Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
Form 10-K
________________________________________
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2017
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-33520
________________________________________
COMSCORE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 54-1955550 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) | |
11950 Democracy Drive, Suite 600
Reston, Virginia 20190
(Address of Principal Executive Offices)
(703) 438-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, par value $0.001 per share
________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ¨ No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨ No þ
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | þ | Accelerated filer | ¨ | |||
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |||
Emerging growth company | ¨ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant, as of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $1,032.3 million (based on the last reported bid price of the registrant’s common stock on the OTC Pink Tier on that date). Solely for purposes of this disclosure, shares of the registrant’s common stock held by executive officers and directors and each person who owned 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of February 28, 2018, there were 54,689,047 shares of the registrant’s common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the registrant’s Proxy Statement with respect to its 2018 annual meeting of stockholders, to be filed with the Securities and Exchange Commission no later than 120 days following the registrant’s fiscal year ended December 31, 2017, are incorporated by reference in Part III of this Annual Report on Form 10-K.
COMSCORE, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE PERIOD ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, or 10-K, including the information contained in Item 7,“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this 10-K, and the information incorporated by reference in this 10-K contain forward-looking statements within the meaning of federal and state securities laws. Forward-looking statements are all statements other than statements of historical fact. We attempt, whenever possible, to identify these forward-looking statements by words such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “continue,” “seek” or the negative of those words and other comparable words. Similarly, statements that describe our business strategy, goals, prospects, opportunities, outlook, objectives, plans or intentions are also forward-looking statements. These statements may relate to, but are not limited to, expectations of future operating results or financial performance, macroeconomic trends that we expect may influence our business, plans for capital expenditures, expectations regarding the introduction of new products, regulatory compliance and expected changes in the regulatory landscape affecting our business, planned remediation activities, plans for relisting our common stock, expected impact of litigation and litigation settlements, including the expected contribution by insurance providers, plans for growth and future operations, effects of acquisitions, divestitures and partnerships, as well as assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These statements are based on current expectations and assumptions regarding future events and business performance and involve known and unknown risks, uncertainties and other factors that may cause actual events or results to be materially different from any future events or results expressed or implied by these statements. These factors include those set forth in the following discussion and within Item 1A, “Risk Factors” of this 10-K and elsewhere within this report.
We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this 10-K. You should carefully review the risk factors described in other documents that we file from time to time with the U.S. Securities and Exchange Commission, or "SEC". Except as required by applicable law, including the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements, whether as a result of any new information, future events or otherwise, other than through the filing of periodic reports in accordance with the Securities Exchange Act of 1934, as amended. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
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EXPLANATORY NOTE
Unless the context requires otherwise, references in this 10-K to “comScore,” “we,” “us,” the “Company” and “our” refer to comScore, Inc. and its consolidated subsidiaries and we have registered trademarks around the globe, including Unified Digital Measurement®, UDM®, vCE®, Metrix®, and Analytix®, Essentials®, Box Office Essentials®, OnDemand Essentials®, OnDemand Everywhere®, and TV Essentials®. This 10-K also contains additional trademarks and trade names of our Company and our subsidiaries. We file and maintain trademark protection for our products and services. All trademarks and trade names appearing in this 10-K are the property of their respective holders.
Financial Information Included in this 10-K
This is the first periodic report filed by comScore covering periods after September 30, 2015. Readers should be aware that several aspects of this report differ from other annual reports on Form 10-K. This Annual Report on Form 10-K for the year ended December 31, 2017 contains our audited Consolidated Financial Statements for the years ended December 31, 2017 and 2016, which have not previously been filed, as well as adjustments or restatements of certain previously furnished or filed Consolidated Financial Statements and data as explained herein. This 10-K includes our Consolidated Balance Sheets as of December 31, 2017 and 2016, and the related Consolidated Statements of Operations and Comprehensive Loss, Stockholders' Equity and Cash Flows for the years ended December 31, 2017, 2016 and 2015. The Consolidated Statements of Operations and Comprehensive Loss and Cash Flows for the year ended December 31, 2015 and the condensed consolidated balance sheet data as of December 31, 2015 have been adjusted from the unaudited information previously furnished in our Current Report on Form 8-K on February 17, 2016.
This 10-K also includes selected condensed consolidated financial data as of, and for the years ended, December 31, 2014 (Restated) and 2013 (Restated), which has been derived from our unaudited Consolidated Financial Statements, which were prepared on the same basis as our audited financial statements and reflect adjustments to our previously filed Consolidated Financial Statements. Refer to Item 6, “Selected Financial Data-Audit Committee Investigation and Subsequent Management Review” for information regarding the applicable adjustments or restatements of our financial results for 2015, 2014 and 2013. Refer to Footnote 1, Organization, of the Notes to Consolidated Financial Statements for information regarding the applicable adjustments and restatement of our stockholders' equity as of January 1, 2015.
We have not filed and do not intend to file amendments to any of our previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatements of our Consolidated Financial Statements. Instead, we are only restating and correcting the selected financial data for the years ended December 31, 2014 and 2013 that are included in this 10-K in Item 6, “Selected Financial Data.” Accordingly, as disclosed in our Current Reports on Form 8-K filed September 15, 2016 and November 17, 2016, the Consolidated Financial Statements and related financial information contained in previously filed financial reports, including any related reports of our independent registered public accounting firm, should no longer be relied upon. We have not filed and do not intend to file separate Annual Reports on Form 10-K for the years ended December 31, 2015 and 2016 or Quarterly Reports on Form 10-Q for the periods ended March 31, June 30 or September 30, 2016, respectively. Concurrent with this filing, we are filing unaudited quarterly and year to date Condensed Consolidated Financial Statements and Quarterly Reports on Form 10-Q for each of the quarters ended March 31, June 30 and September 30, 2017 (the “2017 Form 10-Qs”). Accordingly, investors should rely only on the financial information and other disclosures, including the adjusted or restated financial information, included in this 10-K and the 2017 Form 10-Qs, as applicable, and should not rely on any previously furnished or filed reports, earnings releases, guidance, investor presentations, or similar communications, including regarding the Company's customer count and validated Campaign Essentials (or vCE) products, regarding these periods.
Background of Audit Committee Investigation and Subsequent Management Review
In February 2016, the Audit Committee ("Audit Committee") of the comScore Board of Directors ("Board") commenced an internal investigation, with the assistance of outside advisors, into matters related to the Company's revenue recognition practices, disclosures, internal controls, corporate culture and certain employment practices. As a result of the issues identified in the Audit Committee's investigation and management's subsequent review, on September 12, 2016, the Company announced that the Audit Committee, in consultation with outside advisors and management, had concluded that the Company could no longer support the prior accounting for non-monetary contracts recorded by the Company during 2013, 2014 and 2015. As a result, we concluded that (i) our previously issued, unaudited quarterly and year-to-date Consolidated Financial Statements for the quarters ended March 31, June 30 and September 30, 2015 filed on Quarterly Reports on Form 10-Q on May 5, August 7, and November 6, 2015, respectively, (ii) our previously issued, audited Consolidated Financial Statements for the years ended December 31, 2014 and 2013 filed on Annual Reports on Form 10-K on February 20, 2015 and February 18, 2014, respectively (including the interim periods within those years) and (iii) our preliminary unaudited Condensed Consolidated Financial Statements for the quarter and
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year ended December 31, 2015 included as an exhibit to our Current Report on Form 8-K furnished on February 17, 2016, should no longer be relied upon.
On November 23, 2016, in a Current Report on Form 8-K, the Company reported that the Audit Committee's investigation was complete and had concluded that, as a result of certain instances of misconduct and errors in accounting determinations, adjustments to the Company's accounting for certain non-monetary and monetary transactions were required. As a result of the Audit Committee's conclusions and observations, we began a process of reviewing substantially all of our accounting policies, significant accounting transactions, related party transactions, and other financial, internal control and disclosure matters. In addition to the above-referenced adjustments related to revenue and expenses associated with non-monetary transactions, we also concluded that the accounting treatment for certain monetary transactions, certain business and asset acquisitions, our deferred tax assets and other accounting matters required adjustments. The Audit Committee's investigation and this review also identified various material weaknesses in internal control, including in our entity level controls and in certain accounting practices, all as described under Item 9A, "Controls and Procedures" in this Annual Report on Form 10-K. For further information regarding the specific adjustments resulting from the investigation and subsequent management review, refer to Item 6, "Selected Financial Data" in this 10-K.
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PART I
ITEM 1. | BUSINESS |
Overview
We are a global information and analytics company that measures consumer audiences and advertising across media platforms. We create our products using a global data platform that combines information about content and advertising consumption on digital (smartphones, tablets and computers), television 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 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 accredited audience ratings, advertising verification, and granular consumer segments that describe hundreds of millions of consumers. Our customers include buyers and sellers of advertising including digital publishers, television networks, content owners, advertisers, agencies and technology providers.
The platforms we measure include television sets, smartphones, computers, tablets, over-the-top ("OTT") devices and movie theaters, and the information we analyze crosses geographies, types of content and activities, including websites, mobile applications ("apps"), video games, television and movie programming, electronic commerce ("e-commerce") and advertising.
We are a Delaware corporation headquartered in Reston, Virginia with principal offices located at 11950 Democracy Drive, Suite 600, Reston, VA 20190. Our telephone number is 703-438-2000.
Key Developments in 2016-2018
Merger with Rentrak Corporation
On January 29, 2016, comScore completed a merger with Rentrak Corporation (“Rentrak”) with the goal of creating a new cross-platform measurement company capable of offering a more comprehensive and precise set of solutions for measuring media consumption and advertising across platforms. The financial results of Rentrak are included in our Consolidated Financial Statements from the date the merger was completed, January 29, 2016. For further information on the merger with Rentrak, refer to Footnote 3, Business Combinations and Acquisitions of the Notes to Consolidated Financial Statements included in this 10-K.
Audit Committee Investigation, Subsequent Management Review and Related Matters
As described above in the Explanatory Note and in Item 6, “Selected Financial Data-Background of Audit Committee Investigation and Subsequent Management Review” of this 10-K, we have completed an extensive investigation into matters related to our prior revenue recognition practices, disclosures, internal controls, corporate culture and certain employment practices. As a result, we have adjusted or restated certain previously reported consolidated financial information for 2015 and prior periods. Due to our accounting investigation and review, and our subsequent inability to remain current in our SEC reporting obligations, our common stock ("Common Stock") was suspended from trading on The Nasdaq Stock Market (“Nasdaq”) on February 8, 2017, and subsequently delisted. We intend to seek relisting of our Common Stock in connection with becoming current in our SEC reporting obligations. In connection with our announcement of the accounting investigation and review, we also became subject to litigation as discussed in Item 3, “Legal Proceedings” of this 10-K. We also identified various material weaknesses in our internal control over financial reporting, as discussed in Item 9A, “Controls and Procedures” of this 10-K.
Leadership Changes to our Management and Board of Directors
Since January 1, 2016, our entire executive leadership team has changed. Our current executive officers are Bill Livek, our President and Executive Vice Chairman, appointed on January 29, 2016; Carol DiBattiste, our General Counsel & Chief Compliance, Privacy and People Officer, appointed on January 23, 2017; Gregory A. Fink, our Chief Financial Officer and Treasurer, appointed on October 17, 2017; Chris Wilson, our Chief Revenue Officer, appointed on June 1, 2017; Dan Hess, our Chief Product Officer, appointed on January 30, 2018; and Joe Rostock, our Chief Information and Technology Operations Officer, appointed on January 30, 2018. In addition, our Board has formed a committee to direct the search for a new Chief Executive Officer and has retained an executive search firm to assist in the search. Also since January 1, 2016, eight of our nine current directors, including our current Board and Audit Committee Chair, have joined our Board. Seven of our nine directors meet the “independence” criteria of the Nasdaq listing standards.
For further information regarding our Board and executive officers, refer to Item 10, “Directors, Executive Officers and Corporate Governance” in this 10-K.
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2017 Agreement with Starboard Value LP
In September 2017, we entered into an agreement with Starboard Value LP and certain of its affiliates (collectively, “Starboard”), which at the time beneficially owned approximately 4.8% of our Common Stock and had filed a lawsuit in Delaware seeking an order to compel us to hold an annual meeting of stockholders.
Pursuant to this agreement, among other things, we agreed to appoint to the Board four new independent directors recommended by Starboard, and granted Starboard the right, subject to certain conditions, to appoint up to two additional members of the Board, and Starboard agreed to dismiss the lawsuit it had filed and to vote its shares in favor of all of the Company’s director nominees, and otherwise in accordance with the Board’s recommendations on all other proposals, at the Company's next annual meeting of stockholders.
Organizational Restructuring
In December 2017, we announced that we were implementing an organizational restructuring to reduce staffing levels by approximately 10% and exit certain geographic regions, in order to enable us to decrease our global costs and more effectively align resources to business priorities. The majority of the employees impacted by the restructuring exited the Company in the fourth quarter of 2017, and the remainder are expected to exit in the first quarter of 2018. In connection with the restructuring, in the fourth quarter of 2017, we recorded a charge of $10.5 million related to termination benefits and other costs. We expect to incur an incremental charge in the first quarter of 2018 related to certain employees who exit in 2018.
2018 Convertible Notes Financing
In January 2018, we entered into certain additional agreements with Starboard pursuant to which we (i) issued $150.0 million in new senior secured convertible notes to Starboard in exchange for $85.0 million in cash and $65.0 million in shares of our Common Stock held by Starboard, (ii) granted Starboard the option to acquire up to an additional $50.0 million of such convertible notes, (iii) agreed to grant Starboard warrants to purchase 250,000 shares of Common Stock and (iv) have the right to conduct a rights offering, open to all our stockholders, for up to an additional $150.0 million in such convertible notes, and Starboard agreed to enter into one or more backstop commitment agreements by which it will backstop up to $100.0 million of the convertible notes offered in a rights offering.
Background and Market
We were founded in 1999 on the belief that digital technology would transform the interactions between people, media and brands in ways that would generate substantial demand for data and analytics about that interaction. The growing adoption of digital technologies also allowed measurement of the behavior of consumers' online activities. Based on this vision, we built a global opt-in panel of over two million individuals that provided insight into online activities. In 2002, we acquired Media Metrix, an internet ratings brand with its own panel of consumers. Anticipating that mobile would become a key digital platform in the future, we acquired mobile measurement specialist M:Metrics in 2008. In 2009, we introduced our proprietary Unified Digital Measurement ("UDM") methodology, which allowed us to unite consumer panel data with census-level data from tags that we implemented on websites and their content and, later from software development kits on mobile apps.
To expand our global presence in Latin America and Europe, respectively, we acquired Certifica in 2009 and NedStat in 2010. To enhance our product offerings, we acquired ARS in 2010 and M.Labs, LLC in 2014. As consumer media consumption and the availability of television and video programming expanded across a myriad of consumer devices, the ability to measure this dynamic cross-platform world became more important for buyers and sellers of advertising. In response, we partnered with ESPN and Arbitron to pioneer a cross-platform measurement solution, and in 2015 launched Xmedia, a syndicated cross-platform measurement product. Arbitron was later acquired by Nielsen Holdings N.V. ("Nielsen"), although we continue to have access to legacy Arbitron data through a 2013 license agreement with Nielsen. This cross-platform measurement strategy led to our 2015 strategic alliance with WPP plc ("WPP"), one of the largest communications services businesses in the world, and the January 2016 merger with Rentrak, a global media measurement and advanced consumer targeting company serving the entertainment, television, video and advertising industries. Following the Rentrak merger, we now have access to millions of television and video on demand ("VOD") screens and the ability to measure box office results from movie screens across the world. As announced in 2016, we have begun to develop our opt-in Total Home Panel, which enables measurement of household devices that use a home’s internet connection, whether traditional mobile and computer devices, streaming media devices, gaming consoles or Internet of Things ("IOT") devices, which may include devices such as smart speakers, thermostats, and appliances.
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In addition to the Rentrak merger, we have completed the following significant transactions since January 1, 2015:
• | During the first quarter of 2015, we and WPP entered into a series of agreements whereby WPP became the beneficial owner of 15% of our then outstanding Common Stock and agreed to grant us certain voting rights with respect to its shares of Common Stock; we and WPP formed a strategic alliance for the development and delivery of cross-media audience measurement outside of the U.S.; we purchased WPP’s Nordic Internet Audience Measurement (“IAM”) business; and WPP’s subsidiary, GroupM Worldwide ("GroupM"), entered into a five-year minimum commitment agreement with us ("Subscription Receivable"). Refer to Item 6, "Selected Financial Data," for discussion of adjustments made with respect to the WPP agreements for the year ended December 31, 2015. For additional information, refer to Footnote 3, Business Combinations and Acquisitions and Footnote 17, Related Party Transactions of the Notes to Consolidated Financial Statements. |
• | In April 2015, we purchased Proximic, Inc., for $9.5 million, to enhance brand safety and content categorization capabilities across our product offerings. |
• | In May 2015, we sold certain assets of our mobile operator analytics businesses, in exchange for the assumption of certain customer liabilities. |
• | In January 2016, we sold our Digital Analytix business ("DAx") to Adobe Systems Incorporated ("Adobe") for $45.0 million. In addition, in February 2016, we entered into a Strategic Partnership Agreement with Adobe, which was terminated in September 2017. |
• | In April 2016, we purchased certain assets of Compete, Inc. ("Compete") for $27.3 million in cash, net of a working capital adjustment of $1.4 million. Compete was owned by Kantar Millward Brown Company, a subsidiary of WPP. We acquired the Compete assets to expand our presence in certain markets, such as the auto industry and financial services, with improved solution offerings regarding digital performance, including path to purchase, advertising impact analysis and shopping configuration analysis. |
Our Approach to Media Measurement
Our approach to measuring media consumption addresses the ubiquitous nature of media content and the fragmentation caused by the variety of platforms and technologies used to access such content. We believe this fragmentation presents major challenges to using legacy measurement systems that are comprised of relatively small panels of cooperating consumers or limited to specific media platforms. Our products and services are built on measurement and analytic capabilities comprised of broad-based data collection, proprietary databases, internally developed software and a computational infrastructure to measure, analyze and report on digital, television and movie activity at the level of granularity that we believe the media and advertising industries need. We have more than 100 patents covering various aspects of our data collection and data processing systems.
