COMSCORE, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, or 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events in future periods may differ materially from those anticipated or implied in these forward-looking statements as a result of many factors, including those discussed under Item 1A , "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 10-K"), under Item 1A , "Risk Factors" in this 10-Q and elsewhere in this 10-Q. See also " Cautionary Note Regarding Forward-Looking Statements " at the beginning of this 10-Q. Overview We are a global information and analytics company that measures advertising, content, and the consumer audiences of each, across media platforms. We create our products using a global data platform that combines information on digital platforms (connected (Smart) televisions, mobile devices, tablets and computers), television ("TV"), over the top devices ("OTT"), direct to consumer applications, and movie screens with demographics and other descriptive information. We have developed proprietary data science that enables measurement of person-level and household-level audiences, removing duplicated viewing across devices and over time. This combination of data and methods enables a common standard for buyers and sellers to transact on advertising. This helps companies across the media ecosystem better understand and monetize their audiences and develop marketing plans, content and products to more efficiently and effectively reach those audiences. Our ability to unify behavioral and other descriptive data enables us to provide audience ratings, advertising verification, and granular consumer segments that describe hundreds of millions of consumers. Our customers include digital publishers, television networks, movie studios, content owners, brand advertisers, agencies and technology providers. The information we analyze crosses geographies, types of content and activities, including websites, mobile and OTT applications ("apps"), video games, television and movie programming, electronic commerce ("e-commerce") and advertising. Management Changes OnJuly 21, 2021 ,Gregory Fink resigned as our Chief Financial Officer ("CFO") and Treasurer, effectiveAugust 31, 2021 . OnOctober 19, 2021 , our Board of Directors appointedJonathan Carpenter as CFO and Treasurer, effectiveNovember 29, 2021 . Also onOctober 19, 2021 ,William Livek , our current Chief Executive Officer and Executive Vice Chairman, was designated to serve as the interim principal financial officer untilMr. Carpenter's start date (November 29, 2021 ). Results of Operations The following table sets forth selected Condensed Consolidated Statements of Operations data as a percentage of total revenues for each of the periods indicated. Percentages may not add due to rounding. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands) Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue Revenues$ 92,487 100.0 %$ 87,952 100.0 %$ 270,476 100.0 %$ 266,046 100.0 % Cost of revenues 49,179 53.2 % 46,466 52.8 % 153,267 56.7 % 137,213 51.6 % Selling and marketing 15,212 16.4 % 17,131 19.5 % 49,569 18.3 % 52,351 19.7 % Research and development 9,051 9.8 % 9,501 10.8 % 29,536 10.9 % 29,402 11.1 % General and administrative 16,895 18.3 % 12,136 13.8 % 45,609 16.9 % 41,420 15.6 % Amortization of intangible assets 6,172 6.7 % 6,750 7.7 % 18,866 7.0 % 20,514 7.7 % Impairment of right-of-use and long-lived assets - - % - - % - - % 4,671 1.8 % Total expenses from operations 96,509 104.3 % 91,984 104.6 % 296,847 109.7 % 285,571 107.3 % Loss from operations (4,022) (4.3) % (4,032) (4.6) % (26,371) (9.7) % (19,525) (7.3) % Other income (expense), net 5,713 6.2 % 4,191 4.8 % (9,069) (3.4) % 12,862 4.8 % Gain (loss) from foreign currency transactions 1,180 1.3 % (2,012) (2.3) % 1,884 0.7 % (2,152) (0.8) % Interest expense, net (169) (0.2) % (9,027) (10.3) % (7,569) (2.8) % (26,729) (10.0) % Loss on extinguishment of debt - - % - - % (9,629) (3.6) % - - % Income (loss) before income taxes 2,702 2.9 % (10,880) (12.4) % (50,754) (18.8) % (35,544) (13.4) % Income tax (provision) benefit (722) (0.8) % (241) (0.3) % (2,166) (0.8) % 838 0.3 % Net income (loss)$ 1,980 2.1 %$ (11,121) (12.6) %$ (52,920) (19.6) %$ (34,706) (13.0) % 21
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Revenues
Our products and services are organized around solution groups that address customer needs. Accordingly, we evaluate revenue around three solution groups: •Ratings and Planning provides measurement of the behavior and characteristics of audiences of content and advertising across television and digital platforms including connected (Smart) televisions, computers, tablets, mobile devices, and other connected devices. These products and services are designed to help customers find the most relevant viewing audience, whether that viewing is linear, non-linear, online or on-demand. •Analytics and Optimization includes custom solutions, activation, lift and survey-based products that provide end-to-end solutions for planning, optimization and evaluation of advertising campaigns and brand protection. •Movies Reporting and Analytics measures movie viewership and box office results by capturing movie ticket sales in real time or near real time and includes box office analytics, trend analysis and insights for movie studios and movie theater operators worldwide. We categorize our revenue along these solution groups; however, our cost structure is tracked at the corporate level and not by our solution groups. These costs include, but are not limited to, employee costs, purchased data, operational overhead, data storage and technology that supports multiple solution groups. Revenues for the three months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended September 30, (In thousands) 2021 % of Revenue 2020 % of Revenue $ Variance % Variance Ratings and Planning$ 62,127 67.2 %$ 62,718 71.3 %$ (591) (0.9) % Analytics and Optimization 22,485 24.3 % 17,432 19.8 % 5,053 29.0 % Movies Reporting and Analytics 7,875 8.5 % 7,802 8.9 % 73 0.9 % Total revenues$ 92,487 100.0 %$ 87,952 100.0 %$ 4,535 5.2 % Revenues increased by$4.5 million , or 5.2%, for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . Ratings and Planning revenue is comprised of revenue from our digital, TV, and cross-platform products. Ratings and Planning revenue decreased by$0.6 million for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . The decrease was driven by lower revenue from our syndicated digital and cross-platform products, offset by higher revenue from our TV products. Syndicated digital revenue was lower