Comscore Inc
NASDAQ:SCOR
Earnings Call Analysis
Q3-2023 Analysis
Comscore Inc
Revenue for the quarter missed expectations due to a significant decline in custom deliverables, despite achievements in developing cross-platform product offerings and forming key strategic partnerships. The company registered solid results in local TV revenue with an impressive streak of consecutive double-digit growth quarters and expects to ride this momentum into the next year. However, total revenue for the quarter dropped slightly by 1.9% year-on-year to $91 million, with variability across different sectors of the business.
The company has made notable strides in improving profitability, with adjusted EBITDA up 14.3% to $13.4 million, and exceeded margin goals earlier than anticipated. After ending 2021 with a 1% margin rate and exiting 2022 at just under 10%, the current margin rate has hit 15%. This is a testament to the company’s execution and strategic cost management, which is expected to continue bolstering margins as the focus shifts towards revenue growth in 2024 and beyond.
The company has concentrated efforts on developing cross-platform products aimed at reducing waste and enhancing efficiency for clients, with momentum expected to carry forward into the next year. Several partnerships and integrations have positioned the company for rapid adoption, particularly with the Complementing Cross-platform Reach (CCR), which has the potential to exceed 12 times the 2022 impression run rates. The strategy also includes aligning product growth with client needs, which is anticipated to contribute to margin improvement.
While the overall revenue growth has been adjusted to be flat to down 1% for the current year, the adjusted EBITDA margin is expected to maintain a double-digit rate. The reduction in physical office spaces and a continued focus on streamlining business operations play a crucial role in this. Looking ahead, cross-platform capabilities and emerging market areas like retail media are expected to drive growth and client adoption, with an emphasis on addressing media fragmentation and advancing solid margin profiles for digital products.
One of the company's main challenges has been the decline in syndicated digital revenues due to churn in long-tail segments, which is anticipated to affect near-term growth. The recovery of these segments to growth – potentially in low single digits – is uncertain but offset by more promising areas like the activation product and enterprise relationships. The company’s leadership remains optimistic about the future scale of cross-platform capabilities and retail media solutions which align strongly with market shifts and customer monetization strategies.
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Good day, and thank you for standing by. Welcome to the comScore Third Quarter 2020 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, John Tinker, Head of Investor Relations. Please go ahead.
Thank you, operator.
Before we begin our prepared remarks, I'd like to remind all of you that the following discussion contains forward-looking statements. These forward-looking statements include comments about our plans, expectations prospects and are based on our view as of today, November 6, 2023. Our actual results in future periods may differ materially from those currently expected because of a number of risks and uncertainties. These risks and uncertainties include those outlined in our 10-K, 10-Q and other filings with the SEC, which you can find on our website or at www.sec.gov. We disclaim any duty or obligation to update our forward-looking statements to reflect new information after today's call.
We will be discussing non-GAAP measures during this call, for which we provided reconciliations in today's press release and on our website.
Please note that we will be referring to slides on this call, which are also available on our website, www.comscore.com under Investor Relations, Events & Presentations.
I'll now turn the call over to comScore's Chief Executive Officer, Jon Carpenter. Jon?
Thanks, John, and thank you, everyone, for joining us this evening. Let's jump right into it.
With regard to the financial print, while revenue came in short of expectations, largely as a result of lower custom deliverables, which were down double digits year-on-year, there is a lot of really great progress being made, particularly in our cross-platform product offerings, coupled with excellent momentum in activation where, in the quarter, we announced some key strategic partnerships that we expect will continue to fuel growth for the foreseeable future. In addition, we continue to execute on local TV where revenue growth was again up double digits. comScore also received conditional certification from the U.S. CIC, one of only 3 companies to have received such certification, and we're excited about the progress we're making and what it means for our growth prospects heading into 2024.
On an adjusted EBITDA basis, we printed a solid result, highlighting the progress we're making towards creating a more scalable, profitable business. We have made significant improvement in just under a year. And while we still have plenty of work left to do, I'm happy with our execution.
In 2023, we've been focused on three key things: improving our margin and cash flow profile, growing our local business, and finally, the tech and product transformation that's needed to establish the foundation we need to drive scalable cross-platform growth. And across all three, we've had success.
