COMSCORE, INC. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, or 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events in future periods may differ materially from those anticipated or implied in these forward-looking statements as a result of many factors, including those discussed under Item 1A , "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 10-K"), under Item 1A , "Risk Factors" in this 10-Q and elsewhere in this 10-Q. See also " Cautionary Note Regarding Forward-Looking Statements " at the beginning of this 10-Q. Overview We are a global information and analytics company that measures advertising, content, and the consumer audiences of each, across media platforms. We create our products using a global data platform that combines information on digital platforms (connected (Smart) televisions, mobile devices, tablets and computers), TV, direct to consumer applications, and movie screens with demographics and other descriptive information. We have developed proprietary data science that enables measurement of person-level and household-level audiences, removing duplicated viewing across devices and over time. This combination of data and methods enables a common standard for buyers and sellers to transact on advertising. This helps companies across the media ecosystem better understand and monetize their audiences and develop marketing plans and products to more efficiently and effectively reach those audiences. Our ability to unify behavioral and other descriptive data enables us to provide audience ratings, advertising verification, and granular consumer segments that describe hundreds of millions of consumers. Our customers include digital publishers, television networks, movie studios, content owners, brand advertisers, agencies and technology providers. The platforms we measure include televisions, mobile devices, computers, tablets, connected TV devices and movie theaters. The information we analyze crosses geographies, types of content and activities, including websites, mobile and over-the-top applications, video games, television and movie programming, e-commerce and advertising. Results of Operations The following table sets forth selected Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) data as a percentage of total revenues for each of the periods indicated. Percentages may not add due to rounding. Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands) Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue Revenues $ 91,000 100.0 % $ 92,783 100.0 % $ 276,242 100.0 % $ 278,183 100.0 % Cost of revenues 50,473 55.5 % 51,530 55.5 % 155,360 56.2 % 155,915 56.0 % Selling and marketing 14,794 16.3 % 17,199 18.5 % 48,984 17.7 % 51,850 18.6 % Research and development 8,083 8.9 % 8,741 9.4 % 25,792 9.3 % 28,190 10.1 % General and administrative 12,928 14.2 % 12,899 13.9 % 39,776 14.4 % 48,119 17.3 % Amortization of intangible assets 800 0.9 % 6,772 7.3 % 4,412 1.6 % 20,323 7.3 % Impairment of right-of-use and long-lived assets 1,502 1.7 % — — % 1,502 0.5 % — — % Restructuring 353 0.4 % 5,784 6.2 % 5,455 2.0 % 5,784 2.1 % Impairment of goodwill — — % 46,300 49.9 % 44,100 16.0 % 46,300 16.6 % Total expenses from operations 88,933 97.7 % 149,225 160.8 % 325,381 117.8 % 356,481 128.1 % Income (loss) from operations 2,067 2.3 % (56,442) (60.8) % (49,139) (17.8) % (78,298) (28.1) % Other income, net 628 0.7 % 1,477 1.6 % 425 0.2 % 8,467 3.0 % Gain (loss) from foreign currency transactions 1,090 1.2 % 2,781 3.0 % (544) (0.2) % 5,728 2.1 % Interest expense, net (426) (0.5) % (284) (0.3) % (1,141) (0.4) % (660) (0.2) % Income (loss) before income taxes 3,359 3.7 % (52,468) (56.5) % (50,399) (18.2) % (64,763) (23.3) % Income tax (provision) benefit (741) (0.8) % 86 0.1 % (563) (0.2) % (1,945) (0.7) % Net income (loss) $ 2,618 2.9 % $ (52,382) (56.5) % $ (50,962) (18.4) % $ (66,708) (24.0) % 18 Table of Contents Revenues Our products and services are organized around solution groups that address customer needs. Accordingly, we evaluate revenues around two solution groups: • Digital Ad Solutions provide measurement of the behavior and characteristics of audiences across digital platforms, including computers, tablets, mobile and other connected devices. This solution group also includes custom offerings that provide end-to-end solutions for planning, optimization and evaluation of advertising campaigns and brand protection across digital platforms, including transactional outcome-based measurement driven by our Activation and Comscore Campaign Ratings products. • Cross Platform Solutions provide measurement of content and advertising audiences across local, national and addressable television, including consumption through connected (Smart) televisions, and are designed to help customers find the most relevant viewing audience whether that viewing is linear, non-linear, online or on-demand. This solution group also includes custom offerings that provide end-to-end solutions for planning, optimization and evaluation of advertising campaigns across platforms. In addition, this solution