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14: R1 Cover Page HTML 70K
15: R2 Condensed Consolidated Balance Sheets HTML 148K
16: R3 Condensed Consolidated Balance Sheets HTML 86K
(Parenthetical)
17: R4 Condensed Consolidated Statements of Operations HTML 166K
and Comprehensive Loss
18: R5 Condensed Consolidated Statements of Operations HTML 42K
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19: R6 Condensed Consolidated Statements of Convertible HTML 117K
Redeemable Preferred Stock and Stockholders'
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(Parenthetical)
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23: R10 Summary of Significant Accounting Policies HTML 77K
24: R11 Revenue Recognition HTML 73K
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Stockholders' Equity
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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 5, 2021, there were i82,171,303
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; 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 business continuity, financing and capital expenditures; expectations regarding liquidity, customer payments and compliance with debt and financing covenants and other payment obligations; expectations
regarding enhanced commercial relationships and the development and introduction of new products; effects of restructuring, remote work arrangements and other employment actions; regulatory compliance and expected changes in the regulatory or privacy landscape affecting our business; expected impact of litigation and regulatory proceedings; and plans for stabilization, 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, 2020; 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 $i1,332 and $i2,757, respectively ($i4,243
and $i4,045 of accounts receivable attributable to related parties, respectively)
i63,903
i69,379
Prepaid
expenses and other current assets ($i891 and $i1,496 attributable to related parties, respectively)
i12,261
i16,910
Total
current assets
i93,844
i137,030
Property
and equipment, net
i31,683
i30,973
Operating
right-of-use assets
i31,201
i28,959
Goodwill
i417,619
i418,327
Intangible
assets, net
i39,645
i52,340
Deferred
tax assets
i2,783
i2,741
Other
non-current assets
i10,604
i7,600
Total
assets
$
i627,379
$
i677,970
Liabilities,
Convertible Redeemable Preferred Stock and Stockholders' Equity
Current liabilities:
Accounts payable ($i6,104
and $i2,817 attributable to related parties, respectively)
$
i44,965
$
i36,640
Accrued
expenses ($i8,470 and $i835 attributable to related parties, respectively)
i43,227
i48,380
Contract
liabilities ($i1,486 and $i3,538 attributable to related parties, respectively)
i50,309
i58,529
Customer
advances
i10,187
i12,477
Warrants
liability
i19,351
i2,831
Current
operating lease liabilities
i6,823
i7,024
Secured
term note
i—
i12,644
Other
current liabilities ($i43 and $i— attributable to related parties, respectively)
Other
non-current liabilities ($i4,158 and $i6,120 attributable to related parties, respectively)
i19,990
i19,600
Total
liabilities
i240,873
i448,980
Commitments
and contingencies
i
i
Convertible
redeemable preferred stock, $ii0.001/
par value; iii82,527,609//
and iiizero//
shares authorized, issued and outstanding as of June 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $i204,043 as of June 30, 2021 (related parties)
Common
stock, $ii0.001/ par value; i275,000,000
and i150,000,000 shares authorized as of June 30, 2021 and December 31, 2020, respectively; i88,936,873
shares issued and i82,172,077 shares outstanding as of June 30, 2021, and i79,703,342 shares issued and i72,938,546
shares outstanding as of December 31, 2020
(1)
Transactions with related parties are included in the line items above (refer to Footnote 8, Related Party Transactions, of the Notes to Condensed Consolidated Financial Statements for additional information).
(2) Excludes amortization of intangible assets, which is presented as a separate line item.
(3)
Stock-based compensation expense is included in the line items above as follows:
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, 2020 (the "2020 10-K"). The Condensed Consolidated Results of Operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2021 or thereafter. All references to June 30, 2021 and 2020 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 financing-related liabilities and warrants, the allowance for doubtful accounts, 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, particularly in the current environment, 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.
Loss on Extinguishment of Debt
iThe Company applies the provisions of Accounting Standards Codification ("ASC") 470, Debt, to determine whether amendments to, or repayments of,
its debt agreements should be accounted for as a modification or extinguishment event. Loss on extinguishment of debt represents the difference between the carrying value of the Company's debt instruments and any consideration paid to its creditors in the form of cash or shares of the Company's Common Stock on the extinguishment date.
In the three months ended March 31, 2021, the
Company recorded a $i9.6 million loss on debt extinguishment related to the payoff of the senior secured convertible notes (the "Notes") and the secured promissory note (the "Secured Term Note") on March 10, 2021. These transactions are described in Footnote 4, Debt.
Other
(Expense) Income, Net
i
Three
Months Ended June 30,
Six Months Ended June 30,
(In thousands)
2021
2020
2021
2020
Change in fair value of warrants liability
$
(i6,519)
$
(i758)
$
(i16,520)
$
i3,893
Change
in fair value of financing derivatives
i—
i2,300
i1,800
i4,687
Other
i11
(i65)
(i62)
i91
Total
other (expense) income, net
$
(i6,508)
$
i1,477
$
(i14,782)
$
i8,671
/
Preferred
Stock
On January 7, 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"). The issuance of securities 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 "Closing Date"). On the Closing Date of the Transactions, the
Company issued and sold (a) to Charter, i27,509,203 shares of Series B Convertible Preferred Stock ("Preferred Stock") in exchange for $i68.0
million, (b) to Qurate, i27,509,203 shares of Preferred Stock in exchange for $i68.0
million and (c) to Pine, i27,509,203 shares of Preferred Stock in exchange for $i68.0
million. The shares were issued at a par value of $i0.001. Net proceeds from the Transactions totaled $i188.2
million after deducting issuance costs.
The holders of the Preferred Stock are entitled to cumulative annual dividends to be paid on June 30 of each year. The annual dividend accrues on a daily basis from and including the issuance date of such share, whether or not declared, at a rate of i7.5% per annum. In the event the annual dividends are not paid in cash on the annual payment date, the dividends shall continue to accrue at a dividend rate of i9.5%.
i
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 under ASC 815, Derivatives and Hedging. As of June 30, 2021, 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.
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 is 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, 2021 because a deemed liquidation event is not considered probable.
All financial instruments that are classified
as mezzanine equity are evaluated for embedded derivative features by evaluating each feature against the nature of the host instrument (e.g. more equity-like or debt-like). Features identified as embedded derivatives that are material are recognized separately as a derivative asset or liability in the consolidated financial statements.
i
Effective January 1, 2021, the Company
early adopted Accounting Standards Update ("ASU") 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40). This ASU simplifies accounting for convertible instruments, enhances disclosure requirements related to the terms and features of convertible instruments, and amends the guidance for the derivatives scope exception for contracts settled in an entity's own equity. This ASU removes from GAAP the separation models for (1) convertible debt with a Cash Conversion Feature and (2) convertible instruments with a Beneficial Conversion Feature. Upon adoption of this new ASU, entities will account for
a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock, unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815, or (2) a convertible debt instrument was issued at a substantial premium.
As a result of the adoption, no embedded features were identified requiring bifurcation under the new model, other than the change of control redemption feature. The Company adopted the standard using the modified retrospective approach. The standard had no impact on the senior secured convertible notes issued by the Company and, as a result, there was no cumulative adjustment recorded upon adoption.
Income Taxes
iThe
Company anticipates the Transactions will trigger limitations on its net operating loss carryforwards under Section 382 of the Internal Revenue Code. As such, the amount of net operating loss carryforwards the Company can use in the future to offset U.S. federal and state taxable income may be limited, resulting in the expiration of a portion of the carryforwards prior to use. Due to the Company's valuation
allowance position in
the U.S., the required revaluation of its deferred tax assets related to these limited U.S. federal and state net operating loss carryforwards did not have a material impact on the Condensed Consolidated Financial Statements or related disclosures.
Loss Per Share
i
The Company uses the two-class method to calculate 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 net loss attributable to only the common stockholders by the weighted-average number of common shares outstanding for the period. Diluted loss per share includes the impact of share-based compensation to the extent the effect is dilutive.
In periods where a net loss is reported, the anti-dilutive effect of preferred shares, warrants, senior secured convertible notes, stock options, restricted stock units and deferred stock units are 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:
Stock
options, restricted stock units and deferred stock units
i5,247,075
i3,621,867
i4,435,010
i3,090,422
Senior
secured convertible notes
i—
i6,519,655
i2,462,981
i6,519,655
Total
i93,231,710
i16,719,624
i63,705,529
i16,564,285
/
As
of June 30, 2021, dividends to holders of the Preferred Stock, including those both paid and accrued, totaled $i4.8 million. These dividends have been included in calculating the total net loss available to common stockholders used in the calculation of basic and diluted loss per share.
