COMSCORE INC SCOR S
November 20, 2015 - 1:41am EST by
roc924
2015 2016
Price: 42.00 EPS -.30 0
Shares Out. (in M): 39 P/E nm 0
Market Cap (in M): 1,638 P/FCF 0 0
Net Debt (in M): -111 EBIT -9 0
TEV: 1,527 TEV/EBIT nm 0
Borrow Cost: Available 0-15% cost

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  • Misaligned Incentives
 

Description

I think comScore (SCOR- $42) is a short.

 

  1. Very high valuation, especially considering weak core revenue growth

  2. TTM reported revenue growth doesn’t even look that great at 14% given the valuation, but in reality, core growth is even worse. Taking into account plummeting deferred revenue changes, acquisitions, and accelerating non-cash revenue, growth was only 5%

  3. Deteriorating quality of earnings

  4. I think 2. and 3. above mean that revenue and earnings will be disappointing in the future

  5. High share based comp that accounted for 62% of management’s adjusted EBITDA figure for the last twelve months and heavy insider selling



Business Description

 

comScore provides digital audience measurement and advertising analytics. In the company’s words: “We deliver digital media analytics that help content owners and advertisers understand--and thus properly value--the composition of consumer media audiences, and we help marketers understand the performance and effectiveness of advertising targeted at these audiences.”

 

comScore competes with heavyweights Nielsen, DoubleClick (Google) and Atlas (Facebook) and WPP.  comScore also derives revenue from Google, Yahoo, and WPP.

 

Nielsen minces no words about who it competes with in digital, listing comScore as its “primary competitor in the digital audience and campaign measurement” area.

 

In light of that, I thought this quote from AdExchanger was interesting: “The general consensus in the TV/video arena is, ‘If we want to reach the true, Holy Grail of cross-device, de-duplicated reach and frequency, there’s only one company that has ownership of this currency and that’s Nielsen.’”

http://adexchanger.com/digital-tv/nielsen-comscore-at-a-cross-screen-measurement-crossroads/

 

And this:

http://www.mediapost.com/publications/article/222782/google-doubles-down-on-nielsen-brings-ratings-int.html

 

WPP

April 1, 2015 comScore acquired all of the outstanding common stock in WPP's internet audience measurement business in Norway, Sweden and Finland ("European IAM Business") and entered into an alliance in which the Company and WPP will collaborate on cross-media audience measurement business outside the United States (the "Strategic Alliance").

 

ComScore issued issued 1.6m shares in exchange for the European IAM Business and the Strategic Alliance. WPP also bought 15% of comScore, or 4.4m shares for $205m.

 

ComScore generated $4.7m of revenue from WPP from April 1 through September 30.

 

RENT

Last quarter comScore announced it is buying RENT, offering to exchange 1.15 shares of SCOR for each share of RENT. This values RENT at 6x ttm revenue and 83x reported ttm EBITDA.  The deal depends heavily on synergies. The discounted cash flow analysis in the S-4 resulted in an exchange ratio of 0.4 to 0.8x without synergies and 1.1 to 1.9x with synergies. RENT will represent 15% of the adjusted EBITDA of the combined companies. Deal expected to close in 1Q16.



Valuation

 

 

SCOR

NLSN

GOOG

EV

1,525

24,540

 446,500

Revenue ttm

    361

6,181

71,763

     y/y growth

14%*

-1%

13%

Reported EBITDA ttm**

      24

1671

23,305

EV/Revenue

     4.2

     4.0

     6.2

EV/EBITDA

      64

      15

      19

*I think SCOR’s organic/core growth is more like 5%.

**excludes impairments and loss on disposal for SCOR; without excluding these EBITDA was $8m lower

 

Management adjusts EBITDA to exclude several items, the biggest of which is stock based comp, which came to a whopping 62% of ttm adjusted EBITDA. Management’s adjusted EBITDA for the TTM period ending September 30 was $88.6m. I can barely bring myself to do it, but using this figure, SCOR trades at an EV/adj EBITDA multiple of 17x.