Data Collection
The following collection methods illustrate our extensive data sourcing:
• | We collect data from proprietary opt-in consumer panels that measure the use of computers, tablets and smartphones that access the internet. These panelists have agreed to install our passive metering software on their devices, home network or both. |
• | We collect data from our near-census digital network whereby content publishers implement our software code (referred to as "tagging") on their websites, in mobile applications and video players to provide us usage information on an anonymous basis. |
• | We license certain demographic and behavioral mobile and panel data from third-party data providers. |
• | We obtain U.S. television viewership information from satellite, telecommunications and cable operators covering millions of television and VOD screens. |
• | We measure gross receipts and attendance information from movie screens across the world. |
• | We anonymously integrate our digital and television viewership information with other third-party datasets that include consumer demographic characteristics, attitudes, lifestyles and purchase behavior. |
• | We integrate many of our services with ad serving platforms. |
• | We utilize knowledgeable in-house industry analysts that span verticals such as pharmaceuticals, media, finance, consumer packaged goods and political information to add value to our data. |
• | We have created an opt-in Total Home Panel which can capture data that run through a home’s internet connection. This expands our intelligence to include such activity as game console and IOT device usage. |
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Data Science and Management
The ability to integrate, manage and transform massive amounts of data is core to our company. We continue to invest in technologies to enable large-scale measurement with protection of consumer privacy and attractive economics. Our systems contain multiple redundancies and advanced distributed processing technologies. We have created innovations such as:
• | Our UDM methodology, which allows us to combine person-centric panel data with website server data. We believe this gives our customers greater accuracy, granularity and relevance in audience measurement. |
• | An ability to de-duplicate audiences across platforms, which is based on direct observations within our consumer panel and census data combined with proprietary data science. This de-duplication allows us to measure the reach and frequency of advertising and content exposure across platforms and over time. |
• | An ability to validate advertising delivery and detect fraud through our Invalid Traffic and Sophisticated Invalid Traffic filtration methods. These methods have been accredited by the Media Rating Council, which provides our customers with added assurances of validity and reliability. |
• | An ability to capture the full content of a website or app session, which allows us to measure activity beyond page views such as purchase transactions, application submissions and product configurations. |
• | An ability to intelligently categorize massive amounts of web content, which allows us to inform targeted and brand-safe advertising. |
Product Delivery
We deliver our products and services through diverse methods to meet the needs of our customers. These include Software-as-a-Service ("SaaS") delivery platforms, application programming interface ("API") and other data feeds that integrate directly with customer systems, and integrations with advertising technology providers such as data management platforms ("DMPs") and demand-side platforms ("DSPs") that enable data management, ad management and programmatic ad trading.
Our Products and Services
Our products and services help our customers measure audiences and consumer behavior across media platforms, while offering validation of advertising delivery and its effectiveness. Our customers include:
• | Local and national television broadcasters and content owners; |
• | Network operators including cable companies, mobile operators and internet service providers; |
• | Digital content publishers and internet technology companies; |
• | Advertising agencies; |
• | Movie studios; |
• | Hardware device and component manufacturers; |
• | Financial service companies, including buy and sell-side investment firms, consumer banks and credit card issuers; |
• | Manufacturers and retailers of consumer products such as consumer packaged goods, pharmaceuticals, automotive and electronics; and |
• | Political campaigns and related organizations. |
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Our products and services are organized around measurement, planning and optimization in four offerings:
Digital Audience: focused on the size, engagement, and other behavioral and qualitative characteristics of audiences around the world, across multiple digital platforms including computers, tablets, smartphones and other connected devices.
TV and Cross-Platform Audience: focused on consumer viewership of both linear and on-demand television content in the U.S. at the national level and in local markets. Provides a view of cross-platform consumer behavior when integrated with our Digital Audience and Advertising products and services.
Advertising: provides end-to-end solutions for planning, optimization and evaluation of advertising campaigns.
Movies: measures movie viewership, captures audience demographics and sentiment via social media and exit polling and provides software tools to movie studios and movie theater customers around the world.
We categorize our revenue along these four offerings; however, our shared cost structure is defined and tracked by function and not by our product offerings. These shared costs include, but are not limited to, employee costs, operational overhead, data centers and our technology that supports our product offerings.
Digital Audience products and services provide measurement of the behavior and characteristics of digital consumers based on information from our panels, including our Total Home Panel, census network, demographic and other available data, across multiple digital platforms. Many of these products are accredited by industry standard setting groups. These products and services provide person-centric insight (the “Who”) across different devices (the “Where”) and can capture various types of content (the “What”).
These products and services include:
Media Metrix and Mobile Metrix measure websites and apps on computers, smartphones and tablets across dozens of countries and is a leading currency for online media planning and enables customers to analyze audience size, reach, engagement, demographics and other characteristics. Publishers use Media and Mobile Metrix to demonstrate the value of their audiences and understand market dynamics, and advertisers and their agencies use Media and Mobile Metrix to plan and execute effective marketing and content campaigns. These products also provide competitive intelligence such as cross-site visiting patterns, traffic source/loss reporting and local market trends.
Video Metrix delivers de-duplicated measurement of digital video consumption across computer, smartphone, tablet and OTT devices. Video Metrix provides TV-comparable reach and engagement metrics, as well as audience demographics.
Plan Metrix provides an understanding of consumer lifestyle, buying and other consumption habits, online and offline, by integrating attitudes and interests with online behavior. Plan Metrix provides customers with insight into patterns and trends needed to develop and execute advertising and marketing campaigns.
comScore Marketing Solutions provide analytics that integrate online visitation and advertising data, television viewing, purchase transactions, attitudinal research and other comScore information assets. These custom deliverables are designed to meet client needs in specific industries such as automotive, financial services, media, retail, travel, telecommunications and technology. Applications include path to purchase analyses, competitive benchmarking and market segmentation studies.
TV and Cross-Platform Audience products and services measure consumer television viewership and behavior across digital and TV platforms. Our products and services help our customers understand TV and digital audience characteristics including not only traditional demographics, but also advanced audience descriptors such as interests, lifestyles and product ownership. This insight allows both sellers and buyers to find the most relevant audiences, whether viewing linear, time shifted/recorded, online or on-demand content.
These products and services include:
TV Essentials combines TV viewing information with marketing segmentation and consumer databases for enhanced audience intelligence. TV Essentials data are also used in analytical applications to help customers better understand the performance of network advertising campaigns.
StationView Essentials allows customers to better understand consumer viewing patterns and characteristics across local TV stations and cable channels in their market(s) to promote viewership of a particular station and negotiate inventory pricing based on the size, value and relevance of the audience.
OnDemand Essentials provides multichannel video programming distributors and content providers with transactional tracking and reporting based on millions of television screens. This product also incorporates our advanced audience descriptor, enabling our customers to plan advertising campaigns that more precisely target consumers watching on-demand video content.
Cross-Platform Suite, including XMedia and Extended TV (currently in development), provides the integration of person-level linear TV viewership with digital audience data. This combination enables the creation of cross-platform media plans based on an analysis of de-duplicated reach, engagement and audience overlap across TV and digital platforms using a self-service tool. Customers can simulate cross-platform media planning and share scenarios, understand
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incremental reach and frequency that digital provides compared to that of linear TV media buys and simulate various media-mix scenarios to better understand the optimal mix.
Advertising includes a suite of tools that enable customers to execute, measure and optimize ad campaigns and to protect the integrity of their brands.
validated Campaign Essentials ("vCE") is a solution that validates whether digital ad impressions are visible to humans, identifies those that are fraudulent (e.g., delivered to automated bots or requested by malware), and verifies that ads are shown in brand safe content and delivered to the right audience targets. Advertisers and their agencies use vCE as the basis for negotiating and evaluating campaign performance against their contracts with, and payments to, digital publishers for ad campaigns.
Lift Models measure the impact of advertising on a brand across multiple behavioral and attitudinal dimensions such as brand awareness, purchase intent, online visitation, online and offline purchase behavior and retail store visitation. comScore Lift Models enable customers to fine tune campaign strategy and execution.
Activation Solutions use comScore-collected media consumption data to enhance customer databases for use in advanced analytic and media planning applications. For example, a customer may use our Activation Solutions within a customer relationship management platform to identify characteristics of consumers that are in the market for a specific product or digital content users that are also heavy watchers of specific television content.
Movies products and services measure movie viewership and box office results by capturing movie ticket sales in real time or near real time. We provide comprehensive box office analytics, trend analysis and insights for movie studios and movie theater operators worldwide. We further incorporate social media analytics and theater exit polling to capture audience sentiment before and after movie release.
These products and services include:
Box Office Essentials provide detailed measurement of domestic and international theatrical gross receipts and attendance, with movie specific information across the globe.
Box Office Analytics provide release-date optimization using predictive analytics to estimate the gross potential for future films, long-lead measurement to help gauge the health of a movie’s marketing campaign before theatrical release, and post-release reports of audience demographics and the aspects of each movie that trigger interest and attendance.
Swift is an electronic box office reporting system that facilitates the flow of reconciled theater-level ticket transactions.
Hollywood Software provides movie theater distributors and exhibitors with the software and infrastructure necessary to manage and control end-to-end processes and equipment for digital cinema exhibition. These applications enable customers to plan releases, program theater screens, and manage payments across multiple theaters from any location.
Business Organization
We employ people across the globe, and prior to January 2018, we were organized as follows:
Software Engineering and Technology - this team was responsible for development of analytical platforms which support our products and services based on data integration, computational processing, warehousing and customer delivery technologies. Our data processing environment spanned five domestic and three international data centers.
Data Analytics, Research and Products - this team was responsible for managing and enhancing our various data assets, including data scientists, statisticians and product managers.
Sales, Customer Service/Insights and Marketing - this team sold, marketed and serviced our products and services to customers. We employed a direct sales force to market to new and existing customers and use our insights and team members to work with and support our existing customers.
In January 2018, we reorganized our business to enable a clearer focus on our priorities and cross-platform strategy as follows:
Product, Custom Solutions, and Client Success - this team is responsible for ensuring the consistent, timely provision of comScore products and solutions, delivering on core products and our vision of unique cross-platform offerings.
Software Engineering, Technology, and Technology Operations - this team is responsible for ensuring that we deliver and execute quality products and solutions at scale. This team includes software engineering, analytics, statistics, operations, and infrastructure functions.
Sales and Customer Service - this team is responsible for the sales, service, and relationship management of our products and solutions to current and prospective customers and strategic partners.
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Research and Development
Our research and development activities span our business of media and cross-platform measurement, encompassing data collection, data science, analytical application development and product delivery. We continue to focus on expanding our coverage and scale, precision and granularity across diverse types of media, devices and geographies using our census, panel and other data assets.
Examples of our research and development initiatives include:
• | Enhancing our recruiting methods and software applications; |
• | Developing new technologies to manage, stage and deliver cross-platform data and analytics through traditional web-based user interfaces and via integration with customer systems; |
• | Creating new methodologies to measure person-level TV and digital consumption at scale and across platforms; and |
• | Continuing to develop expertise in combining our data assets with those of partner companies, which allows us to enhance existing services and create new audience rating products and insight into audience behavior. |
Intellectual Property
Our intellectual property assets are important to protect our business. We protect our innovations and products with numerous patents, trademarks, copyrights, trade secrets, and other intellectual property. In particular, we file for, and seek to acquire patent rights for our innovations, and we continue to seek to enhance our patent portfolio through targeted and strategic patent filings and licensing opportunities. We believe that we own the material trademarks used in connection with the marketing, distributing and sale of our products, both domestically and internationally. We will continue to pursue intellectual property opportunities in areas and technologies that we deem to be strategic and appropriate for our business.
Patents
Our patents extend across our data capture and processing techniques and include the following:
• | Data Collection - metering such as biometrics, audio fingerprinting, tagging such as video view-ability, browser optimization, IP obfuscation and TV-off measurement methodology. |
• | Data Processing - traffic and content categorization, demographic attribution, ad effectiveness, data overlap and fusion, invalid traffic detection, data weighting, projection and processing of return path data. |
Trademarks
We rely on trademarks and service marks to protect our intellectual property assets and believe these are important to our marketing efforts and the competitive value of our products and services. We have registered trademarks around the globe, including Unified Digital Measurement®, UDM®, vCE®, Metrix®, and Analytix®, Essentials®, Box Office Essentials®, OnDemand Essentials®, OnDemand Everywhere®, and TV Essentials®. This 10-K also contains additional trademarks and trade names of our Company and our subsidiaries. We file and maintain trademark protection for our products and services. All trademarks and trade names appearing in this 10-K are the property of their respective holders.
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Competition
The market for audience and advertising measurement products is highly competitive and is evolving rapidly. We compete primarily with other providers of media intelligence and related analytical products and services. We also compete with providers of marketing services and solutions, with full-service survey providers and with internal solutions developed by customers and potential customers. Our principal competitors include:
• | Full service market research firms, including Nielsen, Ipsos and GfK; |
• | Companies that provide audience ratings for TV, radio and other media that have extended or may extend their current services, particularly in certain international markets, to the measurement of digital media, including Nielsen Audio (formerly Arbitron) and TiVo Corporation; |
• | Online advertising companies that provide measurement of online ad effectiveness and ad delivery used for billing purposes, including Nielsen, Google and Facebook; |
• | Companies that provide digital advertising technology point solutions, including DoubleVerify, Integral Ad Science, Moat (owned by Oracle), and WhiteOps; |
• | Companies that provide audience measurement and competitive intelligence across digital platforms, including Nielsen, SimilarWeb, and App Annie; |
• | Analytical services companies that provide customers with detailed information of behavior on their own websites, including Adobe Analytics, IBM Digital Analytics and WebTrends Inc.; |
• | Companies that report Smart TV data such as Vizio, Alphonso and Samba TV; and |
• | Companies that provide consumers with TV and digital services such as AT&T and Comcast. |
We compete based on the following principal competitive factors:
• | the ability to provide accurate measurement of digital audiences across multiple digital platforms; |
• | the ability to provide TV audience measurement based on near-census data that increases accuracy and reduces variability; |
• | the ability to provide de-duplicated audience measurement across platforms; |
• | the ability to provide actual, accurate and reliable data regarding audience behavior and activity in a timely manner, including the ability to maintain large and statistically representative panels; |
• | the ability to provide reliable and objective third-party data that, as needed, is able to receive industry-accepted accreditation; |
• | the ability to adapt product offerings to emerging digital media technologies and standards; |
• | the breadth and depth of products and their flexibility and ease of use; |
• | the availability of data across various industry verticals and geographic areas and expertise across these verticals and in these geographic areas; and |
• | the ability to offer products that meet the changing needs of customers. |
We believe we compete favorably on these factors and that our innovative culture and investments in meeting future industry needs will deliver products and services that customers will continue to purchase.
Government Regulation and Privacy
U.S. and international privacy and data security laws apply to our various businesses. We have programs in place to detect, contain and respond to data security incidents; however, increasing technology risks or unauthorized users who successfully breach our network security could misappropriate or misuse our proprietary information or cause interruptions in our services. Many countries have more stringent data protection laws than those in the U.S. and this may result in inconsistent requirements and differing interpretations across jurisdictions. Governments, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. New laws such as the General Data Protection Regulation ("GDPR") in Europe and industry self-regulatory codes have been enacted, and more are being considered that will affect our ability (and our customers’ ability) to reach current and prospective customers, to respond to individual customer requests under the laws, and to implement our business models effectively. The GDPR is scheduled to take effect in May 2018 and includes additional requirements regarding the collection and handling of individuals’ personal data. Failure to meet the GDPR requirements, or privacy requirements in other jurisdictions, could result in substantial penalties. comScore participates in the EU-U.S. Privacy Shield Framework and the Swiss-U.S. Privacy Shield Framework as set forth by the U.S. Department of Commerce regarding the collection, use, and retention of personal information transferred from the European Economic Area and Switzerland to the U.S.
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We monitor actions by the Federal Communications Commission and the Federal Trade Commission, including regulatory developments affecting Internet Service Providers. Participation in our research panels is voluntary or “opt-in.” We recognize the importance of privacy, and our policies require that participants consent to our privacy and data security practices before our software collects information on the user’s online activity. Where we receive data from third-party service providers, we require such providers to meet privacy and data security standards set forth in our contracts with them, including a requirement to obtain appropriate consent. Our policies and protocols are designed to be consistent with the American Institute of Certified Public Accountants, Inc. ("AICPA") and the Canadian Institute of Chartered Accountants ("CICA") Trust Service Principles criteria for online privacy.
Employees
As of February 28, 2018, we had approximately 1,830 employees and we believe our employee relations are good. Our employees are not represented by labor unions outside of those few countries where union representation is a mandatory practice for doing business.
Locations and Geographic Areas
We are strategically located around the globe with employees in 20 countries. Our primary geographic markets are the U.S., Canada, Europe, Latin America and Asia. For information with respect to our geographic markets, refer to Footnote 16, Geographic Information, of the Notes to Consolidated Financial Statements.
Available Information
We make our periodic and current reports along with amendments to such reports available, free of charge, on our website as soon as reasonably practicable after such material is electronically filed with the SEC. Our website address is www.comscore.com and such reports are filed under “SEC Filings” on the Investor Relations section of our website. Information contained on our website is not part of this 10-K and is not incorporated herein by reference.
You can read our SEC filings, including this annual report as well as our other periodic and current reports, on the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
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ITEM 1A. | RISK FACTORS |
An investment in our Common Stock involves a substantial risk of loss. You should carefully consider these risk factors, together with all of the other information included herewith, before you decide whether to invest in shares of our Common Stock. The occurrence of any of the following risks could materially adversely affect our business, financial condition or operating results. In that case, the trading price of our Common Stock could decline, and you may lose part or all of your investment.
Risks Related to Our Audit Committee Investigation and Subsequent Management Review, Consolidated Financial Statements, Internal Controls and Related Matters
We have identified deficiencies in our internal control over financial reporting which resulted in material weaknesses in our internal control over financial reporting and have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2017. If we fail to properly remediate these or any future material weaknesses or deficiencies or to maintain proper and effective internal controls, further material misstatements in our financial statements could occur and impair our ability to produce accurate and timely financial statements and could adversely affect investor confidence in our financial reports, which could negatively affect our business.