primarily due to our smaller customers who continue to be impacted by ongoing industry changes in ad buying and consolidations. While retention of syndicated digital enterprise customers remained high, revenue from our syndicated digital products represented 46% and 48% of our Ratings and Planning revenue in the third quarter of 2021 and 2020, respectively. Cross-platform revenue was lower due to fewer deliveries of data in 2021 versus 2020. TV revenues were higher due to new partnerships, increased agency adoption and higher deliveries of custom TV data. Analytics and Optimization revenue increased by$5.1 million in the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . The increase was related to higher revenue across all product offerings, including activation, custom solutions, lift and survey. Activation experienced double-digit year-over-year growth as we continued to bring new solutions to market. Movies Reporting and Analytics revenue increased by$0.1 million for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . The nominal increase in revenue was due to the continued reopening of theaters in markets worldwide. Based on this trend, we believe revenue from the movies business should continue to experience sequential quarterly increases as consumers return to theaters. Revenues for these three solution groups for the nine months endedSeptember 30, 2021 and 2020 were as follows: Nine Months Ended September 30, (In thousands) 2021 % of Revenue 2020 % of Revenue $ Variance % Variance Ratings and Planning$ 190,351 70.4 %$ 190,018 71.4 %$ 333 0.2 % Analytics and Optimization 57,950 21.4 % 49,827 18.8 % 8,123 16.3 % Movies Reporting and Analytics 22,175 8.2 % 26,201 9.8 % (4,026) (15.4) % Total revenues$ 270,476 100.0 %$ 266,046 100.0 %$ 4,430 1.7 % Revenues increased by$4.4 million , or 1.7%, for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . Ratings and Planning revenue increased by$0.3 million for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The increase was driven by higher TV revenue and services related to our international cross-platform offering, partially offset by lower revenue from our syndicated digital products. TV revenues were higher due to new partnerships, increased agency adoption and additional TV data deliveries as part of an expanded relationship with an enterprise customer. We also recorded$2.4 million in revenue for certain cross-platform services delivered inEurope related to the renewal of a multi-year agreement. Syndicated digital revenue was lower 22
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primarily due to our smaller and international customers who continue to be impacted by ongoing industry changes in ad buying and consolidations. While retention of syndicated digital enterprise customers remained high, revenue from our syndicated digital products represented 45% and 49% of our Ratings and Planning revenue for the nine months endedSeptember 30, 2021 and 2020, respectively. Analytics and Optimization revenue increased by$8.1 million in the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The increase was related to higher revenue across all product offerings, including activation, custom solutions, lift and survey. Activation experienced double-digit year-over-year growth as we continued to bring new solutions to market. Movies Reporting and Analytics revenue decreased by$4.0 million in the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The decrease was primarily driven by lower revenues during the first quarter of 2021, which reflected the full impact of the COVID-19 pandemic and its effect on theater closures, movie releases and consumer behavior worldwide. Based on more recent trends, we believe revenue from the movies business should experience sequential quarterly increases as consumers return to theaters. Cost of Revenues Cost of revenues consists primarily of expenses related to producing our products, operating our network infrastructure, the recruitment, maintenance and support of our consumer panels and amortization of capitalized fulfillment costs. These expenses include employee costs for salaries, benefits, stock-based compensation and other related personnel costs of network operations, survey operations, custom analytics and technical support, all of which are expensed as they are incurred. Cost of revenues also includes costs to obtain multichannel video programming distributor ("MVPD") data sets and panel, census based and other data sets used in our products as well as operational costs associated with our data centers, including depreciation expense associated with computer equipment and internally developed software that supports our panels and systems. Additionally, cost of revenues includes allocated overhead, lease expense and other facilities-related costs. Cost of revenues for the three months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended September 30, (In thousands) 2021 % of Revenue 2020 % of Revenue $ Change % Change Data costs$ 18,466 20.0 %$ 16,943 19.3 %$ 1,523 9.0 % Employee costs 9,942 10.7 % 9,693 11.0 % 249 2.6 % Systems and bandwidth costs 6,207 6.7 % 6,152 7.0 % 55 0.9 % Lease expense and depreciation 5,003 5.4 % 4,259 4.8 % 744 17.5 % Panel costs 3,935 4.3 % 4,674 5.3 % (739) (15.8) % Sample and survey costs 1,856 2.0 % 1,051 1.2 % 805 76.6 % Technology 1,390 1.5 % 1,421 1.6 % (31) (2.2) % Professional fees 1,126 1.2 % 1,307 1.5 % (181) (13.8) % Royalties and resellers 1,008 1.1 % 550 0.6 % 458 83.3 % Other 246 0.3 % 416 0.5 % (170) (40.9) % Total cost of revenues$ 49,179 53.2 %$ 46,466 52.8 %$ 2,713 5.8 % Cost of revenues increased by$2.7 million , or 5.8%, for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . Data costs increased by$1.5 million primarily due to new data licensing costs to increase our data footprint and data rights. Sample and survey costs increased$0.8 million primarily due to higher sales and deliveries of digital marketing solutions. Lease expense and depreciation increased$0.7 million due to higher depreciation driven by previously capitalized internal-use software costs. Offsetting these increases was a decrease in panel costs of$0.7 million primarily due to lower recruitment and support costs for our mobile panels. Cost of revenues for the nine months endedSeptember 30, 2021 and 2020 were as follows: Nine Months Ended September 30, (In thousands) 2021 % of Revenue 2020 % of Revenue $ Change % Change Data costs$ 55,706 20.6 %$ 47,669 17.9 %$ 8,037 16.9 % Employee costs 30,925 11.4 % 29,835 11.2 % 1,090 3.7 % Systems and bandwidth costs 20,382 7.5 % 17,944 6.7 % 2,438 13.6 % Lease expense and depreciation 14,775 5.5 % 12,393 4.7 % 2,382 19.2 % Panel costs 11,614 4.3 % 14,622 5.5 % (3,008) (20.6) % Sample and survey costs 5,227 1.9 % 3,728 1.4 % 1,499 40.2 % Technology 4,367 1.6 % 4,284 1.6 % 83 1.9 % Professional fees 3,885 1.4 % 3,149 1.2 % 736 23.4 % Royalties and resellers 2,701 1.0 % 1,919 0.7 % 782 40.8 % Other 3,685 1.4 % 1,670 0.6 % 2,015 120.7 % Total cost of revenues$ 153,267 56.7 %$ 137,213 51.6 %$ 16,054 11.7 % Cost of revenues increased by$16.1 million , or 11.7%, for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . Data costs increased by$8.0 million primarily due to new data licensing costs to increase our data footprint and data rights. 23