 

Since 2012 the company generated free cash flow excluding acquisitions of $200m. They spent about $175m offsetting share dilution from their generous stock comp, leaving $25m in free cash flow over 3.75 years for shareholders. So about $7m in FCF per year. Retained earnings are a negative $104m and getting worse.

 

Why would anyone buy SCOR at 64x reported EBITDA when you can buy GOOG at 19x? Especially when SCORs business is really only growing 5%. See below. Using GOOG’s multiple on SCOR’s ttm EBITDA (adding back impairments and loss on disposal) results in a stock price of $12.



Core Growth Decelerating Sharply, But That’s Not Apparent in Results

 

There are three factors that are serving to inflate reported growth, or lower its quality: 1) nonmonetary transactions in revenue, 2) revenue from acquisitions, and 3) drop in deferred revenue (see chart in next section).

 

For a company like this, I like to look at billings, or revenue plus the change in deferred revenue, on a trailing twelve month basis. I then adjust for acquisitions and other funny stuff, in this case removing the revenue from WPP and removing revenue from nonmonetary transactions, which is revenue for which the company will not receive cash. When Rentrak analyzed comScore’s financials, they removed these revenues as well.



($Millions)

TTM Sep15

TTM Sep 14

growth

Reported revenue

          361

   316

14%

Plus change in deferred revenue

             3

          8

 

Less nonmonetary revenue

           31

         12

 

Less WPP

             5

         -  

 

Adjusted billings

          328

       312

5%



 

 

This is reflected in reported revenue, but I think it interesting to note international revenue growth is declining rapidly. Some of this is obviously FX.




Deteriorating Quality of Earnings

 

Deferred revenue additions in the last twelve months were only  $3m. That’s down 62% from $8m added in the same year ago period.

 

 

Accrued expenses are declining as a % of recognized expenses. Had this ratio stayed the same as a year ago, EBITDA would have been $25.9m lower.

 

 

The company doesn’t break out accrued expenses quarterly. Following is the 2014 year end break out.

 

Accrued Expenses at the end of 2014

 
 

($000)

% of Total

 

Payroll and payroll related

$ 11,453

31%

 
 

Stock-based compensation

7,177

19%

 
 

Cost of revenues

6,261

17%

 
 

Income, sales and other taxes

4,460

12%

 
 

Professional fees

2,109

6%

 
 

Other

5,752

15%

 
 

Total

$ 37,212

   
 
 





Share Based Comp and Management Incentives

 

Management wants you to ignore stock compensation expense: it excludes it from its adjusted EBITDA figure. But stock comp is of course a real expense to shareholders. The company spent $215m in cold hard cash since the beginning of 2012 on share repurchases that  mostly just went to offset shares issued under share-based compensation plans. Stock comp represented an egregious 62% of management’s measure of adjusted EBITDA for the last twelve months.

 

Management incentives were heavily aligned to boost revenue and adjusted EBITDA. The CEO’s incentive pay depended 50% on hitting a revenue target and 50% on an adjusted EBITDA target. Since EBITDA is adjusted for stock comp, management is not penalized for more stock comp. Most of the other executives’ incentive pay was 50 to 80% weighted on hitting revenue targets. The company hit 165% of its revenue target and 200% of its EBITDA target in 2014, resulting in the CEO getting paid $17m, $16.5m of that in stock and options awards.

 

Note the CFO left in April 2014.

 



 

Shares

Shares out 1/1/2012

   34.0

Issued for compensation

     4.5

Received for tax withholding

    (1.8)

Issued for acquisitions (WPP)

     1.6

Issued to WPP for consideration of $205m

     4.4

Repurchased

    (3.7)

Shares out 9/30/15

   39.0

 

 




I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

Future revenues and earnings are disappointing

    sort by   Expand   New

    Description

    I think comScore (SCOR- $42) is a short.

