Erica J. Abrams - comScore, Inc. Bryan Wiener - comScore, Inc. William P. Livek - comScore, Inc. Gregory A. Fink - comScore, Inc..

Tim J. McHugh - William Blair & Company, LLC.

Good day, and welcome to the comScore First Quarter 2018 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Erica Abrams. Please go ahead, ma'am..

Hello everyone. And thank you for joining us on the call today to discuss comScore's first quarter of 2018 financial results. Joining me on the call today is Bryan Wiener, CEO Elect; Bill Livek, President and Vice Chairman; and Greg Fink, CFO of comScore.

Before we begin, please allow me to read the following disclaimer regarding our use of forward-looking information.

During today's call, as well as during any question-and-answer period that may follow, representatives of the company may make forward-looking statements within the meaning of federal and state securities laws regarding future events, plans and expectations for the company.

These forward-looking statements are based on management's current expectations of future events and are subject to a number of risks and uncertainties that could cause actual events to differ materially and adversely from those set forth in or implied by forward-looking statements.

These risks and uncertainties include without limitation those outlined in our SEC filings including our 10-K filed in March and our 10-Q to be filed this evening.

These risks and uncertainties include expectations as to opportunities for comScore, new product lines, customers, products, markets and partnerships, expectations as to the strength and growth of comScore's business and financial performance, proceeds from any sales of stock or rights offering or other financial arrangements to be conducted by the company and the timing of the company's plans for relisting of its common stock.

We caution you not to place undue reliance on any forward-looking statements, which speak only as of today. We do not undertake any obligation to publicly update any forward-looking statements to reflect new information after today's call or to reflect the occurrence of unanticipated events.

During this call, we may also discuss certain non-GAAP financial measures. In our filings with the SEC, which you can find on our Investor Relations website, you will find additional disclosures regarding the non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Thank you.

I will now turn the call over to Bryan Wiener, CEO-elect. Brian, please go ahead..

Thank you, Erica, and hello, everyone. Thank you for joining our 2018 first quarter financial results call. This is a great time to join comScore, and I am really humbled and honored to be here today as incoming CEO.

I am joined by Bill Livek, Vice Chairman; and Greg Fink, CFO, who together with Bill led the effort to get our filings up to date and are preparing us for relisting on NASDAQ. Thank you both for your efforts.

As many of you know, I've been on the Board of Directors for a little over six months and I have always been a big believer in comScore's offering and unique brand proposition. In the dozens of conversations I've had with partners and customers over the past six months, the feedback from the market has been remarkably consistent.

Our customers want us to win. To quote a large media company I spoke with just last week and I quote here, "The advertising marketplace is better off with a strong comScore. We need comScore to be successful." I've been in this space for 25 years and it is extremely unusual for customers to care this much about any provider.

Let me explain why this is the case with comScore. The advertising market today is in chaos because people are consuming content and advertising across the proliferation of screens, where the television set once had a near monopoly.

So for example, if tonight you decided to start watching a network TV show on your home television and then finish the show the next day on your phone on the train. Advertisers would not be certain whether they're reaching one person watching on two different devices or two distinct people.

This is a huge industry problem given marketers have sophisticated financial models that tie the number of people they are reaching and the frequency of reaching them to their overall sales.

As a result, media companies can't optimally sell or price their inventory and advertisers can't optimally plan or evaluate the success of their advertising in driving sales. What marketers and media sellers clearly need is an independent cross measurement solution that empowers them to make business decisions with complete confidence.

comScore is uniquely positioned to solve this industry problem with advantages in near-universal brand recognition, loyal customers across major media companies, advertising agencies and brands, and an unmatched data footprint that can provide comprehensive and objective measurement of content and advertising across all platforms.

Now, there is no question that the past two years have been challenging for comScore, marked by limited innovation and stagnant growth. The board chose me as CEO because I am both an operator and an entrepreneur who has built, grown and turned around companies in the media and technology space over the course of my 25-year career.

Additionally, as a board member the last six months, I have an intimate understanding of both the challenges and opportunities facing comScore, which has enabled me to get a running start as incoming CEO. So, as CEO, my immediate priority is to accelerate this turnaround and will involve three core pillars.

First, communicating our vision to all stakeholders. After my first 60 days, we intend to communicate a strategy and roadmap for growth based on a clear understanding of clients' needs and with a full and focused support of every comScore employee.

