compared to 2022 was largely driven by changes in the fair value of our warrants liability. The gain on the warrants liability for the three months ended June
30, 2023 was primarily due to a decrease in the trading price of our Common Stock during the quarter. The loss on the warrants liability for the six months ended June 30, 2023
was primarily due to the exercise price adjustment described in Footnote 5, Convertible Redeemable Preferred Stock and Stockholders' Equity, offset by the decrease in the trading price of our Common Stock during
the second quarter. The gain on the warrants liability during the three and six months ended June 30, 2022 was primarily due to a decrease in the trading price of our Common Stock during the respective periods.
Interest Expense, Net
Interest expense, net consists of interest income and interest expense. Interest income primarily consists of interest earned from our cash and cash equivalent balances. Interest expense relates to interest on our senior secured revolving credit agreement (the "Revolving Credit Agreement"), our sale-leaseback agreement, and our finance leases.
We incurred interest expense, net of $0.4 million and $0.2 million during the three months ended June 30, 2023 and 2022,
respectively, and $0.7 million and $0.4 million during the six months ended June 30, 2023 and 2022, respectively.
(Loss) Gain From Foreign Currency Transactions
Our foreign currency transactions are recorded as a result of fluctuations in the exchange rate between the transactional currency and the functional currency of foreign subsidiary transactions. Our international currency exposures that relate to the translation to U.S. Dollars are in a net liability position and our international currency exposures that relate to the translation from U.S. Dollars are in a net asset position.
For the three months ended June 30, 2023 and 2022, the (loss)
gain from foreign currency transactions was $(0.2) million and $2.5 million, respectively. For the six months ended June 30, 2023 and 2022, the (loss) gain from foreign currency transactions was $(1.6) million and $2.9 million, respectively. The loss during the three and six months ended June 30, 2023 was primarily driven by fluctuations between the Chilean Peso, Euro, Brazilian Lira and U.S. Dollar exchange rates. The gain during the three and six months ended June 30, 2022 was primarily driven by fluctuations between the Chilean Peso, Euro and U.S. Dollar exchange rates.
Income Tax Benefit (Provision)
A valuation allowance has been established against our net U.S. federal and state
deferred tax assets and certain foreign deferred tax assets, including net operating loss carryforwards. As a result, our income tax position is primarily related to foreign tax activity and U.S. deferred taxes for tax deductible goodwill and other indefinite-lived liabilities.
For the three months ended June 30, 2023 and 2022, we recorded an income tax benefit of $1.4 million and an income tax provision of $0.6 million, respectively, resulting in effective tax rates of 3.0% and 14.7%, respectively. For the six months ended June 30, 2023 and 2022, we recorded an income tax benefit of $0.2 million and an income tax provision $2.0 million, respectively, resulting in effective tax rates of 0.3% and 16.5%, respectively. These effective
tax rates differ from the U.S. federal statutory rate primarily due to the effects of certain permanent items, foreign tax rate differences, and increases in the valuation allowance against our domestic deferred tax assets. A deferred income tax benefit of $1.3 million related to the impairment of goodwill is included in the amounts recorded in the three and six months ended June 30, 2023. The difference in income tax position during 2023 as compared to 2022 is primarily due to the income tax benefit related to the impairment of goodwill and a decrease in estimated foreign tax expense in 2023.
Liquidity and Capital Resources
The following table summarizes our cash flows for each of the periods identified:
Six
Months Ended June 30,
(In thousands)
2023
2022
Net cash provided by operating activities
$
16,218
$
24,233
Net cash used in investing activities
(12,006)
(8,256)
Net
cash used in financing activities
(2,179)
(16,989)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
580
(1,208)
Net increase (decrease) in cash, cash equivalents and restricted cash
2,613
(2,220)
Overview
Our
principal uses of cash consist of cash paid for data, payroll and other operating expenses, including expenses incurred in prior periods; payments related to investments in equipment, primarily to support our consumer panels and technical infrastructure required to deliver our products and services and support our customers; service of our debt and lease facilities; and dividend payment obligations with respect to our Preferred Stock.
As of June 30, 2023, our principal sources of liquidity consisted of cash, cash equivalents and restricted cash totaling $23.1 million (including $0.4 million in restricted cash), cash flows from our operations, and amounts available to us under our Revolving Credit Agreement, as described below.
On May 5, 2021, we entered into the Revolving Credit Agreement
with Bank of America N.A. The Revolving Credit Agreement provides a borrowing capacity equal to $40.0 million, which was increased from $25.0 million on February 25, 2022. As of June 30, 2023, we had outstanding borrowings of $16.0 million and outstanding letters of credit totaling $3.4 million under the Revolving Credit Agreement, leaving a
remaining borrowing capacity of $20.6 million. During the three months ended June 30, 2023, we reclassified the outstanding borrowings
under the Revolving Credit Agreement to current liabilities as the facility matures in May 2024.