group includes products that measure movie viewership and box office results by capturing movie ticket sales in real time or near real time and includes box office analytics, trend analysis and insights for movie studios and movie theater operators worldwide. We categorize our revenue along these two solution groups; however, our cost structure is tracked at the corporate level and not by our solution groups. These costs include, but are not limited to, employee costs, purchased data, operational overhead, data storage and technology that supports multiple solution groups. Revenues for the three months ended September 30, 2023 and 2022 were as follows: Three Months Ended September 30, (In thousands) 2023 % of Revenue 2022 % of Revenue $ Variance % Variance Digital Ad Solutions $ 50,501 55.5 % $ 52,360 56.4 % $ (1,859) (3.6) % Cross Platform Solutions 40,499 44.5 % 40,423 43.6 % 76 0.2 % Total revenues $ 91,000 100.0 % $ 92,783 100.0 % $ (1,783) (1.9) % Digital Ad Solutions revenue decreased primarily due to lower revenue from our syndicated digital products driven by lower renewals and lower deliveries of certain custom digital products. These decreases were partially offset by an increase in Activation revenue driven by higher usage from multiple customers. Cross Platform Solutions revenue increased primarily due to higher local TV revenue from renewals and new business, partially offset by lower national TV revenue due to lower renewals. Movies revenue was flat compared to the prior year period. Revenues for the nine months ended September 30, 2023 and 2022 were as follows: Nine Months Ended September 30, (In thousands) 2023 % of Revenue 2022 % of Revenue $ Variance % Variance Digital Ad Solutions $ 153,597 55.6 % $ 157,127 56.5 % $ (3,530) (2.2) % Cross Platform Solutions 122,645 44.4 % 121,056 43.5 % 1,589 1.3 % Total revenues $ 276,242 100.0 % $ 278,183 100.0 % $ (1,941) (0.7) % Digital Ad Solutions revenue decreased primarily due to lower revenue from our syndicated digital products driven by lower renewals and lower deliveries of certain custom digital products. These decreases were partially offset by an increase in Activation revenue driven by higher usage from multiple customers. Cross Platform Solutions revenue increased primarily due to higher local TV and movies revenues, offset by lower national TV revenue. Local TV increased due to higher renewals and new business. Our movies revenue increased primarily due to the continued return of consumers to theaters in markets worldwide. These increases were offset by lower revenue from national TV due to lower renewals and a one-time custom deliverable in the first quarter of 2022. Cost of Revenues Cost of revenues consists primarily of expenses related to producing our products, operating our network infrastructure, the recruitment, maintenance and support of our consumer panels and amortization of capitalized fulfillment costs. These expenses include employee costs for salaries, benefits, stock-based compensation and other related personnel costs of network operations, survey operations, custom analytics and technical support, all of which are expensed as they are incurred. Cost of revenues also includes costs to obtain MVPD data sets and panel, census-based and other data sets used in our products as well as operational costs associated with our data centers, including depreciation expense associated with computer equipment and internally developed software that supports our panels and systems. Additionally, cost of revenues includes allocated overhead, which is comprised of lease expense and other facilities-related costs, and depreciation expense generated by general purpose equipment and software. 19 Table of Contents Cost of revenues for the three months ended September 30, 2023 and 2022 were as follows: Three Months Ended September 30, (In thousands) 2023 % of Revenue 2022 % of Revenue $ Change % Change Data costs $ 17,919 19.6 % $ 19,000 20.5 % $ (1,081) (5.7) % Systems and bandwidth costs 9,257 10.2 % 7,957 8.6 % 1,300 16.3 % Employee costs 8,763 9.6 % 9,866 10.6 % (1,103) (11.2) % Lease expense and depreciation 5,782 6.4 % 5,179 5.6 % 603 11.6 % Panel costs 2,938 3.2 % 4,156 4.5 % (1,218) (29.3) % Professional fees 2,049 2.3 % 1,557 1.7 % 492 31.6 % Sample and survey costs 1,662 1.8 % 1,613 1.7 % 49 3.0 % Technology 1,003 1.1 % 1,005 1.1 % (2) (0.2) % Royalties and resellers 867 1.0 % 914 1.0 % (47) (5.1) % Other 233 0.3 % 283 0.3 % (50) (17.7) % Total cost of revenues $ 50,473 55.5 % $ 51,530 55.5 % $ (1,057) (2.1) % Panel costs decreased primarily due to lower recruitment and support costs for our desktop and mobile panels. Employee costs decreased primarily due to an increase in employee compensation capitalized in 2023 in relation to capitalized software projects as we are allocating more resources to product development this year. Data costs decreased primarily due to vendor credits recognized in the third quarter of 2023. Systems and bandwidth costs increased primarily due to cloud computing and processing costs attributable to certain custom