Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
COMSCORE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
As of As of
June 30, 2020 December 31, 2019
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 35,899 $ 46,590
Restricted cash 19,611 20,183
Accounts receivable, net of allowances of $ 2,772 and $ 1,919 , respectively ($ 2,406 and $ 2,698 of accounts receivable attributable to related parties, respectively)
64,026 71,853
Prepaid expenses and other current assets ($ 1,156 and $ 1,180 attributable to related parties, respectively)
14,755 15,357
Total current assets 134,291 153,983
Property and equipment, net 30,362 31,693
Operating right-of-use assets 31,484 36,689
Other non-current assets 3,652 2,979
Deferred tax assets 1,868 2,374
Intangible assets, net 65,790 79,559
Goodwill 416,172 416,418
Total assets $ 683,619 $ 723,695
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ($ 1,084 and $ 2,510 attributable to related parties, respectively)
$ 36,178 $ 44,804
Accrued expenses ($ 7,666 and $ 6,902 attributable to related parties, respectively)
51,071 55,507
Contract liability ($ 1,800 and $ 1,519 attributable to related parties, respectively)
55,422 58,158
Customer advances 8,432 9,886
Warrants liability 3,832 7,725
Current operating lease liabilities 6,994 6,764
Other current liabilities 6,723 7,393
Total current liabilities 168,652 190,237
Secured term note 12,488 12,463
Financing derivatives (related parties) 16,900 21,587
Senior secured convertible notes (related parties) 188,275 184,075
Non-current operating lease liabilities 39,480 42,497
Non-current contract liability 6,165 291
Deferred tax liabilities 407 287
Other non-current liabilities 11,245 13,284
Total liabilities 443,612 464,721
Commitments and contingencies
Stockholders' equity:
Preferred stock, $ 0.001 par value per share; 5,000,000 shares authorized at June 30, 2020 and December 31, 2019; no shares issued or outstanding as of June 30, 2020 and December 31, 2019
— —
Common stock, $ 0.001 par value per share; 150,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 77,629,871 shares issued and 70,865,075 shares outstanding as of June 30, 2020, and 76,829,926 shares issued and 70,065,130 shares outstanding as of December 31, 2019
71 70
Additional paid-in capital 1,615,284 1,609,358
Accumulated other comprehensive loss ( 13,642 ) ( 12,333 )
Accumulated deficit ( 1,131,722 ) ( 1,108,137 )
Treasury stock, at cost, 6,764,796 shares as of June 30, 2020 and December 31, 2019
( 229,984 ) ( 229,984 )
Total stockholders' equity 240,007 258,974
Total liabilities and stockholders' equity $ 683,619 $ 723,695
See accompanying Notes to Condensed Consolidated Financial Statements.
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COMSCORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except share and per share data)
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenues (1)
$ 88,566 $ 96,888 $ 178,094 $ 199,182
Cost of revenues (1) (2) (3) (4)
44,949 51,994 90,747 105,401
Selling and marketing (2) (3) (4)
16,007 23,329 35,220 48,169
Research and development (2) (3) (4)
9,765 16,883 19,901 35,099
General and administrative (1) (2) (3) (4)
13,741 16,932 29,284 36,477
Investigation and audit related — 2,354 — 3,196
Amortization of intangible assets 6,846 8,076 13,764 16,181
Impairment of goodwill — 224,272 — 224,272
Impairment of intangible asset — 17,308 — 17,308
Settlement of litigation, net — 5,000 — 5,000
Impairment of right-of-use and long-lived assets — — 4,671 —
Restructuring (3)
— 2,949 — 2,879
Total expenses from operations 91,308 369,097 193,587 493,982
Loss from operations ( 2,742 ) ( 272,209 ) ( 15,493 ) ( 294,800 )
Interest expense, net (1)
( 8,856 ) ( 8,242 ) ( 17,702 ) ( 15,001 )
Other income (expense), net 1,477 ( 3,081 ) 8,671 ( 112 )
Loss from foreign currency transactions ( 944 ) ( 464 ) ( 140 ) ( 426 )
Loss before income taxes ( 11,065 ) ( 283,996 ) ( 24,664 ) ( 310,339 )
Income tax benefit 664 4,463 1,079 3,292
Net loss $ ( 10,401 ) $ ( 279,533 ) $ ( 23,585 ) $ ( 307,047 )
Net loss per common share:
Basic and diluted $ ( 0.15 ) $ ( 4.61 ) $ ( 0.34 ) $ ( 5.09 )
Weighted-average number of shares used in per share calculation - Common Stock:
Basic and diluted 70,554,326 60,697,608 70,340,658 60,315,528
Comprehensive loss:
Net loss $ ( 10,401 ) $ ( 279,533 ) $ ( 23,585 ) $ ( 307,047 )
Other comprehensive loss:
Foreign currency cumulative translation adjustment 1,564 677 ( 1,309 ) 56
Total comprehensive loss $ ( 8,837 ) $ ( 278,856 ) $ ( 24,894 ) $ ( 306,991 )
(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:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Cost of revenues $ 487 $ 636 $ 696 $ 1,484
Selling and marketing 720 1,087 1,329 2,403
Research and development 375 668 431 1,394
General and administrative 764 1,913 2,548 5,976
Restructuring — ( 266 ) — ( 266 )
Total stock-based compensation expense $ 2,346 $ 4,038 $ 5,004 $ 10,991
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(4) Lease cost, net of sublease income, is included in the line items above as follows:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Operating lease cost
Cost of revenues $ 945 $ 1,155 $ 1,836 $ 2,256
Selling and marketing 1,045 1,218 2,144 2,382
Research and development 716 787 1,317 1,536
General and administrative 507 339 1,190 718
Total operating lease cost $ 3,213 $ 3,499 $ 6,487 $ 6,892
Amortization of right-of-use assets
Cost of revenues $ 288 $ 578 $ 573 $ 999
Selling and marketing 41 85 82 146
Research and development 44 80 88 141
General and administrative 21 44 41 75
Total amortization of right-of-use assets $ 394 $ 787 $ 784 $ 1,361
See accompanying Notes to Condensed Consolidated Financial Statements.
