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, 2023 (the "2023 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 (CTV) 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 (Loss) Income data as a percentage of revenues for each of the periods indicated. Percentages may not add due to rounding. Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (In thousands) Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue Revenues $ 88,479 100.0 % $ 91,000 100.0 % $ 261,111 100.0 % $ 276,242 100.0 % Cost of revenues 52,005 58.8 % 50,473 55.5 % 154,025 59.0 % 155,360 56.2 % Selling and marketing 12,515 14.1 % 14,794 16.3 % 42,691 16.3 % 48,984 17.7 % Research and development 7,272 8.2 % 8,083 8.9 % 24,412 9.3 % 25,792 9.3 % General and administrative 11,116 12.6 % 12,928 14.2 % 35,663 13.7 % 39,776 14.4 % Amortization of intangible assets 764 0.9 % 800 0.9 % 2,365 0.9 % 4,412 1.6 % Impairment of goodwill 63,000 71.2 % — — % 63,000 24.1 % 44,100 16.0 % Impairment of right-of-use and long-lived assets 1,397 1.6 % 1,502 1.7 % 1,397 0.5 % 1,502 0.5 % Restructuring 15 — % 353 0.4 % 968 0.4 % 5,455 2.0 % Total expenses from operations 148,084 167.4 % 88,933 97.7 % 324,521 124.3 % 325,381 117.8 % (Loss) income from operations (59,605) (67.4) % 2,067 2.3 % (63,410) (24.3) % (49,139) (17.8) % Other income, net — — % 628 0.7 % 651 0.2 % 425 0.2 % (Loss) gain from foreign currency transactions (2,223) (2.5) % 1,090 1.2 % (1,508) (0.6) % (544) (0.2) % Interest expense, net (424) (0.5) % (426) (0.5) % (1,440) (0.6) % (1,141) (0.4) % (Loss) income before income taxes (62,252) (70.4) % 3,359 3.7 % (65,707) (25.2) % (50,399) (18.2) % Income tax benefit (provision) 1,622 1.8 % (741) (0.8) % 2,315 0.9 % (563) (0.2) % Net (loss) income $ (60,630) (68.5) % $ 2,618 2.9 % $ (63,392) (24.3) % $ (50,962) (18.4) % 20 Table of Contents Revenues Our products and services are organized around solution groups that address customer needs, which are largely centered around measurement and insights. Accordingly, we evaluate revenues in the following two solution groups: • Content & Ad Measurement represents the measurement portion of our business - measuring audiences across content and advertisements for linear TV, CTV, desktops, laptops, tablets and mobile devices. Product offerings reported in this solution group include our legacy subscription-based syndicated offerings that measure audiences for linear TV (national and local), digital and streaming, as well as theatrical box office receipts. Also included in this solution group are our transaction-based cross-platform products, Proximic by Comscore ("Proximic"), our Activation solution suite, and Comscore Campaign Ratings ("CCR"). These syndicated and cross-platform products are used as currency to plan and execute ad campaigns, measure the outcome of ad campaigns, optimize ad campaigns that are in-flight, activate programmatic campaigns, and make content easier for programmatic advertisers to reach. • Research & Insight Solutions represents the custom solutions we provide that are tailored to our clients' specific needs. These offerings include custom TV, digital and cross-platform data feeds, as well as other data integrations. They also include our survey business, our Consumer Brand Health business, and other bespoke research, data and insight deliverables that help our clients better understand their business, competitive landscape, clients and market. 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, 2024 and 2023 were as follows: Three Months Ended September 30, (In thousands) 2024 % of Revenue 2023 % of Revenue $ Variance % Variance Content & Ad Measurement Syndicated Audience $ 65,042 73.5 % $ 67,946 74.7 % $ (2,904) (4.3) % Cross-Platform 10,232 11.6 % 7,664 8.4 % 2,568 33.5 % Total Content & Ad Measurement 75,274 85.1 % 75,610 83.1 % (336) (0.4) % Research & Insight Solutions 13,205 14.9 % 15,390 16.9 % (2,185) (14.2) % Total revenues $ 88,479 100.0 % $ 91,000 100.0 % $ (2,521) (2.8) % Content & Ad Measurement revenue decreased due to lower revenue from our Syndicated Audience offerings, primarily related to lower renewals of our national TV and syndicated digital products, as well as lower variable cloud computing and processing reimbursements for certain custom TV data set deliveries. This decrease was offset by an increase in Cross-Platform revenue driven by increased usage of our Proximic products. Research & Insight Solutions revenue decreased primarily due to lower deliveries of certain custom digital products. Revenues for the nine months ended September 30, 2024 and 2023 were as follows: Nine Months Ended September 30, (In thousands) 2024 % of Revenue 2023 % of Revenue $ Variance % Variance Content & Ad Measurement Syndicated Audience $ 193,831 74.2 % $ 207,551 75.1 % $ (13,720) (6.6) % Cross-Platform 26,252 10.1 % 22,117 8.0 % 4,135 18.7 % Total Content & Ad Measurement 220,083 84.3 % 229,668 83.1 % (9,585) (4.2) % Research & Insight Solutions 41,028 15.7 % 46,574 16.9 % (5,546) (11.9) % Total revenues $ 261,111 100.0 % $ 276,242 100.0 % $ (15,131) (5.5) % Content & Ad Measurement revenue decreased due to lower revenue from our Syndicated Audience offerings, primarily related to lower renewals of our national TV and syndicated digital products, as well as lower variable cloud computing and processing reimbursements for certain custom TV data set deliveries. This decrease was largely offset by an increase in Cross-Platform revenue driven by increased usage of our Proximic products. Research & Insight Solutions revenue decreased primarily due to lower deliveries of certain custom digital products. 21 Table of Contents 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. Cost of revenues for the three months ended September 30, 2024 and 2023 were as follows: Three Months Ended September 30, (In thousands) 2024 % of Revenue 2023 % of Revenue $ Change % Change Data costs $ 19,317 21.8 % $ 17,919 19.6 % $ 1,398 7.8 % Employee costs 8,582 9.7 % 8,763 9.6 % (181) (2.1) % Lease expense and depreciation 7,354 8.3 % 5,782 6.4 % 1,572 27.2 % Systems and bandwidth costs 7,131 8.1 % 9,257 10.2 % (2,126) (23.0) % Panel costs 3,372 3.8 % 2,938 3.2 % 434 14.8 % Royalties and resellers 1,870 2.1 % 867 1.0 % 1,003 115.7 % Sample and survey costs 1,557 1.8 % 1,662 1.8 % (105) (6.3) % Professional fees 1,464 1.7 % 2,049 2.3 % (585) (28.6) % Technology 1,090 1.2 % 1,003 1.1 % 87 8.7 % Other 268 0.3 % 233 0.3 % 35 15.0 % Total cost of revenues $ 52,005 58.8 % $ 50,473 55.5 % $ 1,532 3.0 % Lease expense and depreciation increased primarily due to higher depreciation driven by an increase in capitalized internal-use software and finance leases. Data costs increased primarily due to higher data licensing costs to expand our data footprint and data rights. Costs for royalties and resellers increased primarily due to increased sales for products in which we pay royalties. These increases were partially offset by a decrease in systems and bandwidth costs due to lower cloud computing and processing costs attributable to certain custom TV data set deliveries. Cost of revenues for the nine months ended September 30, 2024 and 2023 were as follows: Nine Months Ended September 30, (In thousands) 2024 % of Revenue 2023 % of Revenue $ Change % Change Data costs $ 57,647 22.2 % $ 54,126 19.5 % $ 3,521 6.5 % Employee costs 28,407 10.9 % 28,379 10.3 % 28 0.1 % Systems and bandwidth costs 20,460 7.8 % 28,455 10.3 % (7,995) (28.1) % Lease expense and depreciation 19,996 7.7 % 16,807 6.1 % 3,189 19.0 % Panel costs 9,482 3.6 % 10,399 3.8 % (917) (8.8) % Professional fees 4,769 1.8 % 5,614 2.0 % (845) (15.1) % Sample and survey costs 4,735 1.8 % 4,888 1.8 % (153) (3.1) % Royalties and resellers 4,545 1.7 % 2,797 1.0 % 1,748 62.5 % Technology 3,201 1.2 % 3,104 1.1 % 97 3.1 % Other 783 0.3 % 791 0.3 % (8) (1.0) % Total cost of revenues $ 154,025 59.0 % $ 155,360 56.2 % $ (1,335) (0.9) % Systems and bandwidth costs decreased primarily due to lower cloud computing and processing costs attributable to certain custom TV data set deliveries. The decrease was partially offset by an increase in data costs primarily due to higher TV data licensing costs to expand our data footprint and data rights. Lease expense and depreciation increased primarily due to higher depreciation driven by an increase in capitalized internal-use software and finance leases. Royalties and resellers costs increased primarily due to increased sales for products in which we pay royalties. 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. 22 Table of Contents Selling and marketing expenses for the three months ended September 30, 2024 and 2023 were as follows: Three Months Ended September 30, (In thousands) 2024 % of Revenue 2023 % of Revenue $ Change % Change Employee costs $ 9,691 11.0 % $ 11,515 12.7 % $ (1,824) (15.8) % Technology 811 0.9 % 796 0.9 % 15 1.9 % Professional fees 616 0.7 % 808 0.9 % (192) (23.8) % Lease expense and depreciation 546 0.6 % 815 0.9 % (269) (33.0) % Marketing and advertising 479 0.5 % 557 0.6 % (78) (14.0) % Other 372 0.4 % 303 0.3 % 69 22.8 % Total selling and marketing expenses $ 12,515 14.1 % $ 14,794 16.3 % $ (2,279) (15.4) % Employee costs decreased primarily due to a decrease in employee headcount related to our restructuring plan and a decrease in commissions. Selling and marketing expenses for the nine months ended September 30, 2024 and 2023 were as follows: Nine Months Ended September 30, (In thousands) 2024 % of Revenue 2023 % of Revenue $ Change % Change Employee costs $ 33,127 12.6 % $ 39,266 14.2 % $ (6,139) (15.6) % Technology 2,401 0.9 % 2,351 0.9 % 50 2.1 % Lease expense and depreciation 2,072 0.8 % 2,332 0.8 % (260) (11.1) % Marketing and advertising 1,979 0.8 % 1,662 0.6 % 317 19.1 % Professional fees 1,832 0.7 % 2,321 0.8 % (489) (21.1) % Other 1,280 0.5 % 1,052 0.4 % 228 21.7 % Total selling and marketing expenses $ 42,691 16.3 % $ 48,984 17.7 % $ (6,293) (12.8) % Employee costs decreased primarily due to a decrease in employee headcount related to our restructuring plan and a decrease in 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, 2024 and 2023 were as follows: Three Months Ended September 30, (In thousands) 2024 % of Revenue 2023 % of Revenue $ Change % Change Employee costs $ 5,252 5.9 % $ 6,291 6.9 % $ (1,039) (16.5) % Technology 758 0.9 % 823 0.9 % (65) (7.9) % Professional fees 702 0.8 % 209 0.3 % 493 235.9 % Lease expense and depreciation 450 0.5 % 645 0.7 % (195) (30.2) % Other 110 0.1 % 115 0.1 % (5) (4.3) % Total research and development expenses $ 7,272 8.2 % $ 8,083 8.9 % $ (811) (10.0) % Employee costs decreased primarily due to a decrease in employee bonus expense. Research and development expenses for the nine months ended September 30, 2024 and 2023 were as follows: Nine Months Ended September 30, (In thousands) 2024 % of Revenue 2023 % of Revenue $ Change % Change Employee costs $ 18,132 6.9 % $ 20,435 7.3 % $ (2,303) (11.3) % Technology 2,298 0.9 % 2,541 0.9 % (243) (9.6) % Professional fees 1,919 0.7 % 562 0.2 % 1,357 241.5 % Lease expense and depreciation 1,725 0.7 % 1,833 0.7 % (108) (5.9) % Other 338 0.1 % 421 0.2 % (83) (19.7) % Total research and development expenses $ 24,412 9.3 % $ 25,792 9.3 % $ (1,380) (5.4) % Employee costs decreased primarily due to an increase in employee compensation that was capitalized in 2024 in relation to capitalized software projects as we allocated more resources to product development, as well as a decrease in employee bonus expense. This decrease was partially offset by an increase in professional fees primarily due to a change in cost allocation to better align costs with the services provided. 23 Table of Contents General and Administrative General and administrative expenses consist primarily of employee costs for salaries, benefits, stock-based compensation and other related costs, and related expenses for executive management, finance, human capital, legal and other administrative functions, as well as professional fees, overhead, including allocated overhead, which is comprised of lease expense and other facilities-related costs, depreciation expense related to general purpose equipment and software, 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, 2024 and 2023 were as follows: Three Months Ended September 30, (In thousands) 2024 % of Revenue 2023 % of Revenue $ Change % Change Employee costs $ 5,307 6.1 % $ 6,775 7.5 % $ (1,468) (21.7) % Professional fees 2,949 3.3 % 3,408 3.7 % (459) (13.5) % Technology 810 0.9 % 836 0.9 % (26) (3.1) % Lease expense and depreciation 259 0.3 % 373 0.4 % (114) (30.6) % Other 1,791 2.0 % 1,536 1.7 % 255 16.6 % Total general and administrative expenses $ 11,116 12.6 % $ 12,928 14.2 % $ (1,812) (14.0) % Employee costs decreased primarily due to a decrease in employee bonus expense. General and administrative expenses for the nine months ended September 30, 2024 and 2023 were as follows: Nine Months Ended September 30, (In thousands) 2024 % of Revenue 2023 % of Revenue $ Change % Change Employee costs $ 17,714 6.8 % $ 20,972 7.6 % $ (3,258) (15.5) % Professional fees 9,645 3.7 % 10,816 3.9 % (1,171) (10.8) % Technology 2,503 1.0 % 2,539 0.9 % (36) (1.4) % Lease expense and depreciation 1,009 0.4 % 1,052 0.4 % (43) (4.1) % Other 4,792 1.8 % 4,397 1.6 % 395 9.0 % Total general and administrative expenses $ 35,663 13.7 % $ 39,776 14.4 % $ (4,113) (10.3) % Employee costs decreased primarily due to a decrease in employee headcount related to our restructuring plan and a decrease in employee bonus expense. Additionally, professional fees decreased primarily due to a decrease in corporate insurance costs. Amortization of Intangible Assets Amortization expense consists of charges related to the amortization of intangible assets associated with acquisitions. Amortization of intangible assets was $0.8 million and $2.4 million during the three and nine months ended September 30, 2024 and $0.8 million and $4.4 million during the three and nine months ended September 30, 2023, respectively. The decrease of $2.0 million for the nine months ended September 30, 2024 versus the nine months ended September 30, 2023 was primarily due to amortization for certain customer relationships, methodologies and technology