     

    1. Very high valuation, especially considering weak core revenue growth

    2. TTM reported revenue growth doesn’t even look that great at 14% given the valuation, but in reality, core growth is even worse. Taking into account plummeting deferred revenue changes, acquisitions, and accelerating non-cash revenue, growth was only 5%

    3. Deteriorating quality of earnings

    4. I think 2. and 3. above mean that revenue and earnings will be disappointing in the future

    5. High share based comp that accounted for 62% of management’s adjusted EBITDA figure for the last twelve months and heavy insider selling



    Business Description

     

    comScore provides digital audience measurement and advertising analytics. In the company’s words: “We deliver digital media analytics that help content owners and advertisers understand--and thus properly value--the composition of consumer media audiences, and we help marketers understand the performance and effectiveness of advertising targeted at these audiences.”

     

    comScore competes with heavyweights Nielsen, DoubleClick (Google) and Atlas (Facebook) and WPP.  comScore also derives revenue from Google, Yahoo, and WPP.

     

    Nielsen minces no words about who it competes with in digital, listing comScore as its “primary competitor in the digital audience and campaign measurement” area.

     

    In light of that, I thought this quote from AdExchanger was interesting: “The general consensus in the TV/video arena is, ‘If we want to reach the true, Holy Grail of cross-device, de-duplicated reach and frequency, there’s only one company that has ownership of this currency and that’s Nielsen.’”

    http://adexchanger.com/digital-tv/nielsen-comscore-at-a-cross-screen-measurement-crossroads/

     

    And this:

    http://www.mediapost.com/publications/article/222782/google-doubles-down-on-nielsen-brings-ratings-int.html

     

    WPP

    April 1, 2015 comScore acquired all of the outstanding common stock in WPP's internet audience measurement business in Norway, Sweden and Finland ("European IAM Business") and entered into an alliance in which the Company and WPP will collaborate on cross-media audience measurement business outside the United States (the "Strategic Alliance").

     

    ComScore issued issued 1.6m shares in exchange for the European IAM Business and the Strategic Alliance. WPP also bought 15% of comScore, or 4.4m shares for $205m.

     

    ComScore generated $4.7m of revenue from WPP from April 1 through September 30.

     

    RENT

    Last quarter comScore announced it is buying RENT, offering to exchange 1.15 shares of SCOR for each share of RENT. This values RENT at 6x ttm revenue and 83x reported ttm EBITDA.  The deal depends heavily on synergies. The discounted cash flow analysis in the S-4 resulted in an exchange ratio of 0.4 to 0.8x without synergies and 1.1 to 1.9x with synergies. RENT will represent 15% of the adjusted EBITDA of the combined companies. Deal expected to close in 1Q16.



    Valuation

     

     

    SCOR

    NLSN

    GOOG

    EV

    1,525

    24,540

     446,500

    Revenue ttm

        361

    6,181

    71,763

         y/y growth

    14%*

    -1%

    13%

    Reported EBITDA ttm**

          24

    1671

    23,305

    EV/Revenue

         4.2

         4.0

         6.2

    EV/EBITDA

          64

          15

          19

    *I think SCOR’s organic/core growth is more like 5%.

    **excludes impairments and loss on disposal for SCOR; without excluding these EBITDA was $8m lower

     

    Management adjusts EBITDA to exclude several items, the biggest of which is stock based comp, which came to a whopping 62% of ttm adjusted EBITDA. Management’s adjusted EBITDA for the TTM period ending September 30 was $88.6m. I can barely bring myself to do it, but using this figure, SCOR trades at an EV/adj EBITDA multiple of 17x.

     

    Since 2012 the company generated free cash flow excluding acquisitions of $200m. They spent about $175m offsetting share dilution from their generous stock comp, leaving $25m in free cash flow over 3.75 years for shareholders. So about $7m in FCF per year. Retained earnings are a negative $104m and getting worse.

     

    Why would anyone buy SCOR at 64x reported EBITDA when you can buy GOOG at 19x? Especially when SCORs business is really only growing 5%. See below. Using GOOG’s multiple on SCOR’s ttm EBITDA (adding back impairments and loss on disposal) results in a stock price of $12.