Impairment of Right-of-use ("ROU") and Long-lived Assets
i
In
the three months ended March 31, 2020, the Company concluded the carrying value of certain facility lease ROU and other long-lived assets may not be recoverable. In its assessment, the Company considered changes in the real estate market related to the COVID-19 pandemic, that led to an increase in the estimated marketing time, and a reduction of expected receipts, for properties on the market for sublease. The Company performed a quantitative asset impairment test using a discounted cash flow model. Certain ROU and related leasehold improvements failed the asset impairment test; and as a result the
Company recorded a $i4.7 million non-cash impairment charge.
Although the Company believes that the carrying values of its long-lived assets are appropriately stated as of June 30, 2021, future changes in strategy or market conditions, significant technological developments or significant changes in legal or regulatory factors could significantly impact these judgments and require adjustments to
recorded asset balances.
/
Allowance for Doubtful Accounts
iThe Company generally grants uncollateralized credit terms to its customers and maintains an allowance for doubtful accounts to reserve for uncollectible receivables.
Allowances are based on management's judgment, which considers historical collection experience adjusted for current conditions or expected future conditions based on reasonable and supportable forecasts, a specific review of all significant outstanding receivables, an assessment of company-specific credit conditions and general economic conditions. Management considered the impact of the COVID-19 pandemic, including customer payment delays and requests from customers to revise contractual payment terms, in determining the Company's allowance for doubtful accounts.
i
The
table below summarizes the change in balance of the allowance for doubtful accounts:
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes primarily by eliminating certain exemptions. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the update and to delay adoption of the additional disclosures until their effective date. The Company adopted the new standard effective January 1, 2021, which had
no 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 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)
2021
2020
2021
2020
By solution group:
Ratings
and Planning
$
i62,418
$
i63,779
$
i128,224
$
i127,300
Analytics
and Optimization
i17,764
i16,894
i35,465
i32,395
Movies
Reporting and Analytics
i7,477
i7,893
i14,300
i18,399
Total
$
i87,659
$
i88,566
$
i177,989
$
i178,094
By
geographical market:
United States
$
i77,632
$
i77,527
$
i155,406
$
i154,673
Europe
i5,442
i6,417
i13,713
i13,900
Canada
i1,817
i2,011
i3,561
i3,573
Latin
America
i1,704
i1,477
i3,280
i3,497
Other
i1,064
i1,134
i2,029
i2,451
Total
$
i87,659
$
i88,566
$
i177,989
$
i178,094
By
timing of revenue recognition:
Products and services transferred over time
$
i69,656
$
i68,576
$
i137,772
$
i140,493
Products
and services transferred at a point in time
The following table provides information about receivables, contract assets, contract costs, contract liabilities and customer advances from contracts with customers:
Revenue
recognized that was included in the opening contract liabilities balance
$
(i41,506)
$
(i39,497)
Cash
received or amounts billed in advance and not recognized as revenue
i36,262
i47,596
/
For
the six months ended June 30, 2020, the Company recorded $i5.9 million in amounts billed in advance, but not yet recognized as revenue, within non-current contract liabilities.
Transaction Price Allocated to the Remaining Performance Obligations
As of June 30, 2021, approximately $i215.0 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 i34% of these remaining performance obligations during the remainder of 2021, approximately i37%
in 2022, and approximately i14% in 2023, with the remainder recognized thereafter.
For the three months ended June 30, 2021 and 2020, amortized and expensed contract
costs were $i0.1 million and $i0.4 million, respectively. For the six months ended June
30, 2021 and 2020, amortized and expensed contract costs were $i2.7 million and $i0.7
million, respectively.
4.iDebt
Senior Secured Convertible Notes and Financing Derivatives
During 2018, the Company entered into certain agreements with funds affiliated with or managed by Starboard Value LP (collectively, "Starboard"), pursuant
to which the Company issued and sold to Starboard a total of $i204.0 million in senior secured convertible notes (the "Notes"), which initially accrued interest at i6.0%,
as well as warrants to purchase shares of the Company's common stock, par value $i0.001 per share (the "Common Stock") in exchange for $i100.0
million in cash and i4,000,000 shares of Common Stock. The warrants were exercised in full by Starboard on April 3, 2019 for i323,448
shares of Common Stock.
The Notes contained, among other features, an interest rate reset feature which the Company determined represented an embedded derivative that must be bifurcated and accounted for separately from the Notes. This feature reset the interest rate on the Notes based on the trading price of the Company's Common Stock. In January 2019, the interest rate reset to i12.0%
where it was scheduled to remain through the contractual maturity of the Notes on January 16, 2022.
Interest on the Notes was payable on a quarterly basis in arrears, at the option of the Company, in cash, or, subject to certain conditions, through the issuance by the Company of additional shares of Common Stock ("PIK Interest Shares"). On January 25, 2021, the Company paid quarterly accrued interest of $i6.1
million through the issuance of i2,802,454 PIK Interest Shares. The interest paid was classified within other non-current liabilities in the Condensed Consolidated Balance Sheets as of December 31, 2020.
In connection with the Transactions described in Footnote 2, Summary
of Significant Accounting Policies, the Company used cash proceeds of $i204.0 million from the issuance of shares of its Preferred Stock to extinguish the Notes and related financing derivatives on March 10, 2021. The Company also issued i3,150,000
additional shares to Starboard (the "Conversion Shares"), as additional creditor consideration, which were valued at $i9.6 million based on the $i3.05
closing price of the Company's Common Stock on March 9, 2021. Lastly, the Company paid interest accrued of $i4.7 million for the period from January 1, 2021 to March 10, 2021 through the issuance of i1,363,327
PIK Interest Shares.
The Company adjusted the interest rate reset feature to its fair value on March 10, 2021 immediately prior to extinguishment. The fair value of the interest reset derivative was estimated to be $i9.5 million using a discounted cash flow method based on projected incremental cash flows through contractual maturity of the Notes and a credit-adjusted discount rate of i20.0%.
The fair value of other financing derivatives embedded within the Notes was determined to be negligible.
The Company recorded a loss on extinguishment of the Notes of $i9.3 million for the three months ended March 31, 2021. The loss was comprised of a write-off of unamortized deferred financing costs and issuance discount of $i9.2 million
and issuance of Conversion Shares of $i9.6 million, offset by the derecognition of the interest rate reset derivative liability valued at $i9.5 million.
Secured
Term Note
On December 31, 2019, the Company's wholly owned subsidiary, Rentrak B.V., entered into an agreement with several third parties (collectively the "Noteholder") for a secured promissory note (the "Secured Term Note") in exchange for gross proceeds of $i13.0 million. The Secured Term Note was scheduled to mature on December 31, 2021,
was cash collateralized, and had an annual interest rate of i9.75% that was payable monthly in arrears.
The Secured Term Note included a redemption feature which, upon the occurrence of certain fundamental transactions, would require the Company to redeem the Secured Term Note in full, plus accrued interest, and remit a prepayment premium equal to the remaining contractual interest cash flows (the "interest make-whole redemption"). The
Company determined this feature represented an embedded derivative that must be bifurcated and accounted for separately from the Secured Term Note.
In connection with the Transactions described in Footnote 2, Summary of Significant Accounting Policies, the Company used restricted cash from its balance sheet to extinguish the Secured Term Note and interest make-whole redemption on March 10, 2021, of which $i13.0 million
and $i1.0 million were for principal repayments and settlement of the interest make-whole redemption, respectively.
The Company recorded a loss on extinguishment of the Secured Term Note of $i0.3 million
for the three months ended March 31, 2021. The loss was due to the write-off of unamortized deferred financing costs. Changes in the fair value of the interest make-whole redemption were recorded to other (expense) income, net and settlement did not impact loss on debt extinguishment.
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 has a maturity of ithree years from the closing date
of the agreement.
The Revolving Credit Agreement provides a borrowing capacity equal to $i25.0 million. 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 amount the Company is able to borrow is subject to compliance with the financial covenants, satisfaction of various conditions precedent to borrowing and other provisions of the Revolving Credit Agreement.
Borrowings under the Revolving Credit Agreement are made at the Eurodollar Rate and bear interest at a rate per annum equal to the Eurodollar Rate (as defined in the Revolving Credit Agreement) plus an applicable rate equal to i2.25%.
The Revolving Credit Agreement also provides for an unused commitment fee equal to i0.25% of the unused commitments at such time. To the extent that a payment default exists and is continuing, at the election of the Required Lenders (as defined in the Revolving Credit Agreement), all amounts outstanding under the Revolving Credit Agreement will bear interest at i2.00%
per annum above the rate and margin otherwise applicable thereto. The Company is able to repay any amounts borrowed prior to the maturity date without any premium or penalty other than customary LIBOR breakage costs.
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.
