Item 2. Management’s Discussion and Analysis
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, 2019 (the "2019 10-K"), under Item 1A , "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, 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.
In an effort to contain the COVID-19 pandemic or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed "essential", isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. To date, these measures have had some impact on our business, including with respect to the timing of executing new or 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 liquidity and cash flows to some extent and are expected to continue to have an impact in future periods. As discussed in more detail below, we cannot quantify the impact that the COVID-19 pandemic and related government actions may have on our business or liquidity in the future. We have taken actions to mitigate the impact of COVID-19 and will continue to actively monitor the situation. We may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we cannot currently predict. See Item 1A , "Risk Factors" in this 10-Q and Item 1A "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 for additional details.
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 (smartphones, tablets and computers), television ("TV") and movie screens with demographics and other descriptive information in a privacy-focused way. We have developed proprietary data science that enables measurement of person-level and household-level audiences, removing duplicated viewing across devices and over time. This combination of data and methods enables a common standard for buyers and sellers to transact on advertising. This helps companies across the media ecosystem better understand and monetize their audiences and develop marketing plans and products to more efficiently and effectively reach those audiences. Our ability to unify behavioral and other descriptive data enables us to provide audience ratings, advertising verification, and granular consumer segments that describe hundreds of millions of consumers. Our customers include digital publishers, television networks, movie studios, content owners, advertisers, agencies and technology providers.
The platforms we measure include TV, smartphones, computers, tablets, over-the-top ("OTT") devices and movie theaters. The information we analyze crosses geographies, types of content and activities, including websites, mobile applications, video games, television and movie programming, e-commerce, and advertising.
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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.
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
(In thousands) Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue
Revenues $ 88,566 100.0 % $ 96,888 100.0 % $ 178,094 100.0 % $ 199,182 100.0 %
Cost of revenues 44,949 50.8 % 51,994 53.7 % 90,747 51.0 % 105,401 52.9 %
Selling and marketing 16,007 18.1 % 23,329 24.1 % 35,220 19.8 % 48,169 24.2 %
Research and development 9,765 11.0 % 16,883 17.4 % 19,901 11.2 % 35,099 17.6 %
General and administrative 13,741 15.5 % 16,932 17.5 % 29,284 16.4 % 36,477 18.3 %
Investigation and audit related — — % 2,354 2.4 % — — % 3,196 1.6 %
Amortization of intangible assets 6,846 7.7 % 8,076 8.3 % 13,764 7.7 % 16,181 8.1 %
Impairment of goodwill — — % 224,272 231.5 % — — % 224,272 112.6 %
Impairment of intangible asset — — % 17,308 17.9 % — — % 17,308 8.7 %
Settlement of litigation, net — — % 5,000 5.2 % — — % 5,000 2.5 %
Impairment of right-of-use and long-lived assets — — % — — % 4,671 2.6 % — — %
Restructuring — — % 2,949 3.0 % — — % 2,879 1.4 %
Total expenses from operations 91,308 103.1 % 369,097 381.0 % 193,587 108.7 % 493,982 248.0 %
Loss from operations (2,742) (3.1) % (272,209) (281.0) % (15,493) (8.7) % (294,800) (148.0) %
Interest expense, net (8,856) (10.0) % (8,242) (8.5) % (17,702) (9.9) % (15,001) (7.5) %
Other income (expense), net 1,477 1.7 % (3,081) (3.2) % 8,671 4.9 % (112) (0.1) %
Loss from foreign currency transactions (944) (1.1) % (464) (0.5) % (140) (0.1) % (426) (0.2) %
Loss before income taxes (11,065) (12.5) % (283,996) (293.1) % (24,664) (13.8) % (310,339) (155.8) %
Income tax benefit 664 0.7 % 4,463 4.6 % 1,079 0.6 % 3,292 1.7 %
Net loss $ (10,401) (11.7) % $ (279,533) (288.5) % $ (23,585) (13.2) % $ (307,047) (154.2) %
Revenues
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 computers, tablets, smartphones, 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 activation 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 three offerings; 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, costs to acquire data, operational overhead, data centers, and our technology that supports multiple solution groups.
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Revenues from these three solution groups for the three months ended June 30, 2020 and 2019 were as follows:
Three Months Ended June 30,
(In thousands) 2020 % of Revenue 2019 % of Revenue $ Variance % Variance
Ratings and Planning (1)
$ 63,779 72.0 % $ 68,922 71.1 % $ (5,143) (7.5) %
Analytics and Optimization (1)
16,894 19.1 % 17,293 17.9 % (399) (2.3) %
Movies Reporting and Analytics 7,893 8.9 % 10,673 11.0 % (2,780) (26.0) %
Total revenues $ 88,566 100.0 % $ 96,888 100.0 % $ (8,322) (8.6) %
(1) In the second quarter of 2020, we began classifying revenue from certain new and extended custom agreements for services that utilize our syndicated data set, previously classified under Analytics and Optimization, as Ratings and Planning. The impact was not material to either solution group.
Revenues decreased by $8.3 million, or 8.6%, for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019.