We plan to drive our business by driving the businesses of our customer and believe that a clear vision and strategy will drive increased productivity from our multi-national workforce. Second, accelerating the development of cross-platform measurement and increasing our mobile footprint across all products.

We are going to spend the next few months adjusting our plans and processes, so that we can drive increased velocity and product innovation. And third, simplifying and streamlining our operations to achieve profitability in the near-term and creating operating leverage and margin expansion over the long-term.

Our leadership team is focused on not only reducing significant costs for 2018, but also setting the stage for substantial margin expansion in the years to come. We expect to be able to provide more details on our strategy and our progress on the next earnings call in August.

Now, I'd like to turn the call over to Bill for a brief review of our Q1 performance.

Bill?.

Thank you, Brian, and welcome aboard. On our March Business Update call after our 10-K filing, I discussed many of the steps that the management team and the board have already begun to restore growth, improve profitability and maximize shareholder value. I'm pleased to report that we're making progress on these items.

Greg will speak in more detail to the encouraging financial signals that the business is getting back on track. But first, I'd like to provide a brief update on our business in the first quarter. I'll speak to each of our core business lines, digital audience, advertising, TV cross platform, and of course, movies.

Starting with digital audience, as discussed on our last call, sales and growth from this product portfolio has been challenged over the past several years, due to the challenging and changing industry dynamics and the mobile measurement complexity.

We're continuing to make progress on our improved mobile coverage; In the first quarter alone, we upgraded our Media Metrix service in seven countries across four continents. These product upgrades provide greater reliability and utility for our customers.

Just this month, we also launched comScore's Advanced Audiences in our flagship Media Metrix Multi-Platform, service allowing customers to understand audiences based on their interests and behaviors, as well as traditional metrics of age and gender.

As Advanced Audience buying and selling across channels becomes more commonplace having Advanced Audience information in our core solutions is a business imperative.

Within our digital audience business overall, we've begun to see some green shoots of growth both in revenue and average deal size among our premium video publisher and advertiser clients who are increasingly reliant on our syndicated and our custom solutions, like our benchmarker and consumer journey studies.

A top three, United States on time – online retailer just renewed its syndicated subscription for our PC, mobile and video reporting. This client uses comScore solutions to keep pulse on shifting online behaviors, usage across screens into the competitive landscape, especially in heavy shopping periods.

Increased business from these types of premium clients has helped to offset declines from some of the long-tail media companies who will move their advertising to programmatic, something that we discussed in detail on our last call.

Our advertising business growth was largely a result of our emerging activation solutions, which helped advertisers, agencies and media companies reach their most valuable customers in relevant and brand safe environments.

In the first quarter, we signed a large activation deal with a global consumer packaged goods company to help them more efficiently reach their target audiences. Further as advertisers increased their focus on brand safety, comScore activation has become an important solution to get brands the protection they need.

Activation growth is also the result of increased traction with our partner platform providers. Our solution is now available in more than 10 buy and sell platforms like Adobe, AppNexus, LiveRamp data store, Google's DoubleClick Bid Manager, which is via LiveRamp's data store, Oracle's data, cloud and Salesforce.

These integrations make it easier for advertisers and media companies to leverage our information in the tools they use daily to drive their business.

No turning over to our television cross platform business, initiatives like Open AP in the overall increased demand for TV audience segments, those that go beyond age and gender, only enhance the value of comScore's Advanced Audiences.

This is further evidence by NBC News, comScore's long-time client aligning with Open AP last month and licensing their advanced capabilities to the consortium. Large brands have embraced Open AP's platform using comScore's advanced audiences as currencies to trade its members' inventory.

Our advanced audience segments also continued to see increased demand in our television solutions whether delivered via syndicated or through custom implementations. On the local television side, our growing momentum continues with both our station and agency clients.

A major local station group nearly doubled its footprint with comScore and we expect this footprint to continue to grow. On the local ad agency side, we more than doubled revenue from new first quarter accounts compared with the same period last year.

We believe the majority of these local agencies are using comScore as the primary or the exclusive planning, buying and posting currency. As it relates to cross platform, and as Bryan had mentioned, we are hyper focused on building out our cross-platform audience in advertising measurement services.

This is our largest long-term growth opportunity in an area that we're seeing year-over-year growth. We continue to add major networks to our national cross platform syndicated service. In the quarter, we expanded our client base by signing CBS.