The Revolving Credit Agreement contains the following financial covenants, including the maintenance of certain financial ratios:
• a minimum Consolidated EBITDA (as defined in the Revolving Credit Agreement) of not less than $i20.0 million
for the most recently ended four fiscal quarter period, tested as of the last day of each fiscal quarter ending before June 30, 2022; and
• a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Revolving Credit Agreement) of not less than i1.25 to i1.0
for the most recently ended four fiscal quarter period, tested as of the last day of each fiscal quarter ending on or after June 30, 2022.
Additionally, the Revolving Credit Agreement contains restrictive covenants that limit our ability to, among other things, incur additional indebtedness, incur additional 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 is in compliance with the covenants under the Revolving Credit Agreement as of June 30, 2021.
As of June 30, 2021, issued and outstanding letters of credit under the Revolving Credit Agreement totaled $i2.7 million, leaving a remaining borrowing capacity of $i22.3
million.
In July 2021, the Company borrowed $i8.0 million under the Revolving Credit Agreement, which reduced the remaining borrowing capacity to $i14.3
million.
Failed Sale-Leaseback Transaction
In June 2019, the Company entered into a sale-leaseback arrangement with a vendor to provide $i4.3 million in cash proceeds for previously acquired computer and other equipment. The arrangement was repayable over a i24-month
term for total consideration of $i4.8 million, with control of the equipment transferring to the vendor at the end of the leaseback term. The leaseback would have been classified as a financing lease. The transaction was deemed a failed sale-leaseback and was accounted for as a financing arrangement. Repayments were allocated between interest expense and a reduction of the financing liability, and the assets continued to depreciate over their useful lives.
In June 2021, the
Company extended the sale-leaseback arrangement for an additional i24-month term. The leaseback extension continued to meet the criteria to be accounted for as a financing arrangement. The present value of cash flows after the extension differed by more than 10% from the present value of the remaining cash flows immediately prior to the extension. Therefore, the Company concluded the extension should be accounted for as an extinguishment of the existing financing liability. The fair value of the new financing liability is $i0.9
million, which was estimated using an income approach and a discount rate of i7.5%.
The financing liability is included within other current and other non-current liabilities on the Condensed Consolidated Balance Sheet as of June 30, 2021, with $i0.4 million
classified as current and $i0.5 million classified as non-current.
Remaining future cash payments related to the financing liability under the failed sale-leaseback transaction total $i0.9
million as of June 30, 2021, and are scheduled to be paid in monthly installments through June 2023.
In 2018, the Company entered into a Security Agreement with Wells Fargo Bank, N.A. to issue standby letters of credit. As of June 30, 2021, $i0.6
million in letters of credit are outstanding and are cash collateralized under the Security Agreement.
5.iConvertible Redeemable Preferred Stock and Stockholders' Equity
2021 Issuance of Preferred Stock
On March
10, 2021, in connection with the Transactions described in Footnote 2, Summary of Significant Accounting Policies,the Company issued i82,527,609 shares of Preferred Stock in exchange for gross cash proceeds of $i204.0 million.
The shares were issued at a par value of $i0.001. Net proceeds from the Transactions totaled $i188.2 millionafter deducting issuance costs.
The Transactions and related agreements include the following rights:
Registration Rights
On the Closing Date, the Company entered into a Registration Rights Agreement (the "RRA") with the holders of the Preferred Stock (together with any other party that may become a party to the RRA), pursuant to which, among other things, and on the terms and subject to certain limitations set forth therein, the Company is obligated to use its reasonable best efforts to prepare and file within 120 days after the Closing Date a registration
statement registering the sale or distribution of shares of Preferred Stock or Common Stock held by any holder, including any shares of Common Stock acquired by any holder pursuant to the conversion of the Preferred Stock, and any other securities issued or issuable with respect to any such shares of Common Stock or Preferred Stock by way of share split, share dividend, distribution, recapitalization, merger, exchange, replacement or similar event or otherwise (the "Registrable Securities"). In addition, pursuant to the RRA, the holders have the right to require the Company, subject to certain limitations, to effect a sale of any or all of their Registrable Securities by means of an underwritten offering or an underwritten block trade or bought deal.
Conversion Provisions
The Preferred Stock
is convertible at the option of the holders at any time into a number of shares of Common Stock based on a conversion rate set in accordance with the Certificate of Designations of the Preferred Stock. The conversion rate is calculated as the product of (i) the conversion factor and (ii) the quotient of (A) the sum of the initial purchase price and accrued dividends with respect to each share of Preferred Stock divided by (B) the initial purchase price. The conversion right is subject to certain anti-dilution adjustments and customary provisions related to partial dividend periods. As of June 30, 2021, each share of Preferred Stock was convertible into i1.000208
shares of Common Stock.
At any time after the fifth anniversary of the Closing Date, the Company may elect to convert all of the outstanding shares of Preferred Stock into shares of Common Stock if (i) the closing sale price of the Company's Common Stock is greater than i140% of the conversion
price as of such time, as may be adjusted pursuant to the Certificate of Designations, for certain periods, and (ii) the pro rata share of an aggregate of $i100.0 million in dividends has been paid with respect to each share of Preferred Stock that was outstanding on the Closing Date and remains outstanding.
As of June 30, 2021, ino
shares of Preferred Stock have been converted into Common Stock.
Voting Rights
The holders of the Preferred Stock are entitled to vote as a single class with the holders of the Common Stock, with a vote equal to the number of shares of Common Stock into which the Preferred Stock could be converted, except that the conversion rate for this purpose will be equal to the product of the applicable conversion factor and i0.98091271. Each holder of Preferred Stock is subject to a voting threshold, which
limits such holder's voting rights in the event that the holder's Preferred Stock represents voting rights that exceed i16.66% of the Company's Common Stock (including the Preferred Stock on an as-converted basis).
Dividend Rights
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 specified circumstances. In addition, after January 1, 2022, 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 of Directors ("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 the Closing Date (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.
On June 30, 2021, in accordance with the Certificate of Designations of the Preferred Stock, the Company made cash dividend payments totaling $i4.8 million
to the holders of the Preferred Stock, representing dividends accrued for the period from the Closing Date through June 29, 2021. The next scheduled dividend payment date for the Preferred Stock is June 30, 2022.
The Preferred Stock is subject to anti-dilution adjustment upon the occurrence of certain events, including issuance of certain dividends or distributions to holders of Common Stock, split or combination of Common Stock, reclassification
of Common Stock into a greater or lesser number of shares, or certain repurchases of Common Stock, subject to limitations set forth in the Certificate of Designations.
Liquidation Preference and Change of Control Provisions
The Preferred Stock ranks senior to the Common Stock with respect to dividend rights and rights on the distribution of assets in the event of a liquidation, dissolution or winding up of the affairs of the Company, and ranks junior to secured and unsecured indebtedness. The Preferred Stock has a liquidation preference equal to the higher of (i) the initial purchase price, increased by accrued dividends per share, and (ii) the amount per share of Preferred Stock that a holder would have received if such holder, immediately prior to such liquidation, dissolution or winding up of
the affairs of the Company, converted such share into Common Stock.
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 at a purchase price equal to the initial purchase price, increased by accrued dividends. The change of control put option was determined to be a derivative liability under ASC 815, Derivatives and Hedging. As of June 30, 2021, 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. To the extent the holders of the Preferred Stock do
not exercise the put option in a covered change of control, the Company has the right to redeem the remaining Preferred Stock at a redemption price equal to the initial purchase price, increased by accrued dividends.
As described above, 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.
2019 Issuance and Sale of Common Stock and Warrants
On June 23,
2019, the Company entered into a Securities Purchase Agreement with CVI Investments, Inc. ("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 on January 29, 2020 and August 3, 2020, respectively.
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, which is equal to the Initial Shares plus the number of shares issued pursuant to the exercise of the Series C Warrants (described above). The exercise price for the Series A Warrants was $i12.00
upon issuance but was subsequently adjusted, as described below. 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, 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.
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 "Exchange Cap"), the Company intends to, in lieu of issuing such shares, settle the obligation to issue such shares in cash.
Management determined each warrant to be a freestanding financial instrument that qualifies for liability treatment as a result of net cash settlement features associated with the Exchange Cap provision or upon a change in control. Each warrant is initially measured at fair value and classified as a current liability on the Condensed Consolidated Balance Sheet, with subsequent changes in fair value recorded in earnings. To determine the fair value of each warrant, management utilized an option pricing model supplemented with Monte Carlo analyses
in periods with multiple warrants outstanding where certain features resulted in additional valuation complexity.
The estimated fair value of the Series A Warrants as of June 30, 2021 was $i19.4 million. Refer to Footnote 6, Fair Value Measurements, for information on the Level 3 inputs utilized for the
determination of the fair value of the warrants.
The
Company's financial instruments measured at fair value in the accompanying Condensed Consolidated Balance Sheets on a recurring and non-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 values of the warrants are derived from techniques which utilize inputs, certain of which are significant and unobservable, that result in classification as Level 3 fair value measurements.
