NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Organization
comScore, Inc., together with its consolidated subsidiaries (collectively, "Comscore" or the "Company"), headquartered in Reston, Virginia, is a global information and analytics company that measures audiences, consumer behavior and advertising across media platforms.
Operating segments are defined as components of a business that can earn revenues and incur expenses for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker ("CODM"). The Company's CODM is its Chief Executive Officer, who decides how to allocate resources and assess performance. The Company has one operating segment. A single management team reports to the CODM, who manages the entire business. The Company's CODM reviews consolidated results of operations to make decisions, allocate resources and assess performance and does not evaluate the profit or loss from any separate geography or product line.
Management Changes
On July 21, 2021, Gregory Fink resigned as the Company's Chief Financial Officer ("CFO") and Treasurer, effective August 31, 2021.
On October 19, 2021, the Company's Board of Directors appointed Jonathan Carpenter as CFO and Treasurer, effective November 29, 2021. Also on October 19, 2021, William Livek, the Company's current Chief Executive Officer and Executive Vice Chairman, was designated to serve as the interim principal financial officer until Mr. Carpenter's start date (November 29, 2021).
2.Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned domestic and foreign subsidiaries. All intercompany transactions and balances are eliminated upon consolidation.
Unaudited Interim Financial Information
The interim Condensed Consolidated Financial Statements included in this quarterly report have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for a quarterly report on Form 10-Q and are adequate to make the information presented not misleading. The interim Condensed Consolidated Financial Statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These interim Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 10-K"). The Condensed Consolidated Results of Operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2021 or thereafter. All references to September 30, 2021 and 2020 in the Notes to Condensed Consolidated Financial Statements are unaudited.
Use of Estimates and Judgments in the Preparation of the Condensed Consolidated Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expense during the reporting periods. Significant estimates and judgments are inherent in the analysis and the measurement of management's standalone selling price, principal versus agent revenue recognition, determination of performance obligations, determination of transaction price, including the determination of variable consideration and allocation of transaction price to performance obligations, deferred tax assets and liabilities, including the identification and quantification of income tax liabilities due to uncertain tax positions, the valuation and recoverability of goodwill, intangible and other long-lived assets, the determination of appropriate discount rates for lease accounting, the probability of exercising either lease renewal or termination clauses, the assessment of potential loss from contingencies, the fair value determination of financing-related liabilities and warrants, the allowance for doubtful accounts, and the valuation of options, performance-based and market-based stock awards. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances.
Due to the inherent uncertainty involved in making estimates, particularly in the current environment, actual results reported in future periods may be affected by changes in those estimates. The Company evaluates its estimates and assumptions on an ongoing basis.
Preferred Stock
On January 7, 2021, the Company 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 "Securities Purchase Agreements"). The issuance of securities pursuant to the Securities Purchase Agreements (the "Transactions") and related matters were approved by the Company's stockholders on March 9, 2021 and completed on March 10, 2021. At the closing of the Transactions, the Company issued and sold (a) to Charter, 27,509,203 shares of Series B Convertible Preferred Stock ("Preferred Stock") in exchange for $68.0 million, (b) to Qurate, 27,509,203 shares of Preferred Stock in exchange for $68.0 million and (c) to Pine, 27,509,203 shares of Preferred Stock in exchange for $68.0 million. The shares were issued at a par value of $0.001. Net proceeds from the Transactions totaled $188.2 million after deducting issuance costs.
The holders of the Preferred Stock are entitled to cumulative annual dividends to be paid on June 30 of each year. The annual dividend accrues on a daily basis from and including the issuance date of such share, whether or not declared, at a rate of 7.5% per annum. In the event the annual dividends are not paid in cash on the annual payment date, the dividends shall continue to accrue at a dividend rate of 9.5%.
The Preferred Stock includes a change of control put option which allows the holders of the Preferred Stock to require the Company to repurchase such holders' shares in cash in an amount equal to the initial purchase price plus accrued dividends. The change of control put option was determined to be a derivative liability under ASC 815, Derivatives and Hedging. As of September 30, 2021, the probability of a change of control was determined to be remote, and the fair value of the change of control derivative was determined to be negligible.
