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12: R2 Condensed Consolidated Balance Sheets HTML 143K
13: R3 Condensed Consolidated Balance Sheets HTML 79K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Operations HTML 137K
and Comprehensive Loss
15: R5 Condensed Consolidated Statements of Operations HTML 45K
and Comprehensive Loss (Parenthetical)
16: R6 Condensed Consolidated Statements of Convertible HTML 92K
Redeemable Preferred Stock and Stockholders'
Equity
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18: R8 Organization HTML 21K
19: R9 Summary of Significant Accounting Policies HTML 57K
20: R10 Revenue Recognition HTML 60K
21: R11 Convertible Redeemable Preferred Stock and HTML 27K
Stockholders' Equity
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23: R13 Fair Value Measurements HTML 76K
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Narrative (Details)
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Income (Expense), Net (Details)
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Securities Excluded From Earnings Per Share
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Stockholders' Equity (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 May 4, 2023, there were i93,494,451
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; 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 $i646 and $i798, respectively ($i743
and $i1,034 of accounts receivable attributable to related parties, respectively)
i62,988
i68,457
Prepaid
expenses and other current assets
i15,839
i15,922
Total
current assets
i99,499
i104,821
Property
and equipment, net
i37,160
i36,367
Operating
right-of-use assets
i23,804
i23,864
Deferred
tax assets
i3,575
i3,351
Intangible
assets, net
i10,516
i13,327
Goodwill
i388,263
i387,973
Other
non-current assets
i10,826
i10,883
Total
assets
$
i573,643
$
i580,586
Liabilities,
Convertible Redeemable Preferred Stock and Stockholders' Equity
Current liabilities:
Accounts payable ($i12,449
and $i12,090 attributable to related parties, respectively)
$
i33,694
$
i29,090
Accrued
expenses ($i4,892 and $i4,297 attributable to related parties, respectively)
i36,289
i43,393
Contract
liabilities ($i1,235 and $i1,341 attributable to related parties, respectively)
i56,868
i52,944
Customer
advances
i11,688
i11,527
Current
portion of contingent consideration
i3,623
i7,134
Current
operating lease liabilities
i7,861
i7,639
Warrants
liability
i2,533
i718
Other
current liabilities ($i11,688 and $i7,863 attributable to related parties, respectively)
i14,958
i12,646
Total
current liabilities
i167,514
i165,091
Non-current
operating lease liabilities
i28,787
i29,588
Non-current
portion of accrued data costs ($i17,057 and $i15,471 attributable to related parties, respectively)
i26,882
i25,106
Revolving
line of credit
i16,000
i16,000
Deferred
tax liabilities
i2,719
i2,127
Other
non-current liabilities
i7,078
i10,627
Total
liabilities
i248,980
i248,539
Commitments
and contingencies
i
i
Convertible
redeemable preferred stock, $ii0.001/
par value; iiiiii82,527,609/////
shares authorized, issued and outstanding as of March 31, 2023 and December 31, 2022; aggregate liquidation preference of $i215,688 as of March 31, 2023, and $i211,863
as of December 31, 2022 (related parties)
Common
stock, $ii0.001/ par value; ii275,000,000/
shares authorized as of March 31, 2023 and December 31, 2022; i99,124,324 shares issued and i92,359,528
shares outstanding as of March 31, 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 8, 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 4, Convertible Redeemable Preferred Stock and Stockholders' Equity and Footnote 8, Related Party Transactions, of the Notes to Condensed Consolidated Financial Statements for additional information).
See accompanying Notes to Condensed Consolidated Financial Statements.
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, 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.
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 months ended March 31, 2023 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2023 or thereafter. All references to March 31, 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.
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. ("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 4, 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.
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 March 31, 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 March 31, 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 4, 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 (expense) income, 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 March 31, 2023, the probability of a change of control was determined to be remote and did not require an enhancement to the valuation technique.