On our margin profile, we've hit the 15% rate that we've set out to achieve earlier than expected. When you consider that we finish 2021 with a 1% margin rate and exited '22 at just under 10%, it's clear we've made significant progress by doing exactly what we told you we would do when I moved into the role. I expect us to continue to deliver strong margins while we work to drive revenue growth in '24 and beyond.
In our local business, our third quarter revenue was up double digits for the eighth consecutive quarter. Looking forward, I fully expect the local business to continue growing at double-digit rates. Our strength in local is a key differentiator, and it is the foundation, along with digital for the cross-platform and activation products we're delivering to the marketplace.
When it comes to cross-platform addressing tech debt and transforming the foundation that underpins our complete view of audiences is essential to delivering value for our clients and driving growth, and that's what we remain focused on. Our cross-platform solutions are aimed at helping clients reduce waste and drive outcomes more efficiently. I fully expect, based on the momentum we've built, that we'll continue to see our cross-platform product growth accelerate throughout next year.
In 2023, we've made a lot of announcements highlighting important partnerships and integrations, including integrating data from the largest smart TV platform to partnering with major streamers, so their advertisers can leverage CCR to measure their campaigns across platforms, and partnering with one of the largest demand-side platforms on a first-of-its-kind, AI-enabled offering for political advertising.
With CCR, we are generally paid on a per impression basis, and the growth of our impressions measured is one way to evaluate adoption of the product, and those impressions are a leading indicator of revenue and future growth. In 2022, CCR measured just 10 billion impressions. And based on progress this year alone, we anticipate that number to easily exceed 12x 2022 run rates. This growth is just scratching the surface of the potential for CCR. With more than 1 trillion impressions happening every day, we've got a lot of runway here, and the progress we've made with the product and the adoption of it makes me incredibly bullish for what's ahead in '24.
We've seen similar impacts to our activation business where we've made a number of partnership announcements. Each time we execute one of these integrations, the usage of our product accelerates and our growth rate ramps. Highlighted by the 26% growth we've seen across CCR and activation through the first 3 quarters of this year, we fully expect to deliver accelerated growth next year.
We're focused on the growth of products that align with the needs that our clients have and, for comScore, ones that also have a stronger margin opportunity. Our syndicated digital, activation and emerging cross-platform products represent roughly 40% of our revenue today. We expect that they will command a greater share of our revenue going forward, contributing to improved margins.
Finally, when we talk about building the foundation for cross-platform growth, it's about making sure that we are able to turn our best-in-class data assets into full-spectrum products and solutions needed to become the standard for cross-platform measurement and audience data. That's where our focus is: delivering long-term value for our stakeholders via our big-data scale, the commitment to being interoperable in delivering with the speed that the market needs.
When you're making the kind of changes we're making, you're bound to experience bumps along the way. And while the revenue print this quarter doesn't live up to our expectations, the progress we're making towards our long-term objectives continues to be solid and gives me a great deal of excitement.
With that, let me pass it over to Mary Margaret who will walk you through the results of the third quarter.
Thank you, Jon. Total revenue for the third quarter was $91 million, down 1.9% from $92.8 million in the same quarter a year ago. Cross-platform solutions revenue of $40.5 million was essentially flat with the prior year quarter. We continued to see double-digit growth in local TV, which was offset by a decline in national TV. Revenue from our movies business was flat compared to the prior year. Revenue from Digital Ad Solutions of $50.5 million was down 3.6% compared to $52.4 million a year ago, which, as Jon mentioned, was primarily driven by lower deliveries of certain custom digital products, along with the decline in syndicated digital revenue. These declines were partially offset by the accelerated growth we're seeing in activation and CCR, which we expect to continue to grow as we close out the year and move into 2024.
We expect that revenue growth from certain products will continue to be challenged in Q4 as a result of the continued pressure the macroeconomic environment is putting on our clients. However, we believe the momentum we're seeing in activation and CCR will continue and will reduce the revenue impact those pressures may cause.