TV data set deliveries. Cost of revenues for the nine months ended September 30, 2023 and 2022 were as follows: Nine Months Ended September 30, (In thousands) 2023 % of Revenue 2022 % of Revenue $ Change % Change Data costs $ 54,126 19.5 % $ 55,980 20.1 % $ (1,854) (3.3) % Systems and bandwidth costs 28,455 10.3 % 24,834 8.9 % 3,621 14.6 % Employee costs 28,379 10.3 % 31,087 11.2 % (2,708) (8.7) % Lease expense and depreciation 16,807 6.1 % 15,809 5.7 % 998 6.3 % Panel costs 10,399 3.8 % 11,589 4.2 % (1,190) (10.3) % Professional fees 5,614 2.0 % 4,464 1.6 % 1,150 25.8 % Sample and survey costs 4,888 1.8 % 5,237 1.9 % (349) (6.7) % Technology 3,104 1.1 % 3,568 1.3 % (464) (13.0) % Royalties and resellers 2,797 1.0 % 2,540 0.9 % 257 10.1 % Other 791 0.3 % 807 0.3 % (16) (2.0) % Total cost of revenues $ 155,360 56.2 % $ 155,915 56.0 % $ (555) (0.4) % Employee costs decreased primarily due to an increase in employee compensation capitalized in 2023 in relation to capitalized software projects as we are allocating more resources to product development this year, as well as a decrease in employee headcount. Data costs decreased primarily due to vendor credits recognized in 2023. Panel costs decreased primarily due to lower recruitment and support costs for our desktop and mobile panels. Systems and bandwidth costs increased primarily due to cloud computing and processing costs attributable to certain custom TV data set deliveries. Professional fees increased primarily due to an increase in consulting services related to our transformation initiatives. Selling and Marketing Selling and marketing expenses consist primarily of employee costs for salaries, benefits, commissions, stock-based compensation and other related costs for personnel associated with sales and marketing activities, as well as costs related to online and offline advertising, industry conferences, promotional materials, public relations, other sales and marketing programs and allocated overhead, which is comprised of lease expense and other facilities-related costs, and depreciation expense generated by general purpose equipment and software. 20 Table of Contents Selling and marketing expenses for the three months ended September 30, 2023 and 2022 were as follows: Three Months Ended September 30, (In thousands) 2023 % of Revenue 2022 % of Revenue $ Change % Change Employee costs $ 11,515 12.7 % $ 13,916 15.0 % $ (2,401) (17.3) % Lease expense and depreciation 815 0.9 % 997 1.1 % (182) (18.3) % Professional fees 808 0.9 % 612 0.7 % 196 32.0 % Technology 796 0.9 % 809 0.9 % (13) (1.6) % Marketing and advertising 557 0.6 % 419 0.4 % 138 32.9 % Other 303 0.3 % 446 0.5 % (143) (32.1) % Total selling and marketing expenses $ 14,794 16.3 % $ 17,199 18.5 % $ (2,405) (14.0) % Employee costs decreased primarily due to a decrease in employee headcount and lower commissions. Selling and marketing expenses for the nine months ended September 30, 2023 and 2022 were as follows: Nine Months Ended September 30, (In thousands) 2023 % of Revenue 2022 % of Revenue $ Change % Change Employee costs $ 39,266 14.2 % $ 42,211 15.2 % $ (2,945) (7.0) % Lease expense and depreciation 2,332 0.8 % 2,898 1.0 % (566) (19.5) % Professional fees 2,321 0.8 % 1,697 0.6 % 624 36.8 % Technology 2,351 0.9 % 2,506 0.9 % (155) (6.2) % Marketing and advertising 1,662 0.6 % 1,311 0.5 % 351 26.8 % Other 1,052 0.4 % 1,227 0.4 % (175) (14.3) % Total selling and marketing expenses $ 48,984 17.7 % $ 51,850 18.6 % $ (2,866) (5.5) % Employee costs decreased primarily due to a decrease in employee headcount and lower commissions. Research and Development Research and development expenses include product development costs, consisting primarily of employee costs for salaries, benefits, stock-based compensation and other related costs for personnel associated with research and development activities, third-party expenses to develop new products and third-party data costs and allocated overhead, which is comprised of lease expense and other facilities-related costs, and depreciation expense related to general purpose equipment and software. Research and development expenses for the three months ended September 30, 2023 and 2022 were as follows: Three Months Ended September 30, (In thousands) 2023 % of Revenue 2022 % of Revenue $ Change % Change Employee costs $ 6,291 6.9 % $ 6,906 7.4 % $ (615) (8.9) % Technology 823 0.9 % 789 0.9 % 34 4.3 % Lease expense and depreciation 645 0.7 % 688 0.7 % (43) (6.3) % Other 324 0.4 % 358 0.4 % (34) (9.5) % Total research and development expenses $ 8,083 8.9 % $ 8,741 9.4 % $ (658) (7.5) % Research and development expenses for the nine months ended September 30, 2023 and 2022 were as follows: Nine Months Ended September 30, (In thousands) 2023 % of Revenue 2022 % of Revenue $ Change % Change Employee costs $ 20,435 7.3 % $ 22,037 7.9 % $ (1,602) (7.3) % Technology 2,541 0.9 % 2,800 1.0 % (259) (9.3) % Lease expense and depreciation 1,833 0.7 % 2,123 0.8 % (290) (13.7) % Other 983 0.4 % 1,230 0.4 % (247) (20.1) % Total research and development expenses $ 25,792 9.3 % $ 28,190 10.1 % $ (2,398) (8.5) % Employee costs decreased primarily due to an increase in employee compensation capitalized in 2023 in relation to capitalized software projects as we are allocating more resources to product development this year. General and Administrative General and administrative expenses consist primarily of employee costs for salaries, benefits, stock-based compensation and other related costs, and related expenses for executive management, finance, human capital, legal and other administrative functions, as well as professional fees, overhead, including allocated overhead, which is comprised of lease expense and other facilities-related costs, depreciation expense related to 21 Table of Contents general purpose equipment and software, amortization of cloud-computing implementation costs, changes in the fair value of our contingent consideration liability, Board of Directors compensation and expenses incurred for other general corporate purposes. General and administrative expenses for the three months ended September 30, 2023 and 2022 were as follows: Three Months Ended September 30, (In thousands) 2023 % of Revenue 2022 % of Revenue $ Change % Change Employee costs $ 6,775 7.5 % $ 7,080 7.6 % $ (305) (4.3) % Professional fees 3,408 3.7 % 3,049 3.3 % 359 11.8 % Technology 836 0.9 % 820 0.9 % 16 2.0 % Lease expense and depreciation 373 0.4 % 395 0.4 % (22) (5.6) % Other 1,536 1.7 % 1,555 1.7 % (19) (1.2) % Total general and administrative expenses $ 12,928 14.2 % $ 12,899 13.9 % $ 29 0.2 % General and administrative expenses for the nine months ended September 30, 2023 and 2022 were as follows: Nine Months Ended September 30, (In thousands) 2023 % of Revenue 2022 % of Revenue $ Change % Change Employee costs $ 20,972 7.6 % $ 25,080 9.0 % $ (4,108) (16.4) % Professional fees 10,816 3.9 % 11,671 4.2 % (855) (7.3) % Technology 2,539 0.9 % 2,499 0.9 % 40 1.6 % Lease expense and depreciation 1,052 0.4 % 1,236 0.4 % (184) (14.9) % Other 4,397 1.6 % 7,633 2.7 % (3,236) (42.4) % Total general and administrative expenses $ 39,776 14.4 % $ 48,119 17.3 % $ (8,343) (17.3) % Employee costs decreased primarily due to a decrease in stock-based compensation expense during the nine months ended September 30, 2023 and severance expense related to the retirement of our former CEO recognized during the nine months ended September 30, 2022. Other expense decreased primarily due to a $0.3 million loss resulting from the change in fair value of contingent consideration during the nine months ended September 30, 2023 compared to a $2.4 million loss during the nine months ended September 30, 2022. Impairment of Right-of-use and Long-lived Assets In the third quarter of 2023, we recorded a $1.5 million impairment charge related to certain office space lease right-of-use assets and related long-lived assets. The impairment charge was driven by our abandonment of certain leased office spaces prior to the end of the lease terms. No impairment of right-of-use and long-lived assets was incurred during the three and nine months ended September 30, 2022. For further information refer to Footnote 2 , Summary of Significant Accounting Policies . Organizational Restructuring In September 2022, we communicated and began to implement a restructuring plan that included a workforce reduction. Certain other initiatives are expected to be completed as part of the restructuring plan, as described in Footnote 10 , Organizational Restructuring . We incurred $0.4 million and $5.5 million of restructuring expenses during the three and nine months ended September 30, 2023, respectively, related to the plan and expect restructuring costs to continue through the remainder of 2023 as other initiatives are completed. We incurred $5.8 million of restructuring expenses during the three and nine months ended September 30, 2022. Impairment of Goodwill In the second quarter of 2023, as a result of a decline in our stock price and market capitalization, among other factors, we performed an interim impairment review of our goodwill. Our reporting unit did not pass the goodwill impairment test, and as a result we recorded a $44.1 million non-cash impairment charge for the nine months ended September 30, 2023. In the third quarter of 2022, as a result of a decline in our stock price and market capitalization, among other factors, we performed an interim impairment review of our goodwill in conjunction with our October 1, 2022 annual testing date. Our reporting unit did not pass the goodwill impairment test, and as a result we recorded a $46.3 million non-cash impairment charge for the three and nine months ended September 30, 2022. For further information on our goodwill, refer to Footnote 4 , Goodwill in this 10-Q and Item 7 , " Critical Accounting Estimates" within our 2022 10-K . 