We have concluded that our internal control over financial reporting was not effective as of December 31, 2017 due to the existence of material weaknesses in such controls, and we have also concluded that our disclosure controls and procedures were not effective as of December 31, 2017 due to material weaknesses in our control over financial reporting, all as described in Item 9A, “Controls and Procedures,” of this 10-K. While we initiated meaningful remediation efforts during 2016 and 2017 to address the identified weaknesses, we were not able to fully remediate our material weaknesses in internal controls as of December 31, 2017, and we cannot provide assurance that our remediation efforts will be adequate to allow us to conclude that such controls will be effective as of December 31, 2018. We also cannot assure you that additional material weaknesses in our internal control over financial reporting will not arise or be identified in the future. We intend to continue our control remediation activities and to continue to improve our operational, information technology, financial systems, and infrastructure procedures and controls, as well as to continue to expand, train, retain and manage our personnel who are essential to effective internal controls. In doing so, we will continue to incur expenses and expend management time on compliance-related issues.
If our remediation measures are insufficient to address the identified deficiencies, or if additional deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results. Moreover, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all. If we are unable to provide reliable and timely financial reports in the future, our business and reputation may be further harmed. Restated financial statements and failures in internal controls may also cause us to fail to meet reporting obligations, negatively affect investor confidence in our management and the accuracy of our financial statements and disclosures, or result in adverse publicity and concerns from investors, any of which could have a negative effect on the price of our Common Stock, subject us to further regulatory investigations and penalties or shareholder litigation, and materially adversely impact our business and financial condition.
The accounting review of our previously issued Consolidated Financial Statements and the audits of years ended 2015, 2016 and 2017 have been time-consuming and expensive, and may result in additional expense.
We have incurred significant expenses, including audit, legal, consulting and other professional fees, in connection with the Audit Committee’s investigation, the review of our accounting, the audits and the ongoing remediation of deficiencies in our internal control over financial reporting. Specifically, in connection with the Company’s investigation, audit and compliance efforts and related litigation, the Company incurred various legal and accounting expenses in the amount of $83.4 million and $46.6 million during the years ended 2017 and 2016, respectively. As described above, we have taken a number of steps in order to strengthen our accounting function and attempt to reduce the risk of future recurrence and errors in accounting determinations. To the extent these steps are not successful, we could be forced to incur significant additional time and expense. The incurrence of significant additional expense, or the requirement that management devote significant time that could reduce the time available to execute on our business strategies, could have a material adverse effect on our business, results of operations and financial condition.
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We and certain of our current and former officers and directors have been named in shareholder class action lawsuits and derivative lawsuits related to the merger with Rentrak and circumstances that gave rise to our restatement and extended filing delay in filing our periodic reports with the SEC, and may be named in further litigation, government investigations and proceedings, which could require significant additional management time and attention, result in significant additional legal expenses or result in government enforcement actions, any of which could have a material adverse impact on our results of operations, financial condition, liquidity and cash flows.
We and certain of our current and former officers and directors have been named in shareholder class action lawsuits and derivative lawsuits relating to the merger with Rentrak and the matters identified in the Audit Committee’s investigation and audit and compliance efforts, and may become subject to further litigation, government investigations or proceedings arising out of the restatement. The pending litigation and settlements have been, and any future litigation, investigation or other actions that may be filed or initiated against us or our current or former officers or directors may be, time consuming and expensive. We cannot predict what losses we may incur in these litigation matters, and contingencies related to our obligations under the federal and state securities laws, or in other legal proceedings or governmental investigations or proceedings related to the restatement.
To date, we have incurred significant costs in connection with pending litigation. Any legal proceedings, if decided adversely to us, could result in significant monetary damages, penalties and reputational harm, and will likely involve significant defense and other costs. We have entered into indemnification agreements with each of our directors and certain of our officers, and our amended and restated certificate of incorporation requires us to indemnify each of our directors and officers, to the fullest extent permitted by Delaware law, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Company. Although we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations, our insurance coverage may not cover all claims that have been or may be brought against us, and insurance coverage may not continue to be available to us at a reasonable cost. As a result, we have been and may continue to be exposed to substantial uninsured liabilities, including pursuant to our indemnification obligations, which could materially adversely affect our business, prospects, results of operations and financial condition.
Although we have completed the restatement, we cannot guarantee that we will not receive inquiries from the SEC, Nasdaq or other regulatory authorities regarding our restated financial statements or matters relating thereto, or that we will not be subject to future claims, investigations or proceedings. Any future inquiries from the SEC, Nasdaq or other regulatory authority, or future claims or proceedings as a result of the restatement or any related regulatory investigation will, regardless of the outcome, likely consume a significant amount of our internal resources and result in additional legal and accounting costs.
For additional discussion of these matters, refer to Item 3, “Legal Proceedings” and Footnote 11, Commitments and Contingencies of the Notes to Consolidated Financial Statements.
We cannot assure you that our Common Stock will be relisted, or that once relisted, it will remain listed.
As a result of the delay in filing our periodic reports with the SEC, we were unable to comply with the listing standards of Nasdaq and our Common Stock was suspended from trading on The Nasdaq Global Select Market effective February 8, 2017 and formally delisted effective May 30, 2017. Following the filing of our delayed periodic reports, we intend to apply to relist our Common Stock. However, while we are working expeditiously to relist our Common Stock, no assurances can be provided that we will be able to do so in an expeditious manner or at all. If we are unable to relist our Common Stock, or even if our Common Stock is relisted, no assurance can be provided that an active trading market will develop or, if one develops, will continue. The lack of an active trading market may limit the liquidity of an investment in our Common Stock, meaning you may not be able to sell any shares of Common Stock you own at times, or at prices, attractive to you. Any of these factors may materially adversely affect the price of our Common Stock.
Matters relating to or arising from the restatement and the Audit Committee’s investigation into our internal control over financial reporting, including adverse publicity and potential concerns from our customers, have had and could continue to have an adverse effect on our business and financial condition.
We have been and could continue to be the subject of negative publicity focusing on the restatement and adjustment of our financial statements, and may be adversely impacted by negative reactions from our customers or others with whom we do business. Concerns include the perception of the effort required to address our accounting and control environment and the ability for us to be a long-term provider to our customers. The continued occurrence of any of the foregoing could harm our business and have an adverse effect on our financial condition.
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Risks Related to Our Business and Our Technologies
The market for media measurement and analytics products is highly competitive, and if we cannot compete effectively, our revenues could decline and our business could be harmed.
The market for audience and advertising measurement products is highly competitive and is evolving rapidly. We compete primarily with providers of media intelligence and related analytical products and services. We also compete with providers of marketing services and solutions, with full-service survey providers, and with internal solutions developed by customers and potential customers.
Some of our competitors have longer operating histories, access to larger customer bases and substantially greater resources than we do. As a result, these competitors may be able to devote greater resources to marketing and promotional campaigns, panel retention, panel development or development of systems and technologies than we can. In addition, some of our competitors may adopt more aggressive pricing policies or have started to provide some services at no cost.
Furthermore, large software companies, internet portals and database management companies may enter our market or enhance their current offerings, either by developing competing services or by acquiring our competitors, and could leverage their significant resources and pre-existing relationships with our current and potential customers. Finally, consolidation of our competitors could make it difficult for us to compete effectively.
If we are unable to compete successfully against our current and future competitors, we may not be able to retain and acquire customers, and we may consequently experience a decline in revenues, reduced operating margins, loss of market share and diminished value from our products.
The market for cross-platform products is developing, and if it does not develop further, or develops more slowly than expected, our business could be harmed.
The market for cross-platform products is still developing, and it is uncertain whether these products will achieve or maintain high levels of demand and increased market acceptance. Our success will depend to a substantial extent on the willingness of companies to increase their use of such products and to continue use of such products on a long-term basis. Factors that may affect market acceptance include:
• | the reliability of cross-platform products; |
• | decisions of our customers and potential customers to develop cross-platform solutions internally rather than purchasing such products from third-party suppliers like us; |
• | decisions by industry associations in the U.S. or in other countries that result in association-directed awards, on behalf of their members, of digital measurement contracts to one or a limited number of competitive vendors; |
• | the rate of growth in e-commerce and mobile commerce ("m-commerce"), cross-platform focused advertising and continued growth in television and digital media consumption; and |
• | public and regulatory concern regarding privacy and data security. |
The adoption of advertising across television and digital platforms, particularly by advertisers that have historically relied on traditional offline media, requires the acceptance of new approaches to conducting business and a willingness to invest in such new approaches. Moreover, the decision to adopt a cross-platform approach to buying advertisement campaigns requires a change to buying approaches and a willingness to adopt new data analytics to assist in evaluating such approaches by advertisement buyers who traditionally focus on buying advertising campaigns through one medium. Advertisers may perceive such new approaches to advertising or understanding advertising to be less effective than traditional methods for marketing their products. They may also be unwilling to pay premium rates for advertising that is targeted at specific segments of validated users based on their demographic profile or internet behavior across digital media platforms. The digital media advertising and e-commerce markets may also be adversely affected by privacy issues relating to such targeted advertising, including that which makes use of personalized information or online behavioral information. Because of the foregoing factors, among others, the market for cross-platform focused digital media advertising and e-commerce may not continue to grow at significant rates. If these markets do not continue to develop, or if they develop more slowly than expected, our business could suffer.
If we are unable to provide cross-platform analytics, or if our cross-platform analytics are incomplete, our ability to maintain and grow our business may be harmed.
As the media and advertising industries increasingly evaluate advertising campaigns across various forms of media, such as television, online, and mobile, the ability to measure the combined size and composition of audiences across platforms is increasingly important and in demand.
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If we are unable to gain access to information measuring a media component or type, or if we are unable to do so on commercially reasonable terms, our ability to meet our customers' demands and our business and financial performance may be harmed. Furthermore, even if we do have access to cross-platform data, if we have insufficient technology, encounter challenges in our methodological approaches or inadequate source materials to parse the information across such media components to avoid duplications or to do so in a cost-effective manner, our products may be inferior to other offerings, and we may be unable to meet our customers' demands. In such event, our business and financial performance may be harmed.
In particular, our acquisition of television data may be reliant on companies that have historically held a dominant market position measuring television to produce industry-accepted measurement across a combination of media platforms. Our competitors, such as Nielsen, or other providers may have more leverage with data providers and may be unable or unwilling to provide us with access to quality data to support our cross-platform products. Likewise, our acquisition of digital data may be reliant on large digital publishers that may technologically or legally prevent access to their proprietary platforms for research or measurement purposes. Moreover, as mobile devices and technology continue to proliferate, gaining cost-effective access to mobile data will become increasingly critical, and the difficulty in accessing these forms of data will continue to grow. If we are unable to acquire data effectively and efficiently, or if the cost of data acquisition increases, our business, financial condition and results of operations may be harmed.
We depend on third parties for data that is critical to our business, and our business could suffer if we cannot continue to obtain reliable data from these suppliers or if third parties place additional restrictions on our use of such data.
We rely on third-party data sources for information usage across the media platforms that we measure, as well as demographics about the people that use such platforms. The availability and accuracy of this data is important to the continuation and development of our products. These suppliers of data may increase restrictions on our use of such data, fail to adhere to our quality control standards or otherwise satisfactorily perform services, increase the price they charge us for the data or refuse to license the data to us. Additional restrictions on third-party data could limit our ability to include that data in certain products, which could lead to decreased commercial opportunities for certain products. To comply with any additional restrictions, we may be required to implement certain additional technological and manual controls that could put pressure on our cost structure and could affect our pricing. Supplier consolidation and increased pricing for additional use cases could also put pressure on our cost structure. We may be required to enter into vendor relationships, strategic alliances, or joint ventures with some third parties in order to obtain access to the data sources that we need. If our partners do not apply rigorous standards to their data collection methodology and actions, notwithstanding our best efforts, we may receive third-party data that is inaccurate, defective, or delayed. If third-party information is not available to us on commercially reasonable terms, or is found to be inaccurate, it could harm our products, our reputation, and our business and financial performance.
If we fail to respond to technological developments or evolving industry standards, our products may become obsolete or less competitive.
Our future success will depend in part on our ability to develop new and modify or enhance our existing products and services, including without limitation, our data collection technologies and approaches, in order to meet customer needs, add functionality and address technological advancements. For example, if certain proprietary hand-held mobile devices become the primary mode of receiving content and conducting transactions on the internet, and we are unable to adapt to collect information from such devices, then we would not be able to report on digital usage activity. To remain competitive, we will need to develop new products that address these evolving technologies and standards across the universe of digital media including television, online, and mobile usage. However, we may be unsuccessful in identifying new product opportunities, developing or marketing new products in a timely or cost-effective manner, or obtaining the necessary access to data or technologies needed to support new products, or we may be limited in our ability to operate due to patents held by others. In addition, our product innovations may not achieve the market penetration or price levels necessary for profitability. If we are unable to develop timely enhancements to, and new features for, our existing methodologies or products or if we are unable to develop new products and technology that keep pace with rapid technological developments or changing industry standards, our products may become obsolete, less marketable and less competitive, and our business will be harmed.
Furthermore, the market for our products is characterized by changes in protocols and evolving industry standards. For example, industry associations such as the Advertising Research Foundation, the Council of American Survey Research Organizations, the Internet Advertising Bureau ("IAB"), and the Media Rating Council ("MRC") as well as internationally-based industry associations have independently initiated efforts to either review market research methodologies across the media that we measure or develop minimum standards for such research. Failure to achieve accreditation may adversely impact the market acceptance of our products. Meanwhile, successful accreditation may lead to costly changes to our procedures and methodologies.
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Our business may be harmed if we deliver, or are perceived to deliver, inaccurate information products.
The metrics contained in our products may be viewed as an important measure of the success of certain businesses, especially those that utilize our metrics to evaluate a variety of investments ranging from their internal operations to advertising initiatives. If the information that we provide to our customers, the media, or the public is inaccurate, or perceived to be inaccurate, whether due to inadequate methodological approaches, errors, biases towards certain available data sources or partners, defects or errors in data collection and processing (conducted by us or by third parties), or the systems used to collect, process or deliver data, our business may be harmed.
Any inaccuracy or perceived inaccuracy in the data reported by us could lead to consequences that could adversely impact our operating results, including:
• | loss of customers; |
• | sales credits, refunds or liability to our customers; |
• | the incurrence of substantial costs to correct any material defect or error; |
• | increased warranty and insurance costs; |
• | potential litigation; |
• | interruptions in the availability of our products; |
• | diversion of development resources; |
• | lost or delayed market acceptance and sales of our products; and |
• | damage to our brand. |
Our business may be harmed if we change our methodologies or the scope of information we collect.
We have in the past and may in the future change our methodologies, the methodologies of companies we acquire, or the scope of information we collect. Such changes may result from identified deficiencies in current methodologies, development of more advanced methodologies, changes in our business plans, changes in technology used by websites, browsers, mobile applications, servers, or media we measure, integration of acquired companies or expressed or perceived needs of our customers or potential customers. Any such changes or perceived changes, or our inability to accurately or adequately communicate to our customers and the media such changes and the potential implications of such changes on the data we have published or will publish in the future, may result in customer dissatisfaction, particularly if certain information is no longer collected or information collected in future periods is not comparable with information collected in prior periods. As a result of future methodology changes, some of our customers that may also supply us with data may decide not to continue buying products or services from us or may decide to discontinue providing us with their server-side information to support our products. Such customers may elect to publicly air their dissatisfaction with the methodological changes made by us, which may damage our brand and harm our reputation.
If we are not able to maintain panels of sufficient size and scope, or if the costs of establishing and maintaining our panels materially increase, our business could be harmed.
We believe that the quality, size and scope of our research panels are critical to our business. There can be no assurance, however, that we will be able to maintain panels of sufficient size and scope to provide the quality of marketing intelligence that our customers demand from our products. We anticipate that the cost of panel recruitment will increase with the proliferation of proprietary and secure media content delivery platforms, and that the difficulty in collecting these forms of data will continue to grow, which may require significant hardware and software investments, as well as increases to our panel incentive and panel management costs.
We have historically established and/or acquired new panels. We plan to continue to make significant investments in our panels in the future. Our panel costs may significantly increase our cost of revenues in the future. To the extent that such additional expenses are not accompanied by increased revenues, our operating margins may be reduced and our financial results could be adversely affected.
We derive a significant portion of our revenues from sales of our subscription-based products. If our customers terminate or fail to renew their subscriptions, our business could suffer.
We currently derive a significant portion of our revenues from our syndicated products, which are generally a one-year subscription based products. This has generally provided us with recurring revenue due to high renewal rates. If our customers terminate their subscriptions for our products, do not renew their subscriptions, delay renewals of their subscriptions or renew on terms less favorable to us, our revenues could decline and our business could suffer.
Our customers have no obligation to renew after the expiration of their initial subscription period, and we cannot be assured that current subscriptions will be renewed at the same or higher dollar amounts, if at all. Furthermore, our new subscription products, for which revenue is recognized based on impressions used, may be subject to higher fluctuations in revenue.
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Our customer renewal rates may decline or fluctuate due to a number of factors, including customer satisfaction or dissatisfaction with our products, the costs or functionality of our products, the prices or functionality of products offered by our competitors, the health of the advertising marketplace, mergers and acquisitions affecting our customer base, general economic conditions or reductions in our customers’ spending levels.
Our growth depends upon our ability to retain existing large customers and add new large customers. To the extent we are not successful in doing so, our ability to attain profitability and positive cash flow may be impaired.
Our success depends in part on our ability to sell our products to large customers and on the renewal of these subscriptions and contracts to these customers in subsequent years. For the years ended 2017 and 2016, we derived 27% and 25%, respectively, of our total revenues from our top 10 customers. Uncertain economic conditions or other factors, such as the failure or consolidation of large customer companies, internal reorganization or changes in focus, or dissatisfaction with our products, may cause certain large customers to terminate or reduce their subscriptions and contracts with us. The loss of any one or more of these customers could decrease our revenues and harm our current and future operating results. The addition of new large customers or increases in sales to existing large customers may require particularly long implementation periods and other significant upfront costs, which may adversely affect our profitability. To compete effectively, we have in the past been, and may in the future be, forced to offer significant discounts to maintain existing customers or acquire other large customers. In addition, we may be forced to reduce or withdraw from our relationships with certain existing customers or refrain from acquiring certain new customers in order to acquire or maintain relationships with important large customers. As a result, new large customers or increased usage of our products by large customers may cause our profits to decline, and our ability to sell our products to other customers could be adversely affected.