At an annual meeting of stockholders held on June 15, 2023 (the "Annual Meeting"), our stockholders approved proposals permitting the payment of annual dividends on the Preferred Stock in the form of cash, shares of Common Stock, additional shares of Preferred Stock, or a combination thereof. On the same date, each holder of Preferred Stock waived its right to receive on June 30, 2023 the annual dividends otherwise payable by us on that date. The deferred dividends will accrue at a rate of 9.5% per year from June 30, 2023 until declared and paid, with payment to occur on or before December 31, 2023 subject to certain conditions.
As of June 30, 2023, accrued dividends for the Preferred Stock totaled $15.6 million.
Macroeconomic Factors
During 2020 and 2021, the COVID-19 pandemic and related government mandates and restrictions had a significant impact on the media, advertising and entertainment industries in which we operate. The pandemic also had an impact on our business, including with respect to the execution of new and renewal contracts, the impact of closed movie theaters on our customers, customer payment delays and requests to modify contractual payment terms. In response to the COVID-19 pandemic, we took actions in 2020 and 2021 to mitigate the liquidity impact, including freezing hiring, exiting non-critical consultants and contractors, terminating or negotiating
reductions in vendor agreements and leases, and reducing certain travel, marketing, recruiting and other corporate activities. Although we cannot quantify the impact that the pandemic may have on our business in the future, we saw positive recovery in 2022, including the reopening of theaters in most markets worldwide. At the same time, however, macroeconomic factors such as inflation, rising interest rates, and supply chain disruptions caused some advertisers to reduce or delay advertising expenditures in the second half of 2022. These declines have continued into 2023 and have had a direct impact on demand for our products, particularly those that are closely tied to discretionary ad spend for bespoke deliverables. We expect that softness in the advertising market will continue to affect our business in the second half of 2023.
Preferred Stock
On March
10, 2021, in connection with the Securities Purchase Agreements described above, we issued 82,527,609 shares of Preferred Stock in exchange for gross cash proceeds of $204.0 million. Net proceeds from the Transactions totaled $187.9 millionafter deducting issuance costs. Shares of Preferred Stock are convertible into Common Stock as described in Footnote 5, Convertible Redeemable Preferred Stock and Stockholders' Equity. As of June 30, 2023, each share of Preferred Stock was convertible into 1.076270 shares of Common Stock, with such conversion rate scheduled to return to 1.00 upon payment of accrued dividends.
The holders of Preferred Stock
are entitled to participate in all dividends declared on the Common Stock on an as-converted basis and are also entitled to a cumulative dividend at the rate of 7.5% per annum, payable annually in arrears and subject to increase under certain specified circumstances. In addition, such holders are entitled to request, and we must take all actions reasonably necessary to pay, a one-time special dividend on the Preferred Stock equal to the highest dividend that our Board determines can be paid at the applicable time (or a lesser amount agreed by the holders), subject to additional conditions and limitations described in Footnote 5, Convertible Redeemable Preferred Stock and Stockholders' Equity. We may be obligated to obtain debt financing in order to effectuate the special dividend, which
could significantly impact our financial position and liquidity depending on the timing and scope of the dividend payment and related financing. Moreover, this obligation could lead us to refinance or terminate the Revolving Credit Agreement prior to its maturity, due to its restrictions on our ability to incur additional debt.
At the Annual Meeting held on June 15, 2023, our stockholders approved proposals permitting the payment of annual dividends on the Preferred Stock in the form of cash, shares of Common Stock, additional shares of Preferred Stock, or a combination thereof. On the same date, each holder of Preferred Stock waived its right to receive on June 30, 2023 the annual dividends otherwise payable by us on that date. Upon receipt of the waivers, our Board of Directors unanimously agreed to defer the June
30, 2023 dividend payment in order to provide flexibility for our management team to continue to execute our strategic plan and consider dividend payment options later in the year. Under the waivers and the Certificate of Designations governing the Preferred Stock, the deferred dividends will accrue at a rate of 9.5% per year from June 30, 2023 until declared and paid, with payment to occur on or before December 31, 2023 subject to certain conditions. Payment of annual dividends (including deferred dividends) in the form of cash could significantly impact our financial position and liquidity.