The Preferred Stock is contingently redeemable upon certain deemed liquidation events, such as a change in control. Because a deemed liquidation event could constitute a redemption event outside of the Company's control, all shares of Preferred Stock have been presented outside of permanent equity in mezzanine equity on the Condensed Consolidated Balance Sheets. The instrument is initially recognized at fair value net of issuance costs. The Company reassesses whether the Preferred Stock is currently redeemable, or probable to become redeemable in the future, as of each reporting date. If the instrument meets either of these criteria, the Company will accrete the carrying value to the redemption value. The Preferred Stock has not been adjusted to its redemption amount as of September 30, 2021 because a deemed liquidation event is not considered probable.
All financial instruments that are classified as mezzanine equity are evaluated for embedded derivative features by evaluating each feature against the nature of the host instrument (e.g. more equity-like or debt-like). Features identified as embedded derivatives that are material are recognized separately as a derivative asset or liability in the consolidated financial statements.
Effective January 1, 2021, the Company early adopted Accounting Standards Update ("ASU") 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40). This ASU simplifies accounting for convertible instruments, enhances disclosure requirements related to the terms and features of convertible instruments, and amends the guidance for the derivatives scope exception for contracts settled in an entity's own equity. This ASU removes from GAAP the separation models for (1) convertible debt with a Cash Conversion Feature and (2) convertible instruments with a Beneficial Conversion Feature. Upon adoption of this new ASU, entities will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock, unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815, or (2) a convertible debt instrument was issued at a substantial premium.
As a result of the adoption, no embedded features were identified requiring bifurcation under the new model, other than the change of control redemption feature. The Company adopted the standard using the modified retrospective approach. The standard had no impact on the senior secured convertible notes (the "Notes") issued by the Company prior to adoption and, as a result, there was no cumulative adjustment recorded upon adoption.
Loss on Extinguishment of Debt
The Company applies the provisions of Accounting Standards Codification ("ASC") 470, Debt, to determine whether amendments to, or repayments of, its debt agreements should be accounted for as a modification or extinguishment event. Loss on extinguishment of debt represents the difference between the carrying value of the Company's debt instruments and any consideration paid to its creditors in the form of cash or shares of the Company's Common Stock on the extinguishment date.
In March 2021, the Company recorded a $9.6 million loss on debt extinguishment related to the payoff of the Notes and a foreign secured promissory note (the "Secured Term Note") on March 10, 2021. These transactions are described in Footnote 4, Debt.
Cloud Computing Implementation Costs
Certain costs incurred for implementation, setup, and other upfront activities in a hosting arrangement that is a service contract are capitalized during the application development stage. Upgrades and enhancements are capitalized if they will result in additional functionality. Amortization of capitalized costs is recorded on a straight-line basis over the term of the associated hosting arrangement, inclusive of reasonably certain renewal periods.
During the third quarter of 2021, the Company completed its implementation of a new cloud-based Enterprise Resource Planning ("ERP") system. The Company capitalized $6.8 million of eligible implementation costs in connection with its development and testing of the ERP system. These capitalized implementation costs are classified within other non-current assets in the Condensed Consolidated Balance Sheets. As
of September 30, 2021 and December 31, 2020, capitalized implementation costs, net of accumulated amortization, were $6.5 million and $3.2 million, respectively.
The Company determined the expected period of benefit of the capitalized implementation costs was five years. Amortization costs are classified within general and administrative expense in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The Company recorded $0.3 million of amortization expense for the three and nine months ended September 30, 2021.
Other Income (Expense), Net
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|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(In thousands)
|
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Change in fair value of warrants liability
|
|
|
|
|
$
|
5,582
|
|
|
$
|
1,872
|
|
|
$
|
(10,938)
|
|
|
$
|
5,765
|
|
Change in fair value of financing derivatives
|
|
|
|
|
—
|
|
|
2,200
|
|
|
1,800
|
|
|
6,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
131
|
|
|
119
|
|
|
69
|
|
|
210
|
|
Total other income (expense), net
|
|
|
|
|
$
|
5,713
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|
|
$
|
4,191
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|
|
$
|
(9,069)
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|
|
$
|
12,862
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|
Loss Per Share
The Company uses the two-class method to calculate net loss per share. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. Under the two-class method, earnings for the period are allocated between common stockholders and participating security holders based on their respective rights to receive dividends as if all undistributed book earnings for the period were distributed.