Ratings and Planning revenue is comprised of revenue from our digital, television and cross-platform products. Ratings and Planning revenue decreased $5.1 million in the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. The decrease was largely driven by lower revenue from our syndicated digital products due in part to the COVID-19 pandemic. While retention of syndicated digital enterprise customers remained high, revenue from our syndicated digital products represented 48% and 50% of our Ratings and Planning revenue in the second quarter of 2020 and 2019, respectively. TV revenues were higher due in part to our new partnership with LiveRamp, additional deliveries of addressable TV solutions, and the impact of new Local TV business entered into in 2019. Cross-platform revenues were lower due to fewer customer deliveries.
Analytics and Optimization revenue decreased by $0.4 million in the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. The decrease was primarily due to a decline in activation usage and fewer deliveries of lift and survey products, due in part to the COVID-19 pandemic, during the second quarter of 2020. The decline was partially offset by approximately $1.0 million in revenue from a one-time recovery of revenue-sharing fees pertaining to one of our lift products.
Movies Reporting and Analytics revenue decreased by $2.8 million in the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. Revenue was impacted by some smaller customers under short-term contracts pausing service in connection with theater closures. We expect theater closures to continue affecting movies revenue for the foreseeable future. During the quarter ended June 30, 2020, we signed or renewed contracts with eight significant customers, including three major domestic studios and one international studio. However, the uncertainty around theater re-openings delayed the renewals of several customers.
Revenues for these three solution groups for the six months ended June 30, 2020 and 2019 were as follows:
Six Months Ended June 30,
(In thousands) 2020 % of Revenue 2019 % of Revenue $ Variance % Variance
Ratings and Planning (1)
$ 127,300 71.5 % $ 139,499 70.0 % $ (12,199) (8.7) %
Analytics and Optimization (1)
32,395 18.2 % 38,751 19.5 % (6,356) (16.4) %
Movies Reporting and Analytics 18,399 10.3 % 20,932 10.5 % (2,533) (12.1) %
Total revenues $ 178,094 100.0 % $ 199,182 100.0 % $ (21,088) (10.6) %
(1) In the second quarter of 2020, we began classifying revenue from certain new and extended custom agreements for services that utilize our syndicated data set, previously classified under Analytics and Optimization, as Ratings and Planning. The impact was not material to either solution group.
Revenues decreased by $21.1 million, or 10.6%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019.
Ratings and Planning revenue decreased by $12.2 million in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The decrease was largely driven by lower revenue from our syndicated digital products due in part to the COVID-19 pandemic. While retention of syndicated digital enterprise customers remained high, revenue from our syndicated digital products represented 49% and 51% of our Ratings and Planning revenue for the six months ended June 30, 2020 and 2019, respectively. TV revenues were lower as a result of the effects of consolidation of certain customers. The decrease was partially offset by increases from our new partnership with LiveRamp, additional deliveries of addressable TV solutions, and the impact of new Local TV business entered into in 2019. Cross-platform revenues were lower due to fewer customer deliveries.
Analytics and Optimization revenue decreased by $6.4 million in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019, due to lower sales and deliveries across all products in this solution group, due in part to the COVID-19 pandemic, in the first six months of 2020. These declines were partially offset by approximately $1.0 million in revenue from a one-time recovery of revenue-sharing fees pertaining to one of our lift products.
Movies Reporting and Analytics revenue decreased by $2.5 million in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. Revenue was impacted by some smaller customers under short-term contracts pausing service in connection with theater closures. We expect theater closures to continue affecting movies revenue for the foreseeable future. During the quarter ended June 30, 2020, we signed or renewed contracts with eight significant customers, including three major domestic studios and one international studio. However, the uncertainty around theater re-openings delayed the renewals of several customers.
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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. Expenses associated with these areas include employee costs including 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, 2020 and 2019 were as follows:
Three Months Ended June 30,
(In thousands) 2020 % of Revenue 2019 % of Revenue
$ Change % Change
Data costs $ 15,459 17.5 % $ 16,737 17.3 % $ (1,278) (7.6) %
Employee costs 9,862 11.1 % 14,137 14.6 % (4,275) (30.2) %
Systems and bandwidth costs 6,034 6.8 % 5,495 5.7 % 539 9.8 %
Panel costs 4,832 5.5 % 4,884 5.0 % (52) (1.1) %
Lease expense and depreciation 4,187 4.7 % 3,853 4.0 % 334 8.7 %
Sample and survey costs 1,421 1.6 % 1,489 1.5 % (68) (4.6) %
Technology 1,416 1.6 % 1,444 1.5 % (28) (1.9) %
Professional fees 747 0.8 % 1,920 2.0 % (1,173) (61.1) %
Royalties and resellers 382 0.4 % 802 0.8 % (420) (52.4) %
Other 609 0.7 % 1,233 1.3 % (624) (50.6) %
Total cost of revenues $ 44,949 50.8 % $ 51,994 53.7 % $ (7,045) (13.5) %
Cost of revenues decreased $7.0 million, or 13.5%, for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. Employee costs decreased $4.3 million primarily due to a reduction in headcount. Data costs decreased by $1.3 million primarily due to reclassification of costs to systems and bandwidth to better reflect the nature of services provided. Professional fees decreased $1.2 million primarily due to a decrease in consulting services.