If we are unable to effectively persuade customers to buy our products in substitution for those of an incumbent service provider, our revenue growth may suffer.
Some of our newer products require that we persuade prospective customers, or customers of our existing products, to buy our newer products in substitution for those of an incumbent service provider. In some instances, the customer may have built their systems and processes around the incumbent provider's products. Persuading such customers to switch service providers may be difficult and require longer sales cycles, affecting our ability to increase revenue in these areas. Moreover, the incumbent service provider may have the ability to significantly discount its services or enter into long-term agreements, which could further impede our ability to persuade customers to switch service providers, and accordingly, our ability to increase our revenues.
We may expand through investments in, acquisitions of, or the development of new products with assistance from, other companies, any of which may not be successful and may divert our management’s attention.
In the past, we completed several strategic acquisitions. We also may evaluate and enter into discussions regarding an array of potential strategic transactions, including acquiring complementary products, technologies or businesses.
An acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties integrating the businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to be employed by us, and we may have difficulty retaining the customers of any acquired business due to changes in management and ownership. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing development of our business. Moreover, we cannot assure you that the anticipated benefits of any acquisition, investment or business relationship would be realized timely, if at all, or that we would not be exposed to unknown liabilities. In connection with any such transaction, we may:
• | encounter difficulties retaining key employees of the acquired company or integrating diverse business cultures; |
• | incur large charges or substantial liabilities, including without limitation, liabilities associated with products or technologies accused or found to infringe third-party intellectual property rights or violate existing or future privacy regulations; |
• | issue shares of our capital stock as part of the consideration, which may be dilutive to existing stockholders; |
• | become subject to adverse tax consequences, legal disputes, substantial depreciation or deferred compensation charges; |
• | use cash that we may otherwise need for ongoing or future operation of our business; |
• | enter new geographic markets that subject us to different laws and regulations that may have an adverse impact on our business; |
• | experience difficulties effectively utilizing acquired assets; |
• | encounter difficulties integrating the information and financial reporting systems of acquired businesses, particularly those that operated under accounting principles other than those generally accepted in the U.S. prior to the acquisition by us; and |
• | incur debt, which may be on terms unfavorable to us or that we are unable to repay. |
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We also have entered into relationships with certain third-party providers to expand our product offerings, and may enter into similar arrangements in the future. These or other future relationships or transactions involve preferred or exclusive licenses, discount pricing or investments in other businesses to expand our sales capabilities. These transactions could be material to our financial condition and results of operations, and though these transactions may provide additional benefits, they may not be profitable immediately or in the long term. Negotiating any such transactions could be time-consuming, difficult and expensive, and our ability to close these transactions may be subject to regulatory or other approvals and other conditions that are beyond our control. Consequently, we can make no assurances that any such transactions, investments or relationships, if undertaken and announced, would be completed or successful.
The impact of any one or more of these factors could materially adversely affect our business, financial condition or results of operations.
System failures or delays in the operation of our computer and communications systems may harm our business.
Our success depends on the efficient and uninterrupted operation of our computer and communications systems and the third-party data centers we use. Our ability to collect and report accurate data may be interrupted by a number of factors, including, the failure of our network or software systems, computer viruses, security breaches or variability in user traffic on customer websites. A failure of our network or data gathering procedures, or those of our third-party data suppliers, could impede the processing of data, cause the corruption or loss of data or prevent the timely delivery of our products.
In the future, we may need to expand our network and systems at a more rapid pace than we have in the past. Our network or systems may not be capable of meeting the demand for increased capacity, or we may incur additional unanticipated expenses to accommodate these capacity demands. In addition, we may lose valuable data, be unable to obtain or provide data on a timely basis or our network may temporarily shut down if we fail to adequately expand or maintain our network capabilities to meet future requirements. Any lapse in our ability to collect or transmit data may decrease the value of our products and prevent us from providing the data requested by our customers. Any disruption in our network processing or loss of internet user data may damage our reputation and result in the loss of customers and legal and regulatory action, and our business, financial condition and results of operations could be materially adversely affected.
We rely on a small number of third-party service providers to host and deliver our products, and any interruptions or delays in services from these third parties could impair the delivery of our products and harm our business.
We host our products and serve our customers from data center facilities located throughout the U.S. and Europe. While we operate our equipment inside these facilities, we do not control the operation of these facilities, and, depending on service level requirements and costs, we may not continue to operate or maintain redundant data center facilities for all of our products or for all of our data, which could increase our vulnerability. These facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, power loss, telecommunications failures and similar events. They are also subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. A natural disaster or an act of terrorism, a decision to close the facilities without adequate notice, or other unanticipated problems could result in lengthy interruptions in availability of our products. We may also encounter capacity limitations at our third-party data centers. Additionally, our data center facility agreements are of limited durations, and our data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, if at all. We believe that we have good relationships with our data center facility vendors and believe that we will be able to renew, or find alternative data center facilities, at commercially reasonable terms, although there can be no guarantee of this. If we are unable to renew our agreements with the owners of the facilities on commercially reasonable terms, or if we migrate to a new data center, we may experience delays in delivering our products until an agreement with another data center facility can be arranged or the migration to a new facility is completed.
If we or the third-party data centers that we use were to experience a major power outage, we would have to rely on back-up generators, which may not function properly, and their supply may be inadequate. Such a power outage could result in the disruption of our business. Additionally, if our current facilities fail to have sufficient cooling capacity or availability of electrical power, we would need to find alternative facilities.
We currently leverage a large content delivery network ("CDN"), to provide services that allow us to offer a more efficient tagging methodology. If that network faced unplanned outage or the service became immediately unavailable, an alternate CDN provider or additional capacity in our data centers would need to be established to support the large volume of tag requests that we currently manage, which would either require additional investments in equipment and facilities or a transition plan. This could unexpectedly raise our costs and could contribute to delays or losses in tag data that could affect the quality and reputation of our Media Metrix, vCE, and other data products that involve the measurement of a large amount of digitally transmitted activity across multiple providers.
Further, we depend on access to the internet through third-party bandwidth providers to operate our business. If we lose the services of one or more of our bandwidth providers for any reason, we could experience disruption in the delivery of our products or be required to retain the services of a replacement bandwidth provider. It may be difficult for us to replace any lost bandwidth on a timely basis, on commercially reasonable terms, or at all, due to the large amount of bandwidth our operations require.
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Any errors, defects, disruptions or other performance problems related to our products or the delivery of our services caused by third parties could reduce our revenues, harm our reputation, result in legal and regulatory actions and otherwise damage our business. Interruptions in the availability of our products and the delivery of our services may reduce our revenues due to increased turnaround time to complete projects, cause us to issue credits to customers, cause customers to terminate their agreements or adversely affect our renewal rates. Our business, financial condition and results of operations would be materially adversely affected if there were errors or delays in delivering our products or services, including for reasons beyond our control, and our reputation would be harmed if our customers or potential customers believe our products and services are unreliable.
We rely on our management team, many of whom are recent hires and may need additional personnel to operate and grow our business. The loss of one or more key employees, the inability to attract and retain qualified personnel, or the failure to integrate new personnel could harm our business.
Our success and future growth depends to a significant degree on the skills and continued services of our management team, many of whom are recent hires. Our future success also depends on our ability to retain, attract and motivate highly skilled technical, managerial, marketing and customer service personnel, including members of our management team. We may experience a loss of productivity due to the departure of key personnel and the associated loss of institutional knowledge, or while new personnel integrate into our business and transition into their respective roles. This transition may not ultimately be successful.
A substantial majority of our U.S. employees work for us on an at-will basis. We continually evaluate our personnel needs in all areas of our business, particularly in our sales, marketing, finance and technology development areas, both domestically and internationally, which could increase our recruiting and hiring costs in the foreseeable future. Competition for these types of personnel is intense, particularly in the internet and software industries. As a result of the delay in filing our periodic financial reports with the SEC and the expiration of our equity incentive plan in 2017, we have temporarily stopped granting equity awards to our employees. In addition, we have restricted our employees from trading in our stock during the pendency of the filing delay. Our inability to grant equity awards, and our employees’ inability to trade the Common Stock that they hold, poses a risk to our ability to successfully attract and retain qualified personnel. Our inability to retain and attract the necessary personnel could adversely affect our business.
Risks Related to Our Results of Operations
Our revenues and results of operations may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of securities analysts or investors, which could cause our stock price to decline.
Our results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control. If our revenues or results of operations do not meet or exceed the expectations of securities analysts or investors, the price of our Common Stock could decline substantially. Factors that may cause fluctuations in our revenues or results of operations include:
• | the uncertainties associated with the integration of acquired businesses and the cost and timing of organizational restructuring; |
• | our ability to increase sales to existing customers and attract new customers; |
• | the potential loss or reduction in spending by significant customers; |
• | changes in our customers' subscription renewal behaviors and spending on projects; |
• | the impact on our contract renewal rates caused by our customers’ budgetary constraints, competition, customer dissatisfaction, customer corporate restructuring or change in control, or our customers’ actual or perceived lack of need for our products; |
• | the timing of contract renewals, delivery of products and duration of contracts and the corresponding timing of revenue recognition as well as the effects of revenue derived from recently-acquired companies; |
• | variations in the demand for our products and the implementation cycles of our products by our customers; |
• | the challenges of persuading existing and prospective customers to switch from incumbent service providers; |
• | the timing of revenue recognition for usage-based or impression-based products; |
• | the effect of revenues generated from significant one-time projects or the loss of such projects; |
• | the timing and success of new product introductions by us or our competitors; |
• | changes in our pricing and discounting policies or those of our competitors; |
• | the impact of our decision to discontinue certain products; |
• | our failure to accurately estimate or control costs - including those incurred as a result of investments, other business or product development initiatives, litigation, and the integration of acquisitions; |
• | adverse judgments or settlements in legal disputes; |
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• | the amount and timing of capital expenditures and operating costs related to the maintenance and expansion of our operations and infrastructure; |
• | the risks associated with operating in countries in which we may have little or no previous experience and with maintaining or reorganizing corporate entity structures in international jurisdictions; |
• | service outages, other technical difficulties or security breaches; |
• | limitations relating to the capacity of our networks, systems and processes; |
• | maintaining appropriate staffing levels and capabilities relative to projected growth, or retaining key personnel as a result of the integration of recent acquisitions or otherwise; |
• | the extent to which certain expenses are deductible for tax purposes, such as share-based compensation that fluctuates based on the timing of vesting and our stock price; |
• | the timing of any changes to our deferred tax valuation allowance; |
• | adoption of new accounting pronouncements; and |
• | general economic, political, regulatory, industry and market conditions and those conditions specific to internet usage and online businesses. |
We believe that our revenues and results of operations on a year-over-year and sequential quarter-over-quarter basis may vary significantly in the future and that period-to-period comparisons of our operating results may not be meaningful. Investors are cautioned not to rely on the results of prior periods as an indication of future performance.
Our financial condition and results of operations could suffer and be adversely affected if we incur an impairment of goodwill or other intangible assets.
We are required to test intangible assets and goodwill, annually and on an interim basis if an event occurs or there is a change in circumstance that would more likely than not reduce the fair value of reporting units and intangible assets below their carrying values. When the carrying value of a reporting unit’s goodwill exceeds its implied fair value of goodwill, a charge to operations is recorded. If the carrying amount of an intangible asset with an indefinite life exceeds its fair value, a charge to operations is recognized. Either event would result in incremental expenses for that period, which would reduce any earnings or increase any loss for the period in which the impairment was determined to have occurred.
Our impairment analysis is sensitive to changes in key assumptions used in our analysis, such as expected future cash flows, the degree of volatility in equity and debt markets and our stock price. Additionally, changes in our strategy or significant technical developments could significantly impact the recoverability of our intangible assets. If the assumptions used in our analysis are not realized, it is possible that an impairment charge may need to be recorded in the future. There were no impairment charges taken during the years ended 2017, 2016 and 2015. We cannot predict the amount and timing of any future impairment of goodwill or other intangible assets.
We may encounter difficulties managing our costs, which could adversely affect our results of operations.
We believe that we will need to continue to effectively manage our organization, operations and facilities in order to accommodate changes in our business and to successfully integrate acquired businesses. If we continue to grow or change, either organically or through acquired businesses, our current systems and facilities may not be adequate and may need to be expanded or reduced. Our need to effectively manage our operations and cost structure requires that we continue to assess and improve our operational, financial and management controls, reporting systems and procedures. For example, we may be required to enter into leases for additional facilities or commit to significant investments in the build out of current or new facilities, or we may need to renegotiate or terminate leases to reflect changes in our business. If we are unable to effectively forecast our facilities needs or if we are unable to sublease or terminate leases for unused space, we may experience increased and unexpected costs. From time to time, as a result of acquisition integration initiatives, or through efforts to streamline our operations, we may and have reduced our workforce or reassigned personnel. Such actions may expose us to disruption by dissatisfied employees or employee-related claims, including without limitation, claims by terminated employees who believe they are owed more compensation than we believe these employees are due under our compensation and benefit plans, or claims maintained internationally in jurisdictions whose laws and procedures differ from those in the U.S. If we are not able to efficiently and effectively manage our cost structure or are unable to find appropriate space to support our needs, our business may be impaired.
We have a history of significant net losses, may incur significant net losses in the future and may not achieve profitability.
We incurred net losses of $281.4 million, $117.2 million, and $78.2 million for the years ended 2017, 2016 and 2015, respectively. We cannot make assurances that we will be able to achieve profitability in the future, particularly due to acquisition activity and costs associated with the restatement of our financial statements, regulatory inquiries and litigation matters. As of December 31, 2017, we had an accumulated deficit of $609.1 million. Because a large portion of our costs are fixed, we may not be able to reduce our expenses in response to any decrease in our revenues, which would materially and adversely affect our operating results. In addition, our operating expenses may increase as we implement certain growth initiatives, which include, among other things,
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the development of new products and enhancements of our infrastructure. If our revenues do not increase to offset these increases in costs and operating expenses, our operating results would be materially and adversely affected.
Our net operating loss carryforwards may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.
We have experienced “changes in control” that have triggered the limitations of Section 382 of the Internal Revenue Code on a significant portion of our net operating loss carryforwards. As a result, we may be limited in the amount of net operating loss carryforwards that we can use in the future to offset taxable income for U.S. federal income tax purposes.
As of December 31, 2017, we estimate our U.S. federal and state net operating loss carryforwards for tax purposes are $387.0 million and $1,013.7 million, respectively. These net operating loss carryforwards will begin to expire in 2022 for federal income tax reporting purposes and in 2018 for state income tax reporting purposes. In addition, as of December 31, 2017, we estimate our aggregate net operating loss carryforwards for tax purposes related to our foreign subsidiaries are $14.8 million, which will begin to expire in 2019.
We apply a valuation allowance to our deferred tax assets when management does not believe that it is more-likely-than-not that they will be realized. In assessing the need for a valuation allowance, we consider all sources of taxable income, including potential opportunities for loss carrybacks, the reversal of existing temporary differences associated with our deferred tax assets and liabilities, tax planning strategies and future taxable income. We also consider other evidence such as historical pre-tax book income in making the determination.
As a result of the material changes to our Consolidated Financial Statements, we re-evaluated the valuation allowance determinations made in prior years. Our analysis was updated to consider the changes to our historical operating results following the investigation and subsequent review by management, with revised projections of our future taxable income in order to assess the realizability of our deferred tax assets. In that process, we evaluated the weight of all evidence, including the decline in earnings and the resulting impact on our projections of future taxable income beginning in 2012 and for each subsequent period through 2017. We have concluded that as of December 31, 2013 our U.S. federal and state net deferred tax assets were no longer more-likely-than-not to be realized and that a valuation allowance was required. For additional information refer to Item 6, "Selected Financial Data".
As of December 31, 2017, we continue to have a valuation allowance recorded against the net deferred tax assets of our U.S. entities and certain foreign subsidiaries, including net operating loss carryforwards. To the extent we determine that, based on the weight of available evidence, all or a portion of our valuation allowance attributable to the net operating loss carryforwards is no longer necessary, we will reduce the valuation allowance accordingly.
We have limited experience with respect to our pricing model for our new offerings, and if the fees we charge for our products are unacceptable to our customers, our revenues and operating results will be harmed.
Many of our customers purchase specifically tailored contracts that are priced in the aggregate. Due to the level of customization of such contracts, the pricing of contracts or individual product components of such packages may not be readily comparable across customers or periods. Existing and potential customers may have difficulty assessing the value of our products and services when comparing them to competing products and services. As the market for our products matures, or as new competitors introduce new products or services that compete with ours, we may be unable to renew our agreements with existing customers or attract new customers with the fees we have historically charged. As a result, it is possible that future competitive dynamics in our market may require us to reduce our fees, which could have an adverse effect on our revenues, profitability and operating results.
Risks Related to Legal and Regulatory Compliance, Litigation and Tax Matters
Concern over privacy violations and data breaches could cause public relations problems, regulatory scrutiny and potential class action lawsuits, which could harm our business.
We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of proprietary information and personally identifiable information. The regulatory environment surrounding information security and data privacy varies from jurisdiction to jurisdiction and is constantly evolving and increasingly demanding. The restrictions imposed by such laws continue to develop and may require us to incur substantial costs and fines or adopt additional compliance measures, such as notification requirements and corrective actions in the event of a security breach.
Any perception of our practices, products or services as a violation of individual privacy rights, whether or not consistent with current regulations and industry practices, may subject us to public criticism, class action lawsuits, reputational harm, or investigations or claims by regulators, industry groups or other third parties, all of which could disrupt our business and expose us to increased liability. Additionally, laws regulating privacy and third-party products purporting to address privacy concerns could negatively affect the functionality of, and demand for, our products and services, thereby resulting in loss of customers and harm to our business.
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We also rely on contractual representations made to us by customers that their own use of our services and the information they provide to us via our services do not violate any applicable privacy laws, rules and regulations or their own privacy policies. As a component of our client contracts, we obligate customers to provide their consumers the opportunity to obtain the appropriate level of consent (including opt outs) for the information collection associated with our services, as applicable. If these representations are false or inaccurate, or if our customers do not otherwise comply with applicable privacy laws, we could face adverse publicity and possible legal or regulatory action.