22 Table of Contents Other Income, Net Other income, net represents income and expenses incurred that are generally not recurring in nature or are not part of our regular operations. The following is a summary of other income, net for the three and nine months ended September 30, 2023 and 2022: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 2023 2022 Change in fair value of warrants liability $ 634 $ 1,476 $ 407 $ 8,471 Other (6) 1 18 (4) Total other income, net $ 628 $ 1,477 $ 425 $ 8,467 The change in other income, net for the three and nine months ended September 30, 2023 as compared to 2022 was largely driven by changes in the fair value of our warrants liability. The gain on the warrants liability for the three months ended September 30, 2023 was primarily due to a decrease in the trading price of our Common Stock during the quarter. The gain on the warrants liability for the nine months ended September 30, 2023 was primarily due to the decrease in the trading price of our Common Stock during the second and third quarter, offset by the exercise price adjustment described in Footnote 5 , Convertible Redeemable Preferred Stock and Stockholders' Equity . The gain on the warrants liability during the three and nine months ended September 30, 2022 was primarily due to a decrease in the trading price of our Common Stock during the respective periods. Interest Expense, Net Interest expense, net consists of interest income and interest expense. Interest income primarily consists of interest earned from our cash and cash equivalent balances. Interest expense relates to interest on our senior secured revolving credit agreement (the "Revolving Credit Agreement"), our sale-leaseback agreement, and our finance leases. We incurred interest expense, net of $0.4 million and $0.3 million during the three months ended September 30, 2023 and 2022, respectively, and $1.1 million and $0.7 million during the nine months ended September 30, 2023 and 2022, respectively. Gain (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. For the three months ended September 30, 2023 and 2022, the gain from foreign currency transactions was $1.1 million and $2.8 million, respectively. For the nine months ended September 30, 2023 and 2022, the (loss) gain from foreign currency transactions was $(0.5) million and $5.7 million, respectively. Gains and losses during these periods were primarily driven by fluctuations between the Chilean Peso, Euro, and U.S. Dollar exchange rates. Income Tax (Provision) Benefit A valuation allowance has been established against our net U.S. federal and state deferred tax assets and certain foreign deferred tax assets, including net operating loss carryforwards. As a result, our income tax position is primarily related to foreign tax activity and U.S. deferred taxes for tax deductible goodwill and other indefinite-lived liabilities. For the three months ended September 30, 2023 and 2022, we recorded an income tax provision of $0.7 million and an income tax benefit of $0.1 million, respectively, resulting in effective tax rates of 22.1% and 0.2%, respectively. For the nine months ended September 30, 2023 and 2022, we recorded an income tax provision of $0.6 million and $1.9 million, respectively, resulting in effective tax rates of 1.1% and 3.0%, respectively. These effective tax rates differ from the U.S. federal statutory rate primarily due to the effects of certain permanent items, foreign tax rate differences, increases in the valuation allowance against our domestic deferred tax assets and deferred tax benefits related to the impairment of goodwill. A deferred income tax benefit of $1.3 million related to the impairment of goodwill is included in the amounts recorded for the nine months ended September 30, 2023 and $1.4 million for the three and nine months ended September 30, 2022. The difference in income tax position during 2023 as compared to 2022 is primarily due to a decrease in estimated foreign tax expense in 2023. Liquidity and Capital Resources The following table summarizes our cash flows for each of the periods identified: Nine Months Ended September 30, (In thousands) 2023 2022 Net cash provided by operating activities $ 30,285 $ 36,536 Net cash used in investing activities (17,849) (13,225) Net cash used in financing activities (2,650) (17,577) Effect of exchange rate changes on cash, cash equivalents and restricted cash 25 (2,502) Net increase in cash, cash equivalents and restricted cash 9,811 3,232 23 Table of Contents Overview Our principal uses of cash consist of cash paid for data, payroll and other operating expenses, including expenses incurred in prior periods; payments related to investments in equipment, primarily to support our consumer panels and technical infrastructure required to deliver our products and services and support our customers; service of our debt and lease facilities; and dividend payment obligations with respect to our Preferred Stock. As of September 30, 2023, our principal sources of liquidity consisted of cash, cash equivalents and restricted cash totaling $30.3 million (including $0.2 million in restricted cash), cash flows from our operations, and amounts available to us under our Revolving Credit Agreement, as described below. On May 5, 2021, we entered into the Revolving Credit Agreement with Bank of America