Cost of revenues for the six months ended June 30, 2020 and 2019 were as follows:
Six Months Ended June 30,
(In thousands) 2020 % of Revenue 2019 % of Revenue $ Change % Change
Data costs $ 30,726 17.3 % $ 32,798 16.5 % $ (2,072) (6.3) %
Employee costs 20,142 11.3 % 29,102 14.6 % (8,960) (30.8) %
Systems and bandwidth costs 11,792 6.6 % 10,776 5.4 % 1,016 9.4 %
Panel costs 9,948 5.6 % 10,322 5.2 % (374) (3.6) %
Lease expense and depreciation 8,134 4.6 % 7,264 3.6 % 870 12.0 %
Technology 2,863 1.6 % 2,916 1.5 % (53) (1.8) %
Sample and survey costs 2,677 1.5 % 3,938 2.0 % (1,261) (32.0) %
Professional fees 1,842 1.0 % 4,252 2.1 % (2,410) (56.7) %
Royalties and resellers 1,369 0.8 % 1,708 0.9 % (339) (19.8) %
Other 1,254 0.7 % 2,325 1.2 % (1,071) (46.1) %
Total cost of revenues $ 90,747 51.0 % $ 105,401 52.9 % $ (14,654) (13.9) %
Cost of revenues decreased $14.7 million, or 13.9%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. Employee costs decreased $9.0 million primarily due to a reduction in headcount and a decrease in stock-based compensation expense. Professional fees decreased $2.4 million primarily due to a decrease in consulting services. Data costs decreased $2.1 million primarily due reclassification of costs to systems and bandwidth to better reflect the nature of the services provided. Sample and survey costs decreased $1.3 million due to lower sales and deliveries of digital custom marketing solutions.
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Selling and Marketing
Selling and marketing expenses consist primarily of employee costs, including 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, 2020 and 2019 were as follows:
Three Months Ended June 30,
(In thousands) 2020 % of Revenue 2019 % of Revenue $ Change % Change
Employee costs $ 13,322 15.0 % $ 18,591 19.2 % $ (5,269) (28.3) %
Lease expense and depreciation 1,283 1.4 % 1,599 1.7 % (316) (19.8) %
Professional fees 557 0.6 % 754 0.8 % (197) (26.1) %
Travel — — % 880 0.9 % (880) (100.0) %
Other 845 1.0 % 1,505 1.6 % (660) (43.9) %
Total selling and marketing expenses $ 16,007 18.1 % $ 23,329 24.1 % $ (7,322) (31.4) %
Selling and marketing expenses decreased by $7.3 million, or 31.4%, for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, largely attributable to a decrease in employee costs as a result of lower headcount, a decrease in sales commissions, and lower travel costs resulting from the COVID-19 pandemic.
Selling and marketing expenses for the six months ended June 30, 2020 and 2019 were as follows:
Six Months Ended June 30,
(In thousands) 2020 % of Revenue 2019 % of Revenue $ Change % Change
Employee costs $ 28,482 16.0 % $ 38,954 19.6 % $ (10,472) (26.9) %
Lease expense and depreciation 2,670 1.5 % 3,205 1.6 % (535) (16.7) %
Professional fees 1,263 0.7 % 1,460 0.7 % (197) (13.5) %
Travel 622 0.3 % 1,704 0.9 % (1,082) (63.5) %
Other 2,183 1.2 % 2,846 1.4 % (663) (23.3) %
Total selling and marketing expenses $ 35,220 19.8 % $ 48,169 24.2 % $ (12,949) (26.9) %
Selling and marketing expenses decreased by $12.9 million, or 26.9%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. Employee costs decreased $10.5 million as a result of lower headcount, a decrease in sales commissions, and a decrease in stock-based compensation expense. Travel costs decreased $1.1 million primarily due to the reduction in travel resulting from the COVID-19 pandemic.
Research and Development
Research and development expenses include product development costs, consisting primarily of employee costs including 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, 2020 and 2019 were as follows:
Three Months Ended June 30,
(In thousands) 2020 % of Revenue 2019 % of Revenue $ Change % Change
Employee costs $ 7,323 8.3 % $ 13,018 13.4 % $ (5,695) (43.7) %
Technology 1,072 1.2 % 1,040 1.1 % 32 3.1 %
Lease expense and depreciation 1,037 1.2 % 1,498 1.5 % (461) (30.8) %
Professional fees 232 0.3 % 840 0.9 % (608) (72.4) %
Other 101 0.1 % 487 0.5 % (386) (79.3) %
Total research and development expenses $ 9,765 11.0 % $ 16,883 17.4 % $ (7,118) (42.2) %
Research and development expenses decreased by $7.1 million, or 42.2%, for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. Employee costs decreased $5.7 million as a result of lower headcount and a decrease in stock-based compensation expense. Professional fees decreased $0.6 million primarily due to a decrease in consulting services.