Outside parties may attempt to fraudulently induce our employees or users of our solutions to disclose sensitive information via illegal electronic spamming, phishing or other tactics. Unauthorized parties may also attempt to gain physical access to our information systems. Any breach of our security measures or the accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information or sensitive, personal or confidential data about us, our employees or our customers, including the potential loss or disclosure of such information or data as a result of hacking, fraud, trickery or other forms of deception, could expose us, our employees, our customers or the individuals affected to risks of loss or misuse of this information. Any actual or potential breach of our security measures may result in litigation and potential liability or fines, governmental inquiry or oversight or a loss of customer confidence, any of which could harm our business or damage our brand and reputation, possibly impeding our present and future success in retaining and attracting new customers and thereby requiring time and resources to repair our brand.
Domestic or foreign laws, regulations or enforcement actions may limit our ability to collect and incorporate media usage information in our products, which may decrease their value and cause an adverse impact on our business and financial results.
U.S. federal and state and foreign laws and regulations, which may be able to be enforced by private parties or governmental entities, are constantly evolving and can be subject to significant change.
Our business could be adversely impacted by existing or future laws, regulations of or actions by domestic or foreign regulatory agencies. For example, privacy concerns could lead to legislative, judicial and regulatory limitations on our ability to collect, maintain and use information about consumers’ behavior or media consumption in the U.S. and abroad. State and federal laws within the U.S. and foreign laws and regulations are varied, and at times conflicting, resulting in higher risk related to compliance. A number of new laws coming into effect and/or proposals pending before federal, state and foreign legislative and regulatory bodies will likely affect our business. For example, the European Commission has enacted the GDPR that becomes effective in May 2018 and will supersede current EU data protection legislation, impose more stringent EU data protection requirements, and provide for greater penalties for noncompliance. Additionally, the European Commission is evaluating changes to the ePrivacy Regulation, a companion regulation to GDPR that will likely have a significant impact on our solutions. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may prevent us from selling our products or increase the costs associated with selling our products, and may affect our ability to invest in or jointly develop products in the U.S. and in foreign jurisdictions. In addition, failure to comply with these and other laws and regulations may result in, among other things, administrative enforcement actions and significant fines, class action lawsuits and civil and criminal liability. Any regulatory or civil action that is brought against us, even if unsuccessful, may distract our management’s attention, divert our resources, negatively affect our public image or reputation among our panelists and customers and harm our business.
An assertion from a third party that we are infringing its intellectual property rights, whether such assertion is valid or not, could subject us to costly and time-consuming litigation or expensive licenses.
The media measurement, software and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights, domestically or internationally. As we grow and face increasing competition, the probability that one or more third parties will make intellectual property rights claims against us increases. In such cases, our technologies may be found to infringe on the intellectual property rights of others. Additionally, many of our agreements may require us to indemnify our customers for third-party intellectual property infringement claims, which would increase our costs if we have to defend such claims and may require that we pay damages and provide alternative services if there were an adverse ruling in any such claims. Intellectual property claims could harm our relationships with our customers, deter future customers from buying our products or expose us to litigation, which could be expensive and divert considerable attention of our management team from the normal operation of our business. Even if we are not a party to any litigation between a customer and a third party, an adverse outcome in any such litigation could make it more difficult for us to defend against intellectual property claims by the third party in any subsequent litigation in which we are a named party. Any of these results could adversely affect our brand, business and results of operations.
With respect to any intellectual property rights claim against us or our customers, we may have to pay damages or stop using technology found to be in violation of a third party’s rights. We may have to seek a license for the technology, which may not be available on reasonable terms or at all, may significantly increase our operating expenses or may significantly restrict our business activities in one or more respects. We may also be required to develop alternative non-infringing technology, which could require significant effort and expense. Any of these outcomes could adversely affect our business and results of operations. Even if we prove successful in defending ourselves against such claims, we may incur substantial expenses and the defense of such claims
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may divert considerable attention of our management team from the normal operation of our business.The success of our business depends in large part on our ability to protect and enforce our intellectual property rights.
We rely on a combination of patent, copyright, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. We endeavor to enter into agreements with our employees and contractors and with parties with whom we do business in order to limit access to and disclosure of our proprietary information. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology or the reverse engineering of our technology. We cannot make assurances that any additional patents will be issued with respect to any of our pending or future patent applications, nor can we assure that any patent issued to us will provide adequate protection, or that any patents issued to us will not be challenged, invalidated, circumvented, or held to be unenforceable in actions against alleged infringers. Also, we cannot make assurances that any future trademark or service mark registrations will be issued with respect to pending or future applications or that any of our registered trademarks and service marks will be enforceable or provide adequate protection of our proprietary rights.
The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.
On December 22, 2017, U.S. tax reform legislation known as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law. The TCJA makes substantial changes to U.S. tax law, including a reduction in the corporate tax rate, a limitation on deductibility of interest expense, a limitation on the use of net operating losses to offset future taxable income, the allowance of immediate expensing of capital expenditures, deemed repatriation of foreign earnings and significant changes to the taxation of foreign earnings going forward. Although, we do not expect the TCJA to have a significant effect on us, except for the reduction in the corporate tax rate which has decreased the value of our deferred tax assets and liabilities, including our U.S. net operating loss carryforwards, the extent of the impact of the TCJA remains uncertain and is subject to any regulatory or administrative developments, including any regulations or other guidance promulgated by the U.S. Internal Revenue Service. The TCJA contains numerous, complex provisions impacting U.S. multinational companies, and we continue to review and assess the legislative language and its potential impact on us.
We are subject to taxation in multiple jurisdictions. Any adverse development in the tax laws of any of these jurisdictions or any disagreement with our tax positions could have a material adverse effect on our business, financial condition or results of operations.
We are subject to taxation in, and to the tax laws and regulations of, multiple jurisdictions as a result of the international scope of our operations and our corporate entity structure. We are also subject to transfer pricing laws with respect to our intercompany transactions, including those relating to the flow of funds among our companies. Adverse developments in these laws or regulations, or any change in position regarding the application, administration or interpretation thereof, in any applicable jurisdiction, could have a material adverse effect on our business, financial condition or results of operations. In addition, the tax authorities in any applicable jurisdiction, including the U.S., may disagree with the positions we have taken or intend to take regarding the tax treatment or characterization of any of our transactions. If any applicable tax authorities, including U.S. tax authorities, were to successfully challenge the tax treatment or characterization of any of our transactions, it could have a material adverse effect on our business, financial condition or results of operations.
Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.
In certain cases, we have concluded that we do not need to collect sales and use, value added and similar taxes in jurisdictions in which we have sales. Sales and use, value added and similar tax laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties and interest or future requirements may adversely affect our financial condition and results of operations.
Our annual effective income tax rate can change materially as a result of changes in our mix of U.S. and foreign earnings and other factors, including changes in tax laws and changes made by regulatory authorities.
Our overall effective income tax rate is equal to our total tax expense as a percentage of total earnings before tax. However, income tax expense and benefits are not recognized on a global basis but rather on a jurisdictional or legal entity basis. Losses in one jurisdiction may not be used to offset profits in other jurisdictions and may cause an increase in our tax rate. Changes in statutory tax rates and laws, as well as ongoing audits by domestic and international authorities, could affect the amount of income taxes and other taxes paid by us. For example, the changes to the U.S. corporate tax rate and the U.S. taxation of foreign earnings as a result of the TCJA may have a material impact on our effective tax rate. Also, changes in the mix of earnings (or losses) between jurisdictions and assumptions used in the calculation of income taxes, among other factors, could have a significant effect on our overall effective income tax rate.
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We have incurred and will continue to incur costs and demands upon management as a result of complying with the laws and regulations affecting a public company, which could adversely affect our operating results.
As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we would not otherwise incur if we were a private company, including expenses relating to the Audit Committee investigation, restatement and audits, and remediation of deficiencies in our internal control over financial reporting. (Refer to “Risks Related to Our Audit Committee Investigation and Subsequent Management Review, Consolidated Financial Statements, Internal Controls and Related Matters” above for a discussion of these costs.) In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules implemented by the SEC and the securities exchanges, require certain corporate governance practices for public companies. Our management and other personnel have devoted and expect to continue to devote a substantial amount of time to public reporting requirements and corporate governance, particularly following the Audit Committee investigation. These rules and regulations have significantly increased our legal and financial compliance costs and made some activities more time-consuming and costly. We also have incurred and expect to continue to incur substantial additional costs associated with our public company reporting and internal control requirements, including the audit-related costs and remediation efforts described under “Risks Related to Our Audit Committee Investigation and Subsequent Management Review, Consolidated Financial Statements, Internal Controls and Related Matters” above. If these costs are not offset by increased revenues and improved financial performance, our financial condition and results of operations will be materially adversely affected. These rules and regulations, together with ongoing regulatory and litigation matters, also make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage if these costs continue to rise. As a result, it may be more difficult for us to attract and retain qualified people to serve on our Board or as executive officers.
Risks Related to International Operations
Our business could become increasingly susceptible to risks associated with international operations.
In the past, we acquired various businesses with substantial presence or clientele in multiple Latin American, European and Asian countries. Prior to these acquisitions, we otherwise had limited experience operating in markets outside of the U.S. Our inexperience in operating our business outside of the U.S. may increase the risk that the international businesses in which we are engaged will not be successful. In addition, conducting international operations subjects us to risks that we have not generally faced in the U.S. These risks include:
• | recruitment and maintenance of a sufficiently large and representative panel both globally and in certain countries; |
• | difficulties and expenses associated with tailoring our products to local markets as may be required by local customers and joint industry committees or similar industry organizations; |
• | difficulties in expanding the adoption of our server- or census-based web beacon data collection in international countries or obtaining access to other necessary data sources; |
• | differences in customer buying behaviors; |
• | the complexities and expense of complying with a wide variety of foreign laws and regulations, including the GDPR and foreign anti-corruption laws (as well as the U.S. Foreign Corrupt Practices Act); |
• | difficulties in staffing and managing international operations, including complex and costly hiring, disciplinary, and termination requirements; |
• | the complexities of foreign value-added taxes and restrictions on the repatriation of earnings; |
• | reduced or varied protection for intellectual property rights in some countries; |
• | political, social and economic instability abroad, terrorist attacks and security concerns; |
• | fluctuations in currency exchange rates; and |
• | increased accounting and reporting burdens and complexities. |
Additionally, operating in international markets requires significant additional management attention and financial resources. We cannot be certain that the investments and additional resources required to establish and maintain operations in other countries will hold their value or produce desired levels of revenues or profitability. We cannot be certain that we will be able to comply with laws, rules, regulations or local guidelines to maintain and increase the size of the user panels that we currently have in various countries, that we will be able to recruit a representative sample for our audience measurement products or that we will be able to enter into arrangements with a sufficient number of website and mobile app content providers, and/or television operators to allow us to collect server-based information for inclusion in our digital media analytics products. In addition, there can be no assurance that internet usage and e-commerce will continue to grow in international markets. In addition, governmental authorities in various countries have different views regarding regulatory oversight of the internet and consumer privacy.
The impact of these risks could negatively affect our international business and, consequently, our financial conditions and results of operations.
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Export controls and economic and trade sanctions laws could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
Our business activities include the collection of survey data from panelists around the world, and such activities are subject to various restrictions under U.S. export controls and economic and trade sanctions laws, including the U.S. Commerce Department’s Export Administration Regulations and sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). If we fail to comply with these laws and regulations, we could be subject to civil or criminal penalties and reputational harm.
Although we take precautions to prevent the collection of survey data from panelists in embargoed countries that are subject to export controls and economic and trade sanctions under these laws and regulations, we have collected such data in the past, and there is a risk that we could collect such data in the future despite such precautions. We are currently implementing a number of additional screening and other remedial measures designed to prevent such transactions with embargoed countries and other U.S. sanctions targets. Changes in the list of embargoed countries and regions or prohibited persons may require us to modify these procedures in order to comply with governmental regulations. Our failure to screen potential panelists properly could result in negative consequences to us, including government investigations, penalties and reputational harm, any of which could materially adversely affect our business, financial condition or results of operations.
Changes in foreign currencies could have an increased effect on our operating results.
We operate in several countries in Latin America, Europe and Asia. A portion of our revenues and expenses from business operations in foreign countries are derived from transactions denominated in currencies other than the functional currency of our operations in those countries. As such, we have exposure to adverse changes in exchange rates associated with revenues and operating expenses of our foreign operations, but we do not currently enter into any hedging instruments that hedge foreign currency exchange rate risk. If we grow our international operations, or acquire companies with established business in international regions, our exposure to foreign currency risk could become more significant.
Risks Related to Our Capital Structure and Financings
Restrictive covenants in the agreements governing our current and future indebtedness could restrict our operating flexibility.
The agreements governing our existing debt, and debt we may incur in the future, contain, or may contain, affirmative and negative covenants that materially limit our ability to take certain actions, including our ability to incur debt, pay dividends and repurchase stock, make certain investments and other payments, enter into certain mergers and consolidations, and encumber and dispose of assets.
We may require additional capital to support our business, and this capital may not be available on acceptable terms or at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new products or enhance our existing products, enhance our operating infrastructure and acquire complementary businesses and technologies.
Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new securities we issue could have rights, preferences and privileges superior to those of holders of our Common Stock. Any financing secured by us in the future could include restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.
In addition, due to the delayed filing of our periodic reports with the SEC, we are not currently eligible to use a registration statement on Form S-3 to register the offer and sale of securities, which could delay potential financings. As a result, we may not be able to obtain additional financing within a timetable, or on terms, favorable to us or at all.
Credit market turmoil, adverse events affecting our business or industry, the tightening of lending standards or other factors also could negatively impact our ability to obtain future financing or to refinance our outstanding indebtedness on terms acceptable to us or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to support our business growth and to respond to business challenges could be significantly limited. In addition, the terms of any additional equity or debt issuances may adversely affect the value and price of our Common Stock.
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Risks Related to the Securities Markets and Ownership of Our Common Stock
Our Common Stock is quoted on the OTC Markets, which may limit your ability to sell your shares of Common Stock.
Our Common Stock is currently quoted on the OTC Pink Tier of the OTC Markets under the symbol “SCOR.” Stocks quoted on the OTC Markets generally have limited trading volume and exhibit a wider spread between the bids and ask quotations as compared to stocks traded on national exchanges. Accordingly, you may not be able to sell your shares of Common Stock quickly or at the market price if trading in our Common Stock is not active.
The trading price of our Common Stock may be subject to significant fluctuations and volatility, and our stockholders may be unable to resell their shares at a profit.
The stock markets, in general, and the markets for technology stocks in particular, have experienced high levels of volatility. The market for technology stocks has been extremely volatile and frequently reaches levels that bear no relationship to the past or present operating performance of those companies. These broad market fluctuations may adversely affect the trading price of our Common Stock. In addition, the trading price of our Common Stock has been subject to significant fluctuations and may continue to fluctuate or decline.
The price of our Common Stock in the market may be higher or lower, depending on many factors, some of which are beyond our control and may not be related to our operating performance. It is possible that, in future quarters, our operating results may be below the expectations of analysts or investors. As a result of these and other factors, the price of our Common Stock may decline, possibly materially. These fluctuations could cause an investor to lose all or part of their investment in our Common Stock.
The Company’s outstanding securities, the stock or securities that we may become obligated to issue under existing or future agreements, and certain provisions of those securities, may cause immediate and substantial dilution to our existing stockholders.
Our existing stockholders may experience substantial dilution as a result of our obligations to issue shares of Common Stock.
On January 16, 2018, we entered into certain agreements with Starboard, pursuant to which we issued and sold to Starboard $150.0 million in senior secured convertible notes (the “Notes”) and also granted to Starboard an option (the “Notes Option”) to acquire up to an additional $50.0 million in senior secured convertible notes (the “Option Notes”). The Notes, and the Option Notes, if issued, are convertible, at the option of Starboard, into shares of Common Stock at a conversion price of $31.29 per share. If Starboard were to fully exercise their Notes Option, up to 6,391,819 shares of Common Stock would be issuable upon conversion of the Notes and the Option Notes. Interest on the Notes, and the Option Notes, if issued, is payable, at our option, in cash or through the issuance of additional shares of Common Stock (the “PIK Interest Shares”). Any PIK Interest Shares so issued would be valued at the arithmetic average of the volume-weighted average trading prices of our Common Stock on each trading day during the ten consecutive trading days ending immediately preceding the applicable interest payment date. Pursuant to the agreements, we also agreed to grant Starboard warrants to purchase 250,000 shares of Common Stock.
In addition, we have the right to conduct a rights offering (the “Rights Offering”) for up to $150.0 million in senior secured convertible notes (the “Rights Offering Notes”). The Rights Offering Notes would be substantially similar to the Notes, except with respect to, among other things, the conversion price thereof, which would be equal to 130% of the closing price of our Common Stock on the last trading day immediately prior to the commencement of the Rights Offering (subject to a conversion price floor of $28.00 per share). If we were to issue $150.0 million in Rights Offering Notes, and assuming such notes were convertible into shares of Common Stock at a conversion price of $28.00 per share, up to 5,357,143 shares of Common Stock would be issuable upon conversion of the Rights Offering Notes. Interest on the Rights Offering Notes would also be payable, at our option, in cash or through the issuance of PIK Interest Shares.
As of December 31, 2017 and based on the closing price of our Common Stock on March 15, 2018, $26.29 per share, up to 3,453,785 shares of Common Stock were reserved or contemplated for issuance pursuant to or in connection with the settlements of certain litigation matters, 4,310,414 shares of Common Stock were reserved for issuance pursuant to our equity incentive plans and programs, and 1,633,146 shares of Common Stock were otherwise contemplated for issuance as equity incentive or similar awards.
The issuance of shares of Common Stock (i) upon the conversion of the Notes, the Option Notes (if issued) or the Rights Offering Notes (if issued), (ii) as payment-in-kind of interest on any such notes through the issuance of PIK Interest Shares, (iii) upon the exercise of warrants, (iv) in connection with settlement of litigation, (iv) in connection with our pending and contemplated equity awards or (v) upon the conversion of other existing or future convertible securities, may result in substantial dilution to each of our stockholders by reducing that stockholder’s percentage ownership of our outstanding Common Stock.