Revolving Credit Agreement
On May 5, 2021, we entered into the Revolving Credit Agreement, which matures in May 2024. The Revolving Credit
Agreement provides a borrowing capacity equal to $40.0 million (increased from $25.0 million on February 25, 2022). We may also request the issuance of letters of credit under the Revolving Credit Agreement in an aggregate amount up to $5.0 million, which reduces the amount of available borrowings by the amount of such issued and outstanding letters of credit.
On February 25, 2022, we entered into an amendment to the Revolving Credit Agreement to expand our aggregate borrowing capacity from $25.0 million to $40.0 million. The 2022 amendment also replaced the previous Eurodollar Rate (as defined in the Revolving Credit Agreement) with a SOFR-based interest rate and modified the Applicable Rate definition in the Revolving Credit Agreement to increase the Applicable Rate payable on SOFR-based loans to 2.50%. On February
24, 2023, we entered into an additional amendment to the Revolving Credit Agreement that further increased the Applicable Rate payable on SOFR-based loans to 3.50%.
The amount we are able to borrow under the Revolving Credit Agreement is subject to compliance with financial covenants, satisfaction of various conditions precedent to borrowing and other provisions of the Revolving Credit Agreement. Notably, the Revolving Credit Agreement (as amended) contains financial covenants that require us to maintain a minimum Consolidated Asset Coverage Ratio and minimum Liquidity through maturity, minimum Consolidated EBITDA for
periods through December 31, 2023, and a minimum Consolidated Fixed Charge Coverage Ratio for periods after December 31, 2023 (each term as defined in the Revolving Credit Agreement). As of June 30, 2023, we were in compliance with our covenants under the Revolving Credit Agreement, and based on our current plans, we do not anticipate a breach of these covenants that would result in an event of default under the Revolving Credit Agreement.
As of June 30, 2023, we had outstanding borrowings of $16.0 million and outstanding letters of credit totaling $3.4 million under the Revolving Credit Agreement, leaving a remaining borrowing capacity of $20.6 million. The borrowed funds were used to reduce our accounts payable balances, primarily
related to expenses incurred in prior periods, and support our working capital position. While we continue to take steps to reduce our outstanding trade payables and improve our working capital position, our liquidity could be negatively affected if we are unable to generate sufficient cash from operations to satisfy outstanding payables and meet our other financial obligations as they come due. Our liquidity could also be significantly affected if we are unable to repay or refinance our outstanding borrowings under the Revolving Credit Agreement upon its maturity in May 2024.
For additional information on the Revolving Credit Agreement, refer to Footnote 6, Debt.
Sale of Common Stock and Warrants
On
June 23, 2019, we entered into a Securities Purchase Agreement with CVI pursuant to which we sold to CVI for aggregate gross proceeds of $20.0 million (i) 2,728,513 shares of Common Stock and (ii) Series A Warrants, Series B-1 Warrants, Series B-2 Warrants and Series C Warrants to initially purchase up to 11,654,033 shares of Common Stock (the "Private Placement"). On October 14, 2019, we issued 2,728,513 shares of Common Stock to CVI upon exercise by CVI of the Series C Warrants. As a result of this exercise, the number of shares issuable under our Series A Warrants was increased by 2,728,513. On January 29, 2020, the Series B-1 Warrants expired unexercised. On August 3, 2020, the Series B-2 Warrants expired unexercised.
The
exercise price of our Series A Warrants was adjusted in connection with the Transactions in March 2021 and further adjusted in connection with shares issued to non-executive employees under our annual incentive compensation plan in March 2023. For additional information on the Private Placement and the adjustments to our Series A Warrants, refer to Footnote 5, Convertible Redeemable Preferred Stock and Stockholders' Equity.
Operating Activities
Our primary source of cash provided by operating activities is revenues generated from sales of our products and services. Our primary uses of cash from operating activities include personnel costs and costs related to data and infrastructure used to develop and maintain our products
and services.
Cash provided by operating activities is calculated by adjusting our net loss for changes in working capital, as well as by excluding non-cash items such as: depreciation, non-cash operating lease expense, amortization expense of finance leases and intangible assets, goodwill impairment, stock-based compensation, deferred tax provision, change in the fair value of contingent consideration and warrants liability, and amortization of deferred financing costs.
Net cash provided by operating activities for the six months ended June 30, 2023 was $16.2 million compared to $24.2 million for the six months ended June 30, 2022. The decrease in cash provided by operating activities was partially attributable to a net decrease in cash generated from operating assets and liabilities,
with $5.5 million generated for the six months ended June 30, 2023 as compared to $9.2 million for the six months ended June 30, 2022. The lower amount of cash generated from operating assets and liabilities in 2023 is primarily due to the first payment of contingent consideration for our 2021 Shareablee acquisition and severance payments made in 2023. Other contributors to the decrease in cash provided by operating activities were lower adjustments for amortization, stock-based compensation expense and change in fair value of contingent consideration in 2023 compared to 2022, offset by the change in fair value of our warrants liability.