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Research and development expenses for the six months ended June 30, 2020 and 2019 were as follows:
Six Months Ended June 30,
(In thousands) 2020 % of Revenue 2019 % of Revenue $ Change % Change
Employee costs $ 14,597 8.2 % $ 26,788 13.4 % $ (12,191) (45.5) %
Lease expense and depreciation 2,226 1.2 % 3,066 1.5 % (840) (27.4) %
Technology 2,149 1.2 % 2,119 1.1 % 30 1.4 %
Professional fees 621 0.3 % 2,209 1.1 % (1,588) (71.9) %
Other 308 0.2 % 917 0.5 % (609) (66.4) %
Total research and development expenses $ 19,901 11.2 % $ 35,099 17.6 % $ (15,198) (43.3) %
Research and development expenses decreased by $15.2 million, or 43.3%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. Employee costs decreased $12.2 million as a result of lower headcount and a decrease in stock-based compensation expense. Professional fees decreased $1.6 million primarily due to a decrease in consulting services.
General and Administrative
General and administrative expenses consist primarily of employee costs including 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, and expenses incurred for other general corporate purposes.
General and administrative expenses for the three months ended June 30, 2020 and 2019 were as follows:
Three Months Ended June 30,
(In thousands) 2020 % of Revenue 2019 % of Revenue $ Change % Change
Employee costs $ 6,968 7.9 % $ 8,548 8.8 % $ (1,580) (18.5) %
Professional fees 2,754 3.1 % 4,770 4.9 % (2,016) (42.3) %
Bad debt expense 1,098 1.2 % 118 0.1 % 980 NM (1)
Technology 553 0.6 % 268 0.3 % 285 106.3 %
Lease expense and depreciation 526 0.6 % 651 0.7 % (125) (19.2) %
Other 1,842 2.1 % 2,577 2.7 % (735) (28.5) %
Total general and administrative expenses $ 13,741 15.5 % $ 16,932 17.5 % $ (3,191) (18.8) %
(1) Not meaningful (NM).
General and administrative expenses decreased by $3.2 million, or 18.8%, for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. Professional fees decreased $2.0 million primarily due to fees incurred in the three months ended June 30, 2019 related to the issuance of Common Stock and warrants in June 2019 and reduced audit fees in 2020 as compared to 2019. Employee costs decreased $1.6 million primarily as a result of lower headcount and stock-based compensation in the second quarter of 2020 as compared with 2019. These decreases were offset by an increase in bad debt expense of $1.0 million primarily due to increased reserves related to customers more impacted by the current economic environment.
General and administrative expenses for the six months ended June 30, 2020 and 2019 were as follows:
Six Months Ended June 30,
(In thousands) 2020 % of Revenue 2019 % of Revenue $ Change % Change
Employee costs $ 13,532 7.6 % $ 19,809 9.9 % $ (6,277) (31.7) %
Professional fees 7,365 4.1 % 9,559 4.8 % (2,194) (23.0) %
Bad debt expense 1,590 0.9 % — — % 1,590 NM (1)
Technology 1,116 0.6 % 412 0.2 % 704 170.9 %
Lease expense and depreciation 1,112 0.6 % 1,311 0.7 % (199) (15.2) %
Transition services agreement — — % 667 0.3 % (667) (100.0) %
Other 4,569 2.6 % 4,719 2.4 % (150) (3.2) %
Total general and administrative expenses $ 29,284 16.4 % $ 36,477 18.3 % $ (7,193) (19.7) %
(1) Not meaningful (NM).
General and administrative expenses decreased by $7.2 million, or 19.7%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. A decrease of $6.3 million in employee costs in 2020 compared to 2019 was primarily due to $3.3 million in severance costs for executives who exited in March 2019, as well as lower headcount and a decrease in stock-based compensation expense. Professional fees decreased $2.2 million primarily due to fees related to the issuance of Common Stock and warrants in June 2019 and reduced audit fees in 2020 as compared to 2019. These decreases were offset by an increase in bad debt expense of $1.6 million primarily due to increased reserves related to customers impacted by the current economic environment.
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Investigation and Audit Related
We did not incur any expenses related to the previously disclosed Audit Committee investigation and prior-year audits during the three and six months ended June 30, 2020. The investigation and audit related expenses for the three and six months ended June 30, 2019 related to ongoing fees for the previously disclosed SEC investigation which was resolved in September 2019. We do not expect to incur additional expenses for this matter.
Impairment of Goodwill and Intangible Asset
In the second quarter of 2019, as a result of a sustained decline in our stock price and market capitalization, changes in management, and lower revenue, among other factors, we performed an interim impairment review of our goodwill and long-lived assets. Our reporting unit did not pass the goodwill impairment test, and as a result we recorded a $224.3 million impairment charge in the second quarter of 2019.
Also in the second quarter of 2019, changes in our 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 our long-term view of the viability of our strategic alliance intangible asset. Our assessment yielded that the benefit of the strategic alliance would not be realized, and as a result we recorded a $17.3 million impairment charge in the second quarter of 2019.
There were no comparable charges in the three or six months ended June 30, 2020.
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 currently 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.
Interest Expense, Net
Interest expense, net consists of interest income and interest expense. Interest income primarily consists of interest earned from our cash and cash equivalent balances. Interest expense relates to interest on our senior secured convertible notes ("Notes"), secured term note (the "Secured Term Note") and our finance leases.