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Systems and bandwidth costs increased$2.4 million primarily due to increases in cloud-based data storage and bandwidth capacity. Lease expense and depreciation increased$2.4 million primarily due to higher depreciation driven by previously capitalized internal-use software costs. Other expenses increased by$2.0 million primarily due to the recognition of$2.4 million in license costs associated with the delivery of our cross-platform products inEurope in connection with the multi-year agreement described above. Sample and survey costs increased$1.5 million primarily due to higher sales and deliveries of digital marketing solutions. Employee costs increased$1.1 million as we allocated more employee resources towards support of our products and operating infrastructure. Offsetting these increases was a decrease in panel costs of$3.0 million primarily due to lower recruitment and support costs for our mobile panels. Selling and Marketing Selling and marketing expenses consist primarily of employee costs for salaries, benefits, commissions, stock-based compensation and other related costs for personnel associated with sales and marketing activities. It also includes costs related to online and offline advertising, industry conferences, promotional materials, public relations, other sales and marketing programs and allocated overhead, which is comprised of lease expense and other facilities-related costs, and depreciation expense generated by general purpose equipment and software. Selling and marketing expenses for the three months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended September 30, (In thousands) 2021 % of Revenue 2020 % of Revenue $ Change % Change Employee costs$ 12,519 13.5 %$ 14,280 16.2 %$ (1,761) (12.3) % Lease expense and depreciation 918 1.0 % 1,136 1.3 % (218) (19.2) % Professional fees 480 0.5 % 736 0.8 % (256) (34.8) % Other 1,295 1.4 % 979 1.1 % 316 32.3 % Total selling and marketing (11.2) % expenses$ 15,212 16.4 %$ 17,131 19.5 %$ (1,919) Selling and marketing expenses decreased by$1.9 million , or 11.2%, for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . Employee costs decreased$1.8 million primarily due to lower commission expense and a decrease in employee headcount. Selling and marketing expenses for the nine months endedSeptember 30, 2021 and 2020 were as follows: Nine Months Ended September 30, (In thousands) 2021 % of Revenue 2020 % of Revenue $ Change % Change Employee costs$ 41,696 15.4 %$ 42,762 16.1 %$ (1,066) (2.5) % Lease expense and depreciation 2,967 1.1 % 3,806 1.4 % (839) (22.0) % Professional fees 1,562 0.6 % 1,999 0.8 % (437) (21.9) % Other 3,344 1.2 % 3,784 1.4 % (440) (11.6) % Total selling and marketing (5.3) % expenses$ 49,569 18.3 %$ 52,351 19.7 %$ (2,782) Selling and marketing expenses decreased by$2.8 million , or 5.3%, for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . Employee costs decreased$1.1 million primarily due to lower commission expense and a decrease in employee headcount. Lease and depreciation expense decreased$0.8 million primarily due to lower rent as we reduced our office footprint and sublet two locations during 2020. Research and Development Research and development expenses include product development costs, consisting primarily of employee costs for salaries, benefits, stock-based compensation and other related costs for personnel associated with research and development activities, third-party expenses to develop new products and third-party data costs and allocated overhead, which is comprised of lease expense and other facilities-related costs, and depreciation expense related to general purpose equipment and software. Research and development expenses for the three months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended September 30, (In thousands) 2021 % of Revenue 2020 % of Revenue $ Change % Change Employee costs$ 6,788 7.3 %$ 7,189 8.2 %$ (401) (5.6) % Technology 1,042 1.1 % 1,076 1.2 % (34) (3.2) % Lease expense and depreciation 741 0.8 % 894 1.0 % (153) (17.1) % Professional fees 354 0.4 % 253 0.3 % 101 39.9 % Other 126 0.1 % 89 0.1 % 37 41.6 % Total research and development (4.7) % expenses$ 9,051 9.8 %$ 9,501 10.8 %$ (450) Research and development expenses decreased by$0.5 million , or 4.7%, for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . Employee costs decreased$0.4 million primarily due to a decrease in employee headcount. 24
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Research and development expenses for the nine months endedSeptember 30, 2021 and 2020 were as follows: Nine Months Ended September 30, (In thousands) 2021 % of Revenue 2020 % of Revenue $ Change % Change Employee costs$ 22,060 8.2 %$ 21,786 8.2 %$ 274 1.3 % Technology 3,275 1.2 % 3,225 1.2 % 50 1.6 % Lease expense and depreciation 2,438 0.9 % 3,120 1.2 % (682) (21.9) % Professional fees 1,352 0.5 % 874 0.3 % 478 54.7 % Other 411 0.2 % 397 0.1 % 14 3.5 % Total research and development 0.5 % expenses$ 29,536 10.9 %$ 29,402 11.1 %$ 134 Research and development expenses increased by$0.1 million , or 0.5%, for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . Professional fees increased$0.5 million due to increased consulting fees. Employee costs increased$0.3 million primarily due to higher stock-based compensation expense. Offsetting these increases was a decrease in lease and depreciation expense of$0.7 million primarily due to lower rent as we reduced our office footprint and sublet two locations during 2020. General and Administrative General and administrative expenses consist primarily of employee costs for salaries, benefits, stock-based compensation and other related costs, and related expenses for executive management, finance, human capital, legal and other administrative functions, as well as professional fees, overhead, including allocated overhead, which is comprised of lease expense and