    Core Growth Decelerating Sharply, But That’s Not Apparent in Results

     

    There are three factors that are serving to inflate reported growth, or lower its quality: 1) nonmonetary transactions in revenue, 2) revenue from acquisitions, and 3) drop in deferred revenue (see chart in next section).

     

    For a company like this, I like to look at billings, or revenue plus the change in deferred revenue, on a trailing twelve month basis. I then adjust for acquisitions and other funny stuff, in this case removing the revenue from WPP and removing revenue from nonmonetary transactions, which is revenue for which the company will not receive cash. When Rentrak analyzed comScore’s financials, they removed these revenues as well.



    ($Millions)

    TTM Sep15

    TTM Sep 14

    growth

    Reported revenue

              361

       316

    14%

    Plus change in deferred revenue

                 3

              8

     

    Less nonmonetary revenue

               31

             12

     

    Less WPP

                 5

             -  

     

    Adjusted billings

              328

           312

    5%



     

     

    This is reflected in reported revenue, but I think it interesting to note international revenue growth is declining rapidly. Some of this is obviously FX.




    Deteriorating Quality of Earnings

     

    Deferred revenue additions in the last twelve months were only  $3m. That’s down 62% from $8m added in the same year ago period.

     

     

    Accrued expenses are declining as a % of recognized expenses. Had this ratio stayed the same as a year ago, EBITDA would have been $25.9m lower.

     

     

    The company doesn’t break out accrued expenses quarterly. Following is the 2014 year end break out.

     

    Accrued Expenses at the end of 2014

     
     

    ($000)

    % of Total

     

    Payroll and payroll related

    $ 11,453

    31%

     
     

    Stock-based compensation

    7,177

    19%

     
     

    Cost of revenues

    6,261

    17%

     
     

    Income, sales and other taxes

    4,460

    12%

     
     

    Professional fees

    2,109

    6%

     
     

    Other

    5,752

    15%

     
     

    Total

    $ 37,212

       
     
     





    Share Based Comp and Management Incentives

     

    Management wants you to ignore stock compensation expense: it excludes it from its adjusted EBITDA figure. But stock comp is of course a real expense to shareholders. The company spent $215m in cold hard cash since the beginning of 2012 on share repurchases that  mostly just went to offset shares issued under share-based compensation plans. Stock comp represented an egregious 62% of management’s measure of adjusted EBITDA for the last twelve months.

     

    Management incentives were heavily aligned to boost revenue and adjusted EBITDA. The CEO’s incentive pay depended 50% on hitting a revenue target and 50% on an adjusted EBITDA target. Since EBITDA is adjusted for stock comp, management is not penalized for more stock comp. Most of the other executives’ incentive pay was 50 to 80% weighted on hitting revenue targets. The company hit 165% of its revenue target and 200% of its EBITDA target in 2014, resulting in the CEO getting paid $17m, $16.5m of that in stock and options awards.

     

    Note the CFO left in April 2014.

     



     

    Shares

    Shares out 1/1/2012

       34.0

    Issued for compensation

         4.5

    Received for tax withholding

        (1.8)

    Issued for acquisitions (WPP)

         1.6

    Issued to WPP for consideration of $205m

         4.4

    Repurchased

        (3.7)

    Shares out 9/30/15

       39.0

     

     




    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise do not hold a material investment in the issuer's securities.

    Catalyst

    Future revenues and earnings are disappointing

    Messages


    SubjectRe: Rentrak merger
    Entry11/23/2015 03:31 PM
    Memberroc924

    Thanks for the questions. To me the price paid for RENT seems very high, but the market seemed to like the deal. It will expand SCORs presence in the TV area. It also probably gives SCOR more wiggle room to mask the effects of declining growth. But RENT will only represent 15% of combined EBTIDA. There are people on this board that know a lot more than me on this space (I'm a generalist), so maybe they would be kind enough to answer.