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COMSCORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands, except share data)
Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Treasury stock, at cost Total
Stockholders'
Equity
Shares Amount
Balance as of December 31, 2019 70,065,130 $ 70 $ 1,609,358 $ ( 12,333 ) $ ( 1,108,137 ) $ ( 229,984 ) $ 258,974
Net loss — — — — ( 13,184 ) — ( 13,184 )
Foreign currency translation adjustment — — — ( 2,873 ) — — ( 2,873 )
Restricted stock units vested 157,384 — — — — — —
Common stock received from tax withholding ( 15,597 ) — ( 65 ) — — — ( 65 )
Amortization of stock-based compensation — — 2,609 — — — 2,609
Balance as of March 31, 2020 70,206,917 $ 70 $ 1,611,902 $ ( 15,206 ) $ ( 1,121,321 ) $ ( 229,984 ) $ 245,461
Net loss — — — — ( 10,401 ) — ( 10,401 )
Foreign currency translation adjustment — — — 1,564 — — 1,564
Restricted stock units vested 659,244 1 2,241 — — — 2,242
Common stock received from tax withholding ( 1,086 ) — ( 3 ) — — — ( 3 )
Amortization of stock-based compensation — — 1,144 — — — 1,144
Balance as of June 30, 2020 70,865,075 $ 71 $ 1,615,284 $ ( 13,642 ) $ ( 1,131,722 ) $ ( 229,984 ) $ 240,007
Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Treasury stock, at cost Total
Stockholders'
Equity
Shares Amount
Balance as of December 31, 2018 59,389,830 $ 59 $ 1,561,208 $ ( 10,621 ) $ ( 769,095 ) $ ( 229,984 ) $ 551,567
Adoption of ASC 842 — — — — ( 46 ) — ( 46 )
Net loss — — — — ( 27,514 ) — ( 27,514 )
Foreign currency translation adjustment — — — ( 621 ) — — ( 621 )
Exercise of common stock options 68,259 — 1,191 — — — 1,191
Restricted stock units vested 552,651 1 4,610 — — — 4,611
Common stock received from tax withholding ( 52,853 ) — ( 1,138 ) — — — ( 1,138 )
Amortization of stock-based compensation — — 5,888 — — — 5,888
Balance as of March 31, 2019 59,957,887 $ 60 $ 1,571,759 $ ( 11,242 ) $ ( 796,655 ) $ ( 229,984 ) $ 533,938
Net loss — — — — ( 279,533 ) — ( 279,533 )
Foreign currency translation adjustment — — — 677 — — 677
Issuance of common stock in connection with CVI Warrants 2,728,513 3 7,575 — — — 7,578
Common stock warrants exercised 323,448 — — — — — —
Interest paid in Common Stock 243,261 — 5,134 — — — 5,134
Restricted stock units vested 46,078 — — — — — —
Common stock received from tax withholding ( 7,218 ) — ( 72 ) — — — ( 72 )
Amortization of stock-based compensation — — 2,354 — — — 2,354
Balance as of June 30, 2019 63,291,969 $ 63 $ 1,586,750 $ ( 10,565 ) $ ( 1,076,188 ) $ ( 229,984 ) $ 270,076
See accompanying Notes to Condensed Consolidated Financial Statements.
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COMSCORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
2020 2019
Operating activities:
Net loss $ ( 23,585 ) $ ( 307,047 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 6,788 6,111
Non-cash operating lease expense 2,978 2,747
Amortization expense of finance leases 784 1,361
Amortization of intangible assets 13,764 16,181
Bad debt expense 1,590 —
Impairment of goodwill — 224,272
Impairment of intangible asset — 17,308
Stock-based compensation 5,004 10,991
Deferred tax provision (benefit) 324 ( 3,983 )
Change in fair value of financing derivatives ( 4,687 ) ( 1,100 )
Change in fair value of warrants liability ( 3,893 ) —
Change in fair value of investment in equity securities — 2,016
Impairment of right-of-use and long-lived assets 4,671 —
Accretion of debt discount 3,617 3,042
Amortization of deferred financing costs 739 525
Other ( 6 ) ( 20 )
Changes in operating assets and liabilities:
Accounts receivable 5,836 4,442
Prepaid expenses and other assets ( 779 ) 3,190
Accounts payable, accrued expenses and other liabilities ( 13,948 ) 20,176
Contract liability and customer advances 2,330 ( 6,552 )
Operating lease liabilities ( 3,319 ) ( 4,364 )
Net cash used in operating activities ( 1,792 ) ( 10,704 )
Investing activities:
Proceeds from sale of investment in equity securities
— 705
Purchases of property and equipment ( 45 ) ( 1,893 )
Capitalized internal-use software costs ( 7,836 ) ( 5,619 )
Net cash used in investing activities ( 7,881 ) ( 6,807 )
Financing activities:
Proceeds from private placement, net of issuance costs paid — 19,894
Proceeds from sale-leaseback financing transaction — 4,252
Proceeds from the exercise of stock options — 1,191
Payments for taxes related to net share settlement of equity awards ( 68 ) ( 1,210 )
Principal payments on finance leases ( 823 ) ( 1,417 )
Principal payments on software license arrangements ( 155 ) ( 1,662 )
Net cash (used in) provided by financing activities ( 1,046 ) 21,048
Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 544 ) 91
Net (decrease) increase in cash, cash equivalents and restricted cash ( 11,263 ) 3,628
Cash, cash equivalents and restricted cash at beginning of period 66,773 50,198
Cash, cash equivalents and restricted cash at end of period $ 55,510 $ 53,826
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As of June 30,
2020 2019
Cash and cash equivalents $ 35,899 $ 48,963
Restricted cash 19,611 4,863
Total cash, cash equivalents and restricted cash $ 55,510 $ 53,826
Six Months Ended June 30,
2020 2019
Supplemental cash flow disclosures:
Interest paid ($ 12,240 and $ 3,046 attributable to related party, respectively)
$ 13,551 $ 3,413
Income taxes paid, net of refunds 771 373
Supplemental disclosures of non-cash activities:
Settlement of restricted stock unit liability $ 2,241 $ 4,611
Right-of-use assets obtained in exchange for new operating lease liabilities 669 397
Change in accounts payable and accrued expenses related to capital expenditures 456 1,630
Leasehold improvements acquired through lease incentives 218 1,427
Fair value of warrants issued in private placement — 10,798
Interest paid in common stock — 5,134
Right-of-use assets obtained in exchange for new finance lease liabilities — 3,487
See accompanying Notes to Condensed Consolidated Financial Statements.