other facilities-related costs, depreciation expense related to general purpose equipment and software, amortization of cloud-computing implementation costs, Board of Directors compensation and expenses incurred for other general corporate purposes. General and administrative expenses for the three months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended September 30, (In thousands) 2021 % of Revenue 2020 % of Revenue $ Change % Change Employee costs$ 8,809 9.5 %$ 6,659 7.6 %$ 2,150 32.3 % Professional fees 5,323 5.8 % 2,339 2.7 % 2,984 127.6 % Technology 908 1.0 % 567 0.6 % 341 60.1 % Lease expense and depreciation 394 0.4 % 494 0.6 % (100) (20.2) % Other 1,461 1.6 % 2,077 2.4 % (616) (29.7) % Total general and administrative 39.2 % expenses$ 16,895 18.3 %$ 12,136 13.8 %$ 4,759 General and administrative expenses increased by$4.8 million , or 39.2%, for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . Professional fees increased$3.0 million primarily driven by increased consulting and audit fees in 2021 related to implementation support for our new enterprise resource planning ("ERP") system, and higher legal fees. Employee costs increased$2.2 million primarily due to severance expense related to the departure of our former CFO inAugust 2021 , and higher stock-based compensation expense. Offsetting these increases was a decrease in other expense of$0.6 million primarily due to lower bad debt expense in 2021 as compared to an increase in our allowance in the third quarter of 2020 as a result of the COVID-19 pandemic. General and administrative expenses for the nine months endedSeptember 30, 2021 and 2020 were as follows: Nine Months Ended September 30, (In thousands) 2021 % of Revenue 2020 % of Revenue $ Change % Change Employee costs$ 24,710 9.1 %$ 20,191 7.6 %$ 4,519 22.4 % Professional fees 11,889 4.4 % 9,704 3.6 % 2,185 22.5 % Technology 2,119 0.8 % 1,683 0.6 % 436 25.9 % Lease expense and depreciation 1,285 0.5 % 1,606 0.6 % (321) (20.0) % Other 5,606 2.1 % 8,236 3.1 % (2,630) (31.9) % Total general and administrative 10.1 % expenses$ 45,609 16.9 %$ 41,420 15.6 %$ 4,189 General and administrative expenses increased by$4.2 million , or 10.1%, for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . Employee costs increased$4.5 million primarily due to higher stock-based compensation expense, and due to severance expense related to the departure of our former CFO inAugust 2021 . Professional fees increased by$2.2 million primarily driven by increased consulting and audit fees in 2021 related to implementation support for our new ERP system. Offsetting these increases was a decrease in other expense of$2.6 million primarily due to lower bad debt expense in 2021 as compared to an increase in our allowance throughout 2020 as a result of the COVID-19 pandemic. 25
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Loss on Extinguishment of Debt Loss on extinguishment of debt represents the difference between the carrying value of our debt instruments and any consideration paid to our creditors in the form of cash or shares of our Common Stock on the extinguishment date. In the first quarter of 2021, we recorded a$9.6 million loss on debt extinguishment related to the payoff of the senior secured convertible notes (the "Notes") and the secured promissory note (the "Secured Term Note") onMarch 10, 2021 . The primary drivers of the extinguishment loss were the write-off of unamortized deferred financing costs and issuance discounts, the issuance of additional shares of Common Stock in connection with the extinguishment, and the derecognition of the interest rate reset derivative liability on the Notes. These components are described in Footnote 4 , Debt. Impairment of Right-of-use and Long-lived Assets In the first quarter of 2020, we recorded a$4.7 million impairment charge related to our facility lease right-of-use assets and associated leasehold improvements for certain properties on the market for sublease. The impairment charge was driven by changes in our projected undiscounted cash flows for certain properties, primarily as a result of changes in the real estate market related to the COVID-19 pandemic, that led to an increase in the estimated marketing time and a reduction of expected receipts. Other Income (Expense), Net Other income (expense), net represents income and expenses incurred that are generally not recurring in nature or are not part of our regular operations. The following is a summary of other income (expense), net for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2021 2020 2021 2020
Change in fair value of warrants liability
- 2,200 1,800 6,887
Other 131 119 69 210
Total other income (expense), net $ 5,713 $
4,191
The change in other income (expense), net for the three and nine months endedSeptember 30, 2021 as compared to 2020 was largely driven by changes in the fair value of our warrants liability, and gains from the change in fair value of our financing derivatives. The gain on the warrants liability for the three months endedSeptember 30, 2021 was due primarily to a decrease in the trading price of our Common Stock during the third quarter. The loss on the warrants liability for the nine months endedSeptember 30, 2021 was due primarily to the exercise price adjustment described in Footnote 5 , Convertible Redeemable Preferred Stock and Stockholders' Equity, and an increase in the trading price of our Common Stock during the current year. The gain on the financing derivatives was primarily due to the passage of time as our remaining future interest obligations declined over the term of the Notes prior to their extinguishment inMarch 2021 . Interest Expense, Net Interest expense, net consists of interest income and interest expense. Interest income primarily consists of interest earned from our cash and cash equivalent balances. Interest expense relates to interest on our Notes, Secured Term Note, Revolving Credit Agreement, sale-leaseback agreement, and our finance leases. During the three months endedSeptember 30, 2021 and 2020, we incurred interest expense, net of$0.2 million and$9.0 million , respectively, and$7.6 million and$26.7 million during the nine months endedSeptember 30, 2021 and 2020, respectively. The decrease in interest expense for the three and nine months endedSeptember 30, 2021 as compared to 2020 was primarily due to the extinguishment of the Notes and the Secured Term Note inMarch 2021 , as described in Footnote 4 , Debt. Gain (Loss) From Foreign Currency Transactions Our foreign currency transactions are recorded as a result of fluctuations in the exchange rate