    Re FX, if we take the company's adjustments from the conference call at face value, then growth would have been about 4%pts higher, but the spread of the two numbers is still about the same and for me, the conclusion is the same. I.e. reported growth of 19% vs adj of 9%, or the way I did it 14% vs 5%.  When adjusting for FX, I wonder about how the company might have adapted through price changes, which they don't disclose. Also, SCOR has non-USD denominated expenses, but we don't have the international financial statments to get the earnings impact. If their costs in xyz country are higher than the revenues, then the stronger dollar would have decreased revenue but increased earnings. 

    They pointed out the FX drag on revenue on the conference call, but here is what they said in the 10-Q (maybe they are referring to the earnigns or balance sheet effect):

    "We operate in several countries in South America, including Brazil, Chile and Argentina as well as countries in Europe and Canada. As such, we have exposure to adverse changes in exchange rates associated with revenues and operating expenses of our foreign operations, but we believe this exposure to be immaterial at this time."

     


    SubjectRe: Revenue growth?
    Entry12/08/2015 05:37 PM
    Memberroc924

    Hey, thanks for the questions. What does the RENT CFO think of the deal and SCOR? Any color on business trends in the industry from him? Do you think the RENT guys will have much influence on SCOR management? RENT is such a small part of SCOR.

     

    Not surprised the RENT CFO thinks they shouldn’t have non-monetary revenue. I see that RENT’s advisors backed it out and gave SCOR no credit for it in the S-4. Non-monetary revenue went from 0% of revenue two years ago to 10% last quarter. The last time I saw non-monetary revenue make such a big contribution to a company’s overall revenue and growth was with those soon-to-be-worthless dotcom stocks in 1999. I about fell out of my chair when I saw it for SCOR. For me, non-monetary revenue is worse than no revenue at, all as it smells so bad.

     

    I look at bookings (change in DR plus rev) because I think it provides a better view into underlying business trends than just revenue. There has to be some accounting for the fact that a drop in deferred revenue now is robbing future revenue (or that a drop in the growth of deferred revenue will mean lower revenue growth in the future all else equal). I used TTM, which eliminates the seasonality of deferred revenue. Since almost all of SCOR’s deferred revenue is a current liability (i.e. <1yr), TTM also has the nice effect of like-for-like comparisons of deferred changes. Looking at an extreme example, if SCOR recognized all its deferred in one quarter as revenue (DR its entire deferred revenue balance to zero and CR that balance to revenue), it would have a blow-out revenue growth quarter, but that would reduce future recognized revenue and the blow-out wouldn’t reflect underlying business.


    Rabbits and hats. Ha. I have no way of knowing. It’s an odds and pattern recognition game for me. And at this valuation, I think a lot of rabbits are discounted in the price.


    SubjectRe: Re: Revenue growth?
    Entry12/08/2015 05:38 PM
    Memberroc924

    Oops, I shouldn't have abbrievated deferred revenue and debit as DR in the same post....


    SubjectRe: Re: Re: Revenue growth?
    Entry12/17/2015 10:28 AM
    MemberMostly_Ugly

    Roc924, Sorry for delayed reply.  I need to figure out a better way to track conversation threads on VIC.

    RENT management was always extremely promotional (CEO Livek in particular).  But that aside, they did a terrific job.  Nielsen was kind of asleep at the switch, and I wonder if they still are?

     

    RENT CFO Chemerow is bullish on SCOR (but what else do you expect him to say?), they'll be ready to launch a cross platform product within maybe a couple months of deal closing, and he thinks the revenue synergy estimates are conservative. He said with new structure SCOR is clearly in charge, but gave several examples of how around the margins the RENT team has been able to argue and win on important details already.  RENT was valued at 1/3 of new SCOR, and in 2017 I model them doing 1/3 the EBITDA (and growing faster).  I don't love this deal for RENT. 

     

    Core business, RENT has a few more years of significant growth in their TV business.  They've been adding stations at a healthy clip, penetration now is 35% of local TV market and they can at least double that in the next few years.  They've guided to LT incremental EBITDA margins of 35%, and I think that something near that is credible. 