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COMSCORE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
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 principal executive officer, who decides how to allocate resources and assess performance. The Company has one 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.
Uses and Sources of Liquidity and Management's Plans
The Company's primary need for liquidity is to fund working capital requirements and capital expenditures of its business. The Company has secured the following long-term financing in order to increase its available working capital:
• 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 $ 204.0 million in senior secured convertible notes as well as warrants to purchase shares of the Company's common stock, par value $ 0.001 per share (the "Common Stock") in exchange for $ 100.0 million in cash and 4,000,000 shares of Common Stock. For additional information, refer to Footnote 4 , Long-term Debt .
• On June 26, 2019, the Company issued 2,728,513 shares of Common Stock and four series of warrants in a private placement to CVI Investments, Inc. ("CVI") in exchange for gross cash proceeds of $ 20.0 million. On October 14, 2019, the Company issued 2,728,513 shares of Common Stock to CVI upon exercise by CVI of the Series C warrant. For additional information, refer to Footnote 5 , Stockholders' Equity.
• 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 term note (the "Secured Term Note") in exchange for gross proceeds of $ 13.0 million. The Secured Term Note matures on December 31, 2021, is cash collateralized, and has an annual interest rate of 9.75 % that is payable monthly in arrears. For additional information, refer to Footnote 4 , Long-term Debt.
As of June 30, 2020, the Company was in compliance with its covenants under the senior secured convertible notes and the Secured Term Note, inclusive of the Company's restricted cash balances.
The COVID-19 pandemic and related government mandates and restrictions have had a significant impact on the media, advertising and entertainment industries in which the Company operates. To date, the COVID-19 pandemic has had some impact on the Company's business, including with respect to the timing of executing new or renewal contracts, the impact of closed movie theaters on the Company's customers, customer payment delays and requests to modify contractual payment terms. These conditions have negatively impacted the Company's liquidity, net loss, and cash flows to some extent and are expected to continue to have an impact in future periods. In addition, the spread of COVID-19 has led to disruption and volatility in global capital and credit markets, which, depending on future developments, could impact the Company's ability to access capital resources on terms acceptable to the Company or allowable under its current financing arrangements, or at all. Liquidity could also be negatively affected by a decrease in demand for the Company's products and services or by additional losses from operations, whether related to the COVID-19 pandemic or otherwise. While the Company has taken, and continues to take, actions to reduce costs and mitigate the impact of COVID-19, these steps may not be successful or adequate to offset declines in cash collections. If the Company's efforts to manage costs are not sufficient, or if cash collection efforts are further impacted by the COVID-19 pandemic, the Company may not be able to maintain compliance with the affirmative and negative covenants in its senior secured convertible notes and Secured Term Note or to meet its financial obligations to vendors or others.
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On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). The CARES Act, among other things, includes tax provisions for the deferral of certain employer payroll tax liabilities, refundable employee retention credits, rollbacks of Tax Cuts and Jobs Act ("TCJA") limitations on net operating losses, the acceleration of alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company began deferring certain payroll taxes starting in April 2020, as permitted by the CARES Act. In addition, the Company began claiming the refundable employee retention credit created by the CARES Act during 2020. The Company continues to assess the effect of the CARES Act and additional legislation and government guidance related to the COVID-19 pandemic.
The Company's liquidity could be significantly affected if the Company is unable to maintain compliance with the covenants in its senior secured convertible notes and Secured Term Note, including the minimum cash balance requirements described in Footnote 4 , Long-term Debt . If the Company fails to comply with its covenants, it could be required to redeem the senior secured convertible notes and the Secured Term Note at a premium. As of June 30, 2020, there was $ 217.0 million outstanding under the senior secured convertible notes and the Secured Term Note. The source of funds for any redemption of the notes would be the Company's available cash and other financing, to the extent available. Based on the Company's current plans, including continued cost management and other actions within management's control, the Company does not anticipate a breach of these covenants that would result in an event of default under the senior secured convertible notes or the Secured Term Note; however, during the quarter ended June 30, 2020, the holders of the senior secured convertible notes questioned the Company's compliance with the minimum cash balance requirements therein. As noted, any breach of covenants under the senior secured convertible notes could have a material impact on the Company's liquidity.
The Company continues to be focused on maintaining flexibility in terms of sources, amounts, and timing of any potential financing, refinancing or strategic transaction, in order to best position the Company for future success. The Company believes that its sources of funding, after taking into account the financing transactions described above and the cost-reduction initiatives undertaken by management in 2020, will be sufficient to satisfy the Company's estimated liquidity needs and allow the Company to remain in compliance with its covenants under the senior secured convertible notes and the Secured Term Note for at least one year after the date that these financial statements are issued. However, the Company cannot predict with certainty the outcome of its actions to generate liquidity, including the availability of additional financing, or whether such actions would generate the expected liquidity as currently planned. The Company also cannot predict the duration and magnitude of the COVID-19 pandemic or its effects on the Company's business or liquidity or any action that may be taken by the holders of the senior secured convertible notes, as described above.
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2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned domestic and foreign subsidiaries. All intercompany transactions and balances are eliminated upon consolidation.
Reclassification
Certain amounts in the prior year financial statements have been reclassified to conform to the current quarter presentation. Specifically, current accrued litigation settlements have been aggregated within other current liabilities on the Condensed Consolidated Balance Sheets. In addition, non-current contract liability is now separately reported from other non-current liabilities on the Condensed Consolidated Balance Sheets.
Unaudited Interim Financial Information
The 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, 2019 (the "2019 10-K"). The Condensed Consolidated Results of Operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2020 or thereafter. All references to June 30, 2020 and 2019 in the Notes to Condensed Consolidated Financial Statements are unaudited.
Use of Estimates and Judgments in the Preparation of the Condensed Consolidated Financial Statements
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 derivative liabilities and warrants, the allowance for doubtful accounts, and 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. For the three and six months ended June 30, 2020, management specifically considered the impact of the COVID-19 pandemic and related matters in evaluating the Company's goodwill, intangible and other long-lived assets, lease accounting, contingencies, fair value determinations and allowance for doubtful accounts.