Adjusted EBITDA for the quarter was $13.4 million, up 14.3% from the prior year quarter, resulting in an adjusted EBITDA margin of 14.7%. If you exclude the foreign exchange impact from adjusted EBITDA, this year's third quarter result of $12.3 million is up 38% over the prior year. It's important to note that even though we're seeing softness in the top line, we're continuing to improve our adjusted EBITDA margin. One of our primary goals this year was to focus on cost execution so that we could exit the year with a margin run rate of 15%. Our Q3 expense profile is proof that we're on track with this goal. Our core operating expenses were down 4.5% year-over-year, primarily due to lower employee compensation, along with strategic reductions in certain panel and data costs. We are continuing to execute on our restructuring plan and expect that it will be substantially complete by the end of the year.
In addition to our team structure, we've been focused on reducing our physical footprint. We abandoned 2 office spaces in Q3 and took a related noncash impairment charge of $1.5 million. And finally, we're diligently working to transform our business operations and to simplify our tech stack to drive additional efficiencies and as we move into 2024.
Regarding our full year guidance, last quarter, we tightened our expectations for revenue growth to be in the low single digits. Based on where we landed in Q3 and our current expectations for the remainder of the year, we are lowering our revenue guidance to be flat to down 1% compared to the prior year. Even with the change to the top line, we remain confident in the guidance we previously provided for adjusted EBITDA, closing out the year with a double-digit margin rate.
With that, I'll turn it back over to Jon for closing remarks.
Thanks, Mary Margaret. Thanks, everybody, for joining us this evening. I also want to take a moment to thank our employees who work tirelessly every day to deliver for our clients. Without them, none of what we do on a day-to-day basis could be possible. So thank you very much.
With that, operator, why don't we open it up for questions.
[Operator Instructions] And our first question will come from line of Jason Kreyer from Craig-Hallum.
Jon, I wanted to ask about the shortfall or the headwinds in the quarter and kind of looking at that, you got the Slide 7 that shows digital and cross-platform and other categories. And I'm just trying to understand the shortfall. You've got things like local and activation and cross-platform that are working, but revenue declined in the quarter. So I feel like it's more than just the custom content. So maybe, again, in the vein of that slide, what is the strategy for the other revenue categories and trying to stabilize those as we go forward.
Yes, Jason, thanks. I think the biggest contributor to year-over-year declines continues to be in the syndicated digital side of things where we have experienced some churn that's continued in the long-tail part of that business. That is the biggest share of revenue that is down year-on-year. And we anticipate that to continue to be down, to fluctuate anywhere between down low single digits to flattish for the foreseeable future. That, honestly, is the biggest area where we feel the biggest pitch in terms of the overall growth rate.
Is there a path forward for that to return to growth? Or do we just expect the faster growth platforms will just offset kind of the slower or declines that you're seeing on syndicated digital?
Yes. I think it's a bit of a combination of both. I mean where we see strong pockets of growth continue to be with our large enterprise relationships. Those continue to be very sticky and very resilient. Where we know we've got some pressure, especially as aspects of the market tighten, tends to be in the mid- to long tail. I think as signal loss further proliferates heading into 2024, we see that as an opportunity to be a bit of a catalyst for us. But again, I think you're talking about growth that is probably low single digits on the best case scenario in that book of business. So where we're largely bullish continues to be in coupling our activation product with our cross-platform capabilities. And as that business scales, as we try to highlight in the material, I think that's where we see some real exciting things start to take shape.
Okay. And just looking ahead to '24, I know you're not giving guide for '24 and that's not necessarily what I'm trying to ask, but as you look across the business, where are the highest-confident areas for kind of a return to growth on the consolidated companies as you look out to next year?
It's really the momentum that we have in our cross-platform capabilities, which again largely where the market is shifting quite frankly, whether it's the traditional media players or the new media players, they're all wanting our cross-platform capabilities. And so you see that in the accelerated adoption of CCR. You see it in the accelerated momentum that we've got in our activation product, which is essentially a cross-platform audience activation product offering that we marry with our cross-platform measurement capabilities. Those two pockets are growing incredibly quickly, and we expect them to continue to scale at a significant rate. Steve is in the room here with me. Do you have anything you want to add to that?
Yes. Look, I think the other thing that we need to recognize is that there's emerging areas of the market that are continuing to gain a headline and investment momentum that are looking to move from the traditional pure performance part of the funnel to more mid-tail brands. They have the audience. They have the scale. They just don't have the sales enablement strategies, right? We see that in pockets like retail media, as an example, which continues to further encapsulate where dollars are shifting our solutions directly hit at the heart of what their monetization strategies are looking like.