     

    On SCOR, I'm less familiar.  Spoke with their CFO this week about non-monetary revenue as well as other things.  Deferred is customer prepaying, which may or may not be a real concern, definitely something to watch but I can see valid reasons why this could be noisy.  Barter revenue is the bigger number... SCOR explanation: they have ongoing needs to acquire data, and they want to do it without revenue shares that cripple their business model down the road.  Difficult to get a dialogue going with large companies without a revenue share (I can't verify for SCOR, but this makes sense as it matches RENT's experience over time - they had to pay up significantly to get DISH data.)  So their "in" is to work with an individual inside the company that has the desired data  asset and barter to get the data that way.  I'm not sure how to discount revenue that comes this way.  I wouldn't credit it at 100%, but I definitely think it's more than 0%.

     

    Sum the parts, and you get real cash flowing businesses, but the multiples on that cash flow even a few years out are quite aggressive.  With RENT down 50%+ from highs, I was hoping to get another entry point.  The deal has complicated that.  To go long, I'd want to get the new cross platform product for free, and my estimates are that right now you're paying around half the stock price for that option.  I guess that's just a longer way of phrasing your point that a lot of rabbits are priced in already.  Plus stock comp is very high, Matta sold stock recently, and I just can't get comfortable.

     

    The problem I'd have going short is that they have a potentially long growth runway in front of them, and this is potentially the kind of industry where someone could build a real long term competitive moat.  RENT's argument for a long time has been that measurement is changing, advertisers and agencies are consistently becoming more ROI driven, and that means big data.  Nielsen is the giant in the space, but has a big hurdle to overcome in that they are not a tech/big data company and that's a difficult pivot to make.  (On local TV, it's interesting to go back through Nielsen's calls over the years and search for the terms set-top box, census, local TV, and big data to see how commentary evolved over time.)  It's taken RENT years to acquire the data, develop the processes to clean it and make it useful, and their product would be hard to replicate.  I'm less sure about SCOR, I know they have a lot of websites tagged, does anyone have an idea of how difficult that might be to replicate? 

     

    During 2016 we'll learn a lot as Nielsen and new SCOR will both launch cross platform products and we'll see what adoption looks like. 

     


    SubjectRe: Re: Re: Re: Revenue growth?
    Entry12/17/2015 10:31 AM
    MemberMostly_Ugly

    To save time in looking it up, here's the evolution of NLSN's commentary from fall of 2013 to fall of 2014.

    11/13/13 (CFO West)

    We know set-top boxes as well as anyone, we know what it can and can’t do.  It can complement panels, but it can’t be a currency for trading.  We feel really good about our position.  While we’ll work with anyone to extend our reach, set top boxes don’t keep me up at night. 

     

    5/28/14 (CEO Barns)

    There are problems with set top boxes:

    1. Only 20% of STBs are capable of return path data
    2. Data issues: box on, TV off; can’t tell the individual viewer; demographics skewed.

    For those reasons, “while it's still part of our plan going forward, it's not the biggest part of our plan going forward.”  Broader hybrid plan – we want to increase sample size, and supplement it some with STB data.

     

    6/19/14 (Hasker)

    Future measurement is “the combination of big and small data.”  Small being high quality panels, costing $100s of millions to build and maintain.  Combine those with big data, including online campaign ratings, mobile ratings beginning in July, Twitter TV Ratings, and set top boxes. 

     

    9/11/14 (Pres Hasker)

    For digital videos, we’re doing hybrid.  Use panels to calibrate big data sets, so it’s effectively census data.  “Looking into the future, I think we will adopt a similar technique for our traditional media business.”  We started down that road basically 18 months ago as the panel sizes came under pressure.  And clients said get it right first and don’t launch until you can do overnight ratings on set-top boxes, work with MRC to get accredited, etc. 

     

    10/23/14

    (Barns) Local TV “has received considerable attention lately.”  Clients want improved measurement.  We’re working on two tracks.