intangibles related to our 2016 Rentrak merger reaching the end of their useful lives in 2023. Organizational Restructuring We incurred $15 thousand and $1.0 million of restructuring expense during the three and nine months ended September 30, 2024 and $0.4 million and $5.5 million during the three and nine months ended September 30, 2023, respectively, related to the implementation of a restructuring plan that included a workforce reduction communicated in 2022. We expect the 2022 restructuring plan to be substantially complete in 2024. For further information refer to Footnote 10 , Organizational Restructuring . Impairment of Goodwill In the third quarter of 2024, as a result of changes in our stock price, market and equity capitalization, operating results and projections, we performed an interim impairment review of our goodwill in conjunction with our October 1, 2024 annual testing date. Our reporting unit did not pass the goodwill impairment test, and as a result we recorded a $63.0 million non-cash impairment charge in the three and nine months ended September 30, 2024. 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 in the nine months ended September 30, 2023. For further information on our goodwill, refer to Footnote 4 , Goodwill in this 10-Q and Item 7 , " Critical Accounting Estimates" within our 2023 10-K . 24 Table of Contents Impairment of Right-of-use and Long-lived Assets In the third quarter of 2024, we recorded an impairment charge of $1.4 million related to certain office space lease right-of-use assets and associated leasehold improvements. The impairment charge was driven by the execution of a sublease for an office space for which expected cash receipts are less than the cash disbursements for the primary lease. In the third quarter of 2023, we recorded an impairment charge of $1.5 million 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. For further information refer to Footnote 2 , Summary of Significant Accounting Policies . 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, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2024 2023 2024 2023 Change in fair value of warrants liability $ — $ 634 $ 669 $ 407 Other — (6) (18) 18 Total other income, net $ — $ 628 $ 651 $ 425 The change in other income, net for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023 was primarily driven by changes in the fair value of our warrants liability. The gain on the warrants liability for the nine months ended September 30, 2024 was primarily due to a decrease in the trading price of our Common Stock during the first quarter of 2024 and the Series A warrants expiring unexercised in the second quarter of 2024, as described in Footnote 5 , Convertible Redeemable Preferred Stock and Stockholders' Equity (Deficit) . 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 an exercise price adjustment during the first quarter of 2023. (Loss) Gain From Foreign Currency Transactions Our foreign currency transactions are recorded as a result of fluctuations in the exchange rate between the transactional currency and the functional currency of foreign subsidiary transactions. Our foreign currency exposures that relate to the translation to U.S. Dollars are in a net liability position and our foreign currency exposures that relate to the translation from U.S. Dollars are in a net asset position. For the three and nine months ended September 30, 2024, the loss from foreign currency transactions was $2.2 million and $1.5 million, respectively. For the three and nine months ended September 30, 2023, the gain (loss) from foreign currency transactions was $1.1 million and $(0.5) million, respectively. The losses incurred during the three and nine months ended September 30, 2024 were primarily driven by fluctuations in the Euro, Chilean Peso, Brazilian Real, and U.S. Dollar exchange rates. The gain (loss) incurred during the three and nine months ended September 30, 2023 was primarily driven by fluctuations between the Chilean Peso, Euro, and U.S. Dollar exchange rates. 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") and our finance leases. We incurred interest expense, net of $0.4 million during the three months ended September 30, 2024 and 2023, and $1.4 million and $1.1 million during the nine months ended September 30, 2024 and 2023, respectively. Income Tax Benefit (Provision) 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, 2024 and 2023, we recorded an income tax benefit of $1.6 million and an income tax provision of $0.7 million, respectively, resulting in effective tax rates of 2.6% and 22.1%, respectively. For the nine months ended September 30, 2024 and 2023, we recorded an income tax benefit of $2.3 million and an income tax provision of $0.6 million, respectively, resulting in effective tax rates of 3.5% and 1.1%, 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, changes in the valuation allowance against our domestic deferred tax assets and income tax benefit related to the impairment of goodwill. A deferred income tax benefit of $1.8 million and $1.3 million related to the impairment of goodwill is included in the amounts recorded in the three and nine months ended September 30, 2024 and the nine months ended September 30, 2023, respectively. 