Other (Expense) Income, Net
iOther (expense) income, 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 (expense) income, net:
Three
Months Ended March 31,
(In thousands)
2023
2022
Change in fair value of warrants liability
$
(i1,815)
$
i2,435
Other
i3
(i2)
Total
other (expense) income, net
$
(i1,812)
$
i2,433
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 in the first quarter of 2023. The remaining amount of the first installment is expected to be paid in cash in the second quarter of 2023. The Company calculated a potential anti-dilutive share count based on the remaining expected payments totaling $i4.9 million and the $i1.23
per share closing price
of the Company's Common Stock on the Nasdaq Global Select Market on March 31, 2023. The Company calculated a potential anti-dilutive share count based on the expected payments totaling
$i8.6 million and the $i2.91
per share closing price of the Company's Common Stock on the Nasdaq Global Select Market on March 31, 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
i
The 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 March 31,
(In
thousands)
2023
2022
By solution group:
Digital Ad Solutions
$
i50,447
$
i53,137
Cross
Platform Solutions
i41,111
i40,829
Total
$
i91,558
$
i93,966
By
geographical market:
United States
$
i82,641
$
i84,082
Europe
i4,683
i5,207
Latin
America
i1,720
i1,790
Canada
i1,421
i1,819
Other
i1,093
i1,068
Total
$
i91,558
$
i93,966
By
timing of revenue recognition:
Products and services transferred over time
$
i77,656
$
i77,944
Products
and services transferred at a point in time
Significant
changes in the current contract liabilities balance are as follows:
Three Months Ended March 31,
(In thousands)
2023
2022
Revenue recognized that was included in the opening contract
liabilities balance
$
(i30,307)
$
(i34,979)
Cash
received or amounts billed in advance and not recognized as revenue
i37,070
i39,950
/
Remaining
Performance Obligations
As of March 31, 2023, approximately $i230 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 i39% of these remaining performance obligations during the remainder of 2023, approximately i32%
in 2024, and approximately i15% in 2025, with the remainder recognized thereafter.
4.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 March 31,
2023, each share of Preferred Stock would have been convertible into i1.057292 shares of Common Stock, with such assumed conversion rate scheduled to return to i1.00 upon payment of accrued dividends on June
30, 2023.
As of March 31, 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.
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 March 31, 2023 was $i2.5 million. Refer to Footnote 6, Fair
Value Measurements, for further information.
5.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 March 31, 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 March 31, 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.
6.iFair
Value Measurements
i
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 March 31, 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 March 31, 2023 and December 31, 2022, respectively. The non-current portion of the contingent consideration liability was $ii1.0/ million
as of March 31, 2023 and December 31, 2022, respectively.
(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 March 31, 2023 and December 31, 2022.
/
There were no changes to the Company's
valuation techniques or methodologies during the three months ended March 31, 2023 or 2022.
The following tables present the changes
in the Company's recurring Level 3 fair valued instruments for the three months ended March 31, 2023 and 2022, respectively:
(1) The loss on remeasurement
of the warrants liability was recorded in other (expense) income, 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 (expense) income, net, in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
(2) The contingent consideration liability was transferred from Level 3 to Level 2 in 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 March 31, 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.
As of March 31, 2023 (based on public filings), WPP plc and its affiliates ("WPP") owned i11,319,363 shares of the Company's outstanding Common Stock, representing i12.3%
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:
Charter, Qurate and Pine each hold iii33.3//%
of the outstanding shares of Preferred Stock, which are entitled to convert 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 March 31, 2023 (based on public filings), Pine also owned i2,193,088 shares of the Company's outstanding Common Stock, representing i2.4%
of the outstanding Common Stock. In addition, Charter, Qurate and Pine each designated iiitwo//
members of the Company's Board in accordance with the Stockholders Agreement
As of March 31, 2023 and December 31, 2022, Charter, Qurate and Pine each owned iiiiii27,509,203/////
shares of the Company's outstanding Preferred Stock. Accrued dividends to the holders of Preferred Stock as of March 31, 2023 and December 31, 2022 were $i11.7 million and $i7.9
million, respectively. The next scheduled dividend payment date for the Preferred Stock is June 30, 2023.
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.
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 March 31,
(In thousands)
2023
2022
Revenues
$
i485
$
i726
Cost
of revenues
i4,971
i5,528
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
from transactions with Qurate and its affiliates in the normal course of business during the three months ended March 31, 2023 and 2022, as reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
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.
The table below
summarizes the activity and balance of the restructuring liability as of March 31, 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 three months ended March 31, 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 March 31, 2023, the total fixed payment obligations related to set-top box and connected television data agreements are $i293.5 million and $i6.4 million,
respectively.