Also in the first quarter, we released our first local cross platform measurement service in beta, which provides insights into local TV and their digital audiences. This product reports in more than 160 local markets across the U.S. and we plan on continuing to grow that coverage throughout the year.

Outside the U.S., our cross-platform strategy is to partner with companies who contribute TV measurement to our digital capabilities. This approach has led to significant wins in several international markets. In Italy for example, comScore was recently awarded a contract with Auditel, that's the joint industry committee of television broadcasters.

Italy now joins other countries in Europe, where we are doing cross-platform measurement including Finland, Holland, Sweden, Switzerland and Spain. Finally, our movie business remains strong. In the quarter, we secured deals from all the studios that were up for renewal.

Additionally, comScore's movie distribution software, Theatrical Distribution Systems or what we call TDS is now used by seven of the Top 10 movie studios to manage key elements of their theatrical distribution business including planning, negotiating, booking and invoicing.

With that, I'd like to turn the call over to Greg, who will speak in more detail on our financial performance..

Thanks, Bill and welcome, Brian. Hello, everyone. comScore adds an important transition in both our financial and operating model and I'm excited to be the CFO to help recreate this industry-leading company. As you know, we completed the filing of our 2017 10-K with the SEC in March and have applied for relisting on NASDAQ.

As I said in March, relisting is a top priority from management and we hope to have that accomplished soon. We had a solid Q1 revenue performance at $105.9 million an increase of 5% year-over-year. As Bill noted, our digital audience revenue which is revenue from the measurement of digital consumers was mostly flat year-over-year at $57.8 million.

While growth from our legacy products has been limited related to the ongoing shifts in the advertising market, as well as technical challenges in the mobile market, we have recently invested in data sources and mobile enhancements to drive market adoption with premium video publishers.

In Q1, both revenue and our average deal size among our premium video publishers who use our mobile and video syndicated services as well as custom solutions showed an encouraging increases, offsetting declines from long tail media companies who moved their advertising inventory to programmatic as we have discussed in the past.

To that end, we expect increased demand from our new products in this area to meaningfully offset declines in revenue from our legacy products over time.

Our TV and cross platform revenue increased 15% year-over-year to $25.3 million, as we experienced solid demand from new customers as well as expanding interest in new solutions from existing customers.

We believe that TV and cross platform revenue represents our greatest opportunity within our current products for future growth, but we intend to continue to invest in this area to increase our market penetration.

Advertising revenue increased 6% year-over-year to $12.2 million in the quarter, driven largely by growth in our activation solutions which helps advertisers, agencies and media companies reach their most valuable consumers in relevant and brand safe environment.

We continue to build our position in these emerging opportunities offset by declines in some of our legacy products and smaller customers. Movies revenue increased 13% year-over-year, even while these products represent a small portion of total revenue. We are focused on expanding this important and growing global market.

And as you will read in our 10-Q we implemented ASC 606 in the first quarter. Under this accounting standard, we had an increase in revenue of approximately $400,000. We also capitalized and deferred approximately $400,000 into film making commission costs. In short, the impact of adopting ASC 606 was immaterial for Q1.

We are still evaluating the full impact on revenue for the remainder of 2018, but believe it is unlikely to be material. Moving on to our operating model. We reported a GAAP net loss for the first quarter of $51.5 million.

GAAP net loss for the quarter includes $1.9 million in stock-based compensation, $31.9 million in investigation in audit-related expenses, $1.3 million in restructuring costs and $2.6 million in other expenses associated with changes in the fair value of derivatives and equity instruments.

Excluding stock-based compensation and these non-core expenses, non-GAAP net loss was $13.8 million or $0.25 per share. Adjusted EBITDA for the first quarter was $3.6 million.

This marks promising improvement over the prior year and a significant increase compared to the fourth quarter of 2017, primarily related to our cost reductions actions taken at the end of last year.

Hereafter, I will discuss operating results for Q1 of 2018 and 2017 on a non-GAAP basis, excluding stock-based compensation as reconciled in our press release that's filed today and available on our Investor Relations website. Gross profit for the quarter was $58.9 million or 56% of sales. That's compared to 54% reported in the year ago period.

This year-over-year gross margin increase reflects a decrease in panel costs and depreciation. This was offset by a more significant increase in data cost in our TV and cross platform businesses as well as mobile. As you know, we recently acquired additional TV and mobile data properties, which we have high associated fixed costs.

While we expect these costs to continue to increase over time, we believe we can gain leverage from new product sales, which we expect to offset the increase in associated fixed costs.