    1. Add electronic measurement in more markets, which is well under way
    2. Add complementary stream of data, separate from our currency, which draws on both our panels and other datasets, “including set-top box data”.  This will provide a new way to analyze TV audiences for those clients who want it.  We cannot currently deliver STB data into overnight ratings, thus the two track system. 

    Local is important for us, we’re committed to continuing as the currency provider. 

    <Q> You’ve had access to set-top data for a long time, why is it a higher priority now?

     

    <A> Look, we’ve seen the opportunity for a long time, actively using in parts of our business.  In Ad Solutions, Nielsen Catalina uses it and clients are happy.  We still don’t think set-top box works as a standalone source of data, but combined with other things that compensate for its weaknesses it can be useful.


    SubjectRe: Re: Re: Re: Re: Revenue growth?
    Entry12/18/2015 10:14 AM
    Memberroc924

    Thank you for the detailed reply. Interesting notes.


    Subjectseeking alpha
    Entry01/19/2016 02:45 PM
    Memberroc924

    Seeking Alpha article out Thursday morning that says to short SCOR based on the points I raised in this report; nothing new. Not sure what to think of this; I'm flattered I suppose, but not psyched. 

    Stock down 14% so far today although I'm not sure why. WPP has been a large buyer recently as they top off their shares to 20%. Perhaps they stepped away.

    Anyone else know why it's down so much? Thanks.

     


    Subject"Certain Potential Accounting Matters"
    Entry02/29/2016 08:04 PM
    Memberroc924

    SCOR filed the below today instead of their 10k. Interesting because I think there are accounting issues. The company has under-accrued expenses and there are red flags in their rev rec as noted in the write up. Also note that the company missed 4Q revenue by 5% (apples to apples; have to factor in Digital Analytix sale, which was late and boosted 4Q revenue by $5m); investors haven't seemed to care probably because of RENT. I still think it's a solid short.  

    comScore, Inc. (the “Company”) is unable to file, without unreasonable effort and expense, its Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the “Form 10-K”) because it requires additional time to prepare its financial statements and complete the external audit of those statements included in the Form 10-K. On February 19, 2016, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) received a message regarding certain potential accounting matters. In response, the Audit Committee immediately commenced a review of the matters with the assistance of independent counsel and advisors. As a result, the Company has not finalized its financial statements pending completion of the review, and the Company is not in a position to file its Form 10-K until after the completion of the Audit Committee’s review. The Company expects to file the Form 10-K by March 15, 2016, which is within the permitted 15-day extension of the prescribed due date of February 29, 2016. 

     


    SubjectDelays 10-K Again, Cancels Investor Day and Stock Buyback
    Entry03/07/2016 11:25 AM
    Memberroc924

    Today SCOR delayed its 10-K for the second time in a week, cancelled its investor day and cancelled its stock buyback. The Audit Committee, independent counsel and advisors continue to investigate the certain “potential accounting matters” (see prior post). The stock is down almost 30% today.

    Compounding SCOR’s difficulties (e.g. future lawsuits?) is that it used its common stock to pay the acquisition consideration for its recently closed Rentrak acquisition. That consideration was of course valued using SCOR's past financial results, which are now being questioned.

    Notably, the company added this line in its SEC filing today:  "the Company proactively contacted the staff of the Securities and Exchange Commission regarding the Audit Committee’s internal review." The company wrote nothing about this in the press release it issued today. This fits with management’s prior actions (e.g. aggressive accounting, like non-cash revenue, under accruing expenses, aggressive revenue recognition, etc) and promotional nature. Management said on the last conference call that they are “really bullish” more times than I can ever remember hearing on a call (they said bullish 10 times).

     

    This stock is still very expensive on an EV/EBITDA basis when you include stock based comp as a real expense. I may cover half of my position today in case it bounces, but I think this stock is ultimately headed to the teens.