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.
Other Income (Expense), Net
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2020 2019 2020 2019
Change in fair value of financing derivatives $ 2,300 $ ( 3,000 ) $ 4,687 $ 1,100
Change in fair value of warrants liability ( 758 ) — 3,893 —
Change in fair value of investment in equity securities — ( 304 ) — ( 2,016 )
Other ( 65 ) 223 91 804
Total other income (expense), net $ 1,477 $ ( 3,081 ) $ 8,671 $ ( 112 )
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Loss Per Share
Basic net loss per common share excludes dilution for potential Common Stock issuances and is computed by dividing net loss by the weighted-average number of shares of Common Stock outstanding for the period. 250,000 shares of Common Stock issuable upon the exercise of warrants held by Starboard ("penny warrants") were included in the number of outstanding shares used for the computation of basic net loss per share prior to the exercise of those warrants on April 3, 2019. In periods where the Company reports a net loss, the effect of anti-dilutive stock options, stock appreciation rights, restricted stock units, deferred stock units, senior secured convertible notes and warrants are excluded and diluted net loss per share is equal to basic loss per share.
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:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Stock options, stock appreciation rights, restricted stock units, deferred stock units, senior secured convertible notes and warrants 16,719,624 9,209,577 16,564,285 8,511,550
Goodwill and Intangible Assets
In June 2019, the Company concluded that it was more likely than not that the estimated fair value of its reporting unit was less than its carrying value. In its assessment, the Company considered the sustained decline in the Company's stock price and market capitalization, changes in management, and lower revenue, among other factors. The Company performed a quantitative goodwill impairment test using a discounted cash flow model, supported by a market approach. The Company's reporting unit failed the goodwill impairment test; and as a result the Company recorded a $ 224.3 million non-cash impairment charge.
Also in June 2019, the Company recorded a $ 17.3 million non-cash impairment charge for the full carrying value of its strategic alliance intangible asset. Changes in the Company's projected revenue in certain non-U.S. geographic markets due to the changing international competitive landscape as well as significant reductions in international staffing during the quarter, resulted in a change in the Company's long-term view of the viability of the intangible asset. As such, the Company's assessment yielded that the benefit of the alliance would not be realized. The fair value of the strategic alliance intangible asset was estimated using an income approach.
There were no comparable charges in the three or six months ended June 30, 2020.
Impairment of Right-of-use ("ROU") and Long-lived Assets
The Company applies the provisions of Accounting Standards Codification ("ASC") 360, Property, Plant and Equipment , to determine whether ROU and related long-lived assets may be impaired. The Company evaluates its ROU and long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of such assets may not be recoverable. For facility lease ROU and related long-lived assets, the Company compares the estimated undiscounted cash flows generated by a sublease to the current carrying value of the ROU and related long-lived assets. If the undiscounted cash flows are less than the carrying value of the ROU and related long-lived assets, the Company records an impairment loss equal to the excess of the ROU and long-lived assets' carrying value over their fair value consistent with other long-lived assets.
The Company performed an interim analysis as of March 31, 2020, as changes in market conditions indicated the carrying value of certain facility lease ROU and other long-lived assets may not be recoverable, and determined that certain ROU assets, and related leasehold improvements, were impaired.
The Company recorded a $ 4.7 million non-cash impairment charge related to its ROU assets, and related leasehold improvements, for the three months ended March 31, 2020, with corresponding reductions of $ 2.8 million and $ 1.9 million to the operating lease ROU asset and property and equipment, net line items, respectively, in the Condensed Consolidated Balance Sheet as of March 31, 2020. The impairment charge was driven by changes in the Company's 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, for properties currently on the market for sublease. The fair value of these ROU assets, and related leasehold improvements, was estimated using an income approach and a discount rate of 12.0 %.
Although the Company believes that the carrying values of its long-lived assets are appropriately stated as of June 30, 2020, 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.
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Allowance for Doubtful Accounts
The 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. For the six months ended June 30, 2020, 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.
The table below summarizes the change in balance of the allowance for doubtful accounts:
Six Months Ended June 30,
(In thousands) 2020 2019
Beginning Balance $ ( 1,919 ) $ ( 1,597 )
Bad debt expense ( 1,590 ) —
Recoveries ( 55 ) ( 331 )
Write-offs 792 330
Ending Balance $ ( 2,772 ) $ ( 1,598 )
Accounting Standards Recently Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires consideration of forward-looking information to calculate credit loss estimates. These changes will result in an earlier recognition of credit losses. The amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the new standard effective January 1, 2020, and the standard did not have a material impact on the Condensed Consolidated Financial Statements or related disclosures based on historical collection trends, the financial condition of payment partners, and external market factors.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which removes and modifies certain disclosure requirements under Topic 820. The amendments are effective for fiscal years beginning after December 15, 2019, 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, 2020, and the standard did not have a material impact on the Condensed Consolidated Financial Statements or related disclosures.
Recently Issued Accounting Pronouncements
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 is in the process of evaluating the guidance but does not believe that the adoption of this standard will have a material impact on the Condensed Consolidated Financial Statements or related disclosures.
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3. Revenue Recognition
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 one 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) 2020 2019 2020 2019
By solution group:
Ratings and Planning (1)
$ 63,779 $ 68,922 $ 127,300 $ 139,499
Analytics and Optimization (1)
16,894 17,293 32,395 38,751
Movies Reporting and Analytics 7,893 10,673 18,399 20,932
Total $ 88,566 $ 96,888 $ 178,094 $ 199,182
By geographical market:
United States $ 77,527 $ 83,971 $ 154,673 $ 171,947
Europe 6,417 7,504 13,900 15,916
Canada 2,011 1,758 3,573 3,598
Latin America 1,477 2,284 3,497 4,686
Other 1,134 1,371 2,451 3,035
Total $ 88,566 $ 96,888 $ 178,094 $ 199,182
By timing of revenue recognition:
Products and services transferred over time $ 68,576 $ 75,180 $ 140,493 $ 151,641
Products and services transferred at a point in time 19,990 21,708 37,601 47,541
Total $ 88,566 $ 96,888 $ 178,094 $ 199,182
(1) In the second quarter of 2020, the Company began classifying revenue from certain new and extended custom agreements for services that utilize its syndicated data set, previously classified under Analytics and Optimization, as Ratings and Planning. The impact was not material to either solution group.