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Provisions in our certificate of incorporation, bylaws and under Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our Common Stock.
Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our Common Stock by acting to discourage, delay or prevent a change of control of our company or changes in our management that the stockholders of our company may deem advantageous.
These provisions:
• | provide for a classified board of directors so that not all members of our Board are elected at one time; |
• | authorize “blank check” preferred stock that our Board could issue to increase the number of outstanding shares to discourage a takeover attempt; |
• | prohibit stockholder action by written consent, which means that all stockholder actions must be taken at a meeting of our stockholders; |
• | prohibit stockholders from calling a special meeting of our stockholders; |
• | provide that the Board is expressly authorized to make, alter or repeal our bylaws; and |
• | provide for advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by stockholders at stockholder meetings. |
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder and which may discourage, delay or prevent a change of control of our company.
Shareholder activists could cause a disruption to our business.
We may be subject, from time to time, to legal and business challenges in the operation of our company due to actions instituted by activist shareholders or others, such as shareholder proposals, media campaigns, proxy contests and other such actions. Responding to proxy contests or such other actions could be costly and time-consuming, disrupt our operations and divert the attention of our Board and senior management from the pursuit of business strategies, which could adversely affect our results of operations and financial condition. Additionally, perceived uncertainties as to our future direction as a result of shareholder activism or potential changes to the composition of our Board may lead to the perception of a change in the direction of the business, loss of potential business opportunities, instability or lack of continuity. This may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel. In addition, actions of activist shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. | PROPERTIES |
Our corporate headquarters and executive offices are located in Reston, Virginia, where we occupy approximately 111,000 square feet of office space under leases that initially expire in 2022, although we have an option to extend until 2032, subject to certain conditions. We also lease space in various locations throughout North America, South America, Europe, and Asia Pacific for sales and other personnel. If we require additional space, we believe that we would be able to obtain such space on commercially reasonable terms.
Our other significant locations, all of which are leased under operating leases, include the following:
•Portland, Oregon
•New York, New York
•Chicago, Illinois
•Seattle, Washington
•San Francisco, California
•London, England
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As of December 31, 2017, we have approximately 293,000 square feet leased in 47 locations worldwide.
For additional information regarding obligations under operating leases, refer to Footnote 11, Commitments and Contingencies of the Notes to Consolidated Financial Statements.
ITEM 3. | LEGAL PROCEEDINGS |
We are involved in various legal proceedings from time to time. We establish reserves for specific legal proceedings when management determines that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management has also identified certain other legal matters where an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. In these cases, we do not establish a reserve until we can reasonably estimate the loss. The outcomes of legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period.
Rentrak Merger Litigation
In October 2015, four class action complaints were filed in the Multnomah County Circuit Court in Oregon in connection with our merger with Rentrak, which became a wholly-owned subsidiary of the Company on January 29, 2016. On November 23, 2015, these four actions were consolidated as In re Rentrak Corporation Shareholders Litigation, with us, Rentrak and certain former directors and officers of Rentrak named as defendants. On July 21, 2016, the lead plaintiff filed a second amended class action complaint, which alleged that Rentrak and its former officers and directors breached their fiduciary duties to Rentrak stockholders by, among other things, failing to disclose all material facts necessary for a fully informed stockholder vote on the merger. The complaint also alleged that we aided and abetted these alleged breaches of fiduciary duties. The complaint sought equitable relief in the form of a rescission of the merger, rescissionary damages, attorneys’ fees and costs. On February 6, 2017, a separate action, John Hulme v. William P. Livek et al., was also filed in the Multnomah County Circuit Court in Oregon, alleging materially similar claims and seeking the same relief as that of In re Rentrak. On March 24, 2017, the court dismissed the lead plaintiff’s aiding-and-abetting claim against us, and allowed the lead plaintiff to replead the claim. The court also dismissed the lead plaintiff’s claim seeking rescission of the merger.
On April 17, 2017, the parties in all cases reached an agreement in principle, settling all claims in the above-referenced matters. The defendants or their insurers agreed to pay the plaintiff class $19.0 million, of which amount we would contribute $1.7 million, or approximately 9%, and the remainder will be funded by our insurers. On May 24, 2017, the court signed an order granting preliminary approval of the parties' stipulation of settlement. Our contribution of $1.7 million was paid on July 18, 2017. A fairness hearing for final approval of the settlement took place on September 12, 2017, and the court granted final approval of the settlement and entered the final approval order that day. The relevant time periods for any appeal have lapsed and the settlement is final.
Derivative Litigation
The Consolidated Virginia Derivative Action. In May 2016 and July 2016, two purported shareholder derivative actions, Terry Murphy v. Serge Matta et al. and Ron Levy v. Serge Matta et al., were filed in the Circuit Court of Fairfax County, Virginia against us as a nominal defendant and against certain of our current and former directors and officers. The complaints alleged that the defendants intentionally or recklessly made materially false or misleading statements regarding the Company and asserted claims of breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets against the defendants. The complaints sought declarations that the plaintiffs can maintain the action on behalf of the Company, declarations that the individual defendants have breached fiduciary duties or aided and abetted such breaches, awards to us for damages sustained, purported corporate governance reforms, awards to us of restitution from the individual defendants and reasonable attorneys’ and experts’ fees. On February 8, 2017, the Levy plaintiff filed a motion for leave to file an amended complaint, attaching a proposed amended complaint (the “Proposed Amended Complaint”) alleging claims substantially similar to those alleged in the original complaint. On April 7, 2017, the Murphy and Levy parties filed a consent order consolidating the Murphy and Levy actions and designating the Proposed Amended Complaint as the operative complaint in the action if the court grants the motion for leave to file an amended complaint. The court entered the consent order on April 13, 2017 and granted the motion for leave to amend the complaint on May 19, 2017, designating the Proposed Amended Complaint as the operative complaint in the consolidated action.
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The Assad Action. On April 14, 2017, another purported shareholder derivative action, George Assad v. Gian Fulgoni et al., was filed in the Circuit Court of Fairfax County, Virginia against us as a nominal defendant and against the same current and former directors and officers of the Company as the Murphy and Levy actions, as well as certain additional individuals. The Assad complaint alleges claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment, as well as a claim seeking to compel our Board to hold an annual stockholders’ meeting. In addition to an order compelling the Board to hold an annual stockholders’ meeting, the Assad complaint seeks judgment against the defendants in the amount by which we were allegedly damaged, an order directing defendants to provide operations reports and financial statements for all previous quarters allegedly identified by the Audit Committee as inaccurate, purported corporate governance reforms, the restriction of proceeds of defendants’ trading activities pending judgment, an award of restitution from the defendants, and an award of attorneys’ fees and costs. On May 25, 2017, the Assad plaintiff moved to vacate or modify the consent order in the consolidated Murphy and Levy actions insofar as that order appointed lead counsel and to allow for submission of briefs regarding the appointment of lead counsel. Lead counsel in the consolidated case responded to this motion on June 2, 2017. The court has not taken action on these motions. From June to August 2017, the parties filed, and the court entered, several agreed orders extending the time for parties who had been served to respond to the Assad complaint. On August 4, 2017, we moved for an order of consolidation of the Assad action into the consolidated Virginia action. The motion has not been brought for a hearing due to the pendency of the proposed derivative litigation settlement.
The Consolidated Federal Derivative Action. In December 2016 and February 2017, two purported shareholder derivative actions, Wayne County Employees’ Retirement System v. Fulgoni et al. and Michael C. Donatello v. Gian Fulgoni et al., were filed in the District Court for the Southern District of New York against us and certain of our current and former directors and officers. The complaints alleged, among other things, that the defendants provided materially false and misleading information regarding the Company, its business and financial performance. The Donatello complaint also alleged that the defendants breached their fiduciary duties, failed to maintain internal controls and were unjustly enriched to the detriment of the Company. The complaints sought awards of monetary damages, purported corporate governance reforms, the award of punitive damages, and attorneys’, accountants’ and experts’ fees and other relief. On March 3, 2017, the court granted a stay pending consideration of the parties’ stipulation to consolidate the Wayne County and Donatello actions. On April 25, 2017, the court signed and entered the parties’ stipulation to consolidate the two actions and lead plaintiffs filed a consolidated amended complaint on May 25, 2017. On June 20, 2017 and August 25, 2017, the court entered the parties’ stipulations and proposed orders temporarily staying the case and extending the time for us and all defendants to respond to the complaint. Following the proposed settlement discussions noted below, the court entered the parties’ stipulation and proposed order further staying proceedings pending application for preliminary approval of settlement on September 21, 2017.
Proposed Derivative Litigation Settlement. On September 10, 2017 we, along with all derivative plaintiffs and named individual defendants, reached a proposed settlement, subject to court approval, to resolve all of the above shareholder derivative actions on behalf of the Company. Under the terms of the proposed settlement, we would receive a $10.0 million cash payment, funded by our insurer. Pursuant to this proposed settlement, we have agreed, subject to court approval, to contribute $8.0 million in comScore Common Stock toward the payment of attorneys’ fees. We have also agreed as part of the proposed settlement to adopt certain corporate governance and compliance terms that were negotiated by derivative plaintiffs’ counsel and the Company. On January 31, 2018, the parties entered into a Stipulation of Settlement and the plaintiffs filed a motion for preliminary approval of the settlement on February 2, 2018. The Court held a hearing on the plaintiffs' motion for preliminary approval on February 14, 2018, indicated that it would grant preliminary approval with minor modifications to the proposed notice of settlement and scheduled a hearing to determine whether to finally approve settlement on June 7, 2018. On February 23, 2018, the Court entered an order preliminarily approving the proposed settlement. As of December 31, 2017, we reserved $8.0 million in accrued litigation settlements, and recorded $10.0 million in insurance recoverable on litigation settlements for the insurance proceeds expected from our insurers. For the year ended 2017, $2.0 million was recorded as a reduction to investigation and audit related expenses on our Consolidated Statements of Operations and Comprehensive Loss.
Oregon Section 11 Litigation
In October 2016, a class action complaint, Ira S. Nathan v. Serge Matta et al., was filed in the Multnomah County Circuit Court in Oregon against certain of our current and former directors and officers and Ernst & Young LLP ("EY"). The complaint alleged that the defendants provided untrue statements of material fact in our registration statement on Form S-4 filed with the SEC and declared effective on December 23, 2015. The complaint sought a determination of the propriety of the class, a finding that the defendants are liable and an award of attorneys’ and experts’ fees. On March 17, 2017, a separate action, John Hulme v. Serge Matta et al., was filed in the Multnomah County Circuit Court in Oregon alleging materially similar claims as the Nathan complaint against the same defendants. On April 18, 2017, the Nathan and Hulme cases were consolidated by order of the court. On April 24, 2017, all defendants filed motions to dismiss. After the motion was fully briefed and after a hearing, the Court denied all motions to dismiss on August 4, 2017. The parties are currently engaged in discovery, and on September 25, 2017, the Hulme plaintiff moved to certify the class. We filed our opposition to the Hulme plaintiff’s motion to certify the class on November 9, 2017. The Court held a hearing on the motion on December 5, 2017, and at that hearing, the Court deferred ruling on the motion
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until February 14, 2018 pending the proposed settlement in the Fresno County Employees’ Retirement Association case (“Fresno County”, described below). On February 14, 2018, following a hearing, the Court granted class certification only as to EY and deferred ruling on class certification as to all other defendants, pending the final approval hearing in Fresno County scheduled for June 7, 2018. The outcome of this matter is unknown but management does not believe a material loss was probable or estimable as of December 31, 2017 or 2016.
Federal Securities Class Action Litigation
Also in October 2016, a consolidated class action complaint, Fresno County Employees’ Retirement Association et al. v. comScore, Inc. et al., was filed in the District Court for the Southern District of New York against us, certain of our current and former directors and officers, Rentrak and certain former directors and officers of Rentrak. On January 13, 2017, the lead plaintiffs filed a second consolidated amended class action complaint, which alleged that the defendants provided materially false and misleading information regarding the Company and its financial performance, including in our and Rentrak’s joint proxy statement/prospectus, and failed to disclose material facts necessary in order to make the statements made not misleading. The complaint sought a determination of the propriety of the class, compensatory damages and the award of reasonable costs and expenses incurred in the action, including attorneys’ and experts’ fees. We and the individual defendants filed motions to dismiss, the court held oral argument on those motions on July 14, 2017, however, on July 28, 2017, the court denied those motions. On September 10, 2017, the parties reached a proposed settlement, subject to court approval, pursuant to the terms of which the settlement class will receive a total of $27.2 million in cash and $82.8 million in Common Stock to be issued and contributed by comScore to a settlement fund to resolve all claims asserted against us. All of the $27.2 million in cash would be funded by our insurers. We have the option to fund all or a portion of the $82.8 million with cash in lieu of Common Stock. The proposed settlement further provides that comScore denies all claims of wrongdoing or liability. On December 28, 2017, the parties entered into a Stipulation and Agreement of Settlement to be filed in the United States District Court for the Southern District of New York. The plaintiffs filed a motion for preliminary approval of the settlement on January 12, 2018. On January 29, 2018, the Court held a hearing regarding the plaintiffs' motion for preliminary approval and entered an order granting preliminary approval of the settlement that same day. The settlement remains subject to final approval by the Court, and to that end, the Court has scheduled a hearing to determine whether to finally approve the settlement on June 7, 2018. As of December 31, 2017, we have reserved $110.0 million in accrued litigation settlements for the gross settlement amount, and recorded $27.2 million in insurance recoverable on litigation settlements for the insurance proceeds expected from our insurers. For the year ended 2017, $82.8 million is recorded as settlement of litigation, net, on our Consolidated Statements of Operations and Comprehensive Loss.
Delaware General Corporation Law Section 211 Litigation
On July 25, 2017, Starboard Value and Opportunity Master Fund Ltd., a comScore shareholder, filed a verified complaint in the Delaware Court of Chancery pursuant to Delaware General Corporation Law Section 211(c), alleging that we had not held an annual meeting of stockholders for the election of directors since July 21, 2015 and seeking an order compelling us to hold an annual meeting. The plaintiff also moved for an order expediting proceedings. The court granted the order to expedite shortly thereafter, and the parties agreed to a trial date of September 14, 2017. The parties exchanged discovery on an expedited basis and filed pretrial briefs on September 7, 2017. On September 13, 2017, the parties agreed to continue the trial date to September 29, 2017. On September 28, 2017, we entered into an agreement with Starboard Value LP and certain of its affiliates (collectively, “Starboard”), which beneficially owned approximately 4.8% of our outstanding Common Stock as of that date, regarding, among other things, the membership and composition of the Board. Starboard also agreed to dismiss its litigation against us. On September 29, 2017, the parties canceled the trial and on October 2, 2017, the parties filed a joint stipulation dismissing the case with prejudice.
Privacy Demand Letters
On September 11, 2017, we and a wholly-owned subsidiary, Full Circle Studies, Inc., (“Full Circle”) received demand letters on behalf of named plaintiffs and all others similarly situated alleging that we and Full Circle collected personal information from users under the age of 13 without verifiable parental consent in violation of Massachusetts General Laws chapter 93A and the federal Children’s Online Privacy Protection Act (“COPPA”), 15 U.S.C. §§ 6501-06. The letters alleged that we and Full Circle collected such personal information by embedding advertising software development kits ("SDKs") in applications created or developed by Disney. The letters sought monetary damages, attorneys’ fees and damages under Massachusetts law. We and Full Circle responded to the demand letters on October 11, 2017. The responses advised that, after investigating the allegations, we and Full Circle do not believe the threatened claims have any legal merit or factual support. No lawsuit has been filed. If a lawsuit is filed, we and Full Circle intend to vigorously defend ourselves.
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Nielsen Arbitration/Litigation
On September 22, 2017, Nielsen Holdings PLC (“Nielsen”) filed for arbitration against comScore alleging that comScore breached the parties’ agreement regarding an alleged unauthorized use of Nielsen’s data to compete directly against Nielsen’s linear television services. comScore denied the allegations, and the matter is pending. On September 22 and 25, 2017, Nielsen also filed a civil complaint against comScore in the United States District Court for the Southern District of New York before Judge Vernon Broderick seeking preliminary injunctive relief against any unauthorized use of Nielsen’s data. On October 11, 2017, we responded and objected to the request for a preliminary injunction. On March 6, 2018, Judge Broderick denied Nielsen's motion for preliminary injunction and stayed the case pending completion of arbitration. We are vigorously defending ourselves in these matters.
SEC Investigation
The United States Securities and Exchange Commission (“SEC”) is investigating allegations regarding revenue recognition, internal controls, non-GAAP disclosures and whistleblower retaliation. The SEC has made no decisions regarding these matters including whether any securities laws have been violated. We are cooperating fully with the SEC.
Export Controls Review
We have recently become aware of possible violations of U.S. export controls and economic sanctions laws and regulations involving the Company. The circumstances giving rise to these possible violations pertain to the Company’s collection of survey data from panelists within U.S. embargoed countries, as a part of the Company’s larger global survey efforts not intentionally targeted at such countries. The Company has filed a joint initial notice of voluntary disclosure with the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) and commenced an internal review to identify the causes and scope of transactions that could constitute violations of the OFAC and BIS regulations. We have notified OFAC and BIS of the ongoing internal review, which is being conducted with the assistance of the Company’s outside counsel. If any violations are confirmed as part of our review, we could be subject to fines or penalties. Although the ultimate outcome of this matter is unknown, we believe that a material loss was not probable or estimable as of December 31, 2017 or 2016.
Other Matters
In addition to the matters described above, we are, and may become, a party to a variety of legal proceedings from time to time that arise in the normal course of our business. While the results of such legal proceedings cannot be predicted with certainty, management believes that, based on current knowledge, the final outcome of any such current pending matters will not have a material adverse effect on our financial position, results of operations or cash flows. Regardless of the outcome, legal proceedings can have an adverse effect on us because of defense costs, diversion of management resources and other factors.
Indemnification
We have entered into indemnification agreements with each of our directors and certain officers, and our amended and restated certificate of incorporation requires us to indemnify each of our officers and directors, to the fullest extent permitted by Delaware law, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Company. We have paid and continue to pay legal counsel fees incurred by the present and former directors and officers who are involved in legal proceedings that require indemnification.