25 Table of Contents Liquidity and Capital Resources The following table summarizes our cash flows for each of the periods identified: Nine Months Ended September 30, (In thousands) 2024 2023 Net cash provided by operating activities $ 28,140 $ 30,285 Net cash used in investing activities (18,768) (17,849) Net cash used in financing activities (12,142) (2,650) Effect of exchange rate changes on cash, cash equivalents and restricted cash 19 25 Net (decrease) increase in cash, cash equivalents and restricted cash (2,751) 9,811 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 deferred payment obligations with respect to our 2021 acquisition of Shareablee. As of September 30, 2024, our principal sources of liquidity consisted of cash, cash equivalents and restricted cash totaling $20.2 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 3, 2024, we entered into an amendment to the Revolving Credit Agreement. Among other things, the amendment extended the maturity date of the facility from May 5, 2024 to November 5, 2024 and reduced our aggregate borrowing capacity under the Revolving Credit Agreement from $40.0 million to $25.0 million. The amendment also limited our ability to make certain restricted payments (including dividends) with respect to our equity interests and required a repayment of $6.0 million to reduce the principal amount outstanding under the Revolving Credit Agreement. As of September 30, 2024, after taking into account the $6.0 million repayment, we had outstanding borrowings of $10.0 million and outstanding letters of credit totaling $3.2 million under the Revolving Credit Agreement, leaving a remaining borrowing capacity of $11.8 million. On November 1, 2024, we repaid the outstanding principal balance of $10.0 million under the Revolving Credit Agreement. On November 5, 2024, we entered into an amendment to the Revolving Credit Agreement to extend the maturity date with respect to the outstanding letters of credit under the facility to January 31, 2025. The amendment reduced the aggregate lender commitments under the Revolving Credit Agreement to equal the outstanding letters of credit (totaling $3.2 million) and limited the purpose of, and use of proceeds under, the Revolving Credit Agreement to the issuance of letters of credit. We are evaluating alternative financing options for the Company, including a replacement of the Revolving Credit Agreement, and have engaged outside advisors to assist in our evaluation. 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, subject to conditions set forth in the Certificate of Designations governing the Preferred Stock. In 2023, each holder of Preferred Stock waived its right to receive on June 30, 2023 (and subsequently on December 31, 2023) the annual dividends otherwise payable by us on that date. On June 27, 2024, each holder of Preferred Stock further waived its right to receive the deferred dividends on or before June 30, 2024. In addition, each holder waived its right to receive on June 30, 2024 the annual dividends otherwise payable on that date for the dividend period ending June 29, 2024. Under the waivers and the Certificate of Designations, the deferred dividends accrued at a rate of 9.5% per year until July 24, 2024, when we issued additional shares of Preferred Stock in exchange for cancellation of the deferred dividend obligation. Macroeconomic Factors In recent years, macroeconomic challenges such as inflation, rising interest rates, capital market disruptions and recession concerns have caused some advertisers to reduce or delay advertising expenditures. 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 2024 and into 2025. 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, we issued 82,527,609 shares of Preferred Stock in exchange for gross cash proceeds of $204.0 million. Net proceeds from the issuance 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 (Deficit) . 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 (including in connection with the dividend waivers described below). 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 of 26 Table of Contents Directors determines can be paid at the applicable time (or a lesser amount agreed by the holders), subject to additional conditions and limitations described in Footnote 5 , Convertible Redeemable Preferred Stock and Stockholders' Equity (Deficit) . 