Basic loss per share is computed by dividing net loss attributable to only the common stockholders by the weighted-average number of common shares outstanding for the period. Diluted loss per share includes the effect of potential common shares, such as the Company's Preferred Stock, Notes, warrants, stock options, restricted stock units and deferred stock units, to the extent the effect is dilutive. In periods with a net loss available to common stockholders, the anti-dilutive effect of these potential common shares is excluded and diluted net loss per share is equal to basic net loss per share.
The following is a summary of the Common Stock equivalents for the securities outstanding during the respective periods that have been excluded from the computation of diluted net loss per common share, as their effect would be anti-dilutive:
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|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
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|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
Preferred stock
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|
82,527,609
|
|
|
—
|
|
|
61,895,707
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|
|
—
|
|
|
|
|
|
Warrants
|
|
5,457,026
|
|
|
5,875,890
|
|
|
5,457,026
|
|
|
6,593,391
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|
|
|
|
|
Stock options, restricted stock units and deferred stock units
|
|
4,865,544
|
|
|
3,582,666
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|
|
5,065,139
|
|
|
4,062,147
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|
|
|
|
|
Senior secured convertible notes
|
|
—
|
|
|
6,519,655
|
|
|
1,629,914
|
|
|
6,519,655
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|
|
|
|
|
Total
|
|
92,850,179
|
|
|
15,978,211
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|
|
74,047,786
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|
|
17,175,193
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|
|
|
|
|
For the three and nine months ended September 30, 2021, dividends to holders of the Preferred Stock, including those both paid and accrued, totaled $3.9 million and $8.7 million, respectively. These dividends have been included in calculating the total loss available to common stockholders used in the calculation of basic and diluted loss per share.
Allowance for Doubtful Accounts
The Company generally grants uncollateralized credit terms to its customers and maintains an allowance for doubtful accounts to reserve for uncollectible receivables. Allowances are based on management's judgment, which considers historical collection experience adjusted for current conditions or expected future conditions based on reasonable and supportable forecasts, a specific review of all significant outstanding receivables, an assessment of company-specific credit conditions and general economic conditions. Management considered the impact of the COVID-19 pandemic, including customer payment delays and requests from customers to revise contractual payment terms, in determining the Company's allowance for doubtful accounts.
The table below summarizes the change in balance of the allowance for doubtful accounts:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(In thousands)
|
|
2021
|
|
2020
|
Beginning Balance
|
|
$
|
(2,757)
|
|
|
$
|
(1,919)
|
|
Bad debt benefit (expense)
|
|
218
|
|
|
(1,664)
|
|
Recoveries
|
|
(147)
|
|
|
(162)
|
|
Write-offs
|
|
1,471
|
|
|
982
|
|
Ending Balance
|
|
$
|
(1,215)
|
|
|
$
|
(2,763)
|
|
Income Taxes
The Company anticipates the Transactions will trigger limitations on its net operating loss carryforwards under Section 382 of the Internal Revenue Code. As such, the amount of net operating loss carryforwards the Company can use in the future to offset U.S. federal and state taxable income may be limited, resulting in the expiration of a portion of the carryforwards prior to use. Due to the Company's valuation allowance position in the U.S., the required revaluation of its deferred tax assets related to these limited U.S. federal and state net operating loss carryforwards did not have a material impact on the Condensed Consolidated Financial Statements or related disclosures.
Impairment of Right-of-use ("ROU") and Long-lived Assets
In March 2020, the Company concluded the carrying value of certain facility lease ROU and other long-lived assets may not be recoverable. In its assessment, the Company considered changes in the real estate market related to the COVID-19 pandemic, that led to an increase in the estimated marketing time, and a reduction of expected receipts, for properties on the market for sublease. The Company performed a quantitative asset impairment test using a discounted cash flow model. Certain ROU and related leasehold improvements failed the asset impairment test; and as a result the Company recorded a $4.7 million non-cash impairment charge.
Although the Company believes that the carrying values of its long-lived assets are appropriately stated as of September 30, 2021, future changes in strategy or market conditions, significant technological developments or significant changes in legal or regulatory factors could significantly impact these judgments and require adjustments to recorded asset balances.
Other Accounting Standards Recently Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes primarily by eliminating certain exemptions. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the update and to delay adoption of the additional disclosures until their effective date. The Company adopted the new standard effective January 1, 2021, which had no impact on the Condensed Consolidated Financial Statements or related disclosures.