i
The information set forth below summarizes the contractual obligations, by year, as of March 31, 2023:
(In thousands)
2023 (remaining)
$
i27,993
2024
i29,966
2025
i29,756
2026
i37,006
2027
i37,506
Thereafter
i137,699
Total
$
i299,926
/
In
addition, the Company expects to make variable payments related to a set-top box data agreement totaling an estimated $i6.8 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 March 31, 2023 is approximately $i2.1 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 March 31, 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 March 31, 2023 and 2022 were as follows:
Three
Months Ended March 31,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Variance
% Variance
Digital Ad Solutions
$
50,447
55.1
%
$
53,137
56.5
%
$
(2,690)
(5.1)
%
Cross
Platform Solutions
41,111
44.9
%
40,829
43.5
%
282
0.7
%
Total revenues
$
91,558
100.0
%
$
93,966
100.0
%
$
(2,408)
(2.6)
%
Digital
Ad Solutions revenue decreased primarily due to lower revenue from our custom digital solutions and other digital products. The decline in custom digital solutions was primarily driven by lower deliverables to multiple customers. We believe that macroeconomic factors (including inflation, rising interest rates and supply chain disruptions) have caused some advertisers to reduce or delay advertising expenditures, impacting demand for certain digital products. We expect this trend to continue as we move through the year.
Cross Platform Solutions revenue increased primarily due to higher local TV and movies revenue, which was offset by lower national TV revenue. Local TV increased due to higher renewals and new business. These increases were offset by lower revenue from national TV due to recognition of revenue for 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 March 31, 2023 and 2022 were as follows:
Systems and bandwidth costs decreased primarily due to cloud computing and processing costs attributable to certain custom TV data set deliveries in the first quarter of 2022 that did not recur in 2023. Employee costs decreased primarily due to an increase in employee compensation capitalized in the first quarter of 2023 in relation to capitalized software projects.
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 March 31, 2023 and 2022 were as follows:
Three
Months Ended March 31,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Change
% Change
Employee costs
$
13,847
15.1
%
$
14,210
15.1
%
$
(363)
(2.6)
%
Lease
expense and depreciation
845
0.9
%
946
1.0
%
(101)
(10.7)
%
Professional fees
788
0.9
%
508
0.5
%
280
55.1
%
Technology
778
0.8
%
847
0.9
%
(69)
(8.1)
%
Other
896
1.0
%
655
0.7
%
241
36.8
%
Total
selling and marketing expenses
$
17,154
18.7
%
$
17,166
18.3
%
$
(12)
(0.1)
%
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 March 31, 2023 and 2022 were as follows:
Three
Months Ended March 31,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Change
% Change
Employee costs
$
6,984
7.5
%
$
7,455
7.9
%
$
(471)
(6.3)
%
Technology
881
1.0
%
991
1.1
%
(110)
(11.1)
%
Lease
expense and depreciation
639
0.7
%
714
0.8
%
(75)
(10.5)
%
Professional fees
256
0.3
%
248
0.3
%
8
3.2
%
Other
159
0.2
%
124
0.1
%
35
28.2
%
Total
research and development expenses
$
8,919
9.7
%
$
9,532
10.1
%
$
(613)
(6.4)
%
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 March 31, 2023 and 2022 were as follows:
Three
Months Ended March 31,
(In thousands)
2023
% of Revenue
2022
% of Revenue
$ Change
% Change
Employee costs
$
7,236
7.9
%
$
8,477
9.0
%
$
(1,241)
(14.6)
%
Professional
fees
3,810
4.2
%
4,236
4.5
%
(426)
(10.1)
%
Technology
863
0.9
%
840
0.9
%
23
2.7
%
Lease
expense and depreciation
368
0.4
%
435
0.5
%
(67)
(15.4)
%
Other
1,297
1.4
%
4,129
4.4
%
(2,832)
(68.6)
%
Total
general and administrative expenses
$
13,574
14.8
%
$
18,117
19.3
%
$
(4,543)
(25.1)
%
Employee costs decreased primarily due to a decrease in stock-based compensation
expense. Other expense decreased primarily due to a $2.3 million loss resulting from the change in fair value of contingent consideration in the first quarter of 2022, as compared to a $0.1 million loss in the first quarter of 2023.
Other (expense) income, 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 (expense) income, net for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
(In thousands)
2023
2022
Change
in fair value of warrants liability
$
(1,815)
$
2,435
Other
3
(2)
Total
other (expense) income, net
$
(1,812)
$
2,433
The change in other (expense) income, net for the three months ended March 31, 2023 as compared to 2022 was largely driven by changes in the fair value of our warrants liability. The loss on the warrants liability for the three months ended March 31, 2023 was primarily due to the exercise price adjustment described in Footnote
4, Convertible Redeemable Preferred Stock and Stockholders' Equity and an increase in the trading price of our Common Stock during the quarter. The gain on the warrants liability during the three months ended March 31, 2022, was primarily due to a decrease in the trading price of our Common Stock during the quarter.