N.A. The Revolving Credit Agreement provides a borrowing capacity equal to $40.0 million, which was increased from $25.0 million on February 25, 2022. As of September 30, 2023, we had outstanding borrowings of $16.0 million and outstanding letters of credit totaling $3.4 million under the Revolving Credit Agreement, leaving a remaining borrowing capacity of $20.6 million. The outstanding borrowings under the Revolving Credit Agreement are classified within current liabilities as the facility matures in May 2024. At an annual meeting of stockholders held on June 15, 2023 (the "Annual Meeting"), our stockholders approved proposals permitting the payment of annual dividends on the Preferred Stock in the form of cash, shares of Common Stock, additional shares of Preferred Stock, or a combination thereof. On the same date, each holder of Preferred Stock waived its right to receive on June 30, 2023 the annual dividends otherwise payable by us on that date. The deferred dividends will accrue at a rate of 9.5% per year from June 30, 2023 until declared and paid, with payment to occur on or before December 31, 2023 subject to certain conditions. As of September 30, 2023, accrued dividends for the Preferred Stock totaled $19.8 million. Macroeconomic Factors Macroeconomic challenges such as inflation, rising interest rates, capital market disruptions and recession concerns have caused some advertisers to reduce or delay advertising expenditures in recent years. These declines have had a direct impact on demand for our products, particularly those that are tied to discretionary advertising spend. We expect that softness in the advertising market will continue to affect our business through the end of 2023 and into 2024. Although we cannot quantify the impact of macroeconomic factors on our future results, any worsening of ad market conditions could negatively impact our financial position and liquidity. Preferred Stock On March 10, 2021, in connection with the Securities Purchase Agreements described above, we issued 82,527,609 shares of Preferred Stock in exchange for gross cash proceeds of $204.0 million. Net proceeds from the Transactions totaled $187.9 million after deducting issuance costs. Shares of Preferred Stock are convertible into Common Stock as described in Footnote 5 , Convertible Redeemable Preferred Stock and Stockholders' Equity . As of September 30, 2023, each share of Preferred Stock was convertible into 1.097283 shares of Common Stock, with such conversion rate scheduled to return to 1.00 upon payment of accrued dividends. The holders of Preferred Stock are entitled to participate in all dividends declared on the Common Stock on an as-converted basis and are also entitled to a cumulative dividend at the rate of 7.5% per annum, payable annually in arrears and subject to increase under certain specified circumstances. In addition, such holders are entitled to request, and we must take all actions reasonably necessary to pay, a one-time special dividend on the Preferred Stock equal to the highest dividend that our Board determines can be paid at the applicable time (or a lesser amount agreed by the holders), subject to additional conditions and limitations described in Footnote 5 , Convertible Redeemable Preferred Stock and Stockholders' Equity . We may be obligated to obtain debt financing in order to effectuate the special dividend, which could significantly impact our financial position and liquidity depending on the timing and scope of the dividend payment and related financing. Moreover, this obligation could lead us to refinance or terminate the Revolving Credit Agreement prior to its maturity, due to its restrictions on our ability to incur additional debt. At the Annual Meeting held on June 15, 2023, our stockholders approved proposals permitting the payment of annual dividends on the Preferred Stock in the form of cash, shares of Common Stock, additional shares of Preferred Stock, or a combination thereof. On the same date, each holder of Preferred Stock waived its right to receive on June 30, 2023 the annual dividends otherwise payable by us on that date. Upon receipt of the waivers, our Board of Directors unanimously agreed to defer the June 30, 2023 dividend payment in order to provide flexibility for our management team to continue to execute our strategic plan and consider dividend payment options later in the year. Under the waivers and the Certificate of Designations governing the Preferred Stock, the deferred dividends will accrue at a rate of 9.5% per year from June 30, 2023 until declared and paid, with payment to occur on or before December 31, 2023 subject to certain conditions. Payment of annual dividends (including deferred dividends) in the form of cash could significantly impact our financial position and liquidity. Revolving Credit Agreement On May 5, 2021, we entered into the Revolving Credit Agreement, which matures in May 2024. The Revolving Credit Agreement provides a borrowing capacity equal to $40.0 million (increased from $25.0 million on February 25, 2022). We may also request the issuance of letters of credit under the Revolving Credit Agreement in an aggregate amount up to $5.0 million, which reduces the amount of available borrowings by the amount of such issued and outstanding letters of credit. 