Sizing Up comScore
Summary
- comScore, Inc.’s recent recapitalization will save it ~$10 million a year in net debt service and free up $40 million of previously restricted cash.
- These advancements come at a cost of a 115% increase in share count on a fully diluted basis.
- Although unprofitable for nearly a decade, a projected rebound in two of its business segments and insider buying merited a deeper dive.
- A full investment analysis follows in the paragraphs below.
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"I find television very educating. Every time somebody turns on the set, I go into the other room and read a book."― Groucho Marx
Today, we take a look at a small analytics and ratings firm that just went through a significant recapitalization. The company has had somewhat of a checkered past but its new CEO seems to have skin in the game and has been a purchaser of new shares recently. A full analysis of this small-cap concern follows below.
Company Overview:
comScore, Inc. (NASDAQ:SCOR) is a Reston, Virginia-based provider of information and analytics that measures advertising, content, and the consumer audiences of each, across [MOST] every media platform. The company was formed in 1999 and went public in 2007, raising net proceeds of $73.1 million at $16.50 per share. After a checkered past half decade that has featured accounting transgressions, multiple CEOs, and complex financial transactions, comScore has been a rumored buyout candidate for several years. Shares of SCOR trade at around $3.50 apiece.
The company collects data from its consumer panels comprised of over two million individuals who have agreed to install comScore's passive metering instruments on their devices; usage information from content publishers; television viewership information from satellite, cable, and other operators; movie viewership from screens throughout the world; as well as other proprietary and third-party sources. It then compiles and categorizes the data, which can be purchased via subscriptions to its online database; or customized as per specific customer requests.
Business Segments:
comScore disaggregates its revenue into three lines: Ratings and Planning; Analytics and Optimization; and Movies Reporting and Analytics. All three businesses have experienced meaningful revenue declines since 2018.
Ratings and Planning provide behavior analytics of audiences' viewing content and advertising across television and digital platforms with an eye towards helping customers find the most relevant viewing audience. After peaking at $285.4 million in 2018, this segment has fallen each of the past two years, generating FY20 revenue of $253.6 million. The decline in 2020 was blamed on a falloff in syndicated digital products (i.e. one-year subscription revenue) from smaller and international customers due to the pandemic. However, this segment was also 5% lower 2019 vs. 2018 as an ongoing shift in the industry to programmatic ad buying has created a secular headwind for this unit. This downtrend has been somewhat counteracted by comScore's dominance in local TV markets, which has demonstrated consistent growth.
Analytics and Optimization provide primarily bespoke products and services for optimizing and evaluating advertising campaigns and brand protection. For example, comScore provides lift models, which measure the impact of advertising on brand awareness, purchase intent, and retail store visitation. Like Ratings and Planning, this segment has seen a considerable drop in revenue since 2018, from $92.4 million to $69.1 million in 2020 as demand for its digital custom solutions, survey, and lift products have waned.
The one area where comScore is in a solid position despite a significant drop since 2018 is Movies Reporting and Analytics, which measures movie viewership and box office in real-time for movie studios and movie theater operations worldwide. Although this segment was down significantly in 2020 ($33.3 million) as compared to 2018 ($41.7 million), it had a legitimate excuse for lower revenue with the pandemic shutting movie theaters worldwide. Also, it was not on a downtrend entering 2020 as 2019 sales were up slightly ($42.3 million) versus 2018. This pre-pandemic growth is attributable to the fact that comScore enjoys a near-monopoly position in this category and should rebound when the worldwide economy reopens in earnest.
Checkered Past:
The company had enjoyed a solid ride after its 2007 IPO, trading above $60 a share for part of 2015. Then in March 2016, the company announced that it was reviewing its accounting for non-monetary contracts it recorded in 2013, 2014, and 2015. This disclosure culminated in a complete upheaval of its c-suite (as well as the removal of eight of nine board members over the subsequent two years) and a delisting from the NASDAQ from February 2017 until June 2018. Since the revelations regarding the accounting indiscretions, comScore has endured five CEOs and this lack of consistent leadership has been at least partly to blame for the company's miserable performance. Its operating losses, as well as investigation and audit costs related to the accounting improprieties, compelled comScore to seek debt capital, resulting in a restrictive 2018 financing agreement with Starboard Value LP - more on that below. Despite seeking 'strategic alternatives' - code for a buyer - twice over the last four years, no deal has been effectuated.