between the transactional currency and the functional currency of foreign subsidiary transactions. Our international currency exposures that relate to the translation toU.S. Dollars are in a net liability position and our international currency exposures that relate to the translation fromU.S. Dollars are in a net asset position. For the three and nine months endedSeptember 30, 2021 , the gain from foreign currency transactions was$1.2 million and$1.9 million , respectively. The gain was primarily driven by fluctuations in the Chilean Peso against theU.S. Dollar and Euro and theU.S. Dollar and Canadian Dollar against the Euro exchange rates. For the three and nine months endedSeptember 30, 2020 , the loss from foreign currency transactions was$2.0 million and$2.2 million , respectively. The losses were primarily driven by fluctuations in the Chilean Peso against theU.S. Dollar and Euro, and theU.S. Dollar against the Euro exchange rates. Income Tax (Provision) Benefit A valuation allowance has been established against our netU.S. federal and state deferred tax assets and certain foreign deferred tax assets, including net operating loss carryforwards. As a result, our income tax position is primarily related to foreign tax activity andU.S. deferred taxes for tax deductible goodwill and other indefinite-lived liabilities. 26
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During the three and nine months endedSeptember 30, 2021 , we recorded an income tax provision of$(0.7) million and$(2.2) million , respectively, resulting in an effective tax rate of 26.7% and 4.3%, respectively. During the three months endedSeptember 30, 2020 , we recorded an income tax provision of$(0.2) million , resulting in an effective tax rate of 2.2%. During the nine months endedSeptember 30, 2020 , we recorded an income tax benefit$0.8 million , resulting in an effective tax rate of (2.4)%. These effective tax rates differ from theU.S. federal statutory rate primarily due to the effects of certain permanent items, foreign tax rate differences, and increases in the valuation allowance against our domestic deferred tax assets. The increase in the tax provision during 2021 as compared to 2020 was primarily due to an increase inU.S. deferred tax expense for tax deductible goodwill and an increase in estimated foreign tax expense in 2021. The COVID-19 pandemic has a global reach, and many countries have introduced measures that provide relief to taxpayers in a variety of ways. We continue to evaluate new legislation as it is introduced, but none of these measures had an impact on our income tax (provision) benefit for the three and nine months endedSeptember 30, 2021 . Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, refer to Footnote 2
,
Summary of Significant Accounting Policies.
Liquidity and Capital Resources
The following table summarizes our cash flows for each of the periods
identified:
Nine Months Ended September 30,
(In thousands) 2021 2020
Net cash used in operating activities $ (1,121) $ (1,843)
Net cash used in investing activities (11,669) (11,628)
Net cash used in financing activities (20,526) (1,476)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(691) 8
Net decrease in cash, cash equivalents and restricted cash (34,007) (14,939)
Overview
Our principal uses of cash consist of cash paid for data, payroll and other operating expenses, including expenses incurred in prior periods; payments related to investments in equipment, primarily to support our consumer panels and technical infrastructure required to deliver our products and services and support our customers; service of our debt and lease facilities; and, beginning in 2021, our dividend payment obligations. As ofSeptember 30, 2021 , our principal sources of liquidity consisted of cash, cash equivalents and restricted cash totaling$16.7 million , including$0.8 million in restricted cash, as well as amounts available to us under our Revolving Credit Agreement, as described below. Our principal sources of liquidity have historically been our cash and cash equivalents, as well as cash flow generated from operations. Our operating losses and interest payments on our Notes and Secured Term Note, as well as the scheduled maturity of the Notes inJanuary 2022 , resulted in a need to secure long-term financing to extinguish the Notes and increase working capital. OnMarch 10, 2021 , we entered into separate Securities Purchase Agreements with each ofCharter Communications Holding Company, LLC ("Charter"), Qurate Retail, Inc. ("Qurate") andPine Investor, LLC ("Pine") (the "Transactions"). At the closing of the Transactions, we issued and sold (a) to Charter, 27,509,203 shares of Series B Convertible Preferred Stock ("Preferred Stock") in exchange for$68.0 million , (b) to Qurate, 27,509,203 shares of Preferred Stock in exchange for$68.0 million and (c) to Pine, 27,509,203 shares of Preferred Stock in exchange for$68.0 million . OnJune 30, 2021 , in accordance with the Certificate of Designations of the Preferred Stock, we paid cash dividends totaling$4.8 million to the holders of the Preferred Stock, representing dividends accrued for the period fromMarch 10, 2021 throughJune 29, 2021 . As ofSeptember 30, 2021 , accrued dividends for the Preferred Stock totaled$4.0 million . The proceeds from the Transactions were used to repay the Notes. See "Senior Secured Convertible Notes" below. In connection with the closing, we also repaid the Secured Term Note and certain transaction-related expenses with cash from our balance sheet. See "Secured Term Note" below. For additional information on the Transactions and related debt extinguishments, refer to Footnote 4 , Debt and Footnote 5 , Convertible Redeemable Preferred Stock and Stockholders' Equity. OnMay 5, 2021 , we entered into a senior secured revolving credit agreement (the "Revolving Credit Agreement") among the Company, as borrower, certain of our subsidiaries as guarantors,Bank of America N.A ., as administrative agent, and the lenders from time to time party thereto. The Revolving Credit Agreement provides a borrowing capacity equal to$25.0 million . During the third quarter of 2021, we borrowed$16.0 million under the Revolving Credit Agreement. In addition to these borrowings, we had issued and outstanding letters of credit totaling$2.9 million under the Revolving Credit Agreement as ofSeptember 30, 2021 , leaving a remaining borrowing capacity of$6.1 million . InOctober 2021 , we transferred additional outstanding letters of credit totaling$0.4 million under the Revolving Credit Agreement, which left a remaining borrowing capacity of$5.7 million . 27