During the three months ended June 30, 2020 and 2019, we incurred interest expense, net of $8.9 million and $8.2 million, respectively, and $17.7 million and $15.0 million during the six months ended June 30, 2020 and 2019, respectively. The increase in interest expense, net for the three months ended June 30, 2020 compared with the three months ended June 30, 2019 was primarily due to the issuance of the Secured Term Note in December 2019. The increase in interest expense, net for the six months ended June 30, 2020 compared with the six months ended June 30, 2019 was primarily driven by the interest rate reset feature on the Notes, which reset the interest rate from 6.0% to 12.0% in January 2019, and the issuance of the Secured Term Note in December 2019.
Other Income (Expense), Net
Other income (expense), net represents income and expenses incurred that are generally not part of our regular operations. The following is a summary of other income (expense), net for the three and six months ended June 30, 2020 and 2019:
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)
Other income, net for the three and six months ended June 30, 2020 was driven primarily by the gain from the changes in fair value of our financing derivatives offset by the change in fair value of our warrants liability. Other expense, net for the three and six months ended June 30, 2019 primarily relates to gains and losses from the changes in fair value of our financing derivatives, and the loss due to the decline in the fair value of our investment in equity securities, which were disposed in 2019.
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Loss 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. The U.S. Dollar strengthened during the first quarter of 2020 which was offset by weakness of the U.S. Dollar in the second quarter of 2020. This resulted in losses for our positions when translated to U.S. Dollars during the second quarter of 2020 and minimal losses for the first half of 2020. 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. For the three and six months ended June 30, 2019, the gain from foreign currency transactions was immaterial.
Benefit for Income Taxes
A valuation allowance has been established against our net U.S. federal and state deferred tax assets, including net operating loss carryforwards. As a result, our income tax position is primarily related to foreign tax activity.
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. During the three and six months ended June 30, 2019, we recorded an income tax benefit of $4.5 million and $3.3 million, respectively, resulting in an effective tax rate of (1.6)% and (1.1)%, respectively. These effective tax rates differ from the U.S. federal statutory rate primarily due to the effects of foreign tax rate differences, U.S. state legislative changes and changes in the valuation allowance against our domestic deferred tax assets.
The COVID-19 pandemic has a global reach, and many countries are introducing measures that provide relief to taxpayers in a variety of ways. We are currently evaluating these measures, including the CARES Act in the United States, but these did not have an impact on our income tax provision for the three and six months ended June 30, 2020.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, refer to Footnote 2 , Summary of Significant Accounting Policies .
Non-GAAP Financial Measures
To provide investors with additional information regarding our financial results, and to comply with a covenant under our Notes (described below), we are disclosing herein Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") and non-GAAP net loss, each of which are non-GAAP financial measures used by our management to understand and evaluate our core operating performance and trends. We believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results, as they permit our investors to view our core business performance using the same metrics that management uses to evaluate our performance.
EBITDA is defined as GAAP net income (loss) plus or minus interest, taxes, depreciation and amortization of intangible assets and finance leases. We define Adjusted EBITDA as EBITDA plus or minus stock-based compensation expense as well as other items and amounts that we view as not indicative of our core operating performance, specifically: charges for matters relating to the prior-year Audit Committee investigation, such as litigation and investigation-related costs, costs associated with tax projects, audits, consulting and other professional fees; other legal proceedings specified in the Notes; settlement of certain litigation; restructuring expense; transaction costs related to the issuance of equity securities; non-cash impairment charges; and non-cash changes in the fair value of financing derivatives, warrants liability and investments in equity securities.
We define non-GAAP net loss as GAAP net income (loss) plus or minus stock-based compensation expense and amortization of intangible assets, as well as other items and amounts that we view as not indicative of our core operating performance, specifically: charges for matters relating to the prior-year Audit Committee investigation, such as litigation and investigation-related costs, costs associated with tax projects, audits, consulting and other professional fees; other legal proceedings specified in the Notes; settlement of certain litigation; restructuring expense; transaction costs related to the issuance of equity securities; non-cash impairment charges; and non-cash changes in the fair value of financing derivatives, warrants liability and investments in equity securities.
Our use of these non-GAAP financial measures has limitations as an analytical tool, and investors should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. The limitations of such non-GAAP measures include the following:
• Adjusted EBITDA does not reflect tax or interest payments that represent a reduction in cash available to us (or, in the case of interest paid in Common Stock, that represent additional dilution to our existing stockholders);
• Depreciation and amortization are non-cash charges and the assets being depreciated may have to be replaced in the future. Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
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• Adjusted EBITDA and non-GAAP net loss do not reflect cash payments relating to fees incurred in connection with issuance of equity securities, restructuring, litigation and the prior-year Audit Committee investigation, such as litigation and investigation-related costs, costs associated with tax projects, audits and other professional, consulting or other fees incurred in connection with our prior-year audits and certain legal proceedings, all of which have represented a reduction in cash available to us;
• Adjusted EBITDA and non-GAAP net loss do not consider the impact of stock-based compensation and similar arrangements that represent dilution to our existing stockholders;
• Adjusted EBITDA and non-GAAP net loss do not consider impairment of goodwill, long-lived assets and right-of-use assets, which represents a decline in the value of our assets;
• Adjusted EBITDA and non-GAAP net loss do not consider possible cash gains or losses related to our financing derivatives, warrants liability or investment in equity securities; and
• Other companies, including companies in our industry, may calculate any of these non-GAAP financial measures differently, which reduces their usefulness as comparative measures.
