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, 2021 (the "2021 10-K"), under Item 1A , "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (the "Q1 2022 10-Q"), 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 5, 2022 , our Board of Directors appointedJonathan Carpenter as our Chief Executive Officer, effectiveJuly 6, 2022 . In connection withMr. Carpenter's appointment,William Livek retired as our Chief Executive Officer. Also onJuly 5, 2022 , the Board of Directors appointedMary Margaret Curry as our Chief Financial Officer and Treasurer, effectiveJuly 6, 2022 .Ms. Curry continues to serve as our principal accounting officer.
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 June 30 ,
Six Months Ended
2022 2021 2022 2021
(In thousands) Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue
Revenues $ 91,434 100.0 % $ 87,659 100.0 % $ 185,400 100.0 % $ 177,989 100.0 %
Cost of revenues 51,467 56.3 % 51,386 58.6 % 104,385 56.3 % 104,088 58.5 %
Selling and marketing 17,485 19.1 % 16,530 18.9 % 34,651 18.7 % 34,357 19.3 %
Research and development 9,917 10.8 % 10,132 11.6 % 19,449 10.5 % 20,485 11.5 %
General and administrative 17,103 18.7 % 14,246 16.3 % 35,220 19.0 % 28,714 16.1 %
Amortization of intangible assets 6,772 7.4 % 6,255 7.1 % 13,551 7.3 % 12,694 7.1 %
Total expenses from operations 102,744 112.4 % 98,549 112.4 % 207,256 111.8 % 200,338 112.6 %
Loss from operations (11,310) (12.4) % (10,890) (12.4) % (21,856) (11.8) % (22,349) (12.6) %
Other income (expense), net 4,557 5.0 % (6,508) (7.4) % 6,990 3.8 % (14,782) (8.3) %
Gain (loss) from foreign currency
transactions 2,527 2.8 % (370) (0.4) % 2,947 1.6 % 704 0.4 %
Interest expense, net (176) (0.2) % (355) (0.4) % (376) (0.2) % (7,400) (4.2) %
Loss on extinguishment of debt - - % - - % - - % (9,629) (5.4) %
Loss before income taxes (4,402) (4.8) % (18,123) (20.7) % (12,295) (6.6) % (53,456) (30.0) %
Income tax provision (648) (0.7) % (422) (0.5) % (2,031) (1.1) % (1,444) (0.8) %
Net loss $ (5,050) (5.5) % $ (18,545) (21.2) % $ (14,326) (7.7) % $ (54,900) (30.8) %
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Revenues
Our products and services are organized around solution groups that address customer needs. Accordingly, we evaluate revenue around two solution groups:
•Digital Ad Solutions provide measurement of the behavior and characteristics of audiences across digital platforms, including computers, tablets, mobile and other connected devices. This solution group also includes custom offerings that provide end-to-end solutions for planning, optimization and evaluation of advertising campaigns and brand protection across digital platforms, including transactional outcome-based measurement driven by our Activation and CCR products. •Cross Platform Solutions provide measurement of content and advertising audiences across local, national and addressable television, including consumption through connected (Smart) televisions, and are designed to help customers find the most relevant viewing audience whether that viewing is linear, non-linear, online or on-demand. This solution group also includes custom offerings that provide end-to-end solutions for planning, optimization and evaluation of advertising campaigns across platforms. In addition, this solution group includes products that measure movie viewership and box office results by capturing movie ticket sales in real time or near real time and includes box office analytics, trend analysis and insights for movie studios and movie theater operators worldwide. We categorize our revenue along these two solution groups; however, our cost structure is tracked at the corporate level and not by our solution groups. These costs include, but are not limited to, employee costs, purchased data, operational overhead, data storage and technology that supports multiple solution groups.
Revenues for the three months ended
Three Months Ended June 30,
(In thousands) 2022 % of Revenue 2021 % of Revenue $ Variance % Variance
Digital Ad Solutions $ 51,630 56.5 % $ 52,497 59.9 % $ (867) (1.7) %
Cross Platform Solutions 39,804 43.5 % 35,162 40.1 % 4,642 13.2 %
Total revenues $ 91,434 100.0 % $ 87,659 100.0 % $ 3,775 4.3 %
Digital Ad Solutions revenue decreased primarily due to lower usage of our Activation product, partially offset by higher deliveries of our custom digital solutions.