3.Revenue Recognition
The following table presents the Company's revenue disaggregated by solution group, geographical market and timing of transfer of products and services. The Company has one reportable segment in accordance with ASC 280, Segment Reporting; as such, the disaggregation of revenue below reconciles directly to its unique reportable segment.
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|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
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(In thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
By solution group:
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|
|
|
|
|
|
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Ratings and Planning
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|
$
|
62,127
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|
|
$
|
62,718
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|
|
$
|
190,351
|
|
|
$
|
190,018
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|
Analytics and Optimization
|
|
22,485
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|
|
17,432
|
|
|
57,950
|
|
|
49,827
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|
Movies Reporting and Analytics
|
|
7,875
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|
|
7,802
|
|
|
22,175
|
|
|
26,201
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|
Total
|
|
$
|
92,487
|
|
|
$
|
87,952
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|
|
$
|
270,476
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|
|
$
|
266,046
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By geographical market:
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|
|
|
|
|
|
|
|
United States
|
|
$
|
81,187
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|
|
$
|
77,672
|
|
|
$
|
236,593
|
|
|
$
|
232,345
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|
Europe
|
|
6,312
|
|
|
6,401
|
|
|
20,025
|
|
|
20,301
|
|
Canada
|
|
1,914
|
|
|
1,689
|
|
|
5,475
|
|
|
5,262
|
|
Latin America
|
|
1,947
|
|
|
1,178
|
|
|
5,227
|
|
|
4,675
|
|
Other
|
|
1,127
|
|
|
1,012
|
|
|
3,156
|
|
|
3,463
|
|
Total
|
|
$
|
92,487
|
|
|
$
|
87,952
|
|
|
$
|
270,476
|
|
|
$
|
266,046
|
|
By timing of revenue recognition:
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|
|
|
|
|
|
|
|
Products and services transferred over time
|
|
$
|
72,660
|
|
|
$
|
67,828
|
|
|
$
|
210,432
|
|
|
$
|
208,321
|
|
Products and services transferred at a point in time
|
|
19,827
|
|
|
20,124
|
|
|
60,044
|
|
|
57,725
|
|
Total
|
|
$
|
92,487
|
|
|
$
|
87,952
|
|
|
$
|
270,476
|
|
|
$
|
266,046
|
|
Contract Balances
The following table provides information about receivables, contract assets, contract liabilities and customer advances from contracts with customers:
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|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
(In thousands)
|
|
September 30, 2021
|
|
December 31, 2020
|
Accounts receivable, net
|
|
$
|
81,461
|
|
|
$
|
69,379
|
|
Current and non-current contract assets
|
|
4,333
|
|
|
4,037
|
|
|
|
|
|
|
Current contract liabilities
|
|
51,116
|
|
|
58,529
|
|
Current customer advances
|
|
8,949
|
|
|
12,477
|
|
Non-current contract liabilities
|
|
2,497
|
|
|
4,156
|
|
Significant changes in the current contract liabilities balance are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(In thousands)
|
2021
|
|
2020
|
Revenue recognized that was included in the opening contract liabilities balance
|
$
|
(46,734)
|
|
|
$
|
(49,784)
|
|
Cash received or amounts billed in advance and not recognized as revenue
|
41,160
|
|
|
40,212
|
|
For the nine months ended September 30, 2021, the Company recognized $1.7 million in revenue from balances included in non-current contract liabilities at the beginning of the year. For the nine months ended September 30, 2020, the Company recorded $3.8 million in amounts billed in advance, but not yet recognized as revenue, within non-current contract liabilities. There were no other significant changes in the non-current contract liabilities balance during the nine months ended September 30, 2021 or 2020.
Transaction Price Allocated to the Remaining Performance Obligations
As of September 30, 2021, approximately $195.0 million of revenue is expected to be recognized from remaining performance obligations that are unsatisfied (or partially unsatisfied) for non-cancelable contracts with an original expected duration of longer than one year. The Company expects to recognize revenue on approximately 19% of these remaining performance obligations during the remainder of 2021, approximately 46% in 2022, and approximately 19% in 2023, with the remainder recognized thereafter.