Similarly, certain of our commercial contracts require us to indemnify contract counterparties under specified circumstances, and we may incur legal counsel fees and other costs in connection with these obligations.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
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PART II
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
PRICE RANGE OF COMMON STOCK
As a result of our delay in filing our periodic reports with the SEC, we were unable to comply with the listing standards of Nasdaq and our Common Stock was suspended from trading on The Nasdaq Global Select Market on February 8, 2017 and delisted effective May 30, 2017. Following the suspension of trading, our Common Stock has been trading on the OTC Pink Tier under the symbol “SCOR.” The following table sets forth, for the periods indicated, the high and low sales prices and bid quotations of our Common Stock as reported by The Nasdaq Global Select Market and the OTC Pink Tier, as applicable. The OTC Pink Tier quotations reflect inter-dealer prices, without retail mark-up, mark down or commission and may not represent actual transactions.
2017 | 2016 | 2015 | ||||||||||
Fiscal Period | High | Low | High | Low | High | Low | ||||||
First Quarter | $33.99 | $20.81 | $43.53 | $26.21 | $55.40 | $39.89 | ||||||
Second Quarter | $27.25 | $21.60 | $33.69 | $21.74 | $58.22 | $44.40 | ||||||
Third Quarter | $30.40 | $26.00 | $33.02 | $23.65 | $65.00 | $41.37 | ||||||
Fourth Quarter | $31.00 | $27.25 | $34.85 | $26.99 | $51.37 | $36.91 | ||||||
On March 15, 2018, the last reported bid price of our Common Stock on the OTC Pink Tier was $26.29 per share.
HOLDERS
As of February 28, 2018, there were 101 stockholders of record of our Common Stock, although we believe that there may be a significantly larger number of beneficial owners of our Common Stock. We derived the number of stockholders by reviewing the listing of outstanding Common Stock recorded by our transfer agent as of February 28, 2018.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on our Common Stock between December 31, 2012 and December 31, 2017 to the cumulative total returns of the Nasdaq Composite Index, the S&P MidCap 400 Index and the Nasdaq Computer Index over the same period. This graph assumes the investment of $100 at the closing price of the markets on December 31, 2012 in our Common Stock, the Nasdaq Composite Index, the S&P MidCap 400 Index and the Nasdaq Computer Index, and assumes the reinvestment of dividends, if any. We have never paid cash dividends on our Common Stock and have no present plans to do so.
comScore was added to the S&P MidCap 400 Index on February 1, 2016. Due to the delisting of our Common Stock from The Nasdaq Global Select Market, comScore was removed from the S&P MidCap 400 Index on February 10, 2017.
The comparisons shown in the following graph are based upon historical data. We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our Common Stock.
30
COMPARISON OF CUMULATIVE TOTAL RETURN*
among comScore, Inc., The Nasdaq Composite Index, The S&P MidCap 400 Index
and The Nasdaq Computer Index
_________________
* | $100 invested upon market close of The Nasdaq Global Select Market on December 31, 2012, including reinvestment of dividends. |
The preceding Stock Performance Graph is not deemed filed with the SEC and shall not be incorporated by reference in any of our filings under the Securities Act of 1933, as amended, or the Exchange Act, as amended (the "Exchange Act") whether made before or after the date hereof and irrespective of any general incorporation language in any such securities filing.
DIVIDEND POLICY
Since our inception, we have not declared or paid any cash dividends. We do not anticipate paying any cash dividends in the foreseeable future. Under the terms of the Notes we issued and sold to Starboard, we must satisfy certain qualifying conditions or obtain the consent of the holders of at least a majority of the aggregate principal amount of Notes then outstanding before we may declare or pay any dividends, subject to certain exceptions.
EQUITY COMPENSATION PLANS
The information required by this item regarding equity compensation plans is set forth in Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this 10-K.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities during the Years Ended December 31, 2017, 2016 and the Three Months Ended December 31, 2015
As a result of our inability to file our periodic reports with the SEC during our investigation, review and audit, we have been unable to use our registration statement on Form S-8 to make equity grants to our directors or employees since February 2016. In addition, we have not made any equity awards to directors or employees, including executive officers, since February 2016 other than those outlined below.
The following summarizes (1) a settlement of a previously issued restricted stock unit ("RSU") award and (2) an equity award approved by the Compensation Committee of the Board on the dates listed below during the year ended December 31, 2016, under a private placement exemption to executive officers qualifying as accredited investors:
(1) | issuance of 3,300 shares of restricted Common Stock in consideration for vested RSUs to Melvin Wesley, the former Chief Financial Officer of the Company, on October 10, 2016, in connection with his termination of employment with the Company; and |
(2) | an award of 35,000 RSUs to David Chemerow, the Company's former Chief Financial Officer, on August 5, 2016, in connection with his appointment to the position of Chief Financial Officer, which is subject to continued vesting under his separation agreement with the Company. |
These securities were issued pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended.
Refer to Footnote 20, Subsequent Events of the Notes to Consolidated Financial Statements, for additional information related to the unregistered sale of equity securities after December 31, 2017.
31
Use of Proceeds from Sale of Registered Equity Securities
None.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Since our last 10-Q filing for the three and nine months ended September 30, 2015, we repurchased shares of our Common Stock in connection with the following:
(i) | The payment of minimum statutory withholding taxes due upon the vesting of certain restricted stock and RSU awards, which shares were repurchased at the then current fair market value of the shares; |
(ii) | The repurchase right afforded to us upon the cessation of employment of certain of our employees; and |
(iii) | As part of a publicly announced plan or program. |
(i) The shares we repurchased in connection with the payment of minimum statutory withholding taxes due upon the vesting of certain restricted stock and RSU awards were repurchased at the then current fair market value of the shares and consisted of the following:
Total Number of Shares Purchased | Average Price Paid Per Share | ||||||
2015 | |||||||
Total - Three Months Ended March 31, 2015 | 430,778 | $ | 50.28 | ||||
Total - Three Months Ended June 30, 2015 | 46,511 | $ | 56.53 | ||||
Total - Three Months Ended September 30, 2015 | 48,226 | $ | 57.87 | ||||
October 1 - October 31, 2015 | — | $ | — | ||||
November 1 - November 30, 2015 | 18,854 | $ | 54.81 | ||||
December 1 - December 31, 2015 | 1,042 | $ | 43.38 | ||||
Total - Three Months Ended December 31, 2015 | 19,896 | $ | 54.21 | ||||
Total - Twelve Months Ended December 31, 2015 | 545,411 | $ | 51.63 | ||||
2016 (1) | |||||||
January 1 - January 31, 2016 | — | $ | — | ||||
February 1 - February 29, 2016 | 190,312 | $ | 41.79 | ||||
March 1 - March 31, 2016 | 82,366 | $ | 32.18 | ||||
Total - Three Months Ended March 31, 2016 | 272,678 | $ | 38.89 | ||||
October 1 - October 31, 2016 | 5,420 | $ | 29.65 | ||||
November 1 - November 30, 2016 | — | $ | — | ||||
December 1 - December 31, 2016 | 1,203 | $ | 29.16 | ||||
Total - Three Months Ended December 31, 2016 | 6,623 | $ | 29.56 | ||||
Total - Twelve Months Ended December 31, 2016 | 279,301 | $ | 38.67 | ||||
2017 (1) | |||||||
January 1 - January 31, 2017 | — | $ | — | ||||
February 1 - February 28, 2017 | — | $ | — | ||||
March 1 - March 31, 2017 | 59,707 | $ | 21.14 | ||||
Total - Three Months Ended March 31, 2017 | 59,707 | $ | 21.14 | ||||
Three Months Ended June 30, 2017 | — | — | |||||
July 1 - July 31, 2017 | — | $ | — | ||||
August 1 - August 31, 2017 | 9,597 | $ | 26.20 | ||||
September 1 - September 30, 2017 | — | $ | — | ||||
Three Months Ended September 30, 2017 | 9,597 | $ | 26.20 | ||||
Three Months Ended December 31, 2017 | — | — | |||||
Total - Twelve Months Ended December 31, 2017 | 69,304 | $ | 21.84 | ||||
(1) Table includes only those quarters during the years ended 2017 and 2016 with activity.
32
(ii) The shares we repurchased, at no cost to us, in connection with the repurchase right afforded to us upon the cessation of employment of certain of our employees consisted of the following:
Total Number of Shares Purchased | Average Price Paid Per Share | ||||||
2015 (1) | |||||||
Total - Three Months Ended March 31, 2015 | 1,650 | $ | — | ||||
Total - Three Months Ended June 30, 2015 | 8,113 | $ | — | ||||
Total - Three Months Ended September 30, 2015 | 500 | $ | — | ||||
Total - Twelve Months Ended December 31, 2015 | 10,263 | $ | — | ||||
2016 (1) | |||||||
January 1 - January 31, 2016 | — | $ | — | ||||
February 1 - February 29, 2016 | — | $ | — | ||||
March 1 - March 31, 2016 | 1,750 | $ | — | ||||
Total - Three Months Ended March 31, 2016 | 1,750 | $ | — | ||||
Total - Twelve Months Ended December 31, 2016 | 1,750 | $ | — | ||||
2017 (1) | |||||||
(iii) As part of our share repurchase programs, shares were purchased in open market transactions or pursuant to trading plans that were adopted in accordance with Rule 10b5-1 of the Exchange Act. The timing, manner, price and amount of any repurchases could be determined at our discretion, and the share repurchase program could be suspended, terminated or modified at any time for any reason. Shares repurchased were classified as treasury stock. Details of the share repurchases during the periods noted below under our share repurchase programs were as follows:
(In millions, except share and per share data) | Total Number of Shares Purchased | Average Price Paid Per Share | Value of Shares Repurchased (1) | ||||||||
2015 (2) | |||||||||||
Total - Three Months Ended March 31, 2015 (3) | 80,661 | $ | 46.56 | $ | 3.8 | ||||||
Total - Three Months Ended June 30, 2015 (3)(4) | 1,045,140 | $ | 53.78 | $ | 56.2 | ||||||
Total - Three Months Ended September 30, 2015 (4) | 823,779 | $ | 55.78 | $ | 45.9 | ||||||
Total - Twelve Months Ended December 31, 2015 | 1,949,580 | $ | 54.33 | $ | 105.9 | ||||||
2016 (2) | |||||||||||
January 1 - January 31, 2016 | — | $ | — | ||||||||
February 1 - February 29, 2016 | 222,763 | 40.42 | |||||||||
March 1 - March 31, 2016 | 452,909 | 40.34 | |||||||||
Total - Three Months Ended March 31, 2016 (5) | 675,672 | $ | 40.39 | $ | 27.3 | ||||||
Total - Twelve Months Ended December 31, 2016 | 675,672 | $ | 40.39 | $ | 27.3 | ||||||
2017 (2) | |||||||||||
(1) Total value of shares repurchased, as measured at the time of repurchase.
(2) Table includes only those quarters during the years ended 2017, 2016 and 2015 with activity.
(3) June 2014 Share Repurchase Program - On June 6, 2014, we announced that the Board had approved the repurchase of up to $50 million of Common Stock. This repurchase program concluded on May 5, 2015 and resulted in the repurchase of $6.0 million of shares of Common Stock during the year ended 2015 (as measured at the time of repurchase).
(4) May 2015 Share Repurchase Program - On May 5, 2015, we announced that the Board had approved the repurchase of up to $150 million of our Common Stock which commenced on May 6, 2015. Such repurchases were made at various times subject to pre-determined price and volume guidelines established by the Board. Through December 31, 2015, this program resulted in the repurchase of $99.9 million of shares of Common Stock (as measured at the time of repurchase). The program was suspended in September 2015 pending the closing of the Rentrak merger.
(5) February 2016 Share Repurchase Program - On February 17, 2016, the Company announced that the Board had approved the adoption of a new share repurchase program, superseding prior programs, for $125.0 million of Common Stock commencing at the end of February 2016. Through December 31, 2016, this program resulted in the repurchase of $27.3 million of shares of Common Stock (as measured at the time of repurchase). On March 5, 2016, the Board suspended the share repurchase program indefinitely, with such suspension to be re-evaluated following the completion of the Audit Committee’s investigation and the Company regaining compliance with its SEC reporting requirements. At the time of suspension, $97.7 million remained available for the repurchase of Common Stock under the February 2016 Share Repurchase Program.
33
ITEM 6. | SELECTED FINANCIAL DATA |
The selected condensed Consolidated Statement of Operations data and condensed consolidated balance sheet data displayed below is derived from our audited Consolidated Financial Statements for the three-year period ended December 31, 2017. As described below, the selected financial data as of and for the years ended December 31, 2014 (As Restated) and 2013 (As Restated) are unaudited, have been derived from our unaudited Consolidated Financial Statements, which were prepared on the same basis as our audited Consolidated Financial Statements, and reflect the impact of adjustments to, or restatement of, our previously furnished or filed financial information, including a January 1, 2013 cumulative effect adjustment to Stockholders’ Equity for the impact of accounting errors that impacted periods prior to January 1, 2013. The selected financial data set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related Notes thereto included in this 10-K under the caption Item 8, "Financial Statements and Supplementary Data."
Years Ended December 31, | ||||||||||||||||||||
(In thousands, except share and per share data) | 2017 | 2016 | 2015 (1) | 2014 (As Restated) (Unaudited) | 2013 (As Restated) (Unaudited) | |||||||||||||||
Condensed Consolidated Statement of Operations Data: | ||||||||||||||||||||
Revenues | $ | 403,549 | $ | 399,460 | $ | 270,803 | $ | 304,275 | $ | 282,602 | ||||||||||
Total expenses from operations | 699,052 | 531,302 | 345,898 | 327,750 | 281,612 | |||||||||||||||
(Loss) income from operations | (295,503 | ) | (131,842 | ) | (75,095 | ) | (23,475 | ) | 990 | |||||||||||
Non-operating income (expenses), net | 11,393 | 10,662 | (2,643 | ) | (504 | ) | (1,019 | ) | ||||||||||||
Income tax benefit (provision) | 2,717 | 4,007 | (484 | ) | (4,794 | ) | (22,745 | ) | ||||||||||||
Net loss | $ | (281,393 | ) | $ | (117,173 | ) | $ | (78,222 | ) | $ | (28,773 | ) | $ | (22,774 | ) | |||||
Net loss per common share: | ||||||||||||||||||||
Basic and diluted | $ | (4.90 | ) | $ | (2.10 | ) | $ | (2.07 | ) | $ | (0.85 | ) | $ | (0.66 | ) | |||||
Weighted-average number of shares used in per share calculations - Common Stock: | ||||||||||||||||||||
Basic and diluted | 57,485,755 | 55,728,090 | 37,879,091 | 33,689,660 | 34,443,126 | |||||||||||||||
(1) The financial data for the year ended December 31, 2015 is adjusted from our unaudited financial information for the year ended December 31, 2015 previously included as an exhibit to our Current Report on Form 8-K furnished on February 17, 2016. Our audited Consolidated Financial Statements for the year ended December 31, 2015, were not previously issued or filed.
December 31, | ||||||||||||||||||||
(In thousands) | 2017 | 2016 | 2015 (1) (Unaudited) | 2014 (As Restated) (Unaudited) | 2013 (As Restated) (Unaudited) | |||||||||||||||
Condensed Consolidated Balance Sheet Data: | ||||||||||||||||||||
Cash, cash equivalents, restricted cash and marketable securities | $ | 45,125 | $ | 116,753 | $ | 146,986 | $ | 43,015 | $ | 67,795 | ||||||||||
Total current assets | 179,554 | 232,433 | 247,263 | 148,245 | 163,379 | |||||||||||||||
Total assets | 1,022,439 | 1,120,792 | 446,196 | 315,344 | 344,041 | |||||||||||||||
Capital lease obligations and software license arrangements, current and long-term (2) | 13,162 | 28,578 | 32,299 | 26,428 | 24,044 | |||||||||||||||
Total liabilities | 365,947 | 215,939 | 184,018 | 182,612 | 165,867 | |||||||||||||||
Stockholders’ equity | 656,492 | 904,853 | 262,178 | 132,732 | 178,174 | |||||||||||||||
(1) The financial data as of December 31, 2015 is adjusted from our unaudited financial information for the year ended December 31, 2015 previously included as an exhibit to our Current Report on Form 8-K furnished on February 17, 2016. Our audited Consolidated Financial Statements for the year ended December 31, 2015, were not previously issued or filed.
(2) Amounts shown for December 31, 2017 and 2016 include software license obligations in the amount of $4.8 million and $7.7 million, respectively. Amounts shown for 2015, 2014 and 2013 include capital lease obligations only. The Company had no other outstanding debt obligations in each of the five years ended December 31, 2017. However, the Company entered into a new financing arrangement in January 2018, refer to Footnote 20, Subsequent Events, for additional details.
34
Background of Audit Committee Investigation and Subsequent Management Review
As discussed in the Explanatory Note, in February 2016, the Audit Committee of the Board commenced an internal investigation, with the assistance of outside advisors, into matters related to the Company's revenue recognition practices, disclosures, internal controls, corporate culture, and certain employment practices. As a result of the issues identified in the Audit Committee's investigation and management's subsequent review, on September 12, 2016, the Company announced that the Audit Committee, in consultation with outside advisors and management, had concluded that the Company could no longer support the prior accounting for non-monetary contracts recorded by the Company during 2013, 2014 and 2015. As a result, we concluded that (i) our previously issued, unaudited quarterly and year-to-date Consolidated Financial Statements for the quarters ended March 31, June 30 and September 30, 2015 filed on Quarterly Reports on Form 10-Q on May 5, August 7, and November 6, 2015, respectively, (ii) our previously issued, audited Consolidated Financial Statements for the years ended December 31, 2014 and 2013 filed on Annual Reports on Form 10-K on February 20, 2015 and February 18, 2014, respectively (including the interim periods within those years) and (iii) our preliminary unaudited Condensed Consolidated Financial Statements for the quarter and year ended December 31, 2015 included as an exhibit to our Current Report on Form 8-K furnished on February 17, 2016, should no longer be relied upon.