    SubjectFree Cash Flow Misleading
    Entry03/31/2016 06:26 PM
    Memberroc924

    As previously noted, management excludes stock based comp and “infrequently occurring items” from its adjusted EBITDA calculation, upon which management bonuses are calculated.  If management had not excluded these items, EBITDA would have been over 60% lower last year. Also previously noted, the company would have missed revenue by 5% last quarter had the sale of a division occurred as management baked into its guidance. Management made no mention of this materially negative fact in the 4Q15 press release or conference call.

     

    Management's presentation of free cash flow is misleading. After making adjustments, it’s clear that SCOR is burning cash on an economic basis.

     

    What I haven’t discussed previously (and should have) is that SCOR incurs a large and rapidly growing amount of capital lease obligations relative to its cash flow and relative to its industry peers*. Management touts its free cash flow figure in its press release and conference calls, but fails to adjust or mention its non-industry standard use of capital leases and how it has boosted its calculation of free cash flow.

     

    Management was “thrilled that our free cash flow position for 2015 was…” Since the 10-k has been delayed pending an investigation into accounting matters, let’s look at the nine months ended Sep15. First recall that assets acquired under capital lease obligations do not impact capital expenditures reported in the investing section of the cash flow statement and payments on these leases are reported as a financing activity. Obviously, since SCOR is using capital lease obligations to lease “new software, hardware and other computer equipment as it expands its technology infrastructure in support of its business growth”, we need to add those new obligations to capital expenditures.

     

    When we make that adjustment, free cash flow was 37% lower for the first 9mos of 2015 compared to the figures managment highlighted in its earnings press release. Y/Y growth in free cash flow drops from management’s 26% to only 15%.

     

    Stock based comp is a real expense that is hitting SCOR’s cash flow. Indeed, the company has spent large sums buying back stock, most of which went to offset shares issued under stock comp plans. When we deduct stock based comp from management’s free cash flow, it drops to negative $11m for the 9 months ended Sep15, down from -$2m in the prior period.



     

    9mos Sep15

    9mos Sep14

    CFO

           47.8

         42.0

    capex

            (3.2)

          (6.6)

    Management’s FCF

           44.6

         35.4

    capital lease obligations incurred

           16.5

         10.9

    Free cash flow including cap leases

           28.1

         24.5

    stock based comp

           39.0

         26.4

    Free cash flow with cap leases and stock comp

          (10.9)

          (1.9)



    I think there is enough smoke here that there is a 75% chance that once disclosed, the “certain potential accounting matters” will be a negative surprise for this stock given its high valuation. I think 50% downside is realistic from here (i.e. a fall from $30 to roughly $15).

     

    Recall that the prior CFO left the company less than two years ago.

     

    Finally, the recent FAJ article “The Misrepresentation of Earnings” is one of the better articles I’ve read lately. SCOR has a lot of the red flags mentioned in the article.



    *Rentrak did not use capital leases. Nielson does, but changes in capital leases are tiny relative to cash flows.

     


    Subjectanother delay
    Entry06/28/2016 12:13 PM
    Memberroc924

    SCOR filed an 8-K today stating that it needs "further time to evaluate the information collected and to reach and evaluate final conclusions."  On May 11, 2016, the Company wrote in its NT 10-Q: "As the Audit Committee investigation is nearing its end, the Company expects to provide an informed update by June 27, 2016."

     

     

    If the audit committe investigation was nearing its end a month and a half ago, but now the company has to delay again, it seems likely the issues are serious. 

    Given the low economic earnings power of this company, still high valuation, and accounting issues outlined, I continue to believe this stock is headed for the teens and I haven't covered any shares. Down here it's getting harder to advocate for the short, but the mistake I've made in the past with this type of situation is covering too soon and with 25-50% further downside, I am sticking with it.


    SubjectRe: Re: NLSN
    Entry06/28/2016 03:31 PM
    Memberroc924

    Thanks for the response bdad, because I could not have answered that as definitively. My sense, which can often be wrong, is that any acquirer would wait for what is probably bad news regarding the accounting investigation and also see how the Rentrak merger has gone. 

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