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. 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, subject to conditions set forth in the Certificate of Designations governing the Preferred Stock. 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 elected to defer the June 2023 payment. Under the waivers and the Certificate of Designations, the deferred dividends would accrue and accumulate 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. On December 26, 2023, each holder of our Preferred Stock waived its right to receive the deferred dividends on or before December 31, 2023. Under these waivers and the Certificate of Designations, the deferred dividends would continue to accrue and accumulate at a rate of 9.5% per year until declared and paid, with payment to occur on or before June 30, 2024. On June 27, 2024, each holder of Preferred Stock further waived its right to receive the deferred dividends on or before June 30, 2024. In addition, each holder waived its right to receive on June 30, 2024 the annual dividends otherwise payable on that date for the dividend period ending June 29, 2024. Under these waivers and the Certificate of Designations, the deferred dividends for both periods (2023 and 2024) would continue to accrue and accumulate at a rate of 9.5% per year until declared and paid, with payment to occur on or before July 31, 2024, subject to certain conditions. On July 24, 2024, we issued 13,257,294 additional shares of Preferred Stock (the "2024 Preferred Stock") to the existing holders of Preferred Stock in exchange for cancellation of our obligation to pay the deferred dividends described above, which totaled $32.8 million on the issuance date. As of July 24, 2024, the 2024 Preferred Stock was convertible into 662,862 shares of our Common Stock, representing an effective conversion price of $49.438 per share for the canceled dividend obligation. The 2024 Preferred Stock has the same terms and conditions as the Preferred Stock previously issued, including that holders are entitled to cumulative dividends at a rate of 7.5% per annum, payable annually in arrears and subject to increase under certain circumstances. In connection with the issuance, we also entered into an amendment to the Stockholders Agreement with the holders of Preferred Stock. Among other things, the amendment reduced the $100.0 million special dividend threshold set forth in the Stockholders Agreement by an amount equal to the liquidation preference of the additional Preferred Stock ($32.8 million). After further reducing the threshold by annual dividends paid in prior years, the current special dividend threshold is $47.0 million. As of September 30, 2024, each share of Preferred Stock (including each share of 2024 Preferred Stock) was convertible into 0.050934 shares of Common Stock, with such conversion rate scheduled to return to 0.05 upon payment of accrued dividends. Any payment of dividends (annual or special) 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. As of September 30, 2024, the Revolving Credit Agreement provided a borrowing capacity equal to $25.0 million, which was reduced from $40.0 million on May 3, 2024. We could also request the issuance of letters of credit under the Revolving Credit Agreement in an aggregate amount up to $5.0 million, which would reduce the amount of available borrowings by the amount of such issued and outstanding letters of credit. On May 3, 2024, we entered into an amendment to the Revolving Credit Agreement that, among other things, (i) extended the maturity date of the facility from May 5, 2024 to November 5, 2024; (ii) reduced our borrowing capacity from $40.0 million to $25.0 million; (iii) increased the Applicable Rate payable on SOFR-based loans to 4.50%; (iv) revised certain financial covenants; (v) limited certain restricted payments (including dividends) with respect to our equity interests; (vi) required a repayment of $6.0 million to reduce the principal amount outstanding under the facility; and (vii) provided for certain amendment fees, including a fee of 2.0% of aggregate commitments due on the maturity date unless all obligations were paid in full prior to such date. As of September 30, 2024, we had outstanding borrowings of $10.0 million and outstanding letters of credit totaling $3.2 million under the Revolving Credit Agreement. 