Contract Balances
The following table provides information about receivables, contract assets, contract costs, contract liabilities and customer advances from contracts with customers:
As of As of
(In thousands) June 30, 2020 December 31, 2019
Accounts receivable, net $ 64,026 $ 71,853
Current and non-current contract assets 389 1,035
Current and non-current contract costs 472 799
Current contract liability 55,422 58,158
Current customer advances 8,432 9,886
Non-current contract liability 6,165 291
Significant changes in the contract assets and the contract liabilities balances are as follows:
Contract Liability (Current)
Six Months Ended June 30,
(In thousands) 2020 2019
Revenue recognized that was included in the opening contract liability balance $ ( 39,497 ) $ ( 50,758 )
Cash received or amounts billed in advance and not recognized as revenue 47,596 44,780
For the six months ended June 30, 2020, the Company recorded $ 5.9 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, 2020, approximately $ 240.0 million of revenue is expected to be recognized from remaining performance obligations that are unsatisfied (or partially unsatisfied) for non-cancelable contracts. The Company expects to recognize revenue on approximately 37 % of these remaining performance obligations during the remainder of 2020, approximately 40 % in 2021, and approximately 17 % in 2022, with the remainder recognized thereafter.
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Costs to Obtain or Fulfill a Contract
As of June 30, 2020 and December 31, 2019, the Company had $ 0.5 million and $ 0.8 million, respectively, in capitalized contract costs. For the three months ended June 30, 2020 and 2019, amortized and expensed contract costs were $ 0.4 million and $ 0.8 million, respectively. For the six months ended June 30, 2020 and 2019, amortized and expensed contract costs were $ 0.7 million and $ 1.4 million, respectively.
4. Long-term Debt
Issuance and Sale of Initial Notes
On January 16, 2018, the Company entered into certain agreements with Starboard, pursuant to which, among other things, the Company issued and sold to Starboard $ 150.0 million of senior secured convertible notes (the "Initial Notes") in exchange for $ 85.0 million in cash and 2,600,000 shares of Common Stock valued at $ 65.0 million. Based upon the fair value of the Common Stock on the closing date of the Initial Notes issuance, January 16, 2018, which was $ 24.45 per share, the difference of $ 1.4 million was recorded as an issuance discount to the Initial Notes. The Company also granted to Starboard an option (the "Notes Option") to acquire up to an additional $ 50.0 million in senior secured convertible notes (the "Option Notes" and together with the Initial Notes, the "Notes") and agreed to grant Starboard warrants to purchase 250,000 shares of Common Stock at a price of $ 0.01 per share, as adjusted pursuant to the terms of the warrants. The warrants were issued on October 12, 2018 and were exercised in full by Starboard on April 3, 2019 for 323,448 shares of Common Stock.
The conversion price for the Notes (the "Conversion Price") is equal to a 30.0 % premium to the volume weighted average trading prices ("VWAP") of the Common Stock on each trading day during the 10 consecutive trading days commencing on January 16, 2018, subject to a Conversion Price floor of $ 28.00 per share. In accordance with the foregoing, the Conversion Price was set at $ 31.29 .
The Notes mature on January 16, 2022. Based upon the determination of the Conversion Price, interest on the Notes accrued at 6.0 % per year through January 30, 2019, when the interest rate reset to 12.0 % per year through January 30, 2020. The interest rate reset on January 30, 2020 and will remain at 12.0 % (subject to certain conditions) until February 1, 2021 (the "Interest Reset Date"). On the Interest Reset Date, the interest rate on the Notes will reset, and interest will thereafter accrue at a minimum of 4.0 % per year and a maximum of 12.0 % per year, based upon the then-applicable conversion premium in accordance with the terms of the Notes.
Interest on the Notes is payable on a quarterly basis in arrears from April 1, 2018, 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"). Any PIK Interest Shares so issued will be valued at the arithmetic average of the VWAP of the Common Stock on each trading day during the 10 consecutive trading days ending immediately preceding the applicable interest payment date. On each of January 2, 2020, April 1, 2020 and July 1, 2020, the Company paid quarterly accrued interest of $ 6.1 million in cash. The accrued interest liability of $ 6.1 million as of June 30, 2020 was classified within accrued expenses in the Condensed Consolidated Financial Statements.
The Notes contain certain affirmative and restrictive covenants with which the Company must comply, including covenants with respect to (i) limitations on additional indebtedness, (ii) limitations on liens, (iii) limitations on certain payments, (iv) maintenance of certain minimum cash balances (currently $ 40.0 million), and (v) the timely filing of certain disclosures with the SEC. The Company is in compliance with its Notes covenants as of the date of these financial statements, inclusive of the Company's restricted cash balances.
Issuance and Sale of Option Notes
On May 17, 2018, the Notes Option was exercised by Starboard, pursuant to which the Company issued and sold to Starboard $ 50.0 million of Option Notes in exchange for $ 15.0 million in cash and 1,400,000 shares of Common Stock valued at $ 35.0 million. Based upon the fair value of the Common Stock on the closing date of the Option Notes issuance, May 17, 2018, which was $ 21.75 per share, the difference of $ 4.6 million was recorded as an issuance discount to the Option Notes. The Option Notes have the same terms, including maturity, interest rate, convertibility, and security, as the Initial Notes, except with regard to the date from which interest began to accrue, which was May 17, 2018.
Financing Derivatives
The Notes contain an interest rate reset feature, make-whole change of control redemption feature, and a qualifying change of control redemption feature which the Company determined represent embedded derivatives that must be bifurcated and accounted for separately from the Notes. Refer to Footnote 6 , Fair Value Measurements , for further information on the Level 3 inputs utilized for the determination of the fair value of the derivatives.