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 March 31, 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 March
31, 2023, the loss from foreign currency transactions was $1.5 million. For the three months ended March 31, 2022, the gain from foreign currency transactions was $0.4 million. The loss during the three months ended March 31, 2023 was primarily driven by fluctuations between the Euro, Chilean Peso and U.S. Dollar exchange rates. The gain during the three months ended March 31, 2022 was primarily driven by fluctuations between the Chilean Peso, Euro and U.S. Dollar exchange rates.
Income Tax 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 March 31, 2023 and 2022, we recorded an income tax provision of $1.2 million and $1.4 million, respectively, resulting in effective tax rates of 16.3% and 17.5%, 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.
Liquidity and Capital Resources
The following table summarizes our
cash flows for each of the periods identified:
Three Months Ended March 31,
(In thousands)
2023
2022
Net
cash provided by operating activities
$
7,251
$
12,408
Net cash used in investing activities
(5,832)
(3,799)
Net cash used in financing activities
(1,656)
(748)
Effect
of exchange rate changes on cash, cash equivalents and restricted cash
467
(86)
Net increase in cash, cash equivalents and restricted cash
230
7,775
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 March 31, 2023, our principal sources of liquidity consisted of cash, cash equivalents and restricted cash totaling $20.7 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 March 31, 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.
As of March 31, 2023, accrued dividends for the Preferred Stock totaled $11.7 million. The next scheduled dividend payment date for the Preferred Stock is June
30, 2023.
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 for which we recognize revenue based on impressions used. We expect that softness in the advertising market will continue to affect our business in 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 4, Convertible Redeemable Preferred Stock and Stockholders' Equity. As of March 31, 2023, each share of Preferred Stock was convertible into 1.057292 shares of Common Stock, with such conversion rate scheduled to return to 1.00 upon payment of accrued dividends on June 30, 2023.
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 4, 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.
Revolving Credit Agreement
On May 5, 2021, we entered into the Revolving Credit Agreement, which matures on May 5, 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 March 31, 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 March 31, 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 negatively affected if we are unable to repay or refinance our outstanding borrowings under the Revolving
Credit Agreement upon its maturity in 2024.
For additional information on the Revolving Credit Agreement, refer to Footnote 5, 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 4,
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, 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 three months ended March 31, 2023 was $7.3 million compared to $12.4 million for the three months ended March 31, 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 $2.7 million generated for the three months ended March 31, 2023 as compared to $5.1 million for the three months ended March 31, 2022. The lower amount of cash generated from operating assets and liabilities in 2023 is primarily reflective of aged receivables collected in 2022. 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 three months ended March 31, 2023 was $5.8 million compared to $3.8 million for the three months ended
March 31, 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 three months ended March 31, 2023 was $1.7 million compared to $0.7 million during the three months ended March 31, 2022. The increase in cash used in financing activities was primarily due to the portion of the first payment of the contingent consideration for the Shareablee acquisition initially recorded at fair value and paid during the three months ended 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 March 31, 2023, the total fixed payment obligations related to set-top box and
connected
(Smart) television data agreements are $293.5 million and $6.4 million, respectively. In addition, we expect to make variable payments related to a set-top box data agreement totaling an estimated $6.8 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 March 31, 2023, the total fixed payment obligation related to these agreements is $48.1 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 one year. As of March 31, 2023, the total fixed payment obligation related to this agreement is $7.0 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 and 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
$2.5 million in liability related to outstanding warrants as of March 31, 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 March 31, 2023, a 10% increase in the market price of our Common Stock would result in a $0.5 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 $0.5 million decrease in the fair value of the Series A Warrants.
For further information on our outstanding warrants, refer to Footnote 4,
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 March 31, 2023. Based on this
evaluation, our principal executive officer and principal financial officer concluded that as of March 31, 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.
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 March 31, 2023, our Preferred Stock was convertible into an aggregate of 87,255,755 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, we have proposed that our stockholders adopt 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 March 31, 2023, 2,241,980 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), 7,182,468 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 assumed Shareablee awards and an employment inducement award we granted in 2021), 158,489 shares of Common Stock were available for future equity awards under our 2018 Equity and Incentive Compensation Plan ("2018 Plan") and
178,832 shares of Common Stock were available for future equity awards under our acquired Shareablee plan. Additionally, we have proposed that our stockholders approve an amendment to the 2018 Plan to increase the number of shares available for grant under the 2018 Plan by 10,000,000.
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.
ITEM 2.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)Unregistered Sales of Equity Securities during the Three Months Ended March 31, 2023
None.
(b)Use of Proceeds from Sale of Registered Equity Securities
None.
(c)Purchases of Equity Securities by the Issuer and Affiliated Purchasers
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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.