24 Table of Contents On February 25, 2022, we entered into an amendment to the Revolving Credit Agreement to expand our aggregate borrowing capacity from $25.0 million to $40.0 million. The 2022 amendment also replaced the previous Eurodollar Rate (as defined in the Revolving Credit Agreement) with a SOFR-based interest rate and modified the Applicable Rate definition in the Revolving Credit Agreement to increase the Applicable Rate payable on SOFR-based loans to 2.50%. On February 24, 2023, we entered into an additional amendment to the Revolving Credit Agreement that further increased the Applicable Rate payable on SOFR-based loans to 3.50%. The amount we are able to borrow under the Revolving Credit Agreement is subject to compliance with financial covenants, satisfaction of various conditions precedent to borrowing and other provisions of the Revolving Credit Agreement. Notably, the Revolving Credit Agreement (as amended) contains financial covenants that require us to maintain a minimum Consolidated Asset Coverage Ratio and minimum Liquidity through maturity, minimum Consolidated EBITDA for periods through December 31, 2023, and a minimum Consolidated Fixed Charge Coverage Ratio for periods after December 31, 2023 (each term as defined in the Revolving Credit Agreement). As of September 30, 2023, we were in compliance with our covenants under the Revolving Credit Agreement, and based on our current plans, we do not anticipate a breach of these covenants that would result in an event of default under the Revolving Credit Agreement. As of September 30, 2023, we had outstanding borrowings of $16.0 million and outstanding letters of credit totaling $3.4 million under the Revolving Credit Agreement, leaving a remaining borrowing capacity of $20.6 million. The borrowed funds were used to reduce our accounts payable balances, primarily related to expenses incurred in prior periods, and support our working capital position. While we continue to take steps to reduce our outstanding trade payables and improve our working capital position, our liquidity could be negatively affected if we are unable to generate sufficient cash from operations to satisfy outstanding payables and meet our other financial obligations as they come due. Our liquidity could also be significantly affected if we are unable to repay or refinance our outstanding borrowings under the Revolving Credit Agreement upon its maturity in May 2024. For additional information on the Revolving Credit Agreement, refer to Footnote 6 , Debt . Sale of Common Stock and Warrants On June 23, 2019, we entered into a Securities Purchase Agreement with CVI pursuant to which we sold to CVI for aggregate gross proceeds of $20.0 million (i) 2,728,513 shares of Common Stock and (ii) Series A Warrants, Series B-1 Warrants, Series B-2 Warrants and Series C Warrants to initially purchase up to 11,654,033 shares of Common Stock (the "Private Placement"). On October 14, 2019, we issued 2,728,513 shares of Common Stock to CVI upon exercise by CVI of the Series C Warrants. As a result of this exercise, the number of shares issuable under our Series A Warrants was increased by 2,728,513. On January 29, 2020, the Series B-1 Warrants expired unexercised. On August 3, 2020, the Series B-2 Warrants expired unexercised. The exercise price of our Series A Warrants was adjusted in connection with the Transactions in March 2021 and further adjusted in connection with shares issued to non-executive employees under our annual incentive compensation plan in March 2023. For additional information on the Private Placement and the adjustments to our Series A Warrants, refer to Footnote 5 , Convertible Redeemable Preferred Stock and Stockholders' Equity. Operating Activities Our primary source of cash provided by operating activities is revenues generated from sales of our products and services. Our primary uses of cash from operating activities include personnel costs and costs related to data and infrastructure used to develop and maintain our products and services. Cash provided by operating activities is calculated by adjusting our net loss for changes in working capital, as well as by excluding non-cash items such as: depreciation, non-cash operating lease expense, amortization expense of finance leases and intangible assets, impairment of goodwill and other assets, stock-based compensation, deferred tax provision or benefit, change in the fair value of contingent consideration and warrants liability, and amortization of deferred financing costs. Net cash provided by operating activities for the nine months ended September 30, 2023 was $30.3 million compared to $36.5 million for the nine months ended September 30, 2022. The decrease in cash provided by operating activities was primarily attributable to a net decrease in cash generated from operating assets and