Cross Platform Solutions revenue increased primarily due to higher TV revenues from new partnerships, higher contract values from renewals and increased agency adoption. Our movies revenue increased due to the continued return of consumers to theaters in markets worldwide.
Revenues for the six months ended
Six Months Ended June 30,
(In thousands) 2022 % of Revenue 2021 % of Revenue $ Variance % Variance
Digital Ad Solutions $ 104,767 56.5 % $ 105,542 59.3 % $ (775) (0.7) %
Cross Platform Solutions 80,633 43.5 % 72,447 40.7 % 8,186 11.3 %
Total revenues $ 185,400 100.0 % $ 177,989 100.0 % $ 7,411 4.2 %
Digital Ad Solutions revenue decreased primarily due to lower revenue from
delivery of our digital measurement products in Europe due to $2.4 million in
license revenue recognized under a multi-year contract in the first quarter of
2021. This decrease was partially offset by higher revenue from deliveries of
our custom digital solutions.
Cross Platform Solutions revenue increased primarily due to higher TV revenues
from new partnerships, higher contract values from renewals and increased agency
adoption. In addition, we recognized $3.0 million of revenue related to cost
reimbursements of cloud computing and processing costs attributable to certain
custom TV data set deliveries. Our movies revenue increased by $2.2 million due
to the continued return of consumers to theaters in markets worldwide.
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, which is
comprised of lease expense and other facilities-related costs, and depreciation
expense generated by general purpose equipment and software.
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Cost of revenues for the three months endedJune 30, 2022 and 2021 were as follows: Three Months Ended June 30, (In thousands) 2022 % of Revenue 2021 % of Revenue $ Change % Change Data costs$ 18,933 20.7 %$ 18,937 21.6 %$ (4) - % Employee costs 10,745 11.8 % 10,340 11.8 % 405 3.9 % Systems and bandwidth costs 7,210 7.9 % 7,340 8.4 % (130) (1.8) % Lease expense and depreciation 5,297 5.8 % 4,855 5.5 % 442 9.1 % Panel costs 3,696 4.0 % 3,766 4.3 % (70) (1.9) % Sample and survey costs 1,879 2.1 % 1,548 1.8 % 331 21.4 % Professional fees 1,418 1.6 % 1,476 1.7 % (58) (3.9) % Technology 1,301 1.4 % 1,466 1.7 % (165) (11.3) % Royalties and resellers 705 0.8 % 1,268 1.4 % (563) (44.4) % Other 283 0.3 % 390 0.4 % (107) (27.4) % Total cost of revenues$ 51,467 56.3 %$ 51,386 58.6 %$ 81 0.2 % Cost of revenues for the six months endedJune 30, 2022 and 2021 were as follows: Six Months Ended June 30, (In thousands) 2022 % of Revenue 2021 % of Revenue $ Change % Change Data costs$ 36,980 19.9 %$ 37,240 20.9 %$ (260) (0.7) % Employee costs 21,221 11.4 % 20,983 11.8 % 238 1.1 % Systems and bandwidth costs 16,877 9.1 % 14,175 8.0 % 2,702 19.1 % Lease expense and depreciation 10,630 5.7 % 9,772 5.5 % 858 8.8 % Panel costs 7,433 4.0 % 7,679 4.3 % (246) (3.2) % Sample and survey costs 3,624 2.0 % 3,371 1.9 % 253 7.5 % Professional fees 2,907 1.6 % 2,759 1.6 % 148 5.4 % Technology 2,563 1.4 % 2,977 1.7 % (414) (13.9) % Royalties and resellers 1,626 0.9 % 1,693 1.0 % (67) (4.0) % Other 524 0.3 % 3,439 1.9 % (2,915) (84.8) % Total cost of revenues$ 104,385 56.3 %$ 104,088 58.5 %$ 297 0.3 % Systems and bandwidth costs increased primarily due to cloud computing and processing costs attributable to certain custom TV data set deliveries in the first half of 2022, including$3.0 million that was recognized as revenue as described above. Other expenses decreased primarily due to the recognition of$2.4 million in license costs associated with the delivery of our digital measurement products inEurope in the first quarter of 2021 in connection with the multi-year contract described above.