On November 23, 2016, the Company, in a Current Report on Form 8-K, reported that the Audit Committee's investigation was complete and had concluded that, as a result of certain instances of misconduct and errors in accounting determinations, adjustments to the Company's accounting, for certain non-monetary and monetary transactions were required. As a result of the Audit Committee's conclusions and observations, we began a process of reviewing substantially all of our accounting policies, significant accounting transactions, related party transactions, and other financial, internal control and disclosure matters. In addition to the above-referenced adjustments related to revenue and expenses associated with non-monetary transactions, we also concluded that the accounting treatment for certain monetary transactions, certain business and asset acquisitions, our deferred tax assets and other accounting matters required adjustments. This review also identified various material weaknesses in internal control, including in our entity level controls and in certain accounting practices. For further information regarding our evaluation of our control environment, our material weaknesses and our remediation initiatives, refer to Item 9A, "Controls and Procedures" in this Annual Report on Form 10-K.
The following tables summarize the effects of the adjustments on our previously provided unaudited financial information for the year ended December 31, 2015 that were included as an exhibit to our Current Report on Form 8-K furnished on February 17, 2016.
Year Ended December 31, 2015 | ||||||||||||||||||||||||||||
(In thousands, except share and per share information) | As Previously Reported (Unaudited) (1) | Adjustments | Total Adjustments | As Adjusted | ||||||||||||||||||||||||
A | B | C | D | E | ||||||||||||||||||||||||
Revenues | $ | 368,817 | $ | (57,537 | ) | $ | (28,964 | ) | $ | (11,513 | ) | $ | — | $ | — | $ | (98,014 | ) | $ | 270,803 | ||||||||
Total expenses from operations | 371,467 | (5,098 | ) | (20,815 | ) | (2,419 | ) | 2,763 | — | (25,569 | ) | 345,898 | ||||||||||||||||
Loss from operations | (2,650 | ) | (52,439 | ) | (8,149 | ) | (9,094 | ) | (2,763 | ) | — | (72,445 | ) | (75,095 | ) | |||||||||||||
Non-operating (expenses) income, net | (2,367 | ) | 555 | — | (586 | ) | (245 | ) | — | (276 | ) | (2,643 | ) | |||||||||||||||
Income tax (provision) benefit | (1,745 | ) | — | — | — | — | 1,261 | 1,261 | (484 | ) | ||||||||||||||||||
Net loss | $ | (6,762 | ) | $ | (51,884 | ) | $ | (8,149 | ) | $ | (9,680 | ) | $ | (3,008 | ) | $ | 1,261 | $ | (71,460 | ) | $ | (78,222 | ) | |||||
Net (loss) income per common share: | ||||||||||||||||||||||||||||
Basic and diluted | $ | (0.18 | ) | $ | (1.37 | ) | $ | (0.22 | ) | $ | (0.26 | ) | $ | (0.08 | ) | $ | 0.03 | $ | (1.89 | ) | $ | (2.07 | ) | |||||
Weighted-average number of shares used in per share calculations - Common Stock: | ||||||||||||||||||||||||||||
Basic and diluted | 37,879,091 | 37,879,091 | ||||||||||||||||||||||||||
(1) The financial data as of December 31, 2015 is derived from our unaudited financial information for the year ended December 31, 2015 previously included as an exhibit to our Current Report on Form 8-K furnished on February 17, 2016. Our audited Consolidated Financial Statements for the year ended December 31, 2015, were not previously issued or filed.
35
December 31, 2015 | ||||||||||||||||||||||||||||
As Previously Reported (Unaudited)(1) | Adjustments | Total Adjustments | As Adjusted (Unaudited) | |||||||||||||||||||||||||
(In thousands) | A | B | C | D | E | |||||||||||||||||||||||
Cash, cash equivalents, restricted cash and marketable securities | $ | 146,986 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 146,986 | ||||||||||||
Total current assets | 272,095 | (5,227 | ) | (10,560 | ) | (8,146 | ) | (782 | ) | (117 | ) | (24,832 | ) | 247,263 | ||||||||||||||
Total assets | 563,242 | (68,725 | ) | (10,560 | ) | (8,146 | ) | (1,633 | ) | (27,982 | ) | (117,046 | ) | 446,196 | ||||||||||||||
Capital lease obligations, current and long-term | 33,039 | — | — | — | (740 | ) | — | (740 | ) | 32,299 | ||||||||||||||||||
Total liabilities | 169,365 | — | — | 10,114 | 1,648 | 2,891 | 14,653 | 184,018 | ||||||||||||||||||||
Stockholders’ equity | 393,877 | (68,725 | ) | (10,560 | ) | (18,260 | ) | (3,281 | ) | (30,873 | ) | (131,699 | ) | 262,178 | ||||||||||||||
(1) The financial data as of December 31, 2015 is derived from our unaudited financial information for the year ended December 31, 2015 previously included as an exhibit to our Current Report on Form 8-K furnished on February 17, 2016. Our audited Consolidated Financial Statements for the year ended December 31, 2015, were not previously issued or filed.
The following tables summarize the effects of the restatement adjustments on our previously issued, audited Consolidated Financial Statements for the years ended December 31, 2014 and 2013 filed on Annual Reports on Form 10-K.
Year Ended December 31, 2014 | ||||||||||||||||||||||||||||
(In thousands, except share and per share information) | As Previously Reported | Restatement Adjustments | Total Restatement Adjustments | As Restated (Unaudited) | ||||||||||||||||||||||||
A | B | C | D | E | ||||||||||||||||||||||||
Revenues | $ | 329,151 | $ | — | $ | (16,251 | ) | $ | (8,625 | ) | $ | — | $ | — | $ | (24,876 | ) | $ | 304,275 | |||||||||
Total expenses from operations | 343,931 | — | (16,263 | ) | (628 | ) | 710 | — | (16,181 | ) | 327,750 | |||||||||||||||||
Loss from operations | (14,780 | ) | — | 12 | (7,997 | ) | (710 | ) | — | (8,695 | ) | (23,475 | ) | |||||||||||||||
Non-operating (expenses) income, net | (438 | ) | — | — | 119 | (185 | ) | — | (66 | ) | (504 | ) | ||||||||||||||||
Income tax benefit (provision) | 5,315 | — | — | — | — | (10,109 | ) | (10,109 | ) | (4,794 | ) | |||||||||||||||||
Net (loss) income | $ | (9,903 | ) | $ | — | $ | 12 | $ | (7,878 | ) | $ | (895 | ) | $ | (10,109 | ) | $ | (18,870 | ) | $ | (28,773 | ) | ||||||
Net loss per common share: | ||||||||||||||||||||||||||||
Basic and diluted | $ | (0.29 | ) | $ | — | $ | — | $ | (0.23 | ) | $ | (0.03 | ) | $ | (0.30 | ) | $ | (0.56 | ) | $ | (0.85 | ) | ||||||
Weighted-average number of shares used in per share calculations - Common Stock: | ||||||||||||||||||||||||||||
Basic and diluted | 33,689,660 | 33,689,660 | ||||||||||||||||||||||||||
36
December 31, 2014 | ||||||||||||||||||||||||||||
(In thousands) | As Previously Reported | Restatement Adjustments | Total Restatement Adjustments | As Restated (Unaudited) | ||||||||||||||||||||||||
A | B | C | D | E | ||||||||||||||||||||||||
Cash, cash equivalents, restricted cash and marketable securities | $ | 43,015 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 43,015 | ||||||||||||
Total current assets | 178,883 | — | (2,411 | ) | (6,748 | ) | (382 | ) | (21,097 | ) | (30,638 | ) | 148,245 | |||||||||||||||
Total assets | 353,952 | — | (2,411 | ) | (6,748 | ) | (160 | ) | (29,289 | ) | (38,608 | ) | 315,344 | |||||||||||||||
Capital lease obligations, current and long-term | 26,425 | — | — | — | 3 | — | 3 | 26,428 | ||||||||||||||||||||
Total liabilities | 178,687 | — | — | 1,850 | 134 | 1,941 | 3,925 | 182,612 | ||||||||||||||||||||
Stockholders’ equity | 175,265 | — | (2,411 | ) | (8,598 | ) | (294 | ) | (31,230 | ) | (42,533 | ) | 132,732 | |||||||||||||||
Year Ended December 31, 2013 | ||||||||||||||||||||||||||||
(In thousands, except share and per share information) | As Previously Reported | Restatement Adjustments | Total Restatement Adjustments | As Restated (Unaudited) | ||||||||||||||||||||||||
A | B | C | D | E | ||||||||||||||||||||||||
Revenues | $ | 286,860 | $ | — | $ | (3,245 | ) | $ | (1,013 | ) | $ | — | $ | — | $ | (4,258 | ) | $ | 282,602 | |||||||||
Total expenses from operations | 283,767 | — | (1,796 | ) | (228 | ) | (131 | ) | — | (2,155 | ) | 281,612 | ||||||||||||||||
Income (loss) from operations | 3,093 | — | (1,449 | ) | (785 | ) | 131 | — | (2,103 | ) | 990 | |||||||||||||||||
Non-operating expenses, net | (1,000 | ) | — | — | (17 | ) | (2 | ) | — | (19 | ) | (1,019 | ) | |||||||||||||||
Income tax provision | (4,426 | ) | — | — | — | — | (18,319 | ) | (18,319 | ) | (22,745 | ) | ||||||||||||||||
Net (loss) income | $ | (2,333 | ) | $ | — | $ | (1,449 | ) | $ | (802 | ) | $ | 129 | $ | (18,319 | ) | $ | (20,441 | ) | $ | (22,774 | ) | ||||||
Net loss per common share: | ||||||||||||||||||||||||||||
Basic and diluted | $ | (0.07 | ) | $ | — | $ | (0.04 | ) | $ | (0.02 | ) | $ | — | $ | (0.53 | ) | $ | (0.59 | ) | $ | (0.66 | ) | ||||||
Weighted-average number of shares used in per share calculations - Common Stock: | ||||||||||||||||||||||||||||
Basic and diluted | 34,443,126 | 34,443,126 | ||||||||||||||||||||||||||
December 31, 2013 | ||||||||||||||||||||||||||||
(in thousands) | As Previously Reported | Restatement Adjustments | Total Restatement Adjustments | As Restated (Unaudited) | ||||||||||||||||||||||||
A | B | C | D | E | ||||||||||||||||||||||||
Cash, cash equivalents, restricted cash and marketable securities | $ | 67,795 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 67,795 | ||||||||||||
Total current assets | 178,799 | — | (2,423 | ) | (1,372 | ) | (823 | ) | (10,802 | ) | (15,420 | ) | 163,379 | |||||||||||||||
Total assets | 363,413 | — | (2,423 | ) | (1,372 | ) | 371 | (15,948 | ) | (19,372 | ) | 344,041 | ||||||||||||||||
Capital lease obligations, current and long-term | 23,681 | — | — | — | 363 | — | 363 | 24,044 | ||||||||||||||||||||
Total liabilities | 164,611 | — | — | (735 | ) | (224 | ) | 2,215 | 1,256 | 165,867 | ||||||||||||||||||
Stockholders’ equity | 198,802 | — | (2,423 | ) | (637 | ) | 595 | (18,163 | ) | (20,628 | ) | 178,174 | ||||||||||||||||
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The components of the cumulative effect of the restatement adjustments that we made, as of January 1, 2013, to the opening balance of accumulated deficit in our Consolidated Statements of Stockholders' Equity are also detailed in the table below.
Cumulative Effect Adjustment on January 1, 2013 Stockholders' Equity (1) | ||||||||||||||||||||||||||||
(in thousands) | As Previously Reported | Restatement Adjustments | Total Restatement Adjustments | As Restated (Unaudited) | ||||||||||||||||||||||||
A | B | C | D | E | ||||||||||||||||||||||||
Stockholders’ equity | $ | 195,643 | $ | — | $ | (974 | ) | $ | 159 | $ | 464 | $ | 157 | $ | (194 | ) | $ | 195,449 | ||||||||||
(1) Certain errors impacted years prior to 2013 and as such these errors are aggregated to adjust the January 1, 2013 opening balance of Stockholders’ Equity.
The following is a discussion of the significant adjustments that were made to our previously provided Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013.
(A) WPP Capital Transactions and GroupM Arrangement: WPP Capital Transactions As described in Footnote 3, Business Combinations and Acquisitions of the Notes to Consolidated Financial Statements, during the first quarter of 2015, we entered into several agreements with WPP, that ultimately resulted in, among other things, WPP becoming a related party, as described below (collectively, the "WPP Capital Transactions").
• | We agreed to acquire all of the outstanding common stock of WPP's Nordic Internet Audience Measurement ("IAM") business in Norway, Sweden and Finland in exchange for shares of our Common Stock. |
• | We entered into a Strategic Alliance Agreement ("Strategic Alliance") in which we and WPP agreed to collaborate on the cross-media audience and campaign measurement (“CMAM”) business for certain areas outside the U.S. for an initial ten-year term. Under the terms of the Strategic Alliance, the parties agreed to jointly develop and market CMAM, leveraging our digital assets and the television assets and global footprint of WPP. |
• | WPP agreed to conduct a tender offer for shares of our Common Stock from existing stockholders at an offered price of $46.13 per share. |
• | If the shares issued and the shares WPP acquired in the tender offer represented less than 15% of our then outstanding Common Stock, the Company agreed to sell to WPP, at a price of $46.13 per share, such newly issued shares that would cause WPP’s aggregate holdings to equal 15% of our then outstanding Common Stock. |
On April 1, 2015:
• | We closed the acquisition of the IAM business and the Strategic Alliance and issued 1,605,330 shares of our Common Stock from treasury, which represented 4.45% of our then outstanding Common Stock; and |
• | We sold to WPP 4,438,353 newly issued shares of Common Stock for an aggregate purchase price of $204.7 million. After this issuance and including shares acquired by WPP via the tender offer, WPP held 15% of our then outstanding shares of Common Stock. |
• | The closing Common Stock share price was $51.42, resulting in a total market value of shares of Common Stock held by WPP of $310.8 million. |
As a result of the investigation and the subsequent process of reviewing our accounting for significant transactions, we have re-evaluated the underlying projections supporting the intangible asset associated with the Strategic Alliance. The projections and valuation at the time of the transaction resulted in a fair value of $97.6 million. Following the investigation and our accounting review, we have modified the assumptions, projections and valuations related to the Strategic Alliance intangible asset. As a result, we and our independent valuation consultants determined the fair value of the Strategic Alliance asset to be $30.1 million. As part of this adjustment, we reduced by $5.1 million the amount of amortization expense of intangible assets that we previously incurred for the year ended 2015.
GroupM Arrangement
At approximately the same time that we closed the WPP Capital Transactions, we also entered into an agreement with GroupM, a WPP affiliate (the "GroupM Arrangement"), in which GroupM agreed to a minimum commitment of $20.9 million ("Subscription Receivable"). We have determined that the negotiation and execution of this agreement happened concurrently with the WPP Capital Transactions and that these transactions should have been considered, for accounting purposes, as contemporaneous. Accordingly, $9.3 million of revenue originally recognized in 2015 for this GroupM agreement was reversed and the present value of the Subscription Receivable, $(19.2) million, was classified as contra equity within additional paid-in capital on our Consolidated Statements of Stockholders' Equity. We reversed the accounts receivable balance associated with the transaction and have no longer characterized it as a revenue arrangement, and no future revenue will be recognized. As cash is received on the contract, the Subscription Receivable is decreased by the amount of cash received, and results in an increase to additional paid-in capital. We expect to collect the remaining Subscription Receivable in 2018. We recognized interest income related to this receivable during the years ended 2017, 2016 and 2015 of $0.3 million, $0.6 million and $0.6 million, respectively.
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Overall Impact of WPP Capital Transactions and GroupM Arrangement
The total consideration related to the WPP Capital Transactions and GroupM Arrangement was less than the market value of our Common Stock issued by us. This difference is characterized as vendor consideration and is accounted for as a reduction of revenue upon the closing of the WPP Capital Transactions. Previous revenue transactions and future revenue transactions with WPP and its affiliates are expected to exceed the vendor consideration in this transaction. A summary of the components of the transactions are as follows:
(In millions) | ||||
Fair value of assets received: | ||||
Cash | $ | 204.7 | ||
Strategic Alliance asset | 30.1 | |||
IAM business | 8.5 | |||
Total assets received | 243.3 | |||
Increase to stockholders' equity for the WPP Capital Transactions | ||||
Market value of Common Stock issued to WPP on issuance date (April 1, 2015) | 310.8 | |||
Subscription Receivable | (19.2 | ) | ||
Total increase to stockholders' equity | 291.6 | |||
Vendor consideration provided to WPP (reduction in revenue) | $ | (48.3 | ) | |
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The following table summarizes the effects of the adjustments to the December 31, 2015 Consolidated Balance Sheet associated with the WPP Capital Transactions and GroupM Arrangement.
WPP Capital Transactions Adjustment | GroupM Arrangement Adjustment | Total Adjustments | ||||||||||
(in thousands) | ||||||||||||
Total assets: | ||||||||||||
Accounts receivable | $ | — | $ | (5,227 | ) | $ | (5,227 | ) | ||||
Current assets | — | (5,227 | ) | (5,227 | ) | |||||||
Intangible assets, net | (63,382 | ) | — | (63,382 | ) | |||||||
Goodwill | (116 | ) | — | (116 | ) | |||||||
Total assets | $ | (63,498 | ) | $ | (5,227 | ) | $ | (68,725 | ) | |||
Stockholders' equity: | ||||||||||||
Common stock | — | — | — | |||||||||
Additional paid-in capital | (20,260 | ) | 3,502 | (16,758 | ) | |||||||
Accumulated deficit | (43,155 | ) | (8,729 | ) | (51,884 | ) | ||||||
Accumulated other comprehensive loss | (83 | ) | — | (83 | ) | |||||||
Total Stockholders' equity | $ | (63,498 | ) | $ | (5,227 | ) | $ | (68,725 | ) | |||
The following table summarizes the effects of the adjustments to the December 31, 2015 Consolidated Statements of Operations associated with the WPP Capital Transactions and GroupM Arrangement.
WPP Capital Transactions Adjustment | GroupM Arrangement Adjustment | Total Adjustments | ||||||||||
(in thousands) | ||||||||||||
Revenues | $ | (48,253 | ) | $ | (9,284 | ) | $ | (57,537 | ) | |||
Total expenses from operation: | ||||||||||||
General and administrative | 42 | — | 42 | |||||||||
Amortization of intangible assets | ||||||||||||