Part of the reason for this lack of would-be-suitor enthusiasm is that at no time during the 2010s did the company generate a calendar year profit on a GAAP basis and only one time ($0.01 per share in 2013) did it poke its head into positive territory on an adjusted basis. With that said, the industry standard Nielsen Holdings plc (NLSN) has also experienced revenue drops in both 2019 and 2020, albeit at a much shallower pace (down 4% from 2018) than comScore (down 18%). Nielsen also generated nearly 18 times comScore's 2020 top line, $6.3 billion to $356.0 million.
FY20 Results and 2021 Outlook
On March 10, 2021, comScore reported FY20 Adj. loss of $0.28 on revenue of $356.0 million versus an Adj. loss of $0.62 on revenue of $388.6 million in FY19, and FY20 Adj. EBITDA of $32.3 million as compared to $6.2 million in FY19. These improvements to the bottom line were mostly related to lower expenses related to prior headcount reductions and the pandemic.
Management's outlook, at least on the revenue side, is upbeat for 2021, expecting Adj. EBITDA of $25.9 million on revenue of $370 million - based on range midpoints - driven by stabilization in syndicated digital revenue, continued growth in local TV, and a gradual turnaround in Movies.
The biggest development actually took place on January 8, 2021.
Recapitalization Transaction
In 2018, the company issued what amounted to $204 million in convertible debt due January 2022 and warrants to purchase 323,448 shares of stock at $0.01 a share to activist investor Starboard in exchange for $100 million cash and 4 million shares of stock. The interest rate on the debt was 12% and a covenant was triggered in 2019 requiring comScore to maintain a minimum cash balance of $40 million.
Shortly after the close of 2020, the company announced a privately placed convertible preferred offering, the proceeds of which would retire the Starboard 12% debt and its restrictive cash balance requirement. In the transaction, which closed on March 10, 2021, comScore received $68 million each from Charter Communications (CHTR), Cerberus Capital Management, and Qurate Retail (QRTEA) in exchange for ~27.5 million shares (each) of Series B convertible preferred stock paying a 7.5% dividend. This agreement is also subject to a special dividend at some time after the onset of 2022 subject to multiple provisions with a minimum payout of $50 million, which would be likely financed by debt. Each investor will be allotted two board seats for a total of six (out of nine).
The proceeds will retire the principal portion of the debt with ~4.5 million shares issued mostly to pay off other provisions of the Starboard financing. Also, a $13 million 9.75% note will be retired. In total, these transactions will save comScore ~$10 million annually - dividend versus prior interest payments - while removing the $40 million minimum cash balance requirement.
comScore also entered into a ten-year data license agreement with Charter - essentially a contract extension - under which it will pay Charter $10 million in year one, subsequently increasing annually to $32.3 million in year ten.
Balance Sheet & Analyst Commentary:
Giving effect to the above transactions, comScore would have held cash of $37.7 million and no debt as of December 31, 2020. However, its fully diluted shares outstanding count rose 115% from 75.8 million to 163.1 million.
The early January news induced Loop Capital to upgrade shares of SCOR from a hold to a buy, raising its price target from $3 to $4. In total, there are two buys and one hold rating on the company with price targets of $3.50, $4, and $6 a share.
CEO Bill Livek, who has now been at the helm since November 2019, is very bullish on his company's prospects based on his 200,000-share purchase in mid-March at an average price of $3.66.
Verdict:
With dominant market standings in local TV - ~75 million screens in the U.S. - and movie metrics, comScore is poised for a top line turnaround in 2021. And with annual savings of ~$10 million from the recapitalization, the company is better positioned than it has been in years to make a push towards profitability. As the only meaningful foil to Nielsen in the marketplace, customers have an interest in supporting comScore. However, the preferred deal - although strategic in nature - and the special dividend provision will likely shoo away any would-be suitors. comScore is a 'show me' stock for now, and only suitable for a small purchase by aggressive investors who have more faith in a turnaround than the company's recent history merits.
"If television's a babysitter, the Internet is a drunk librarian who won't shut up."― Dorothy Gambrell
Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum
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Comments (22)
But it has a purpose and a method.
The recapitalization did not benefit me much, personally. But it was necessary for the firm. I just wish it had taken taken less than 7 years to upright this capsized vessel.
Not all the data is being gathered by FAANG. Just parts.And worse, what is gathered is made available on a selective and skewed basis. Google reports data that benefits it. FB reports data that benefits it. Amazon likewise. Comscore is reliably 3rd party.
That has genuine value for advertisers and broadcasters and publishers.
- no debt
- revenue greater than market cap
- ahead of the curve on cookie-less technology, which is in high demand.
- announcing new deals weekly
- huge movie business which will only get stronger during the recovery
- monopoly on the local tv market
- CEO purchased $700k in shares on open market 3 weeks agoTremendous risk/reward here.