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 endedJune 30, 2022 and 2021 were as follows: Three Months Ended June 30, (In thousands) 2022 % of Revenue 2021 % of Revenue $ Change % Change Employee costs$ 14,085 15.4 %$ 13,893 15.8 %$ 192 1.4 % Lease expense and depreciation 955 1.0 % 1,008 1.1 % (53) (5.3) % Technology 850 0.9 % 610 0.7 % 240 39.3 % Professional fees 577 0.6 % 609 0.7 % (32) (5.3) % Other 1,018 1.1 % 410 0.5 % 608 148.3 % Total selling and marketing 5.8 % expenses$ 17,485 19.1 %$ 16,530 18.9 %$ 955 19
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Selling and marketing expenses for the six months endedJune 30, 2022 and 2021 were as follows: Six Months Ended June 30, (In thousands) 2022 % of Revenue 2021 % of Revenue $ Change % Change Employee costs$ 28,295 15.3 %$ 29,177 16.4 %$ (882) (3.0) % Lease expense and depreciation 1,901 1.0 % 2,049 1.2 % (148) (7.2) % Technology 1,697 0.9 % 1,272 0.7 % 425 33.4 % Professional fees 1,085 0.6 % 1,082 0.6 % 3 0.3 % Other 1,673 0.9 % 777 0.4 % 896 115.3 % Total selling and marketing 0.9 % expenses$ 34,651 18.7 %$ 34,357 19.3 %$ 294 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 endedJune 30, 2022 and 2021 were as follows: Three Months Ended June 30, (In thousands) 2022 % of Revenue 2021 % of Revenue $ Change % Change Employee costs$ 7,676 8.4 %$ 7,477 8.5 %$ 199 2.7 % Technology 1,020 1.1 % 1,100 1.3 % (80) (7.3) % Lease expense and depreciation 721 0.8 % 838 1.0 % (117) (14.0) % Professional fees 339 0.4 % 597 0.7 % (258) (43.2) % Other 161 0.2 % 120 0.1 % 41 34.2 % Total research and development (2.1) % expenses$ 9,917 10.8 %$ 10,132 11.6 %$ (215) Research and development expenses for the six months endedJune 30, 2022 and 2021 were as follows: Six Months Ended June 30, (In thousands) 2022 % of Revenue 2021 % of Revenue $ Change % Change Employee costs$ 15,131 8.2 %$ 15,272 8.6 %$ (141) (0.9) % Technology 2,011 1.1 % 2,233 1.3 % (222) (9.9) % Lease expense and depreciation 1,435 0.8 % 1,697 1.0 % (262) (15.4) % Professional fees 587 0.3 % 998 0.6 % (411) (41.2) % Other 285 0.2 % 285 0.2 % - - % Total research and development (5.1) % expenses$ 19,449 10.5 %$ 20,485 11.5 %$ (1,036) General and Administrative General and administrative expenses consist primarily of employee costs for salaries, benefits, stock-based compensation and other related costs, and related expenses for executive management, finance, human capital, legal and other administrative functions, as well as professional fees, overhead, including allocated overhead, which is comprised of lease expense and other facilities-related costs, depreciation expense related to general purpose equipment and software, amortization of cloud-computing implementation costs, changes in the fair value of our contingent consideration liability, Board of Directors compensation and expenses incurred for other general corporate purposes. General and administrative expenses for the three months endedJune 30, 2022 and 2021 were as follows: Three Months Ended June 30, (In thousands) 2022 % of Revenue 2021 % of Revenue $ Change % Change Employee costs$ 9,523 10.4 %$ 7,603 8.7 %$ 1,920 25.3 % Professional fees 4,386 4.8 % 3,577 4.1 % 809 22.6 % Technology 839 0.9 % 622 0.7 % 217 34.9 % Lease expense and depreciation 406 0.4 % 417 0.5 % (11) (2.6) % Other 1,949 2.1 % 2,027 2.3 % (78) (3.8) % Total general and administrative 20.1 % expenses$ 17,103 18.7 %$ 14,246 16.3 %$ 2,857
Employee costs increased primarily due to severance expense related to the retirement of our former Chief Executive Officer ("CEO").