(3)
The fair values of the financing derivatives are derived from techniques which utilize inputs, certain of which are significant and unobservable, that result in classification as Level 3 fair value measurements. Extinguishment of the Notes on March 10, 2021 resulted in derecognition of the interest rate reset derivative liability.
(4) The fair value of the embedded derivative within the Secured Term Note is derived from techniques which utilize inputs, certain of which are significant and unobservable, that result in classification as Level 3 fair value measurements. Extinguishment of the Secured Term Note on March 10, 2021 resulted in settlement of the interest make-whole derivative liability.
(5) The financing liability related to the
failed sale-leaseback was remeasured at fair value due to the extension of the leaseback term outlined in Footnote 4, Debt.
/
There were no changes to the Company's valuation methodologies during the three and six months ended June 30, 2021 or 2020.
i
The
following tables present the changes in the Company's recurring Level 3 fair valued instruments for the six months ended June 30, 2021 and 2020, respectively:
(1)
Represents $i3.7 million gain due to change in fair value of interest rate reset derivative liability, $i1.0 million
gain due to change in fair value of qualifying change of control redemption derivative liability, $i3.7 million gain due to change in fair value of the Series A Warrant and $i0.2 million
gain due to change in fair value of the Series B-2 Warrant. All gains were recorded in other (expense) income, net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
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 at the end of the current reporting period, as of June 30, 2021 and December 31, 2020 that are measured at fair value on a recurring basis:
iThe
fair value of the Company's warrants liability is estimated using an option pricing model. The primary sensitivity in the valuation of the warrants liability is driven by the Common Stock price at the measurement date and the estimated volatility of the Common Stock over the remaining term.
As of June 30, 2021 (based on public filings), WPP plc and its affiliates ("WPP") owned i11,319,363 shares of the Company's outstanding Common Stock, representing i13.8%
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)
2021
2020
2021
2020
Revenues
$
i3,287
$
i3,749
$
i6,613
$
i6,960
Cost
of revenues
i2,416
i2,364
i7,093
i4,739
The
Company has the following balances related to transactions with WPP, as reflected in the Condensed Consolidated Balance Sheets:
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 described in Footnote 5, Convertible Redeemable Preferred
Stock and Stockholders' Equity. In addition, Charter, Qurate and Pine each designated iiitwo//
directors to the Company's Board in accordance with the Stockholders Agreement.
As of June 30, 2021, Charter, Qurate and Pine each owned iii27,509,203//
shares of the Company's outstanding Preferred Stock. On June 30, 2021, in accordance with the Certificate of Designations of the Preferred Stock, the Company made cash dividend payments totaling $i4.8 million to the holders of the Preferred Stock, representing dividends accrued for the period from the Closing Date through June
29, 2021.
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. A portion of the annual license fees is allocated to a base license comparable to the Company's prior license with Charter Operating. The remaining fees are allocated to the additional data sets contemplated by the DLA and the designation and related endorsement of the Company as Charter Operating's preferred data measurement partner for the term.
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:
The
Company has the following balances related to transactions with Charter and its affiliates, as reflected in the Condensed Consolidated Balance Sheet:
The
Company recognized revenues of $i0.2 million and $i0.4 million from transactions with Qurate and its affiliates in the normal course of business during the three and six
months ended June 30, 2021, respectively, as reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
The Company had iino/
transactions, other than the issuance of shares of Preferred Stock and related matters, with Pine for the three and six months ended June 30, 2021.
Transactions with Starboard
In 2018, the Company entered into certain agreements with Starboard, then a beneficial owner of more than i5.0% of the
Company's outstanding Common Stock. Refer to Footnote 4, Debt, for further information regarding these agreements and the Company's issuance of Notes to Starboard in 2018. As a result of these agreements and the transactions contemplated thereby, Starboard ceased to be a beneficial owner of more than i5.0%
of the Company's outstanding Common Stock in January 2018. In addition, pursuant to a prior agreement with Starboard, the Company provided Starboard the right to designate certain members to the Company's Board. As of December 31, 2018, Starboard had no remaining right to designate any directors to the Board. As of June 30, 2021, there were ino
directors remaining on the Board who were designated by Starboard.
In the Condensed Consolidated Statements of Operations and Comprehensive Loss, the Company recorded interest expense, inclusive of non-cash accretion of issuance discount and deferred financing costs, related to the Notes of $i6.6 million during the six months ended June 30, 2021; and
$i8.2 million and $i16.4 million during the three and six months ended June 30,
2020, respectively. The Company recorded no interest expense related to the Notes during the three months ended June 30, 2021.
In connection with the extinguishment of the Notes on March 10, 2021, the Company issued i3,150,000
Conversion Shares to Starboard valued at $i9.6 million as discussed in Footnote 4, Debt, which amount was included as a component of loss on extinguishment of debt in the Condensed Consolidated Statement of Operations and Comprehensive Loss.
The
Company had ino outstanding balances related to Starboard as of June 30, 2021. The outstanding balances for the Notes, related financing derivatives, and other non-current liabilities as of December 31, 2020 are reflected in the Condensed Consolidated Balance Sheets.
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.
Privacy
Class Action Litigation
On September 11, 2017, the Company and a wholly owned subsidiary, Full Circle Studies, Inc., ("Full Circle"), received demand letters on behalf of named plaintiffs and all others similarly situated alleging that the Company and Full Circle collected personal information from users under the age of 13 without verifiable parental consent in violation of Massachusetts law and the federal Children's Online Privacy Protection Act. The letters alleged that the Company and Full Circle collected such personal information by embedding advertising software development kits in applications created or
developed by The Walt Disney Company. The letters sought monetary damages, attorneys' fees and damages under Massachusetts law. On June 4, 2018, the plaintiffs filed amended complaints with the U.S. District Court for the Northern District of California adding the Company and Full Circle as defendants in a purported class action (captioned Rushing, et al v. The Walt Disney Company, et al., Case No. 3:17-cv-04419-JD) against Disney, Twitter and other defendants, alleging violations of California's constitutional right to privacy and intrusion upon seclusion law, New York's deceptive trade practices statute, and Massachusetts' deceptive trade practices and right to privacy statutes. The complaints alleged damages in excess of $i5.0
million, with any award to be apportioned among the defendants. On February 26, 2020, the Company and Full Circle reached an agreement with the plaintiffs to settle the complaints in full, with no admission of liability, in return for injunctive relief and payment of the plaintiffs' attorneys' fees, to be covered by the Company's insurance. The settlement received preliminary court approval on September 24, 2020. The settlement received final court approval on April 12, 2021.
Other Matters
In addition to the matters described above, 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 adverse 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 officers and directors, 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, 2020 (the "2020 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), television ("TV"), over the top devices ("OTT"), 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, content 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 information we analyze crosses geographies, types of content and activities, including websites, mobile and OTT applications ("apps"), video games, television and movie programming, electronic commerce ("e-commerce") and advertising.
Results of Operations
The following
table sets forth selected Condensed Consolidated Statements of Operations 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 revenue around three solution groups:
•Ratings and Planning provides measurement of the behavior and characteristics of audiences of content and advertising across television and digital platforms including connected (Smart) televisions, computers, tablets, mobile devices, and other connected devices. These products and services are designed to help customers find the most relevant viewing audience, whether that viewing is linear, non-linear, online or on-demand.
•Analytics and Optimization includes custom solutions, activation, lift and survey-based products that
provide end-to-end solutions for planning, optimization and evaluation of advertising campaigns and brand protection.
•Movies Reporting and Analytics measures 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 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, 2021 and 2020
were as follows:
Three Months Ended June 30,
(In
thousands)
2021
% of Revenue
2020
% of Revenue
$ Variance
% Variance
Ratings and Planning
$
62,418
71.2
%
$
63,779
72.0
%
$
(1,361)
(2.1)
%
Analytics
and Optimization
17,764
20.3
%
16,894
19.1
%
870
5.1
%
Movies Reporting and Analytics
7,477
8.5
%
7,893
8.9
%
(416)
(5.3)
%
Total
revenues
$
87,659
100.0
%
$
88,566
100.0
%
$
(907)
(1.0)
%
Revenues decreased by $0.9 million, or 1.0%, for the three months ended June
30, 2021 as compared to the three months ended June 30, 2020.
Ratings and Planning revenue is comprised of revenue from our digital, TV, and cross-platform products. Ratings and Planning revenue decreased by $1.4 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The decrease was driven by lower revenue from our syndicated digital and cross-platform products, offset by higher revenue from our TV products. Syndicated digital revenue was lower primarily due to our smaller and international customers who continue to be impacted by ongoing industry changes in ad buying and consolidations. While retention of syndicated digital enterprise customers remained high, revenue from our syndicated digital products represented 46% and 48%
of our Ratings and Planning revenue in the second quarter of 2021 and 2020, respectively. Cross-platform revenue was lower due to fewer deliveries of data in 2021 versus 2020. TV revenues were higher due to new partnerships, increased agency adoption and higher deliveries of custom TV data.