Because of these and other limitations, you should consider Adjusted EBITDA and non-GAAP net loss alongside GAAP-based financial performance measures, including GAAP revenue and various cash flow metrics, net income (loss) and our other GAAP financial results. Management addresses the inherent limitations associated with using non-GAAP financial measures through disclosure of such limitations, presentation of our financial statements in accordance with GAAP and a reconciliation of Adjusted EBITDA and non-GAAP net loss to the most directly comparable GAAP measure, net income (loss).
Under our Notes, we are required to disclose Consolidated EBITDA, a non-GAAP financial measure, on a quarterly basis. Consolidated EBITDA, as defined for purposes of the Notes, was the same as Adjusted EBITDA as presented below.
The following table presents a reconciliation of net loss (GAAP) to Adjusted EBITDA for each of the periods identified:
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2020 2019 2020 2019
Net loss (GAAP) $ (10,401) $ (279,533) $ (23,585) $ (307,047)
Interest expense, net 8,856 8,242 17,702 15,001
Amortization of intangible assets 6,846 8,076 13,764 16,181
Depreciation 3,404 3,005 6,788 6,111
Amortization expense of finance leases 394 787 784 1,361
Income tax benefit (664) (4,463) (1,079) (3,292)
EBITDA 8,435 (263,886) 14,374 (271,685)
Adjustments:
Stock-based compensation expense 2,346 4,304 5,004 11,257
Investigation and audit related — 2,354 — 3,196
Settlement of certain litigation, net — 5,000 — 5,000
Restructuring — 2,949 — 2,879
Impairment of goodwill — 224,272 — 224,272
Impairment of intangible asset — 17,308 — 17,308
Private placement issuance cost — 1,154 — 1,154
Impairment of right-of-use and long-lived assets — — 4,671 —
Other (income) expense, net (1)
(1,542) 3,304 (8,434) 916
Adjusted EBITDA $ 9,239 $ (3,241) $ 15,615 $ (5,703)
(1) Adjustments to other (income) expense, net reflect non-cash changes in the fair value of financing derivatives, warrants liability and equity securities investment included in other income (expense), net and certain legal expenses defined by the Notes and classified as general and administrative expenses on our Condensed Consolidated Statements of Operations and Comprehensive Loss. We sold our investment in equity securities in 2019.
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The following table presents a reconciliation of net loss (GAAP) to non-GAAP net loss for each of the periods identified:
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2020 2019 2020 2019
Net loss (GAAP) $ (10,401) $ (279,533) $ (23,585) $ (307,047)
Adjustments:
Amortization of intangible assets 6,846 8,076 13,764 16,181
Stock-based compensation expense 2,346 4,304 5,004 11,257
Investigation and audit related — 2,354 — 3,196
Impairment of right-of-use and long-lived assets — — 4,671 —
Settlement of certain litigation, net — 5,000 — 5,000
Restructuring — 2,949 — 2,879
Impairment of goodwill — 224,272 — 224,272
Impairment of intangible asset — 17,308 — 17,308
Private placement issuance cost — 1,154 — 1,154
Other (income) expense, net (1)
(1,542) 3,304 (8,434) 916
Non-GAAP net loss $ (2,751) $ (10,812) $ (8,580) $ (24,884)
(1) Adjustments to other (income) expense, net reflect non-cash changes in the fair value of financing derivatives, warrants liability and equity securities investment included in other income (expense), net and certain legal expenses defined by the Notes and classified as general and administrative expenses on our Condensed Consolidated Statements of Operations and Comprehensive Loss. We sold our investment in equity securities in 2019.
Liquidity and Capital Resources
The following table summarizes our cash flows for each of the periods identified:
Six Months Ended June 30,
(In thousands) 2020 2019
Net cash used in operating activities $ (1,792) $ (10,704)
Net cash used in investing activities (7,881) (6,807)
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
Our principal uses of cash historically consisted of cash paid for payroll and other operating expenses, 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, and service of our debt and lease facilities. In prior years, we also incurred significant professional fees relating to our Audit Committee's investigation, subsequent audit and compliance efforts, as well as management changes and various legal proceedings.
As of June 30, 2020, our principal sources of liquidity consisted of cash, cash equivalents and restricted cash totaling $55.5 million, including $19.6 million in restricted cash.
Our principal sources of liquidity have historically been our cash and cash equivalents, as well as cash flow generated from our operations. Our operating losses, including the significant investigation and audit costs in prior years, resulted in a need to secure long-term financing. In 2018, we entered into agreements with funds affiliated with or managed by Starboard Value LP (collectively, "Starboard"), pursuant to which we issued and sold to Starboard a total of $204.0 million in Notes as well as warrants to purchase shares of our Common Stock in exchange for $100.0 million in cash and 4,000,000 shares of Common Stock. See "Senior Secured Convertible Notes" below.
In June 2019, we issued 2,728,513 shares of our 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. See "Sale of Common Stock and Warrants" below.