And the difference between what those pockets represent versus a lot of other pockets of the particular market is this need to be able to understand a national view but optimize that a more regional or multiple perspective. And this is a great white space for us as we think about the development and the adoption of our products as we move forward and, frankly, aligns really well to where media dollars are actively being invested in '24 and beyond.
I'm sorry, I just want to push back and just clarify that. So I mean we talked about cross-platform as being one of the biggest opportunities for growth as we go into next year. That didn't really grow much this quarter. And so I'm trying to dissect the performance this quarter versus the opportunity as we see it into next year and maybe exactly what happened this quarter, unless that custom content was a greater headwind than I'm appreciating.
Yes. Certainly, custom weighed pretty significantly on the quarter. We were down meaningfully double digits, which is where a good portion of the pain in the quarter versus the expectation was felt. And so I think what you see, the combination of our local products, coupled with our digital products, while syndicated digital, in and of itself, as a stand-alone product has had its fair share of headwinds, it's a significant contributor to our cross-platform product offering that is growing significantly. We fully expect that to continue to scale meaningfully next year.
Our next question will come from the line of Surinder Thind from Jefferies.
Just taking a step back, Jon, and looking at the big picture here, when you think about the longer-term opportunity, right, how do you actually characterize it that you're in the right position going after the right spend? It seems like we're in a bit of a perpetual hamster wheel where we're always chasing something. It seems we're not quite getting there. And so I feel like, as we look over the conversations over the last couple of years of there's an opportunity here and another opportunity, it seems like we get close, but we never quite get there. So I just want to make try to understand the big picture or if the environment is just going to continue to change and that, in and of itself, is part of the story here.
So I think big picture, we've been pretty clear. Look, the problems that our clients are facing from fragmentation of media, how we are addressing that, is our cross-platform capabilities that we're bringing to market, and we're continuing to see broad-based adoption of what that looks like. That was highlighted in the announcement from the U.S. CIC on comScore being one of 3 that got conditional certification, which was really just the first step that they announced. So addressing media fragmentation as a problem that our clients are faced with, our cross-platform product offerings help solve for that. The proliferation of signal loss through the digital ecosystem, that's where product offerings like our digital capability, coupled with our activation product, stand out in market. And both of those things contribute to a significant amount of waste from an ad dollar standpoint. And so when you think about where we're focused, we're focused on addressing those specific problems as it relates to the product solutions that we're delivering to market. And we're doing it with a better margin profile. And we've talked about that since day 1.
Fair enough. And then I guess on the margin profile, obviously, you're kind of at current targets, but it sounded like there's maybe more. Mary, can you maybe give additional color on that? It just seems like you've managed expenses, you've continued to cut out costs. How much more can you possibly do at this point before it starts hurting the firm? .
So I think where we see -- and I'll let Mary Margaret jump in here in a minute. But I think what you've also got to consider is the fact that we've got digital products that are scaling significantly, and the margin profile of those product offerings, activation, cross-platform, are much more attractive from a margin standpoint. So it's not only about reaping the benefits of the restructuring efforts that the company has delivered on, but it's the mix of business. And as that shifts, as we highlighted in one of the pages earlier in the deck, that helps the margin profile continue to improve.
Yes, that's right. And the margin expansion, I think, is the way that I think about it, and some of that comes from the additional revenue growth that is being generated with a higher margin potential. And then the other piece of it, when you think about our cost structure, we've done some restructuring. I think we've done and have almost completed that plan. But then in addition to the restructuring plan, there were other things like helping clean up some of our tech debt that ultimately will result in greater efficiencies in the long term. And so those are -- and that takes a bit of time. That's not something that's going to be done by the end of the year. That's something that we're hoping to make some strides with in 2024. So when you think about some of those things as well as some of the other sort of strategic initiatives that we're looking at, for example, outsourcing/offshoring, there are other things that don't necessarily hurt operations but can provide some additional efficiencies. And so there's definitely some upside as we move into 2024, even incremental upside on top of what we've already done.
Thank you. And I would now like to turn the conference back to Jon Carpenter, CEO, for closing remarks.
Thanks, everybody, for joining this evening. We'll talk to you all again shortly.
This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.