Analytics and Optimization revenue increased by $0.9 million in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The increase was related to increased Activation revenue, which experienced double-digit year-over-year growth as we continued to bring new solutions to market.
Movies Reporting and Analytics revenue decreased by $0.4 million in the three months ended June 30, 2021 as compared to the three months ended
June 30, 2020. Revenue continued to be impacted by theater closures, delayed releases and shifts in consumer behavior as a result of the COVID-19 pandemic. While we expect these factors to continue to affect movies revenue in 2021, revenue is expected to improve through the year as major theater chains reopen both domestically and abroad.
Revenues for these three solution groups for the six months ended June 30, 2021 and 2020 were as follows:
Six
Months Ended June 30,
(In thousands)
2021
% of Revenue
2020
% of Revenue
$ Variance
% Variance
Ratings and Planning
$
128,224
72.1
%
$
127,300
71.5
%
$
924
0.7
%
Analytics
and Optimization
35,465
19.9
%
32,395
18.2
%
3,070
9.5
%
Movies Reporting and Analytics
14,300
8.0
%
18,399
10.3
%
(4,099)
(22.3)
%
Total
revenues
$
177,989
100.0
%
$
178,094
100.0
%
$
(105)
(0.1)
%
Revenues decreased by $0.1 million, or 0.1%, for the six months ended June
30, 2021 as compared to the six months ended June 30, 2020.
Ratings and Planning revenue increased by $0.9 million in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The increase was driven by higher TV revenue and services related to our international cross-platform offering, partially offset by lower revenue from our syndicated digital products. TV revenues were higher due to new partnerships, increased agency adoption and additional TV data deliveries as part of an expanded relationship with an enterprise customer. We also recorded $2.4 million in revenue for certain cross-platform services delivered in Europe related to the renewal of a multi-year agreement. Syndicated digital revenue was lower primarily due to our smaller and international
customers who continue to be impacted by ongoing industry changes in ad buying and
consolidations. While retention of syndicated digital enterprise customers remained high, revenue from our syndicated digital products represented 45% and 49% of our Ratings and Planning revenue for the six months ended June 30, 2021 and 2020, respectively.
Analytics and Optimization revenue increased by $3.1 million in the six months ended June
30, 2021 as compared to the six months ended June 30, 2020. The increase was related to increased Activation revenue, which experienced double-digit year-over-year growth as we continued to bring new solutions to market.
Movies Reporting and Analytics revenue decreased by $4.1 million in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Revenue continued to be impacted by theater closures, delayed releases and shifts in consumer behavior as a result of the COVID-19 pandemic. While we expect these factors to continue affecting movies revenue in 2021, revenue is expected to improve through the year as major theater chains reopen both domestically and abroad.
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 multichannel video programming distributor ("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,
lease expense and other facilities-related costs.
Cost of revenues for the three months ended June 30, 2021 and 2020 were as follows:
Three
Months Ended June 30,
(In thousands)
2021
% of Revenue
2020
% of Revenue
$ Change
% Change
Data costs
$
18,937
21.6
%
$
15,459
17.5
%
$
3,478
22.5
%
Employee
costs
10,340
11.8
%
9,862
11.1
%
478
4.8
%
Systems and bandwidth costs
7,340
8.4
%
6,034
6.8
%
1,306
21.6
%
Lease
expense and depreciation
4,855
5.5
%
4,187
4.7
%
668
16.0
%
Panel costs
3,766
4.3
%
4,832
5.5
%
(1,066)
(22.1)
%
Sample
and survey costs
1,548
1.8
%
1,421
1.6
%
127
8.9
%
Professional fees
1,476
1.7
%
747
0.8
%
729
97.6
%
Technology
1,466
1.7
%
1,416
1.6
%
50
3.5
%
Royalties
and resellers
1,268
1.4
%
382
0.4
%
886
231.9
%
Other
390
0.4
%
609
0.7
%
(219)
(36.0)
%
Total
cost of revenues
$
51,386
58.6
%
$
44,949
50.8
%
$
6,437
14.3
%
Cost of revenues increased by $6.4 million, or 14.3%, for the three months ended June
30, 2021 as compared to the three months ended June 30, 2020. Data costs increased by $3.5 million primarily due to new data licensing costs to increase our data footprint and data rights. Systems and bandwidth costs increased $1.3 million primarily due to increases in cloud-based data storage and bandwidth capacity. Royalties and reseller costs increased by $0.9 million primarily as a result of a reclassification of costs from data costs to better reflect the nature of the services provided. Costs related to professional fees increased $0.7 million due to increased consulting expenses. Offsetting these increases was a decrease in panel costs of $1.1 million primarily due to lower recruitment and support costs for our mobile panels.
Cost of revenues for the six months ended June 30, 2021 and 2020
were as follows:
Cost of revenues increased by $13.3 million, or 14.7%, for the six months ended June
30, 2021 as compared to the six months ended June 30, 2020. Data costs increased by $6.5 million primarily due to new data licensing costs to increase our data footprint and data rights. Systems
and bandwidth costs increased $2.4 million primarily due to increases in cloud-based data storage and bandwidth capacity. Other expenses increased by $2.2 million primarily due to the recognition of $2.4 million in license costs associated with the delivery of our cross-platform products in Europe in connection with the multi-year agreement described above. Lease expense
and depreciation increased $1.6 million primarily due to higher depreciation driven by previously capitalized internal-use software costs. Professional fees increased by $0.9 million as a result of increased consulting fees. Offsetting these increases was a decrease in panel costs of $2.3 million primarily due to lower recruitment and support costs for our mobile panels.
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. It also includes 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, 2021 and 2020 were as follows:
Three
Months Ended June 30,
(In thousands)
2021
% of Revenue
2020
% of Revenue
$ Change
% Change
Employee costs
$
13,893
15.8
%
$
13,322
15.0
%
$
571
4.3
%
Lease
expense and depreciation
1,008
1.1
%
1,283
1.4
%
(275)
(21.4)
%
Professional fees
609
0.7
%
557
0.6
%
52
9.3
%
Other
1,020
1.2
%
845
1.0
%
175
20.7
%
Total
selling and marketing expenses
$
16,530
18.9
%
$
16,007
18.1
%
$
523
3.3
%
Selling and marketing expenses increased by $0.5 million, or 3.3%, for the three months ended June
30, 2021 as compared to the three months ended June 30, 2020. Employee costs increased $0.6 million primarily due to higher commission expense.
Selling and marketing expenses for the six months ended June 30, 2021 and 2020 were as follows:
Six
Months Ended June 30,
(In thousands)
2021
% of Revenue
2020
% of Revenue
$ Change
% Change
Employee costs
$
29,177
16.4
%
$
28,482
16.0
%
$
695
2.4
%
Lease
expense and depreciation
2,049
1.2
%
2,670
1.5
%
(621)
(23.3)
%
Professional fees
1,082
0.6
%
1,263
0.7
%
(181)
(14.3)
%
Other
2,049
1.2
%
2,805
1.6
%
(756)
(27.0)
%
Total
selling and marketing expenses
$
34,357
19.3
%
$
35,220
19.8
%
$
(863)
(2.5)
%
Selling and marketing expenses decreased by $0.9 million, or 2.5%, for the six months ended June
30, 2021 as compared to the six months ended June 30, 2020. Other costs decreased $0.8 million primarily due to reduced travel resulting from the COVID-19 pandemic. Lease and depreciation expense decreased $0.6 million primarily due to lower rent as we reduced our office footprint and sublet two locations during 2020. Offsetting these decreases was an increase in employee costs of $0.7 million primarily due to higher commission expense.
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, 2021 and 2020 were as follows:
Three
Months Ended June 30,
(In thousands)
2021
% of Revenue
2020
% of Revenue
$ Change
% Change
Employee costs
$
7,477
8.5
%
$
7,323
8.3
%
$
154
2.1
%
Technology
1,100
1.3
%
1,072
1.2
%
28
2.6
%
Lease
expense and depreciation
838
1.0
%
1,037
1.2
%
(199)
(19.2)
%
Professional fees
597
0.7
%
232
0.3
%
365
157.3
%
Other
120
0.1
%
101
0.1
%
19
18.8
%
Total
research and development expenses
$
10,132
11.6
%
$
9,765
11.0
%
$
367
3.8
%
Research and development expenses increased by $0.4 million, or 3.8%, for the three months ended
June 30, 2021 as compared to the three months ended June 30, 2020. Professional fees increased $0.4 million due to increased consulting fees.