Investing Activities
Cash used in investing activities primarily consists of payments related to capitalized internal-use software costs, purchases
of computer and network equipment to support our technical infrastructure, and furniture and equipment. The extent of these investments will be affected by our ability to expand relationships with existing customers, grow our customer base and introduce new digital formats, as well as constraints on cash expenditures due to our financial position and the current economic environment.
Net cash used in investing activities for the six months ended June 30, 2023 was $12.0 million compared to $8.3 million for the six months ended June 30, 2022. The increase in cash used in investing activities was primarily due to an increase in cash paid for capitalized internally developed software as we increased our focus on product infrastructure and innovation in 2023.
Financing Activities
Net
cash used in financing activities during the six months ended June 30, 2023 was $2.2 million compared to $17.0 million during the six months ended June 30, 2022. The decrease in cash used in financing activities was primarily due to the deferral of accrued dividends due to
holders of the Preferred Stock on June 30, 2023, as described under "Preferred Stock" above. This was offset by a portion of the first payment of contingent consideration for our 2021 Shareablee
acquisition initially recorded at fair value and paid during the six months ended June 30, March 31, 2023.
Contractual Payment Obligations
We have certain long-term contractual arrangements that have fixed and determinable payment obligations including purchase obligations with MVPDs and connected (Smart) television providers, operating and financing leases, and data storage and bandwidth arrangements.
We have data licensing agreements with a number of MVPDs and other providers for set-top box and connected (Smart) television data. These agreements have remaining terms from one to eight years. As of June 30, 2023, the total fixed payment obligations related to set-top box and connected (Smart) television data agreements are $286.0 million
and $4.4 million, respectively. In addition, we expect to make variable payments related to a set-top box data agreement totaling an estimated $4.5 million by the end of 2023.
We have both operating and financing leases related to corporate office space and equipment. Our leases have remaining terms from one to five years. As of June 30, 2023, the total fixed payment obligation related to these agreements is $45.2 million.
We have an agreement for cloud-based data storage and bandwidth to help process and store our data. The remaining term for this agreement is less than one year. As of June 30, 2023, the total fixed payment obligation related to this agreement is $4.4 million.
Future Capital Requirements
Our
ability to generate cash is subject to our performance, general economic conditions, industry trends and other factors, including the timing of cash collections from our customers, data costs and other trade payables, service of our debt and lease facilities, dividend payment obligations, and expenses from ongoing compliance efforts and legal matters. To the extent that our existing cash, cash equivalents and operating cash flow, together with savings from repayment of prior debt arrangements and cost-reduction initiatives undertaken by our management, are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. We may also be required to raise additional funds in order to repay our Revolving Credit Agreement upon maturity or pay a special dividend to holders of our Preferred Stock, as described above. Our history of net losses, as well as disruption and volatility in global
capital and credit markets, could impact our ability to access capital resources on terms acceptable to us or at all. If we issue additional equity securities in order to raise additional funds, pay dividends or for other purposes, further dilution to existing stockholders may occur.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the amounts reported in our Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements. We base
our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
Refer to the critical accounting estimates disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our 2022 10-K for detailed information about the estimates and assumptions that we consider to be the most critical to an understanding of our financial condition and results of operations. These estimates and assumptions involve significant judgments and uncertainties, and actual results in these areas could differ from our estimates.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. We have outstanding warrants that are subject to market risk. We also have interest rate risk for amounts outstanding under our Revolving Credit Agreement, and we have foreign currency exchange rate risk from our global operations.
Warrants liability financial instrument risk
As a result of having
$0.9 million in liability related to outstanding warrants as of June 30, 2023, which warrants are exercisable for shares of Common Stock under certain conditions, we are subject to market risk. The value of the warrants is impacted by changes in the market price of our Common Stock.
As of June 30, 2023, a 10% increase in the market price of our Common Stock would result in a $0.3 million increase in the fair value of the Series A Warrants, while a 10% decrease in the market price of our Common Stock would result in a $0.2 million decrease in the fair value of the Series A Warrants.
For further information on our outstanding warrants, refer to Footnote 5,
Convertible Redeemable Preferred Stock and Stockholders' Equity.
Interest rate and foreign currency risks
For discussion of the market risk associated with our interest rate and foreign currency risks, refer to Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" within the 2022 10-K.