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Pandemic Impact The COVID-19 pandemic and related government mandates and restrictions have had a significant impact on the media, advertising and entertainment industries in which we operate. To date, the COVID-19 pandemic has had some impact on our business, including with respect to the execution of new and renewal contracts, the impact of closed movie theaters on our customers, customer payment delays and requests to modify contractual payment terms. These conditions have negatively impacted our revenue and cash flows, particularly in our Movies Reporting and Analytics business, and could continue to have an impact in future periods. It is possible that long-term changes in consumer behavior will impact our customers' operations, and thus their demand for our services and ability to pay, even after the spread of COVID-19 has been contained and businesses are permitted to resume normal operations. While we have taken actions to mitigate the impact of the COVID-19 pandemic, control costs and improve our working capital balance, these steps may not be successful or adequate if customer demand or cash collection efforts are further impacted by the COVID-19 pandemic or other factors. Preferred Stock OnMarch 10, 2021 , in connection with the Securities Purchase Agreements described above, we issued 82,527,609 shares of Preferred Stock in exchange for gross cash proceeds of$204.0 million . The shares were issued at a par value of$0.001 . Net proceeds from the Transactions totaled$188.2 million after deducting issuance costs. Shares of Preferred Stock are convertible into Common Stock as described in Footnote 5 , Convertible Redeemable Preferred Stock and Stockholders' Equity. As ofSeptember 30, 2021 , each share of Preferred Stock was convertible into 1.019375 shares of Common Stock. The holders of Preferred Stock are entitled to participate in all dividends declared on the Common Stock on an as-converted basis and are also entitled to a cumulative dividend at the rate of 7.5% per annum, payable annually in arrears and subject to increase under certain specified circumstances. In addition, afterJanuary 1, 2022 , such holders are entitled to request, and we must take all actions reasonably necessary to pay, a one-time special dividend on the Preferred Stock equal to the highest dividend that our Board of Directors determines can be paid at the applicable time (or a lesser amount agreed by the holders), subject to additional conditions and limitations described in Footnote 5 , Convertible Redeemable Preferred Stock and Stockholders' Equity. We may be obligated to obtain debt financing in order to effectuate the special dividend, which could significantly impact our financial position and liquidity depending on the timing and scope of the dividend payment and related financing. Moreover, this obligation could lead us to refinance or terminate the Revolving Credit Agreement prior to its maturity, due to its restrictions on our ability to incur additional debt. Revolving Credit Agreement OnMay 5, 2021 , we entered into the Revolving Credit Agreement, which matures onMay 5, 2024 . The Revolving Credit Agreement provides a borrowing capacity equal to$25.0 million . We may also request the issuance of letters of credit under the Revolving Credit Agreement in an aggregate amount up to$5.0 million , which reduces the amount of available borrowings by the amount of such issued and outstanding letters of credit. The amount we are able to borrow under the Revolving Credit Agreement is subject to compliance with the financial covenants, satisfaction of various conditions precedent to borrowing and other provisions of the Revolving Credit Agreement. Notably, the Revolving Credit Agreement contains financial covenants that require us to maintain minimum Consolidated EBITDA for periods throughMarch 31, 2022 and a minimum Fixed Charge Coverage Ratio for periods afterMarch 31, 2022 (each term as defined in the Revolving Credit Agreement). As ofSeptember 30, 2021 , we were in compliance with our covenants under the Revolving Credit Agreement, and based on our current plans, we do not anticipate a breach of these covenants that would result in an event of default under the Revolving Credit Agreement. Our plans include consideration of various liquidity options, including renegotiating existing covenants, postponing dividends or other payments, improving our financial performance, refinancing our existing debt or issuing new debt, or raising additional capital from new or existing investors. As ofSeptember 30, 2021 , issued and outstanding letters of credit under the Revolving Credit Agreement totaled$2.9 million . In addition, during the third quarter of 2021, we borrowed$16.0 million under the Revolving Credit Agreement, leaving a remaining borrowing capacity of$6.1 million . InOctober 2021 , additional outstanding letters of credit totaling$0.4 million were transferred under the Revolving Credit Agreement, leaving a remaining borrowing capacity of$5.7 million . The borrowed funds were used to reduce our accounts payable balances, primarily related to expenses incurred in prior periods, and support our working capital position. While we continue to take steps to reduce our outstanding trade payables and improve our working capital position, our liquidity could be negatively affected if we are unable to generate sufficient cash from operations to meet our financial obligations as they come due. For additional information on the Revolving Credit Agreement, refer to Footnote 4 , Debt. Sale of Common Stock and Warrants OnJune 23, 2019 , we entered into a Securities Purchase Agreement with CVI pursuant to which we sold to CVI for aggregate gross proceeds of$20.0 million (i) 2,728,513 shares of Common Stock and (ii) Series A Warrants, Series B-1 Warrants, Series B-2 Warrants and Series C Warrants to initially purchase up to 11,654,033 shares of Common Stock (the "Private Placement"). OnOctober 14, 2019 , we issued 2,728,513 shares of Common Stock to CVI upon exercise by CVI of the Series C Warrants. As a result of this exercise, the number of shares issuable under our Series A Warrants was increased by 2,728,513. OnJanuary 29, 2020 , the Series B-1 Warrants expired unexercised. OnAugust 3, 2020 , the Series B-2 Warrants expired unexercised. 28