Costs to Obtain or Fulfill a Contract
For the three months ended September 30, 2021 and 2020, amortized and expensed contract costs were zero and $0.2 million, respectively. For the nine months ended September 30, 2021 and 2020, amortized and expensed contract costs were $2.7 million and $0.9 million, respectively.
4.Debt
Senior Secured Convertible Notes and Financing Derivatives
During 2018, the Company entered into certain agreements with funds affiliated with or managed by Starboard Value LP (collectively, "Starboard"), pursuant to which the Company issued and sold to Starboard a total of $204.0 million in Notes, which initially accrued interest at 6.0%, as well as warrants to purchase shares of the Company's Common Stock, par value $0.001 per share, in exchange for $100.0 million in cash and 4,000,000 shares of Common Stock. The warrants were exercised in full by Starboard on April 3, 2019 for 323,448 shares of Common Stock.
The Notes contained, among other features, an interest rate reset feature which the Company determined represented an embedded derivative that must be bifurcated and accounted for separately from the Notes. This feature reset the interest rate on the Notes based on the trading price of the Company's Common Stock. In January 2019, the interest rate reset to 12.0% where it was scheduled to remain through the contractual maturity of the Notes on January 16, 2022.
Interest on the Notes was payable on a quarterly basis in arrears, at the option of the Company, in cash, or, subject to certain conditions, through the issuance by the Company of additional shares of Common Stock ("PIK Interest Shares"). On January 25, 2021, the Company paid quarterly accrued interest of $6.1 million through the issuance of 2,802,454 PIK Interest Shares. The interest paid was classified within other non-current liabilities in the Condensed Consolidated Balance Sheets as of December 31, 2020.
In connection with the Transactions described in Footnote 2, Summary of Significant Accounting Policies, the Company used cash proceeds of $204.0 million from the issuance of shares of its Preferred Stock to extinguish the Notes and related financing derivatives on March 10, 2021. The Company also issued 3,150,000 additional shares to Starboard (the "Conversion Shares"), as additional creditor consideration, which were valued at $9.6 million based on the $3.05 closing price of the Company's Common Stock on March 9, 2021. Lastly, the Company paid interest accrued of $4.7 million for the period from January 1, 2021 to March 10, 2021 through the issuance of 1,363,327 PIK Interest Shares.
The Company adjusted the interest rate reset feature to its fair value on March 10, 2021 immediately prior to extinguishment. The fair value of the interest reset derivative was estimated to be $9.5 million using a discounted cash flow method based on projected incremental cash flows
through contractual maturity of the Notes and a credit-adjusted discount rate of 20.0%. The fair value of other financing derivatives embedded within the Notes was determined to be negligible.
The Company recorded a loss on extinguishment of the Notes of $9.3 million for the three months ended March 31, 2021. The loss was comprised of a write-off of unamortized deferred financing costs and issuance discount of $9.2 million and issuance of Conversion Shares of $9.6 million, offset by the derecognition of the interest rate reset derivative liability valued at $9.5 million.
Secured Term Note
On December 31, 2019, the Company's wholly owned subsidiary, Rentrak B.V., entered into an agreement with several third parties (collectively the "Noteholder") for the Secured Term Note in exchange for gross proceeds of $13.0 million. The Secured Term Note was scheduled to mature on December 31, 2021, was cash collateralized, and had an annual interest rate of 9.75% that was payable monthly in arrears.
The Secured Term Note included a redemption feature which, upon the occurrence of certain fundamental transactions, would require the Company to redeem the Secured Term Note in full, plus accrued interest, and remit a prepayment premium equal to the remaining contractual interest cash flows (the "interest make-whole redemption"). The Company determined this feature represented an embedded derivative that must be bifurcated and accounted for separately from the Secured Term Note.
In connection with the Transactions described in Footnote 2, Summary of Significant Accounting Policies, the Company used restricted cash from its balance sheet to extinguish the Secured Term Note and interest make-whole redemption on March 10, 2021, of which $13.0 million and $1.0 million were for principal repayments and settlement of the interest make-whole redemption, respectively.
The Company recorded a loss on extinguishment of the Secured Term Note of $0.3 million for the three months ended March 31, 2021. The loss was due to the write-off of unamortized deferred financing costs. Changes in the fair value of the interest make-whole redemption were recorded to other income (expense), net and settlement did not impact loss on debt extinguishment.