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The balance of the Notes as of June 30, 2020 and December 31, 2019 was as follows:
As of
June 30, 2020
(In thousands, except interest rates) Stated Interest Rate Effective Interest Rate Face Value Issuance Discount Deferred Financing Costs Net Carrying Value
Initial Notes, due January 16, 2022 12.0 % 18.8 % $ 153,500 $ ( 11,599 ) $ ( 2,153 ) $ 139,748
Option Notes, due January 16, 2022 12.0 % 14.9 % 50,500 ( 1,852 ) ( 121 ) 48,527
Total $ 204,000 $ ( 13,451 ) $ ( 2,274 ) $ 188,275
As of
December 31, 2019
(In thousands, except interest rates) Stated Interest Rate Effective Interest Rate Face Value Issuance Discount Deferred Financing Costs Net Carrying Value
Initial Notes, due January 16, 2022 12.0 % 18.8 % $ 153,500 $ ( 14,703 ) $ ( 2,706 ) $ 136,091
Option Notes, due January 16, 2022 12.0 % 14.9 % 50,500 ( 2,365 ) ( 151 ) 47,984
Total $ 204,000 $ ( 17,068 ) $ ( 2,857 ) $ 184,075
Due to the interest rate reset feature of the Notes, the potential future cash flows associated with the Notes are variable. Accordingly, the accretion schedule of debt discount and the amortization schedule of deferred financing costs are updated annually to reflect periodic changes in the future cash flows using the effective interest rate on a prospective basis.
The Company amortized $ 0.3 million and $ 0.6 million in deferred financing costs related to the Notes during the three and six months ended June 30, 2020, respectively; and $ 0.3 million and $ 0.5 million during the three and six months ended June 30, 2019, respectively. The Company accreted $ 1.8 million and $ 3.6 million in issuance discount related to the Notes during the three and six months ended June 30, 2020, respectively; and $ 1.7 million and $ 3.0 million during the three and six months ended June 30, 2019, respectively.
The estimated fair value of the Notes, using Level 3 inputs based on interest rates available for debt with terms and maturities similar to the Company's Notes, was $ 171.0 million as of June 30, 2020.
Guarantee and Security of Notes
The Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries (the "Guarantors") and are secured by a security interest in substantially all of the assets of the Company and the Guarantors, pursuant to a Guaranty, dated as of January 16, 2018, entered into by the Guarantors, and a Pledge and Security Agreement, dated as of January 16, 2018, among the Company, the Guarantors and Starboard Value and Opportunity Master Fund Ltd. as collateral agent.
Issuance of Secured Term Note
On December 31, 2019, the Company's wholly owned subsidiary, Rentrak B.V., entered into an agreement with the Noteholder for the Secured Term Note for aggregate gross proceeds of $ 13.0 million. The Secured Term Note, which is cash collateralized, matures on December 31, 2021 and has an annual interest rate of 9.75 %. Interest is payable in arrears on the last business day of each calendar month commencing on January 31, 2020.
The Secured Term Note contains certain affirmative and restrictive covenants with which Rentrak B.V. must comply, including (i) maintenance of a minimum cash collateral balance of $ 14.8 million, (ii) provision of certain financial statements, (iii) limitations on additional indebtedness and liens, (iv) limitations on repayment of debt, (v) limitations on repurchase of stock, and (vi) limitations on disposition of assets. Rentrak B.V. is in compliance with the Secured Term Note covenants as of June 30, 2020.
The balance of the Secured Term Note as of June 30, 2020 and December 31, 2019 was as follows:
As of
June 30, 2020
(In thousands, except interest rates) Stated Interest Rate Effective Interest Rate Face Value Deferred Financing Costs Net Carrying Value
Secured Term Note 9.75 % 12.8 % $ 13,000 $ ( 512 ) $ 12,488
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As of
December 31, 2019
(In thousands, except interest rates) Stated Interest Rate Effective Interest Rate Face Value Deferred Financing Costs Net Carrying Value
Secured Term Note 9.75 % 12.2 % $ 13,000 $ ( 537 ) $ 12,463
The Company amortized $ 0.1 million and $ 0.2 million in deferred financing costs related to the Secured Term Note during the three and six months ended June 30, 2020, respectively.
The estimated fair value of the Secured Term Note, using Level 2 inputs based on interest rates available for debt with terms and maturities similar to the Company's Secured Term Note, was $ 14.9 million as of June 30, 2020.
Letters of Credit
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, 2020, $ 3.3 million in letters of credit are outstanding and are cash collateralized under the Security Agreement with Wells Fargo Bank, N.A.
Failed Sale-Leaseback Transaction
In June 2019, the Company entered into a sale-leaseback arrangement with a vendor to provide $ 4.3 million in cash proceeds for previously acquired computer and other equipment. The arrangement is repayable over a 24 -month term for total consideration of $ 4.8 million, with control of the equipment transferring to the vendor at the end of the leaseback term.
The Company concluded the leaseback would be classified as a financing lease. Therefore, the transaction was deemed a failed sale-leaseback and was accounted for as a financing arrangement. The assets continue to be depreciated over their useful lives, and payments are allocated between interest expense and repayment of the financing liability. The remaining financing liability of $ 2.6 million is included within other current liabilities on the Condensed Consolidated Balance Sheet.
Future minimum payments related to the financing obligations under the failed sale-leaseback transaction as of June 30, 2020 are summarized below:
(In thousands)
Remainder of 2020 $ 1,123
2021 1,422
Total $ 2,545
5. Stockholders' Equity
2019 Issuance and Sale of Common Stock and Warrants
On June 23, 2019, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with CVI, pursuant to which CVI agreed to purchase (i) 2,728,513 shares of Common Stock (the "Initial Shares"), at a price of $ 7.33 per share and (ii) Series A Warrants, Series B-1 Warrants, Series B-2 Warrants and Series C Warrants, for aggregate gross proceeds of $ 20.0 million (the "Private Placement"). The Private Placement closed on June 26, 2019 (the "Closing Date").
The Series B-1 Warrants were exercisable by the holders at any time prior to the six-month anniversary of the Closing Date, as adjusted pursuant to the terms of the Series B-1 Warrants. The Series B-1 Warrants provided the holders the right to purchase an aggregate of up to 2,347,418 shares of Common Stock at an exercise price equal to $ 8.52 and could have been exercised for cash only. The Series B-1 Warrants expired on January 29, 2020.
The Series B-2 Warrants were exercisable by the holders at any time prior to the twelve-month anniversary of the Closing Date, as adjusted pursuant to the terms of the Series B-2 Warrants. The Series B-2 Warrants provided the holders the right to purchase an aggregate of up to 1,121,076 shares of Common Stock at an exercise price equal to $ 8.92 and could have been exercised for cash only. The Series B-2 Warrants expired on August 3, 2020.