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General and administrative expenses for the six months endedJune 30, 2022 and 2021 were as follows: Six Months Ended June 30, (In thousands) 2022 % of Revenue 2021 % of Revenue $ Change % Change Employee costs$ 18,000 9.7 %$ 15,901 8.9 %$ 2,099 13.2 % Professional fees 8,622 4.7 % 6,566 3.7 % 2,056 31.3 % Technology 1,679 0.9 % 1,211 0.7 % 468 38.6 % Lease expense and depreciation 841 0.5 % 891 0.5 % (50) (5.6) % Other 6,078 3.3 % 4,145 2.3 % 1,933 46.6 % Total general and administrative 22.7 % expenses$ 35,220 19.0 %$ 28,714 16.1 %$ 6,506 Employee costs increased primarily due to severance expense related to the retirement of our former CEO. Professional fees increased primarily due to a reclassification of insurance costs from other expenses to better reflect the nature of services provided. Other expense increased primarily due to a$2.4 million loss resulting from the change in fair value of the contingent consideration recognized as part of the business combination described in
Footnote 2 , Summary of Significant Accounting Policies. This increase was partially offset by the reclassification of insurance costs to professional fees.
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 six months endedJune 30, 2022 and 2021: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2022 2021 2022 2021
Change in fair value of warrants liability
- - - 1,800
Other (3) 11 (5) (62)
Total other income (expense), net $ 4,557 $
(6,508)
The change in other income (expense), net for the three and six months endedJune 30, 2022 as compared to 2021 was largely driven by changes in the fair value of our warrants liability. The gain on the warrants liability for the three and six months endedJune 30, 2022 was primarily due to a decrease in the trading price of our Common Stock during the relevant periods. The loss on the warrants liability for the three and six months endedJune 30, 2021 was due primarily to the exercise price adjustment described in Footnote 4 , Convertible Redeemable Preferred Stock and Stockholders' Equity, and an increase in the trading price of our Common Stock during the relevant periods.
Interest Expense, Net
Interest expense, net consists of interest income and interest expense. Interest income primarily consists of interest earned from our cash and cash equivalent balances. Interest expense relates to interest on our senior secured convertible notes (the "Notes"), foreign secured promissory note (the "Secured Term Note"), our senior secured revolving credit agreement (the "Revolving Credit Agreement"), our sale-leaseback agreement, and our finance leases. We incurred interest expense, net of$0.2 million and$0.4 million during the three months endedJune 30, 2022 and 2021, respectively, and$0.4 million and$7.4 million during the six months endedJune 30, 2022 and 2021, respectively. The decrease in interest expense for the six months endedJune 30, 2022 as compared to 2021 was primarily due to the extinguishment of the Notes and the Secured Term Note inMarch 2021 , as described in Footnote 5 , 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 months endedJune 30, 2022 and 2021, the gain (loss) from foreign currency transactions was$2.5 million and$(0.4) million , respectively. For the six months endedJune 30, 2022 and 2021, the gain from foreign currency transactions was$2.9 million and$0.7 million , respectively. The gain during the three and six months endedJune 30, 2022 was primarily driven by fluctuations between the Chilean Peso, Euro andU.S. Dollar exchange rates.
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. InMarch 2021 , we recorded a$9.6 million loss on debt extinguishment related to the payoff of the Notes and the Secured Term Note. The primary drivers of the extinguishment loss were the write-off of unamortized deferred financing costs and issuance discounts, the issuance of 21
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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 5 , Debt.
Income Tax Provision
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. For the three months endedJune 30, 2022 and 2021, we recorded income tax provisions of$0.6 million and$0.4 million , respectively, resulting in effective tax rates of 14.7% and 2.3%, respectively. For the six months endedJune 30, 2022 and 2021, we recorded income tax provisions of$2.0 million and$1.4 million , respectively, resulting in effective tax rates of 16.5% and 2.7%, respectively. 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 income tax provision during 2022 as compared to 2021 was primarily due to an increase in estimated foreign tax expense in 2022.
Liquidity and Capital Resources
The following table summarizes our cash flows for each of the periods identified:
Six Months Ended June 30,
(In thousands) 2022 2021
Net cash provided by operating activities $ 24,233 $ 10,860
Net cash used in investing activities (8,256) (7,723)
Net cash used in financing activities (16,989) (35,876)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(1,208) (322)
Net decrease in cash, cash equivalents and restricted cash (2,220) (33,061)
Overview
Our principal uses of cash consist of cash paid for data, payroll and other
operating expenses, including expenses incurred in prior periods; payments
related to investments in equipment, primarily to support our consumer panels
and technical infrastructure required to deliver our products and services and
support our customers; service of our debt and lease facilities; and dividend
payment obligations with respect to our Series B Convertible Preferred Stock
("Preferred Stock").