In December 2019, we issued a Secured Term Note for gross cash proceeds of $13.0 million. See "Secured Term Note" below.
In January 2020, April 2020 and July 2020, we paid our quarterly accrued interest liability on the Notes in cash; the interest amount was accrued in short term liabilities as of December 31, 2019, March 31, 2020 and June 30, 2020, respectively.
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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 timing of executing new or 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 liquidity and cash flows to some extent and are expected to continue to have an impact in future periods. In the second quarter of 2020, we continued to see delays in cash collections, leading our management team to take actions to mitigate the near-term impact on our liquidity. These actions included freezing hiring, exiting non-critical consultants and contractors, terminating or negotiating reductions in vendor agreements and leases, reducing compensation for our senior leadership team and board of directors, and reducing certain travel, marketing, recruiting and other corporate activities not deemed critical to the business in the current environment.
In addition to its impact on operations, the spread of COVID-19 has led to disruption and volatility in global capital and credit markets. Depending on future developments, this disruption could impact our ability to access capital resources on terms acceptable to us or allowable under our current financing arrangements, and our management team continues to evaluate a range of scenarios in this area as well.
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. We began deferring certain payroll taxes starting in April 2020, as permitted by the CARES Act. In addition, we began claiming the refundable employee retention credit created by the CARES Act during 2020. We continue to assess the effect of the CARES Act and additional legislation and government guidance related to the COVID-19 pandemic.
Our liquidity could be negatively affected by a decrease in demand for our products and services or by additional losses from operations, as well as payment of expenses incurred in prior periods in addition to current period expenses. 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 are taking actions (as described above) to mitigate the impact of COVID-19, control costs and improve our working capital balance, these steps may not be successful or adequate to offset future declines. If our efforts to control costs are not sufficient, or if customer demand or cash collection efforts are further impacted by the COVID-19 pandemic, we may not be able to maintain our compliance with the affirmative and negative covenants in our Notes and Secured Term Note or to meet our financial obligations to our vendors or others.
Our liquidity could be significantly affected if we are unable to maintain compliance with the covenants in our Notes and Secured Term Note, including the minimum cash balance requirements described in Footnote 4 , Long-term Debt, to our Condensed Consolidated Financial Statements. If we fail to comply with our covenants, we could be required to redeem the Notes and the Secured Term Note at a premium. As of June 30, 2020, there was $217.0 million outstanding under the Notes and the Secured Term Note. The source of funds for any redemption of our debt would be our available cash and other financing, to the extent available. Based on our current plans, including continued cost management and other actions within management's control, we do not anticipate a breach of these covenants that would result in an event of default under the Notes or the Secured Term Note; however, during the quarter ended June 30, 2020, the holders of the Notes questioned our compliance with the minimum cash balance requirements therein. As noted, any breach of covenants under the Notes could have a material impact on our liquidity.
We continue to be focused on maintaining flexibility in terms of sources, amounts and the timing of any potential financing, refinancing or strategic transaction in order to best position the Company for future success. We believe that our sources of funding, after taking into account the actions described above, will be sufficient to satisfy our currently anticipated requirements for at least the next 12 months. However, we cannot predict with certainty the outcome of our actions to generate liquidity, including the availability of additional financing. We also cannot predict the duration and magnitude of the COVID-19 pandemic or its ultimate effects on our business or liquidity or any action that may be taken by the holders of the Notes.
Restricted Cash
Restricted cash represents our requirement to collateralize the Secured Term Note, outstanding letters of credit, international payroll processing exposures and lines of credit related to certain of our corporate credit card programs and international payroll processing exposures. As of June 30, 2020 and December 31, 2019, we had $19.6 million and $20.2 million of restricted cash, respectively.
Letters of Credit
In 2018, we entered into a Security Agreement with Wells Fargo Bank, N.A. to issue standby letters of credit on our behalf. 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.
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Issuance and 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. In January 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, refer to Footnote 5 , Stockholders' Equity .
Issuance and Sale of Senior Secured Convertible Notes and Warrants
On January 16, 2018, we entered into certain agreements with 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. We also agreed to issue to 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 exercised in full on April 3, 2019 for 323,448 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 the Notes as of June 30, 2020 to $204.0 million.
The Notes contain certain affirmative and restrictive covenants with which we 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. We are in compliance with the Notes covenants as of June 30, 2020, inclusive of our restricted cash balances. As discussed above, any breach of these covenants could have a significant negative effect on our liquidity.
For additional information on the Notes, refer to Footnote 4 , Long-term 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 matures on December 31, 2021 and has an annual interest rate of 9.75% that is payable monthly in cash.
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.
For additional information on the Notes, refer to Footnote 4 , Long-term Debt .
Operating Activities
Our primary source of cash provided by operating activities is revenues generated from sales of our Ratings and Planning, Analytics and Optimization, and Movies Reporting and Analytics 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. As discussed above, we have experienced delays in customer payments and requests to modify contractual payment terms in connection with the COVID-19 pandemic and related government mandates and restrictions.
Cash 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, warrants liability and equity securities, accretion of debt discount, and amortization of deferred financing costs.