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For additional information on the Private Placement and the adjustment to the exercise price of our Series A Warrants in connection with the Transactions (which adjustment could reduce the cash proceeds we receive upon exercise of the Series A Warrants), refer to Footnote 5 , Convertible Redeemable Preferred Stock and Stockholders' Equity. Senior Secured Convertible Notes OnJanuary 16, 2018 , we entered into certain agreements with funds affiliated with or managed byStarboard Value LP (collectively "Starboard"), pursuant to which we issued and sold to Starboard$150.0 million in Notes in exchange for$85.0 million in cash and 2,600,000 shares of Common Stock. OnMay 17, 2018 , we issued and sold to Starboard$50.0 million of Notes in exchange for$15.0 million in cash and 1,400,000 shares of Common Stock. Later in 2018 we issued an aggregate of$4.0 million in Notes to Starboard, bringing the total balance of Notes as ofDecember 31, 2020 to$204.0 million . The proceeds from the Transactions were used to repay the Notes issued to Starboard, resulting in termination of related covenants under the Notes, including limitations on indebtedness and liens and maintenance of certain minimum cash balances that had limited our financial flexibility in prior periods. For additional information on the Notes, refer to Footnote 4 , Debt. Secured Term Note OnDecember 31, 2019 , our wholly owned subsidiary,Rentrak B.V. , entered into an agreement with several third parties for the Secured Term Note in exchange for gross proceeds of$13.0 million . The Secured Term Note had an annual interest rate of 9.75% payable monthly in cash. In connection with the Transactions, we repaid the Secured Term Note and certain transaction-related expenses with cash from our balance sheet. For additional information on the Secured Term Note, refer to Footnote 4 , Debt. Restricted Cash Restricted cash represents outstanding letters of credit and security deposits for subleased office space. As ofDecember 31, 2020 , restricted cash also represented our requirement to collateralize the Secured Term Note. As ofSeptember 30, 2021 andDecember 31, 2020 , we had$0.8 million and$19.6 million of restricted cash, respectively. Repayment of the Secured Term Note resulted in the termination of the collateralization requirement thereunder, and no cash was restricted relating to the Secured Term Note as ofSeptember 30, 2021 . We also transferred outstanding letters of credit totaling$2.9 million under the Revolving Credit Agreement, which further reduced our restricted cash balance as this facility does not require letters of credit to be cash collateralized. InOctober 2021 , additional outstanding letters of credit totaling$0.4 million were transferred under the Revolving Credit Agreement, and as a result we no longer have restricted cash related to outstanding letters of credit. Operating Activities Our primary source of cash provided by operating activities is revenues generated from sales of our products and services. Our primary uses of cash from operating activities include personnel costs and costs related to data and infrastructure used to develop and maintain our products and services. Cash used in operating activities is calculated by adjusting our net loss for changes in working capital, as well as by excluding non-cash items such as: depreciation, non-cash operating lease expense, amortization expense of finance leases and intangible assets, impairment of right-of-use assets, stock-based compensation, deferred tax provision, change in the fair value of financing derivatives and warrants liability, loss on extinguishment of debt, non-cash interest expense on the Notes, accretion of debt discount, and amortization of deferred financing costs. Net cash used in operating activities for the nine months endedSeptember 30, 2021 was$1.1 million , compared to net cash used of$1.8 million for the nine months endedSeptember 30, 2020 . The decrease in cash used in operating activities was primarily attributable to a decrease in the cash interest paid on the Notes in 2021 of$18.4 million compared to 2020 (interest of$10.8 million on the Notes was paid in shares of Common Stock in 2021). Offsetting the reduction in cash interest paid was a net decrease in operating assets and liabilities of$22.1 million for the nine months endedSeptember 30, 2021 as compared to a net decrease of$14.6 million for the nine months endedSeptember 30, 2020 . The decrease in operating assets and liabilities was primarily due to increases in our accounts receivable balances in 2021 compared to 2020 relating to timing of collections and invoicing on custom projects. Investing Activities Cash used in investing activities primarily consists of payments related to capitalized internal-use software costs, purchases of computer and network equipment to support our technical infrastructure, and furniture and equipment. The extent of these investments will be affected by our ability to expand relationships with existing customers, grow our customer base and introduce new digital formats, as well as constraints on cash expenditures due to our financial position and the current economic environment. Net cash used in investing activities for the nine months endedSeptember 30, 2021 was$11.7 million compared to net cash used in investing activities of$11.6 million for the nine months endedSeptember 30, 2020 . The nominal increase in cash used in investing activities was due to an increase in cash paid for computer equipment, offset by a decrease in payments for capitalized internally developed software. 29
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Financing Activities Net cash used in financing activities during the nine months endedSeptember 30, 2021 was$20.5 million compared to net cash used in financing activities of$1.5 million during the nine months endedSeptember 30, 2020 . The increase in cash used in financing activities was primarily due to the repayment of the Notes and the Secured Term Note inMarch 2021 , and payment of$4.8 million in cash dividends to the holders of the Preferred Stock inJune 2021 . These increases in cash used were partially offset by cash proceeds of$204.0 million from the issuance of the Preferred Stock discussed above (net of$15.8 million in related transaction costs) and cash proceeds of$16.0 million from borrowing under the Revolving Credit Agreement. Contractual Payment Obligations We have certain long-term contractual arrangements that have fixed and determinable payment obligations including unconditional purchase obligations with MVPDs, operating and financing leases, and data storage and bandwidth arrangements. We have data licensing agreements with a number of MVPDs for set-top box data. These agreements have remaining terms from one to ten years. As ofSeptember 