We carried out an evaluation required by the Securities Exchange Act of 1934 (the "Exchange Act"), under the supervision and with the participation of our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of June 30, 2023. Based on this
evaluation, our principal executive officer and principal financial officer concluded that as of June 30, 2023, these disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Under Exchange Act Rules 13a-15(d) and 15d-15(d), management is required to evaluate, with the participation of our
principal executive officer and our principal financial officer, any changes in internal control over financial reporting that occurred during each fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal
control over financial reporting can only provide reasonable, not absolute, assurance that its objectives will be met. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but we cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting in future periods.
An investment in our Common Stock involves a substantial risk of loss. In addition to the information in this report, you should carefully consider the risks discussed in Item 1A,
"Risk Factors" of our 2022 10-K before you decide whether to invest in our stock. The risks identified below and in our 2022 10-K could materially and adversely affect our business, financial condition and operating results. In that case, the trading price of our Common Stock could decline, and you could lose part or all of your investment. The risks described below and in our 2022 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and operating results, and may result in the loss of part or all of your investment.
If we are unable to meet Nasdaq continued listing requirements, Nasdaq may take action to delist our Common Stock.
Our Common Stock is listed on the Nasdaq Global Select Market. Continued listing is subject
to compliance with a number of requirements. On July 11, 2023, we received a standard letter from The Nasdaq Stock Market LLC stating that we were not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5450(a)(1) because our Common Stock did not maintain a minimum closing bid price of $1.00 per share for 30 consecutive business days.
The notification letter has no immediate effect on the listing of our Common Stock on Nasdaq. The letter provides that we have an automatic period of 180 calendar days to regain compliance with Rule 5450(a)(1). To regain compliance, the closing bid price of our Common Stock must be at least $1.00 per share for a minimum of 10 consecutive business days at any time prior to the expiration of the 180-day period (January 8, 2024). In the event that we do not regain compliance
during the initial 180-day period, the letter provides that we may be eligible for additional time to reach compliance.
We intend to actively monitor the bid price of our Common Stock and will consider all available options to resolve the deficiency and regain compliance with Rule 5450(a)(1). We are committed to regaining compliance prior to the expiration of applicable compliance periods. If we are unable to do so, however, Nasdaq may take action to delist our Common Stock. A delisting of our Common Stock could negatively impact us and our stockholders by reducing the liquidity and market price of our Common Stock and potentially reducing the number of investors willing to hold or buy our Common Stock. A delisting also could have negative consequences under our financing agreements and could adversely affect our ability to raise capital.
Our outstanding securities, the stock or securities
that we may issue under existing or future agreements, and certain provisions of those securities, may cause immediate and substantial dilution to our existing stockholders.
Our existing stockholders have and may continue to experience substantial dilution as a result of our obligations to issue shares of Common Stock. As of June 30, 2023, our Preferred Stock was convertible into an aggregate of 88,821,997 shares of Common Stock at the election of the holders. Furthermore, we have reserved 5,457,026 shares of Common Stock for issuance pursuant to our Series A Warrants, which are subject to adjustment upon certain issuances of capital stock. We have also issued 8,066,876 shares of Common Stock for distribution to the selling stockholders of Shareablee (which we acquired in December 2021), and we may elect to pay any deferred consideration due to the Shareablee sellers in 2023
and 2024 in shares of Common Stock. In addition, in June 2023 our stockholders adopted an amendment to the Certificate of Designations of our Preferred Stock to permit payment of annual dividends on the Preferred Stock in the form of cash, shares of Common Stock, additional shares of Preferred Stock (which would be convertible into shares of Common Stock) or a combination thereof.
As of June 30, 2023, 2,231,874 shares of Common Stock were reserved for issuance pursuant to outstanding stock options under our equity incentive plans (including stock option awards we assumed in the Shareablee acquisition), 4,617,894 shares of Common Stock were reserved for issuance pursuant to outstanding restricted stock unit and deferred stock unit awards under our equity incentive plans and arrangements (including Shareablee plan awards and an employment inducement award we granted in 2021), and
10,163,083 shares of Common Stock were available for future equity awards under our 2018 Equity and Incentive Compensation Plan. Our acquired Shareablee plan expired on June 21, 2023. As a result, there are no shares remaining available for future equity awards under the Shareablee plan as of June 30, 2023.
The issuance of shares of Common Stock (i) upon the conversion of or payment of dividends on our Preferred Stock, (ii) upon the exercise of warrants, (iii) as deferred consideration to the Shareablee sellers, (iv) pursuant to outstanding and future equity awards, or (v) upon the conversion of other existing or future convertible securities, may result in substantial dilution to each of our stockholders by reducing that stockholder's percentage ownership of our outstanding Common Stock.
XBRL Instance Document
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