liabilities, with $6.3 million generated for the nine months ended September 30, 2023 as compared to $15.1 million for the nine months ended September 30, 2022. The lower amount of cash generated from operating assets and liabilities in 2023 was primarily due to severance payments made in 2023, as well as the first payment of contingent consideration for our 2021 Shareablee acquisition. Investing Activities Cash used in investing activities primarily consists of payments related to capitalized internal-use software costs, purchases of computer and network equipment to support our technical infrastructure, and furniture and equipment. The extent of these investments will be affected by our ability to expand relationships with existing customers, grow our customer base and introduce new digital formats, as well as constraints on cash expenditures due to our financial position and the current economic environment. Net cash used in investing activities for the nine months ended September 30, 2023 was $17.8 million compared to $13.2 million for the nine months ended September 30, 2022. The increase in cash used in investing activities was primarily due to an increase in cash paid for capitalized internally developed software as we increased our focus on product infrastructure and innovation in 2023. 25 Table of Contents Financing Activities Net cash used in financing activities during the nine months ended September 30, 2023 was $2.7 million compared to $17.6 million during the nine months ended September 30, 2022. The decrease in cash used in financing activities was primarily due to the deferral of accrued dividends due to holders of the Preferred Stock in the second quarter of 2023, as described under "Preferred Stock" above. This was offset by a portion of the first payment of contingent consideration for our 2021 Shareablee acquisition initially recorded at fair value and paid during the nine months ended September 30, 2023. Contractual Payment Obligations We have certain long-term contractual arrangements that have fixed and determinable payment obligations including purchase obligations with MVPDs and connected (Smart) television providers, operating and financing leases, and data storage and bandwidth arrangements. We have data licensing agreements with a number of MVPDs and other providers for set-top box and connected (Smart) television data. These agreements have remaining terms from one to eight years. As of September 30, 2023, the total fixed payment obligations related to set-top box and connected (Smart) television data agreements are $279.5 million and $2.5 million, respectively. In addition, we expect to make variable payments related to a set-top box data agreement totaling an estimated $1.9 million by the end of 2023. We have both operating and financing leases related to corporate office space and equipment. Our leases have remaining terms from less than one to five years. As of September 30, 2023, the total fixed payment obligation related to these agreements is $45.0 million. We have an agreement for cloud-based data storage and bandwidth to help process and store our data. The remaining term for this agreement is less than one year. As of September 30, 2023, the total fixed payment obligation related to this agreement is $1.8 million. Future Capital Requirements Our ability to generate cash is subject to our performance, general economic conditions, industry trends and other factors, including the timing of cash collections from our customers, data costs and other trade payables, service of our debt and lease facilities, dividend payment obligations, and expenses from ongoing compliance efforts and legal matters. To the extent that our existing cash, cash equivalents and operating cash flow, together with savings from repayment of prior debt arrangements and cost-reduction initiatives undertaken by our management, are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. We may also be required to raise additional funds in order to repay our Revolving Credit Agreement upon maturity or pay a special dividend to holders of our Preferred Stock, as described above. Our history of net losses, as well as disruption and volatility in global capital and credit markets, could impact our ability to access capital resources on terms acceptable to us or at all. If we issue additional equity securities in order to raise additional funds, pay dividends or for other purposes, further dilution to existing stockholders may occur. Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the amounts reported in our Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Refer to the critical accounting estimates disclosed in Item 7 , "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our 2022 10-K for detailed information about the estimates and assumptions that we consider to be the most critical to an understanding of our financial condition and results of operations. These estimates and assumptions involve significant judgments and uncertainties, and actual results in these areas could differ from our estimates.