Selling and marketing expense for the first quarter decreased meaningfully to $25.3 million or 24% of sales as compared to 28% of sales in the same period one year ago. The decrease was related to our cost and head count reduction efforts put in place at the end of last year.

R&D expense for the quarter was $18.4 million or 17% of sales, down from 20% last year. While we continued our investment in new product developments, we realigned employees and professional fees around new product initiatives, thereby reducing overall cost. We also capitalized certain R&D costs, which totaled $1.4 million in the quarter.

G&A expense for the quarter was $17.9 million or 17% of sales, unchanged from the same percentage last year. Certain administrative cost reductions were offset by incremental professional fee costs in the period. We are continuing to focus our efforts to reduce these costs going forward.

To summarize adjusting items in the first quarter, stock-based compensation expense in Q1 was $1.9 million. As we discussed in March and detailed in our 10-K, we've been unable to issue equity grants to employees, directors and others, since early 2016.

In the second quarter, we anticipate granting new shares which would result in an expense of approximately $20 million. Total costs associated with the audit investigation and restructuring in Q1 were $33.1 million.

In Q2 and for the remainder of the year, we will incur incremental costs related to these issues, but we expect them to be at significantly reduced levels. Turning to our balance sheet for Q1, we closed the quarter with cash, cash equivalents and restricted cash of $74.8 million. This represents an increase of $29.7 million over year-end.

Our adjusted EBITDA for Q1 was positive $3.6 million with adjustments made for stock-based compensation and non-core expenses. Our primary source of cash in the quarter was the issuance of convertible debt with net proceeds of $80.7 million.

Our primary use of cash in the quarter was investigation and audit related expenses as well as restructuring costs that totaled approximately $40 million. We continue to evaluate the timing of a rights offering as we consider financing alternatives to meet our liquidity.

We may explore other financing arrangements going forward to provide additional capital for future investments. Our estimated share count for EPS purposes for Q1 is $55.2 million.

We expect to increase our share count in the second quarter in connection with the anticipated grants under our new equity plan as I discussed earlier, as well as issue additional shares in conjunction with our legal settlements expected to be completed in the second quarter.

Looking beyond Q1, we are very excited about our long-term market opportunity. We have an industry poised around us and comScore is positioned to win. We are not committing to a specific outlook at this time, given expected changes in their strategy from Bryan as he takes over in late-May.

With that, I will turn the call back to Bryan for brief closing remarks..

Thank you, Greg. I personally want to thank all of our customers and investors for their patience and support during these periods of change. I also want to thank our employees for their incredible commitment and perseverance.

I look forward to working closely with all of you to build a stronger comScore that has core values of higher customer satisfaction, rapid technology innovation, strong employee morale and long-term shareholder value. Now we will open up the call for questions. Operator, please go ahead..

Thank you. The question-and-answer session will be conducted electronically. We will take our first question from Tim McHugh with William Blair. Please go ahead..

Hi, thanks.

Just want to ask follow-up on the comment about streamlining, I guess recognizing the – you're just kind of moving into the role and assessing things, but I guess what's your initial view of the opportunity, I guess a little more precisely and in the context of the actions that have already were kind of taken late in 2017 year I guess, what are you going to go more aggressively at during the next six months here?.

It's a good question. So, just to confirm, I'm starting May 30.

So just to provide some context, but I have been a board member for six months and I think one of the things that is clearly evident is there is opportunity not only to streamline, but simplify the way that we do business and we believe by doing that, we will not only be able to take costs out of the company, but we will also be able to accelerate product innovation significantly, but I think given the fact that I haven't officially started yet, it would be premature to go into too much detail.

I'm going to take the 60 days after I start to develop a plan and we expect in our August earnings call to provide a lot more detail on what we are doing and what we will be doing..

Okay. Fair enough. And just one follow up, the comment strength in activation, I think at one point you also mentioned a large kind of contract, I guess, I know that business is probably lumpier than some of the other ones.

But I guess, it was – was there a one-time kind of license fee or something or anything like that that we need to be aware of that that help drive the strength there or is there a broader kind of trend within activation that you're starting to see?.

No, it was not a one-time only contract. We think it's a good growth area for the company. So I'm happy with what's going on in that category..

Okay. Great. Thank you..

And at this time, there are no further questions and that concludes our call for today. This conference call will be available on the Investor Relations section of the company's corporate website. Thank you for your participation, and you may disconnect at this time..