Research and development expenses for the six months ended June 30, 2021 and 2020 were as follows:
Six
Months Ended June 30,
(In thousands)
2021
% of Revenue
2020
% of Revenue
$ Change
% Change
Employee costs
$
15,272
8.6
%
$
14,597
8.2
%
$
675
4.6
%
Technology
2,233
1.3
%
2,149
1.2
%
84
3.9
%
Lease
expense and depreciation
1,697
1.0
%
2,226
1.2
%
(529)
(23.8)
%
Professional fees
998
0.6
%
621
0.3
%
377
60.7
%
Other
285
0.2
%
308
0.2
%
(23)
(7.5)
%
Total
research and development expenses
$
20,485
11.5
%
$
19,901
11.2
%
$
584
2.9
%
Research and development expenses increased by $0.6 million, or 2.9%, for the six months ended
June 30, 2021 as compared to the six months ended June 30, 2020. Employee costs increased $0.7 million primarily due to higher stock-based compensation expense. Professional fees increased $0.4 million due to increased consulting fees. Offsetting these increases was a decrease in lease and depreciation expense of $0.5 million primarily due to lower rent as we reduced our office footprint and sublet two locations during 2020.
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, Board of Directors compensation and expenses incurred for other general corporate purposes.
General and administrative expenses for the three months ended June 30, 2021 and 2020 were as follows:
Three
Months Ended June 30,
(In thousands)
2021
% of Revenue
2020
% of Revenue
$ Change
% Change
Employee costs
$
7,603
8.7
%
$
6,968
7.9
%
$
635
9.1
%
Professional
fees
3,577
4.1
%
2,754
3.1
%
823
29.9
%
Technology
622
0.7
%
553
0.6
%
69
12.5
%
Lease
expense and depreciation
417
0.5
%
526
0.6
%
(109)
(20.7)
%
Other
2,027
2.3
%
2,940
3.3
%
(913)
(31.1)
%
Total general and administrative expenses
$
14,246
16.3
%
$
13,741
15.5
%
$
505
3.7
%
General
and administrative expenses increased by $0.5 million, or 3.7%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Professional fees increased $0.8 million primarily due to increased consulting fees in 2021 as a result of our enterprise resource planning ("ERP") system implementation. Employee costs increased $0.6 million primarily due to higher stock-based compensation expense. Offsetting these increases was a decrease in other expense of $0.9 million primarily due to lower bad debt expense in 2021 as the allowance increased in the second quarter of 2020 as a result of the COVID-19 pandemic.
General and administrative expenses for the six months ended June 30, 2021 and 2020 were
as follows:
Six
Months Ended June 30,
(In thousands)
2021
% of Revenue
2020
% of Revenue
$ Change
% Change
Employee costs
$
15,901
8.9
%
$
13,532
7.6
%
$
2,369
17.5
%
Professional
fees
6,566
3.7
%
7,365
4.1
%
(799)
(10.8)
%
Technology
1,211
0.7
%
1,116
0.6
%
95
8.5
%
Lease
expense and depreciation
891
0.5
%
1,112
0.6
%
(221)
(19.9)
%
Other
4,145
2.3
%
6,159
3.5
%
(2,014)
(32.7)
%
Total general and administrative expenses
$
28,714
16.1
%
$
29,284
16.4
%
$
(570)
(1.9)
%
General
and administrative expenses decreased by $0.6 million, or 1.9%, for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Other expenses decreased $2.0 million primarily due to lower bad debt expense in 2021 as the allowance increased in the first half of 2020 as a result of the COVID-19 pandemic. Professional fees decreased by $0.8 million primarily due to reduced legal fees. These decreases were offset by an increase in employee costs of $2.4 million primarily due to higher stock-based compensation and other compensation.
Impairment of Right-of-use and Long-lived Assets
In the first quarter of 2020, we recorded a $4.7 million impairment
charge related to our facility lease right-of-use assets and associated leasehold improvements for certain properties on the market for sublease. The impairment charge was driven by changes in our projected
undiscounted cash flows for certain properties, primarily as a result of changes in the real estate market related to the COVID-19 pandemic, that led to an increase in the estimated marketing time and a reduction of expected receipts.
Loss on Extinguishment of Debt
Loss on extinguishment of debt represents the difference
between the carrying value of our debt instruments and any consideration paid to our creditors in the form of cash or shares of our Common Stock on the extinguishment date.
In the first quarter of 2021, we recorded a $9.6 million loss on debt extinguishment related to the payoff of the senior secured convertible notes (the "Notes") and the secured promissory note (the "Secured Term Note") on March 10, 2021. The primary drivers of the extinguishment loss are the write-off of unamortized deferred financing costs and issuance discounts, the issuance of additional shares of Common Stock in connection with the extinguishment, and the derecognition of the interest rate reset derivative liability on the Notes. These components are described in Footnote 4,
Debt.
Other (Expense) Income, Net
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 and six months ended June 30, 2021 and 2020:
Three
Months Ended June 30,
Six Months Ended June 30,
(In thousands)
2021
2020
2021
2020
Change in fair value of warrants liability
$
(6,519)
$
(758)
$
(16,520)
$
3,893
Change
in fair value of financing derivatives
—
2,300
1,800
4,687
Other
11
(65)
(62)
91
Total
other (expense) income, net
$
(6,508)
$
1,477
$
(14,782)
$
8,671
The change in other (expense) income, net for the three and six months ended June 30, 2021 as compared to 2020 was largely driven by a loss from the change in fair value of our warrants liability, offset by a gain from the change in fair value of our financing derivatives.
The loss on the warrants liability was due to an increase in the trading price of our Common Stock and the exercise price adjustment described in Footnote 5, Convertible Redeemable Preferred Stock and Stockholders' Equity. The gain on the financing derivatives was primarily due to the passage of time as our remaining future interest obligations declined over the term of the Notes prior to their extinguishment in March 2021.
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 Notes, Secured Term Note, Revolving Credit
Agreement, sale-leaseback agreement, and our finance leases.
During the three months ended June 30, 2021 and 2020, we incurred interest expense, net of $0.4 million and $8.9 million, respectively, and $7.4 million and $17.7 million during the six months ended June 30, 2021 and 2020, respectively. The decrease in interest expense for the three and six months ended June 30, 2021 as compared to 2020 was primarily due to the extinguishment of the Notes and the Secured Term Note in March 2021, as described in Footnote 4, Debt.
We expect interest expense to increase in the third quarter of 2021 (as compared to the quarter ended June 30, 2021) due to amounts drawn on the Revolving Credit Agreement, as described in Footnote 4, Debt.
(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, 2021, the loss from foreign currency transactions was $0.4 million. The loss was primarily driven by fluctuations in the Euro against the U.S. Dollar and Chilean Peso, and the Chilean Peso against the Brazilian Lira. For the six months ended June 30, 2021, the gain from foreign currency transactions was $0.7 million. The gain was primarily driven by fluctuations in the Euro against the U.S. Dollar, British Pound, and Canadian Dollar, and the U.S. Dollar against the Chilean Peso. For the three and six months ended June 30, 2020, the loss from foreign currency transactions was $0.9 million and $0.1 million, respectively. The losses were primarily driven by fluctuations in the Chilean Peso against the U.S. Dollar and Euro.
Income
Tax (Provision) Benefit
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.
During the three and six months ended June 30, 2021, we recorded an income tax provision of $(0.4) million and $(1.4) million, respectively, resulting in an effective tax rate of 2.3% and 2.7%, respectively. During the three and six months ended June 30, 2020, we recorded an income tax benefit of $0.7 million and $1.1 million, respectively, resulting in an effective tax rate of (6.0)% and (4.4)%, 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. The increase in the tax provision during the second quarter of 2021 as compared to 2020 was primarily due to an increase in U.S. deferred tax expense for tax deductible goodwill and an increase in estimated foreign tax expense in 2021.
The COVID-19 pandemic has a global reach, and many countries have introduced measures that provide
relief to taxpayers in a variety of ways. We continue to evaluate new legislation as it is introduced, but none of these measures had an impact on our income tax (provision) benefit for the three and six months ended June 30, 2021.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, refer to Footnote 2, Summary of Significant Accounting Policies.
Liquidity and Capital Resources
The following table summarizes our
cash flows for each of the periods identified:
Six Months Ended June 30,
(In thousands)
2021
2020
Net
cash provided by (used in) operating activities
$
10,860
$
(1,792)
Net cash used in investing activities
(7,723)
(7,881)
Net cash used in financing activities
(35,876)
(1,046)
Effect
of exchange rate changes on cash, cash equivalents and restricted cash
(322)
(544)
Net decrease in cash, cash equivalents and restricted cash
(33,061)
(11,263)
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, beginning in 2021, our dividend payment obligations.
As of June 30, 2021, our principal sources of liquidity consisted of cash, cash equivalents and restricted cash totaling $17.7 million, including $1.0 million in restricted cash, as well as amounts available to us under our Revolving Credit Agreement, as described below.