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. On November 1, 2024, we repaid the outstanding principal balance of $10.0 million under the Revolving Credit Agreement. On November 5, 2024, we entered into an amendment to the Revolving Credit Agreement to extend the maturity date with respect to the outstanding letters of credit under the facility to January 31, 2025. The amendment reduced the aggregate lender commitments under the Revolving Credit Agreement to equal the outstanding letters of credit (totaling $3.2 million) and limited the purpose of, and use of proceeds under, the Revolving Credit Agreement to the issuance of letters of credit. Additionally, the amendment terminated the following financial covenants: (i) the minimum Consolidated Fixed Charge Coverage Ratio, (ii) the minimum Consolidated Asset Coverage Ratio, and (iii) the minimum Liquidity requirement, each as defined in the Revolving Credit Agreement. The amendment maintained the same non-financial covenants, security interest and interest rate as in effect immediately prior to the amendment. Finally, the amendment provided for certain amendment fees, including a fee of $250,000 due on the new maturity date (January 31, 2025) unless all letters of credit are terminated or cash collateralized on or prior to such date. 27 Table of Contents While we continue to take steps to obtain alternative financing, 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, or if we are unable to secure alternative financing (including a replacement for the Revolving Credit Agreement) on acceptable terms or at all. For additional information on the Revolving Credit Agreement, refer to Footnote 6 , Debt . 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, stock-based compensation, non-cash operating lease expense, amortization expense of finance leases and intangible assets, impairment of right-of-use and long-lived assets and goodwill, deferred tax benefit and change in the fair value of contingent consideration and warrants liability. Net cash provided by operating activities for the nine months ended September 30, 2024 was $28.1 million compared to $30.3 million for the nine months ended September 30, 2023. The decrease in cash provided by operating activities was partially attributable to a net decrease in cash generated from operating assets and liabilities, with $0.8 million of cash provided for the nine months ended September 30, 2024 as compared to $6.3 million of cash provided for the nine months ended September 30, 2023, primarily due to lower customer billings and cash receipts in 2024. 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, 2024 was $18.8 million compared to $17.8 million for the nine months ended September 30, 2023. 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 development and innovation in 2024. Financing Activities Net cash used in financing activities during the nine months ended September 30, 2024 was $12.1 million compared to $2.7 million during the nine months ended September 30, 2023. The increase in cash used in financing activities was primarily due to the repayment of $6.0 million of the principal amount outstanding under the Revolving Credit Agreement and the payment of the second installment of contingent consideration for our 2021 Shareablee acquisition initially recorded at fair value during the nine months ended September 30, 2024. 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) TV 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 TV data. These agreements have remaining terms of less than one year to seven years. As of September 30, 2024, the total fixed payment obligations related to set-top box and connected TV data agreements are $294.9 million and $25.4 million, respectively. We have both operating and financing leases related to corporate office space and equipment. Our leases have remaining terms from less than one year to five years. As of September 30, 2024, the total fixed payment obligation related to these agreements is $39.6 million. We have an agreement for cloud-based data storage and bandwidth to help process and store our data. The remaining term for this agreement is less than two years. As of September 30, 2024, the total fixed payment obligation related to this agreement is $17.5 million. Future Capital Requirements Our ability to generate cash is subject to our performance, general economic conditions, industry trends and other factors, including the timing of cash collections from our customers, data costs and other trade payables, service of our debt and lease facilities, 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 cost-reduction initiatives undertaken by our management, are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. We may also be required to raise additional funds in order to pay dividends 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. 28 Table of Contents 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 2023 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.