As of June 30, 2022 , our principal sources of liquidity consisted of cash, cash
equivalents and restricted cash totaling $20.1 million (including $0.4 million
in restricted cash), cash flows from our operations, and $20.7 million available
to us under our Revolving Credit Agreement, as described below.
On March 10, 2021 , we entered into separate Securities Purchase Agreements with
each of Charter Communications Holding Company, LLC ("Charter"), Qurate Retail,
Inc. ("Qurate") and Pine Investor, LLC ("Pine") (the "Transactions"). At the
closing of the Transactions, we issued 82,527,609 shares of Preferred Stock in
exchange for gross cash proceeds of $204.0 million .
The proceeds from the Transactions were used to repay the Notes issued to
Starboard. For additional information on the Transactions and the extinguishment
of the Notes, refer to Footnote 4 , Convertible Redeemable Preferred Stock
and Stockholders' Equity and Footnote 5 , Debt.
On May 5, 2021 , we entered into the Revolving Credit Agreement, which was
subsequently amended in February 2022 . The Revolving Credit Agreement provides a
borrowing capacity equal to $40.0 million . During 2021, we borrowed $16.0
million under the Revolving Credit Agreement. In addition to these borrowings,
we have issued and outstanding letters of credit totaling $3.3 million under the
Revolving Credit Agreement, leaving a remaining borrowing capacity of $20.7
million as of June 30, 2022 .
On June 30, 2022 , we made cash dividend payments totaling $15.5 million to the
holders of the Preferred Stock, representing dividends accrued for the period
from June 30, 2021 through June 29, 2022 . The next scheduled dividend payment
date for the Preferred Stock is June 30, 2023 .
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
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.
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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 . Net proceeds from the Transactions totaled$187.9 million after deducting issuance costs. Shares of Preferred Stock are convertible into Common Stock as described in Footnote 4 , Convertible Redeemable Preferred Stock and Stockholders' Equity. As ofJune 30, 2022 , each share of Preferred Stock would have been convertible into 1.000208 shares of Common Stock, with such assumed conversion rate scheduled to return to 1.00 upon payment of accrued dividends onJune 30, 2023 . The holders of Preferred Stock are entitled to participate in all dividends declared on the Common Stock on an as-converted basis and are also entitled to a cumulative dividend at the rate of 7.5% per annum, payable annually in arrears and subject to increase under certain specified circumstances. In addition, such holders are entitled to request, and we must take all actions reasonably necessary to pay, a one-time special dividend on the Preferred Stock equal to the highest dividend that our Board determines can be paid at the applicable time (or a lesser amount agreed by the holders), subject to additional conditions and limitations described in Footnote 4 , 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. The Revolving Credit Agreement had an original borrowing capacity equal to$25.0 million and bore interest on borrowings at a Eurodollar Rate (as defined in the Revolving Credit Agreement) that was based on LIBOR. 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 facility has a maturity of three years from the closing date of the agreement. OnFebruary 25, 2022 , we entered into an amendment (the "Amendment") to the Revolving Credit Agreement to expand our aggregate borrowing capacity from$25.0 million to$40.0 million . The Amendment also replaced the Eurodollar Rate with a SOFR-based interest rate and modified the Applicable Rate definition in the Revolving Credit Agreement to increase the Applicable Rate payable on SOFR-based loans to 2.50% until the date a compliance certificate is received for the quarter endingMarch 31, 2023 , with such Applicable Rate thereafter reducing to 2.25%. The amount we are able to borrow under the Revolving Credit Agreement is subject to compliance with financial covenants, satisfaction of various conditions precedent to borrowing and other provisions of the Revolving Credit Agreement. Notably, the Revolving Credit Agreement contains financial covenants that require us to maintain minimum Consolidated EBITDA for periods throughDecember 31, 2022 , a minimum Consolidated Asset Coverage Ratio for periods endingMarch 31, 2022 throughDecember 31, 2022 , and a minimum Consolidated Fixed Charge Coverage Ratio for periods afterDecember 31, 2022 (each term as defined in the Revolving Credit Agreement). As ofJune 30, 2022 , we were in compliance with our covenants under the Revolving Credit Agreement, and based on our current plans, we do not anticipate a breach of these covenants that would result in an event of default under the Revolving Credit Agreement. As ofJune 30, 2022 , we had outstanding borrowings of$16.0 million and outstanding letters of credit totaling$3.3 million under the Revolving Credit Agreement, leaving a remaining borrowing capacity of$20.7 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 and operations could be negatively affected if we are unable to generate sufficient cash from operations to satisfy outstanding payables and meet our other financial obligations as they come due.