30, 2021 , the total fixed payment obligation related to these agreements is$373.4 million . We have both operating and financing leases related to corporate office space and equipment. Our leases have remaining terms from one to seven years. As ofSeptember 30, 2021 , the total fixed payment obligation related to these agreements is$64.3 million . We have an agreement for cloud-based data storage and bandwidth to help process and store our data. The remaining term for this agreement is three years. As ofSeptember 30, 2021 , the total fixed payment obligation related to this agreement is$22.1 million . Future Capital Requirements Our ability to generate cash is subject to our performance, general economic conditions, industry trends and other factors, including the timing of cash collections from our customers, data costs and other trade payables, service of our debt and lease facilities and dividend payment obligations, and expenses from ongoing compliance efforts and legal matters. As discussed above, we have experienced delays in customer payments and requests to modify contractual terms in connection with the COVID-19 pandemic and related government mandates and restrictions. To the extent that our existing cash, cash equivalents and operating cash flow, together with savings from repayment of the Notes and Secured Term Note and cost-reduction initiatives undertaken by our management, are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. We may also be required to raise additional funds in order to pay a special dividend to holders of our Preferred Stock, as described above. Our history of net losses, as well as disruption and volatility in global capital and credit markets, could impact our ability to access capital resources on terms acceptable to us or allowable under applicable financing arrangements, or at all. If we issue additional equity securities in order to raise additional funds, pay dividends or for other purposes, further dilution to existing stockholders may occur. Off-Balance Sheet Arrangements We have no material off-balance sheet arrangements (as defined in Item 303 of Regulation S-K) as ofSeptember 30, 2021 . Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the amounts reported in our Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, including (with respect to the three and nine months endedSeptember 30, 2021 ) the ongoing and potential impacts of the COVID-19 pandemic and related government mandates and restrictions. Actual results may differ from these estimates. Our critical accounting policies are those that are both material to the presentation of our financial condition and results of operations and require management's most subjective and complex judgments. Other than our accounting policies related to the accounting for the Preferred Stock, and application of Accounting Standards Codification ("ASC") 470, Debt related to extinguishment of the Notes and Secured Term Note, there have been no material changes or updates to our critical accounting policies and estimates during the three and nine months endedSeptember 30, 2021 as compared to the critical accounting policies and estimates disclosed in our 2020 10-K . Preferred Stock OnMarch 10, 2021 , in connection with the Transactions described above, we issued 82,527,609 shares of Preferred Stock in exchange for gross cash proceeds of$204.0 million . The shares were issued at a par value of$0.001 . Net proceeds from the Transactions totaled$188.2 million after deducting issuance costs. The Preferred Stock is contingently redeemable upon certain deemed liquidation events, such as a change in control. Because a deemed liquidation event could constitute a redemption event outside of our control, all shares of Preferred Stock have been presented outside of permanent equity in mezzanine equity on the Condensed Consolidated Balance Sheets. The instrument is initially recognized at fair value net of issuance costs. We reassess whether the Preferred Stock is currently redeemable, or probable to become redeemable in the future, as of each 30
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reporting date. If the instrument meets either of these criteria, we will accrete the carrying value to the redemption value. The Preferred Stock has not been adjusted to its redemption amount as a deemed liquidation event is not considered probable. All financial instruments that are classified as mezzanine equity are evaluated for embedded derivative features by evaluating each feature against the nature of the host instrument (e.g. more equity-like or debt-like). Features identified as embedded derivatives that are material are recognized separately as a derivative asset or liability in the consolidated financial statements. EffectiveJanuary 1, 2021 , we early-adopted Accounting Standards Update ("ASU") 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40). This ASU simplifies accounting for convertible instruments, enhances disclosure requirements related to the terms and features of convertible instruments, and amends the guidance for the derivatives scope exception for contracts settled in an entity's own equity. This ASU removes from GAAP the separation models for (1) convertible debt with a Cash Conversion Feature and (2) convertible instruments with a Beneficial Conversion Feature. Upon adoption of this new ASU, entities will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock, unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815, or (2) a convertible debt instrument was issued at a substantial premium. As a result of the adoption, no embedded features were identified requiring bifurcation under the new model, other than the change of control redemption feature. We adopted the standard using the modified retrospective approach. The standard had no impact on the Notes and, as a result, there was no cumulative adjustment recorded upon adoption. Loss on Extinguishment of Debt We apply the provisions of ASC 470, Debt, to determine whether amendments to, or repayments of, our debt agreements should be accounted for as a modification or extinguishment event. Loss on extinguishment of debt represents the difference between the carrying value of our debt instruments and any consideration paid to our creditors in the form of cash or shares of our Common Stock on the extinguishment date. InMarch 2021 , we recorded a$9.6 million loss on debt extinguishment related to the payoff of the Notes and the Secured Term Note onMarch 10, 2021 . These transactions are described in Footnote 4 , Debt. 31
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