Our principal sources of liquidity have historically been our cash and cash equivalents, as well as cash flow generated from operations. Our operating losses and interest payments on our Notes and Secured Term Note, as well as the scheduled maturity of the Notes in
January 2022, resulted in a need to secure long-term financing to extinguish the Notes and increase working capital.
On March 10, 2021, we 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 "Transactions"). At the closing of the Transactions, we issued and sold (a) to Charter, 27,509,203 shares of Series B Convertible Preferred Stock ("Preferred Stock") in exchange for $68.0 million, (b) to Qurate, 27,509,203 shares of Preferred Stock in exchange for $68.0 million and (c) to Pine, 27,509,203 shares of Preferred Stock in exchange for $68.0 million. On June 30, 2021, we made cash dividend payments totaling $4.8 million to the holders of the Preferred Stock,
representing dividends accrued for the period from March 10, 2021 through June 29, 2021.
The proceeds from the Transactions were used to repay the Notes. See "Senior Secured Convertible Notes" below. In connection with the closing, we also repaid the Secured Term Note and certain transaction-related expenses with cash from our balance sheet. See "Secured Term Note" below. For additional information on the Transactions and related debt extinguishments, refer to Footnote 4, Debt and Footnote 5,
Convertible Redeemable Preferred Stock and Stockholders' Equity.
On May 5, 2021, we entered into a senior secured revolving credit agreement (the "Revolving Credit Agreement") among the Company, as borrower, certain of our subsidiaries as guarantors, Bank of America N.A., as administrative agent, and the lenders from time to time party thereto. The Revolving Credit Agreement provides a borrowing capacity equal to $25.0 million, of which $22.3 million was available as of June 30, 2021. In July 2021, we borrowed $8.0 million under the Revolving Credit Agreement, which reduced the remaining borrowing capacity to $14.3 million.
Pandemic
Impact
The COVID-19 pandemic and related government mandates and restrictions have had a significant impact on the media, advertising and entertainment industries in which we operate. To date, the COVID-19 pandemic has had some 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. These conditions have negatively impacted our revenue and cash flows, particularly in our Movies Reporting and Analytics business, and could continue to have an impact in future periods.
It is possible that long-term changes in consumer behavior will impact our customers' operations, and thus their demand for our services and ability to pay, even after the spread of COVID-19 has been contained and businesses are permitted to resume normal operations. While we have taken actions to mitigate the impact of the COVID-19 pandemic, control costs and improve our working capital balance, these steps may not be successful or adequate if customer demand or cash collection efforts are further impacted by the COVID-19 pandemic or other factors.
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. The shares were issued at a par value of $0.001. Net proceeds from the Transactions totaled $188.2 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, 2021, each share of Preferred Stock was convertible into 1.000208 shares of 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 7.5% per annum, payable annually in arrears and
subject to increase under certain specified circumstances. In addition, after January 1, 2022, 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 of Directors 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.
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 $25.0 million. 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.
The amount we are able to borrow under the Revolving Credit Agreement is subject to compliance
with the financial covenants, satisfaction of various conditions precedent to borrowing and other provisions of the Revolving Credit Agreement. Notably, the Revolving Credit Agreement contains a financial covenant that requires us to maintain minimum Consolidated EBITDA (as defined in the Revolving Credit Agreement) of not less than $20.0 million for the most recently ended four fiscal quarter period, tested as of the last day of each fiscal quarter ending before June 30, 2022. We were in compliance with the Consolidated EBITDA covenant and other covenants under the Revolving Credit Agreement as of June 30, 2021, 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. If we fail to meet our covenants or other obligations, however, the lender(s) could accelerate the amounts
outstanding under the Revolving Credit Agreement and terminate their remaining commitments, which could significantly impact our liquidity and financial position.
As of June 30, 2021, issued and outstanding letters of credit under the Revolving Credit Agreement totaled $2.7 million, leaving a remaining borrowing capacity of $22.3 million.
In July 2021, we borrowed $8.0 million under the Revolving Credit Agreement, which reduced the remaining borrowing capacity to $14.3 million. The borrowed funds were used to reduce our accounts payable balances, primarily related to expenses incurred in prior periods. 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 meet our financial
obligations as they come due.
For additional information on the Revolving Credit Agreement, refer to Footnote 4, 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.
For additional information on the Private Placement and the adjustment to the exercise price of our Series A Warrants in connection with the Transactions (which adjustment could reduce the cash proceeds we receive upon exercise of the Series A Warrants), refer to Footnote 5, Convertible Redeemable Preferred Stock and Stockholders' Equity.
On January 16, 2018, we entered into certain agreements with funds affiliated with or managed by Starboard Value LP (collectively "Starboard"), pursuant to which we issued and sold to Starboard $150.0 million in Notes in exchange for $85.0 million in cash and 2,600,000 shares of Common Stock. On May 17, 2018, we issued and sold to Starboard $50.0 million of Notes in exchange for $15.0 million in cash and 1,400,000 shares of Common
Stock. Later in 2018 we issued an aggregate of $4.0 million in Notes to Starboard, bringing the total balance of Notes as of December 31, 2020 to $204.0 million. The proceeds from the Transactions were used to repay the Notes issued to Starboard, resulting in termination of related covenants under the Notes, including limitations on indebtedness and liens and maintenance of certain minimum cash balances that had limited our financial flexibility in prior periods.
For additional information on the Notes, refer to Footnote 4, Debt.
Secured Term Note
On December 31,
2019, our wholly owned subsidiary, Rentrak B.V., entered into an agreement with several third parties for the Secured Term Note in exchange for gross proceeds of $13.0 million. The Secured Term Note had an annual interest rate of 9.75% payable monthly in cash. In connection with the Transactions, we repaid the Secured Term Note and certain transaction-related expenses with cash from our balance sheet.
For additional information on the Secured Term Note, refer to Footnote 4, Debt.
Restricted Cash
Restricted cash represents outstanding letters of credit, and lines of credit related to certain of our corporate credit card programs. As of December
31, 2020, restricted cash also represented our requirement to collateralize the Secured Term Note. As of June 30, 2021 and December 31, 2020, we had $1.0 million and $19.6 million of restricted cash, respectively. Repayment of the Secured Term Note resulted in the termination of the collateralization requirement thereunder, and no cash was restricted relating to the Secured Term Note as of June 30, 2021. We also transferred outstanding letters of credit totaling $2.7 million to our Revolving Credit Agreement facility during the three months ended June 30, 2021, which further reduced our restricted cash balance as this facility does not require letters of credit to be cash collateralized.
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 (or used in) 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, impairment of right-of-use assets, stock-based compensation, deferred tax provision, change in the fair value of financing derivatives and warrants liability, loss on extinguishment of debt, non-cash interest expense on the Notes, accretion of debt discount, and amortization of deferred financing costs.
Net cash provided
by operating activities for the six months ended June 30, 2021 was $10.9 million, compared to net cash used of $1.8 million for the six months ended June 30, 2020. The shift in cash was primarily attributable to a decrease in the cash interest paid on the Notes in 2021 of $12.2 million compared to 2020 (interest of $10.8 million on the Notes was paid in shares of Common Stock in 2021). Additionally, there was a net increase in operating assets and liabilities of $1.3 million for the six months ended June 30, 2021 as compared to a net decrease of $9.9 million for the six months ended June 30, 2020. The shift from a net decrease in operating assets and liabilities to a net increase was primarily due to increases in our accounts payable and accrual balances in 2021 compared
to 2020, due in part to new licensing costs to increase our data footprint and data rights.
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, 2021 was $7.7 million compared to net cash used in investing activities of $7.9 million for the six months
ended June 30, 2020. This decrease in cash used in investing activities was primarily attributable to a decrease in payments for capitalized internally developed software in 2021 compared with 2020.
Financing Activities
Net cash used in financing activities during the six months ended June 30, 2021 was $35.9 million compared to net cash used in financing activities of $1.0 million during the six months ended June 30, 2020. The increase in cash used in financing activities was primarily due to the
repayment of the Notes and the Secured Term Note in March 2021, and payment of $4.8 million in cash dividends to the holders of the Preferred Stock in June 2021. These increases in cash used were partially offset by cash proceeds of $204.0 million from the issuance of the Preferred Stock discussed above, net of $15.8 million in related transaction costs.
Contractual Payment Obligations
We have certain long-term contractual arrangements that have fixed and determinable payment obligations including unconditional purchase obligations with MVPDs, operating and financing leases, and data storage and bandwidth arrangements.
We have data licensing agreements with a number of MVPDs for set-top box data. These agreements have remaining terms from
one to ten years. As of June 30, 2021, the total fixed payment obligation related to these agreements is $384.9 million.