Revolving Credit Agreement
On May 5, 2021, the Company entered into a senior secured revolving credit agreement (the "Revolving Credit Agreement") among the Company, as borrower, certain subsidiaries of the Company, as guarantors, Bank of America N.A., as administrative agent (in such capacity, the "Agent"), and the lenders from time to time party thereto. The Revolving Credit Agreement has a maturity of three years from the closing date of the agreement.
The Revolving Credit Agreement provides a borrowing capacity equal to $25.0 million. The Company may also request the issuance of letters of credit under the Revolving Credit Agreement in an aggregate amount up to $5.0 million, which reduces the amount of available borrowings by the amount of such issued and outstanding letters of credit. The amount the Company is able to borrow is subject to compliance with the financial covenants, satisfaction of various conditions precedent to borrowing and other provisions of the Revolving Credit Agreement.
Borrowings under the Revolving Credit Agreement are made at the Eurodollar Rate and bear interest at a rate per annum equal to the Eurodollar Rate (as defined in the Revolving Credit Agreement) plus an applicable rate equal to 2.25%. The Revolving Credit Agreement also provides for an unused commitment fee equal to 0.25% of the unused commitments at such time. To the extent that a payment default exists and is continuing, at the election of the Required Lenders (as defined in the Revolving Credit Agreement), all amounts outstanding under the Revolving Credit Agreement will bear interest at 2.00% per annum above the rate and margin otherwise applicable thereto. The Company is able to repay any amounts borrowed prior to the maturity date without any premium or penalty other than customary LIBOR breakage costs.
The Revolving Credit Agreement is guaranteed by the Company and its domestic subsidiaries (other than Excluded Subsidiaries (as defined in the Revolving Credit Agreement)) and is secured by a first lien security interest in substantially all assets of the Company and its domestic subsidiaries (other than Excluded Subsidiaries), subject to certain customary exclusions.
The Revolving Credit Agreement contains the following financial covenants, including the maintenance of certain financial ratios:
• a minimum Consolidated EBITDA (as defined in the Revolving Credit Agreement) of not less than $20.0 million for the most recently ended four fiscal quarter period, tested as of the last day of each fiscal quarter ending before June 30, 2022; and
• a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Revolving Credit Agreement) of not less than 1.25 to 1.0 for the most recently ended four fiscal quarter period, tested as of the last day of each fiscal quarter ending on or after June 30, 2022.
Additionally, the Revolving Credit Agreement contains restrictive covenants that limit the Company's ability to, among other things, incur additional indebtedness, incur additional liens, make investments and loans, enter into mergers and acquisitions, make or declare dividends and other payments, enter into certain contracts, sell assets and engage in transactions with affiliates. The Revolving Credit Agreement is also subject to customary events of default, including a change in control. If an event of default occurs and is continuing, the Agent or the Required Lenders may accelerate any amounts outstanding and terminate lender commitments. The Company is in compliance with the covenants under the Revolving Credit Agreement as of September 30, 2021.
As of September 30, 2021, the Company had outstanding borrowings of $16.0 million, and issued and outstanding letters of credit of $2.9 million, under the Revolving Credit Agreement, with remaining borrowing capacity of $6.1 million.
In October 2021, additional outstanding letters of credit totaling $0.4 million were transferred under the Revolving Credit Agreement, which left a remaining borrowing capacity of $5.7 million.
Failed Sale-Leaseback Transaction
In June 2019, the Company entered into a sale-leaseback arrangement with a vendor to provide $4.3 million in cash proceeds for previously acquired computer and other equipment. The arrangement was repayable over a 24-month term for total consideration of $4.8 million, with control of the equipment transferring to the vendor at the end of the leaseback term. The leaseback would have been classified as a financing lease. The transaction was deemed a failed sale-leaseback and was accounted for as a financing arrangement. Repayments were allocated between interest expense and a reduction of the financing liability, and the assets continued to depreciate over their useful lives.
In June 2021, the Company extended the sale-leaseback arrangement for an additional 24-month term. The leaseback extension continued to meet the criteria to be accounted for as a financing arrangement. The present value of cash flows after the extension differed by more than 10% from the present value of the remaining cash flows immediately prior to the extension. Therefore, the Company concluded the extension should be accounted for as an extinguishment of the existing financing liability. The fair value of the new financing liability as of September 30, 2021 is $0.8 million, which was estimated using an income approach and a discount rate of 7.5%.