The Series A Warrants are exercisable for a period of five years from the Closing Date and are currently exercisable into 5,457,026 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 below). The exercise price for the Series A Warrants is $ 12.00 . The Series A Warrants may be exercised for cash or through a net settlement feature. The exercise price for the Series A Warrants is subject to anti-dilution adjustment in certain circumstances.
The Series C Warrants are partially prepaid warrants (with a nominal remaining exercise price) that were not exercisable before September 21, 2019 and expire 90 days after the first anniversary of the Closing Date. CVI exercised the Series C Warrants on October 10, 2019. Because the VWAP of the Common Stock as of the date of exercise, discounted by 7.5 %, was less than CVI's
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purchase price for the Initial Shares, the Company was required to issue to CVI a number of shares of Common Stock equal to (i) (x) CVI's purchase price for the Initial Shares divided by (y) 92.5 % of the VWAP of the Common Stock leading up to September 21, 2019, subject to a floor of 50.0 % of the price per Initial Share, less (ii) the number of Initial Shares issued to CVI on the Closing Date. As a result of this exercise, the Company issued 2,728,513 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 2,728,513 .
CVI will not have the right to exercise any warrant that would result in CVI beneficially owning more than 4.99 % of the outstanding Common Stock after giving effect to such exercise. CVI has the right, in its discretion, to raise this threshold up to 9.99 % with 60 days' notice to the Company.
Pursuant to the transactions described above, the Company agreed to a 105 -day lock-up period related to any future offering of equity or equity-linked securities and also agreed to provide CVI with registration rights relating to the Initial Shares and any shares issuable upon the exercise of the warrants. On June 26, 2019, the Company filed a prospectus supplement to its effective registration statement on Form S-3 to permit the resale of such shares.
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 an exchange-related limitation 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 a Monte Carlo simulation analysis within an option pricing model.
The estimated fair value of the warrants as of June 30, 2020 was $ 3.8 million. Refer to Footnote 6 , Fair Value Measurements , for further information on the Level 3 inputs utilized for the determination of the fair value of the warrants.
6. Fair Value Measurements
The Company's financial instruments measured at fair value in the accompanying Condensed Consolidated Balance Sheets on a recurring basis consist of the following:
As of As of
June 30, 2020 December 31, 2019
(In thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets:
Money market funds (1)
$ 20,422 $ — $ — $ 20,422 $ 24,327 $ — $ — $ 24,327
Certificates of deposit (2)
— — — — — 1,009 — 1,009
Total assets $ 20,422 $ — $ — $ 20,422 $ 24,327 $ 1,009 $ — $ 25,336
Liabilities:
Financing derivatives: no hedging designation (3)
Interest rate reset $ — $ — $ 15,100 $ 15,100 $ — $ — $ 18,800 $ 18,800
Make-whole change of control — — 1,600 1,600 — — 1,600 1,600
Qualifying change of control — — 200 200 — — 1,187 1,187
Warrants issued: (4)
Series A — — 3,832 3,832 — — 7,508 7,508
Series B-2 (5)
— — — — — — 217 217
Total liabilities $ — $ — $ 20,732 $ 20,732 $ — $ — $ 29,312 $ 29,312
(1) Level 1 cash equivalents are invested in money market funds that are intended to maintain a stable net asset value of $ 1.00 per share by investing in liquid, high quality U.S. dollar-denominated money market instruments with maturities less than three months.
(2) The Company's certificates of deposit are recorded at their face value which approximates their fair value.
(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.
(4) 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. The Series B-1 Warrants expired without exercise on January 29, 2020.
(5) The fair value of the Series B-2 Warrants was estimated as negligible as of June 30, 2020. The Series B-2 Warrants expired without exercise on August 3, 2020.
There were no changes to the Company's valuation methodologies during the three and six months ended June 30, 2020 or 2019, respectively.
The following tables present the changes in the Company's recurring Level 3 fair valued instruments for the six months ended June 30, 2020 and 2019, respectively:
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(In thousands) Financing Derivative Liabilities Warrants Liability
Balance as of December 31, 2019 $ 21,587 $ 7,725
Total gains included in other income (expense), net (1)
( 4,687 ) ( 3,893 )
Balance as of June 30, 2020 $ 16,900 $ 3,832
(1) Represents $ 3.7 million gain due to change in fair value of interest rate reset derivative liability, $ 1.0 million gain due to change in fair value of qualifying change of control redemption derivative liability, $ 3.7 million gain due to change in fair value of the Series A Warrant and $ 0.2 million gain due to change in fair value of the Series B-2 Warrant. All gains were recorded in other income (expense), net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
(In thousands) Financing Derivative Liabilities Warrants Liability
Balance as of December 31, 2018 $ 26,100 $ —
Issuances — 10,798
Total gains included in other income (expense), net (1)
( 1,100 ) —
Balance as of June 30, 2019 $ 25,000 $ 10,798
(1) Represents $ 0.5 million gain due to change in fair value of interest rate reset derivative liability, and $ 0.6 million gain due to change in fair value of the make-whole change of control redemption derivative liability. All gains were recorded in other income (expense), net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
The following table displays valuation techniques and the significant inputs, certain of which are unobservable, for the Company's Level 3 liabilities, which are measured at fair value on a recurring basis:
Fair Value Measurements
Significant Valuation Technique Significant Valuation Inputs June 30, 2020 December 31, 2019
Interest rate reset derivative liability Discounted cash flow Discount rate 29.0 % 25.0 %
Stock price $ 3.10 $ 4.94
Volatility 104.5 % 74.1 %
Term 1.54 years
2.04 years
Risk-free rate 0.2 % 1.6 %
Make-whole change of control redemption derivative liability Option pricing model Change of control probability 5.0 % - 10.0 %
5.0 % - 10.0 %
Term 1.54 years
2.04 years
Risk-free rate 0.2 % 1.6 %
Qualifying change of control redemption derivative liability Discounted cash flow Change of control probability 5.0 % 5.0 %
Term 0.10 years
0.60 years
Discount rate 29.0 % 25.0 %
Warrants liability (1)
Option pricing model Stock price $ 3.10 $ 4.94
Volatility 75.0 % 65.0 %
Term 3.99 years
0.59 - 4.49 years
Change of control probability 5.0 % - 10.0 %
5.0 % - 10.0 %
Risk-free rate 0.2 % 1.6 % - 1.7 %
Cost of debt 14.6 % - 15.6 %
14.7 % - 16.0 %
(1) Warrants liability includes only Series A as of June 30, 2020. Warrants liability includes Series A and Series B-2 as of December 31, 2019.