Net cash used in operating activities for the six months ended June 30, 2020 was $1.8 million compared to net cash used of $10.7 million for the six months ended June 30, 2019. The decrease in cash used in operating activities during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 was primarily attributable to a decrease in the net loss, offset by an increase in cash interest paid on the Notes in 2020 of $9.2 million, as well as a net decrease in operating assets and liabilities of $9.9 million for the six months ended June 30, 2020 as compared to a net increase of $16.9 million for the six months ended June 30, 2019. The shift from a net increase in operating assets and liabilities to a net decrease is primarily due to payments of our accounts payable and accrual balances from the prior year during the six months ended June 30, 2020. Included in our decrease of operating assets and liabilities is an increase in contract liability related to an upfront payment resulting from a new contract, which increased our cash balance by $9.4 million during the second quarter of 2020.
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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 in the current economic environment.
Net cash used in investing activities for the six months ended June 30, 2020 was $7.9 million compared to net cash used in investing activities of $6.8 million for the six months ended June 30, 2019. This increase in cash used in investing activities was attributable to an increase of $2.2 million in payments for capitalized internally developed software and a $0.7 million decline in receipts from the sale of an investment in 2019 that did not recur in 2020, partially offset by a $1.8 million decrease in purchases of property and equipment in 2020 compared with 2019.
Financing Activities
Net cash used in financing activities during the six months ended June 30, 2020 was $1.0 million compared to net cash provided by financing activities of $21.0 million during the six months ended June 30, 2019. The shift from cash provided by financing activities to cash used in financing activities was largely due to cash proceeds of $19.9 million from the sale of shares of Common Stock and warrants in the Private Placement during 2019 and cash proceeds of $4.3 million from the sale-leaseback transaction during 2019.
Contractual Payment Obligations
We are subject to certain contractual arrangements that are long-term in nature. The information set forth below summarizes our contractual obligations as of June 30, 2020 that are fixed and determinable.
(In thousands) Total Less Than
1 Year 1-3 Years 3-5
Years More
Than 5
Years
Long-term debt obligations (1)
$ 217,000 $ — $ 217,000 $ — $ —
Unconditional purchase obligations with MVPDs (2)
93,078 36,299 47,518 9,261 —
Operating lease obligations (3)
69,198 6,360 21,517 18,597 22,724
Finance lease obligations (4)
4,070 1,180 2,876 14 —
Sale-leaseback financing transaction (5)
2,545 2,545 — — —
Other long-term obligations (6)
9,206 5,838 3,368 — —
Total $ 395,097 $ 52,222 $ 292,279 $ 27,872 $ 22,724
(1) In 2018, we entered into several agreements with Starboard whereby we issued Notes in exchange for cash and shares of Common Stock. In 2019, our wholly-owned subsidiary, Rentrak B.V., entered into a Secured Term Note. See Footnote 4 , Long-term Debt for more information.
(2) Unconditional purchase obligations with MVPDs include contractual arrangements with MVPDs for the purchase of TV viewing data that is used in our products, primarily reported in the Ratings and Planning solution group. If these arrangements are canceled by the MVPDs, we have the ability to terminate contracts with our end customers. Commitments reflected herein relate to future data obligations after June 30, 2020.
(3) Operating lease obligations represent future lease commitments, primarily for real estate leases, accounted for under ASC 842, Leases.
(4) Finance lease obligations represent future lease commitments, primarily for equipment leases, accounted for under ASC 842, Leases.
(5) We entered into a sale-leaseback arrangement with a vendor in June 2019. See Footnote 4 , Long-term Debt for more information.
(6) Other long-term obligations include long-term contracts for the acquisition of viewing data from non-MVPD partners, the right to access cloud-based solutions, and future commitments for our data center arrangements.
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, trade payables, service of our debt and lease facilities, and expenses from ongoing compliance efforts and legal matters. As discussed above, we have experienced delays in customer payments and requests to modify contractual payment 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 cost-reduction initiatives undertaken by our management and any proceeds from the exercise of warrants sold in the Private Placement, are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. The current 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 our current financing arrangements, or at all. If we were to issue additional equity securities in order to raise additional funds or pay interest on the Notes and Secured Term Note, further dilution to existing stockholders could occur.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements (as defined in Item 303 of Regulation S-K) other than certain purchase obligations with MVPDs, which are disclosed in the Contractual Payment Obligations table above.
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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, 2020) 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 impairment charges recorded for right-of-use and long-lived assets (which relate to the impact of the COVID-19 pandemic on local real estate markets), there have been no material changes to our critical accounting policies and estimates during the three and six months ended June 30, 2020 as compared to the critical accounting policies and estimates disclosed in our 2019 10-K .
Impairment of Right-of-use ("ROU") and Long-lived Assets
We apply the provisions of Accounting Standards Codification ("ASC") 360, Property, Plant and Equipment , to determine whether our ROU and related long-lived assets may be impaired. We evaluate our 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, we compare 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, we record 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.
We 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 certain ROU assets, and related leasehold improvements, were impaired. We recorded a $4.7 million impairment charge related to our ROU assets, and related leasehold improvements, for the three months ended March 31, 2020, with corresponding adjustments 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 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, 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 we believe that the carrying values of our long-lived assets are appropriately stated, 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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