For additional information on the Revolving Credit Agreement, refer to
Footnote 5 , 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. 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 4 , Convertible Redeemable Preferred Stock and Stockholders' Equity.
Operating Activities
Our primary source of cash provided by operating activities is revenues generated from sales of our products and services. Our primary uses of cash from operating activities include personnel costs and costs related to data and infrastructure used to develop and maintain our products and services.
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Cash provided by operating activities is calculated by adjusting our net loss for changes in working capital, as well as by excluding non-cash items such as: depreciation, non-cash operating lease expense, amortization expense of finance leases and intangible assets, stock-based compensation, deferred tax provision, change in the fair value of contingent consideration, 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 provided by operating activities for the six months endedJune 30, 2022 was$24.2 million , compared to$10.9 million for the six months endedJune 30, 2021 . The increase in cash provided by operating activities was primarily attributable to a net increase in cash generated from operating assets and liabilities of$9.2 million for the six months endedJune 30, 2022 as compared to$1.3 million for the six months endedJune 30, 2021 . The higher amount of cash generated from operating assets and liabilities in 2022 is primarily reflective of higher revenues, shorter billing cycles, and improved cash collections during 2022 as compared to 2021. These increases were partially offset by higher amounts paid to reduce our outstanding accounts payable and accrued expense balances during 2022 as compared to 2021.
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 six months ended
Financing Activities
Net cash used in financing activities during the six months endedJune 30, 2022 was$17.0 million compared to$35.9 million during the six months endedJune 30, 2021 . The significant decrease in cash used for financing activities was due to repayment of our Notes and the Secured Term Note, which outflows were partially offset by cash proceeds received from the issuance of the Preferred Stock (net of related transaction costs), during 2021. These decreases were partially offset by a net increase of$10.8 million in cash dividends paid to holders of the Preferred Stock in 2022, reflecting a full annual dividend period, as compared to 2021, which included only a partial dividend period.
Contractual Payment Obligations
We have certain long-term contractual arrangements that have fixed and determinable payment obligations including purchase obligations with MVPDs and connected (Smart) television providers, operating and financing leases, and data storage and bandwidth arrangements. We have data licensing agreements with a number of MVPDs and other providers for set-top box and connected (Smart) television data. These agreements have remaining terms from one to nine years. As ofJune 30, 2022 , the total fixed payment obligations related to set-top box and connected (Smart) television data agreements are$310.2 million and$11.2 million , respectively. In addition, we expect to make variable payments related to a set-top box data agreement totaling an estimated$15.3 million over the next two years. We have both operating and financing leases related to corporate office space and equipment. Our leases have remaining terms from one to six years. As ofJune 30, 2022 , the total fixed payment obligation related to these agreements is$55.8 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 two years. As ofJune 30, 2022 , the total fixed payment obligation related to this agreement is$14.7 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. 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, cost-reduction initiatives undertaken by our management and borrowing capacity under our Revolving Credit Agreement, 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.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations
are based on our Condensed Consolidated Financial Statements, which have been
prepared in accordance with GAAP. The preparation of these financial statements
requires us to make estimates, assumptions and judgments that affect the amounts
reported in our Condensed Consolidated Financial Statements and the accompanying
Notes to Condensed Consolidated Financial Statements. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances.
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Refer to the critical accounting estimates disclosed in Item 7 ,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," in our 2021 10-K for detailed information about the estimates and
assumptions that we consider to be the most critical to an understanding of our
financial condition and results of operations. These estimates and assumptions
involve significant judgments and uncertainties, and actual results in these
areas could differ from our estimates.
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