The primary sensitivity in the interest rate reset derivative liability is driven by the Common Stock price at the measurement date, the observable volatility of the Common Stock, and the discount rate used to determine the present value of the instrument. The primary sensitivity for the make-whole and qualifying change of control redemption derivative liabilities is driven by the probability of the change of control.
The primary sensitivity in the valuation of each warrant liability is driven by the Common Stock price at the measurement date and the observable volatility of the Common Stock.
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7. Accrued Expenses
As of As of
(In thousands) June 30, 2020 December 31, 2019
Accrued data costs $ 23,015 $ 19,593
Payroll and payroll-related 10,218 15,412
Accrued interest on senior secured convertible notes 6,120 6,120
Professional fees 3,557 4,118
Restructuring accrual 221 992
Other 7,940 9,272
Total accrued expenses $ 51,071 $ 55,507
8. Related Party Transactions
Transactions with WPP plc
As of June 30, 2020 (based on public filings), WPP plc and its affiliates ("WPP") owned 11,319,363 shares of the Company's outstanding Common Stock, representing 16.0 % ownership in the Company. 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.
The Company has a cancelable five-year agreement with Lightspeed, a WPP subsidiary, to conduct a proof of concept and follow-on program to demonstrate the capability of designing and deploying a program to collect browsing and demographic data for individual participating households. The agreement, which relates to the Company's Total Home Panel product, provides that the Company makes payments to Lightspeed of approximately $ 5.0 million per year through December 2020.
The Company's results from transactions with WPP and its affiliates, as reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss, are detailed below:
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2020 2019 2020 2019
Revenues $ 3,749 $ 3,926 $ 6,960 $ 7,771
Cost of revenues 2,364 3,584 4,739 5,679
General and administrative 110 180 252 220
The Company has the following balances related to transactions with WPP and its affiliates, as reflected in the Condensed Consolidated Balance Sheets:
As of As of
(In thousands) June 30, 2020 December 31, 2019
Assets
Accounts receivable, net $ 2,406 $ 2,542
Prepaid expenses and other current assets 1,156 1,180
Liabilities
Accounts payable $ 1,084 $ 2,510
Accrued expenses 1,546 716
Contract liability 1,800 1,361
Transactions with Starboard
On January 16, 2018, the Company entered into certain agreements with Starboard, then a beneficial owner of more than 5.0 % of the Company's outstanding Common Stock. Refer to Footnote 4 , Long-term Debt , for further information regarding these agreements and subsequent amendments. As a result of these agreements and the transactions contemplated thereby, Starboard ceased to be a beneficial owner of more than 5.0 % of the Company's outstanding Common Stock on January 16, 2018. Included in the Condensed Consolidated Statements of Operations and Comprehensive Loss, the Company recorded interest expense related to Starboard of $ 8.2 million and $ 16.4 million during the three and six months ended June 30, 2020, respectively; and $ 8.1 million and $ 14.8 million during the three and six months ended June 30, 2019, respectively.
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The Company has the following balances related to transactions with Starboard, as reflected in the Condensed Consolidated Balance Sheets:
As of As of
(In thousands) June 30, 2020 December 31, 2019
Accrued expenses $ 6,120 $ 6,120
Financing derivatives 16,900 21,587
Senior secured convertible notes 188,275 184,075
9. Commitments and Contingencies
Contingencies
The Company is involved in various legal proceedings from time to time. The Company establishes reserves for specific legal proceedings when management determines that the likelihood of an unfavorable outcome is probable, and the amount of loss can be reasonably estimated. The Company has also identified certain other legal matters where an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. In these cases, the Company does not establish a reserve until it can reasonably estimate the loss. Legal fees 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 ("SDKs") 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 $ 5.0 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 is subject to court approval.
Securities Class Action Litigation
On April 10, 2019, Sergii Bratusov, a purported shareholder of the Company, filed a putative class action complaint against the Company. The case, captioned Bratusov v. comScore, Inc., et al. , Case No. 19 Civ. 03210, was filed in the U.S. District Court for the Southern District of New York and also named the Company's Chief Financial Officer, Gregory Fink, and the Company's former Chief Executive Officer, Bryan Wiener, as defendants. The complaint, which was amended on September 30, 2019, purported to bring claims on behalf of all persons and entities that acquired securities of the Company between February 28, 2019 and August 7, 2019 and alleged that the Company, Mr. Wiener, and Mr. Fink violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, by allegedly failing to disclose in public statements in February and March 2019 material information concerning a disagreement relating to the Company's business strategy. The complaint also alleged that Mr. Wiener and Mr. Fink, acting as control persons of the Company, violated Section 20(a) of the Exchange Act in connection with the Company's alleged failure to disclose material information. The complaint sought a determination of the propriety of the class, compensatory damages and the award of reasonable costs and expenses incurred in the action. On June 24, 2020, the Court granted the defendants' motion to dismiss the complaint for failure to state a claim. On July 24, 2020, the complaint was dismissed with prejudice.
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.
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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.
10. Organizational Restructuring
In 2019, the Company implemented two reduction in force plans ("May 2019 Restructuring Plan" and "August 2019 Restructuring Plan") in order to reduce costs and more effectively align resources with business priorities. The May 2019 Restructuring Plan and the August 2019 Restructuring Plan are complete as of June 30, 2020, with remaining payments for the August 2019 Restructuring Plan through March 2021.
The table below summarizes the balance of the restructuring liability as of June 30, 2020, which is recorded in accrued expenses in the Condensed Consolidated Balance Sheets, and the changes in the accrued amounts for the six months ended June 30, 2020, by restructuring plan:
(In thousands) May 2019 Restructuring Plan August 2019 Restructuring Plan
Accrued Balance as of December 31, 2019 $ 294 $ 698
Payments
( 294 ) ( 477 )
Accrued Balance as of June 30, 2020 $ — $ 221
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