We have both operating and financing leases related to corporate office space and equipment. Our leases have remaining terms from one to seven years. As of June 30, 2021, the total fixed payment obligation related to these agreements is $66.6 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 three years. As of June 30, 2021, the total fixed payment obligation related to this agreement is $24.5 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. As discussed above, we have experienced delays in customer payments and requests to modify contractual terms in connection with the COVID-19 pandemic and related government mandates and restrictions. To the extent that our existing cash, cash equivalents and operating cash flow, together with savings from repayment of the Notes and Secured Term Note 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 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 allowable under applicable financing arrangements, 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.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements (as defined in Item 303 of Regulation S-K) as of June 30, 2021.
Critical Accounting Policies
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, including (with respect to the three and six months ended June 30, 2021) the ongoing and potential impacts of the COVID-19 pandemic and related government mandates and restrictions. Actual results may differ from these estimates.
Our critical accounting policies are those that are both material to
the presentation of our financial condition and results of operations and require management's most subjective and complex judgments. Other than our accounting policies related to the accounting for the Preferred Stock, and application of Accounting Standards Codification ("ASC") 470, Debt related to extinguishment of the Notes and Secured Term Note, there have been no material changes or updates to our critical accounting policies and estimates during the three and six months ended June 30, 2021 as compared to the critical accounting policies and estimates disclosed in our 2020 10-K.
Preferred Stock
On
March 10, 2021, in connection with the Transactions described above, we issued 82,527,609 shares of Preferred Stock in exchange for gross cash proceeds of $204.0 million. The shares were issued at a par value of $0.001. Net proceeds from the Transactions totaled $188.2 million after deducting issuance costs.
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 our control, all shares of Preferred Stock have been presented outside of permanent equity in mezzanine equity on the Condensed Consolidated Balance Sheets. The instrument is initially recognized at fair value net of issuance costs. We reassess 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, we will accrete the carrying value to the redemption value. The Preferred Stock has not been adjusted to its redemption amount as a deemed liquidation event is not considered probable.
All financial instruments that are classified as mezzanine equity are evaluated for embedded derivative features by evaluating each feature against the nature of the host instrument (e.g. more equity-like or debt-like). Features identified as embedded derivatives that are material are recognized separately as a derivative asset or liability in the consolidated financial statements.
Effective
January 1, 2021, we early-adopted Accounting Standards Update ("ASU") 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40). This ASU simplifies accounting for convertible instruments, enhances disclosure requirements related to the terms and features of convertible instruments, and amends the guidance for the derivatives scope exception for contracts settled in an entity's own equity. This ASU removes from GAAP the separation models for (1) convertible debt with a Cash Conversion Feature and (2) convertible instruments with a Beneficial Conversion
Feature. Upon adoption of this new ASU, entities will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock, unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815, or (2) a convertible debt instrument was issued at a substantial premium.
As a result of the adoption, no embedded features were identified requiring bifurcation under the new model, other than the change of control redemption feature. We adopted the standard using the modified retrospective approach. The standard had no impact on the Notes and, as a result, there was no cumulative adjustment recorded upon adoption.
Loss on Extinguishment of Debt
We apply the provisions of ASC 470, Debt, to determine whether amendments
to, or repayments of, our debt agreements should be accounted for as a modification or extinguishment event. Loss on extinguishment of debt represents the difference between the carrying value of our debt instruments and any consideration paid to our creditors in the form of cash or shares of our Common Stock on the extinguishment date.
In the three months ended March 31, 2021, we recorded a $9.6 million loss on debt extinguishment related to the payoff of the Notes and the Secured Term Note on March 10, 2021. These transactions are described in Footnote 4, Debt.
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
$19.4 million in liability related to outstanding warrants as of June 30, 2021, 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 described in Footnote 2, Summary of Significant Accounting Policies, and Footnote 5, Convertible Redeemable Preferred Stock and Stockholders' Equity,on March
9, 2021, our stockholders approved Transactions to issue preferred securities. The exercise price of our Series A Warrants is subject to anti-dilution adjustment in certain circumstances, including upon certain issuances of capital stock. As a result of the Transactions, the exercise price of the Series A Warrants was adjusted to the closing price of the Transactions. As of June 30, 2021, a 10% increase in the market price of our Common Stock would result in a $2.5 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 $2.4 million decrease in the fair value of the Series A Warrants.
Interest rate risk
Our borrowings, including letters of credit, under the Revolving Credit Agreement bear interest at a variable rate per annum equal to the Eurodollar
Rate (as defined in the Revolving Credit Agreement) plus an applicable rate equal to 2.25%. As a result, we are subject to interest rate risk, and our interest obligation on outstanding borrowings will fluctuate with movements in the Eurodollar Rate. We are able to repay any amounts borrowed under the Revolving Credit Agreement prior to the maturity date without any premium or penalty other than customary breakage costs. As of June 30, 2021, our exposure to interest rate risk was not material.
Foreign currency risk
For additional discussion of the market risk associated with our foreign currency risk, refer to Item 7A,
"Quantitative and Qualitative Disclosures About Market Risk" within the 2020 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, 2021. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of June 30, 2021, 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.
In
the third quarter of 2021, we expect to complete our implementation of a new enterprise resource planning ("ERP") system. This system, which is intended to improve our internal control over financial reporting, is expected to replace four legacy systems and impact multiple business processes. There was no material impact to our internal control over financial reporting from the ERP system implementation for the fiscal quarter ended June 30, 2021.
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.
For a discussion of material legal proceedings in which we are involved, please refer to Footnote 9, Commitments and Contingencies
of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this 10-Q, which is incorporated herein by reference.
ITEM 1A.
RISK FACTORS
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 2020 10-K before you decide whether to invest in our stock. The risks identified below and in our 2020 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 2020 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 new credit facility may impact our ability to operate our business and secure additional financing in the future, and any failure to meet our debt obligations could adversely affect our business and financial
condition.
On May 5, 2021, we entered into a senior secured revolving credit agreement (the "Revolving Credit Agreement") with a borrowing capacity of $25.0 million. As of the date of this 10-Q, we had borrowings and letters of credit outstanding under the Revolving Credit Agreement totaling $10.7 million. Amounts outstanding under the Revolving Credit Agreement bear interest at a rate per annum equal to the Eurodollar Rate (as defined in the Revolving Credit Agreement) plus 2.25%. In addition, the Revolving Credit Agreement provides for an unused commitment fee equal to 0.25% of the unused commitments. The Revolving Credit Agreement matures on May 5, 2024.
Servicing our indebtedness under the Revolving Credit Agreement could divert resources from other priorities, including investment
in our products and operations and satisfaction of our outstanding trade payables. If our cash flow from operations is inadequate to allow us to pay the interest and principal on our debt when due and meet our other financial obligations, we could face substantial liquidity challenges.
Under the Revolving Credit Agreement, we are subject to restrictive covenants limiting our ability to, among other things, incur additional indebtedness, permit additional 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. These covenants could limit our operating flexibility and cause us to forego attractive business opportunities, which could hurt our customer relationships and put us at a competitive
disadvantage. The covenants also could prevent us from securing additional financing in the future, including to fund our operations, satisfy liabilities, or pay dividends to the holders of our Preferred Stock.
In addition, we are subject to financial covenants under the Revolving Credit Agreement, including a requirement to maintain minimum Consolidated EBITDA for periods through March 31, 2022 and a minimum Consolidated Fixed Charge Coverage Ratio for periods after March 31, 2022 (each term as defined in the Revolving Credit Agreement). While we are currently in compliance with these covenants, there is no guarantee that we will be able to achieve our planned results and remain in compliance in future periods. Moreover, our ability to comply with the covenants could be affected by economic, financial, competitive, regulatory
and other factors beyond our control, including changes in consumer behavior or government mandates stemming from the COVID-19 pandemic.
If we fail to meet our financial covenants or other obligations under the Revolving Credit Agreement, the lender(s) may accelerate any amounts outstanding under the Revolving Credit Agreement and may terminate their commitments to extend further credit. This could have important consequences for our company, including requiring us to restructure or refinance our debt (which we may be unable to do on acceptable terms or at all), dispose of assets or, potentially, enter into liquidation or bankruptcy.
Delays or errors in implementing a new enterprise resource planning ("ERP") system could adversely affect our business, reputation and results of operations.
From
time to time, we modify, update and replace our systems and infrastructure, including by adding functionality, integrating new service providers and replacing legacy systems. We are currently in the process of implementing a new ERP system. This system, which is intended to improve our financial reporting processes and internal control, is expected to replace four legacy systems and impact multiple business processes. If we are unable to successfully implement the new ERP system, or if implementation is delayed, our ability to accurately and timely record transaction information, make and collect payments, implement and test controls, and report our financial results could be impaired, which could negatively impact our business and results of operations. Delays or errors in implementation could also be costly, distract our management's attention, divert resources from other projects, disrupt customer or vendor relationships, negatively affect our public image or reputation,
and expose us to liability.
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.