The financing liability is included within other current and other non-current liabilities on the Condensed Consolidated Balance Sheet as of September 30, 2021, with $0.4 million classified as current and $0.4 million classified as non-current.
Remaining future cash payments related to the financing liability under the failed sale-leaseback transaction total $0.8 million as of September 30, 2021, and are scheduled to be paid in monthly installments through June 2023.
Uses and Sources of Liquidity and Management's Plans
The Company's primary need for liquidity is to fund working capital requirements and capital expenditures of its business. The Company has secured the following long-term financing in order to increase its available working capital:
•On June 26, 2019, the Company issued 2,728,513 shares of Common Stock and four series of warrants in a private placement to CVI Investments, Inc. ("CVI") in exchange for gross cash proceeds of $20.0 million. For additional information, refer to Footnote 5, Convertible Redeemable Preferred Stock and Stockholders' Equity.
•On March 10, 2021, in connection with the Transactions described in Footnote 2, Summary of Significant Accounting Policies, the Company issued 82,527,609 shares of Preferred Stock in exchange for gross proceeds of $204.0 million. The proceeds from the Transactions were used to repay the Notes. In addition, the Company repaid the Secured Term Note and certain transaction-related expenses with cash from its balance sheet.
Repayment of the Notes and the Secured Term Note strengthened the Company's financial position and resulted in the termination of the affirmative and negative covenants set forth in those instruments, including covenants requiring maintenance of certain minimum cash balances. In addition, repayment eliminated the 12.0% annual interest payable under the Notes, which was replaced by a 7.5% annual dividend payable on the Preferred Stock.
On May 5, 2021, the Company entered into the Revolving Credit Agreement. As described above, the Revolving Credit Agreement contains financial covenants that require the Company to maintain minimum Consolidated EBITDA for periods through March 31, 2022 and a minimum Fixed Charge Coverage Ratio for periods after March 31, 2022 (each term as defined in the Revolving Credit Agreement). As of the date these financial statements are issued, the Company is in compliance with its covenants under the Revolving Credit Agreement, and based on management's current plans, the Company does not anticipate a breach of these covenants that would result in an event of default under the Revolving Credit Agreement. The Company's plans include consideration of various liquidity options, including renegotiating existing covenants, postponing dividends or other payments, improving financial performance, refinancing the Company's existing debt or issuing new debt, or raising additional capital from new or existing investors. The Company believes its plans will provide adequate sources of funding to satisfy its estimated liquidity needs for at least one year after the date that these financial statements are issued. However, the Company cannot predict with certainty the outcome of its actions to generate liquidity or whether such actions would generate the expected liquidity as currently planned.
5.Convertible Redeemable Preferred Stock and Stockholders' Equity
2021 Issuance of Preferred Stock
On March 10, 2021, in connection with the Transactions described in Footnote 2, Summary of Significant Accounting Policies, the Company issued 82,527,609 shares of Preferred Stock in exchange for gross cash proceeds of $204.0 million. The shares were issued at a par value of $0.001. Net proceeds from the Transactions totaled $188.2 million after deducting issuance costs.
The Transactions and related agreements include the following rights:
Registration Rights
On the Closing Date, the Company entered into a Registration Rights Agreement (the "RRA") with the holders of the Preferred Stock (together with any other party that may become a party to the RRA), pursuant to which, among other things, and on the terms and subject to certain limitations set forth therein, the Company was obligated to file a registration statement registering the sale or distribution of shares of Preferred Stock or Common Stock held by any holder, including any shares of Common Stock acquired by any holder pursuant to the conversion of the Preferred Stock, and any other securities issued or issuable with respect to any such shares of Common Stock or Preferred Stock by way of share
split, share dividend, distribution, recapitalization, merger, exchange, replacement or similar event or otherwise (the "Registrable Securities"). In addition, pursuant to the RRA, the holders have the right to require the Company, subject to certain limitations, to effect a sale of any or all of their Registrable Securities by means of an underwritten offering or an underwritten block trade or bought deal.
On August 30, 2021, the Company filed a registration statement on Form S-3 with respect to the Registrable Securities. The registration statement on Form S-3 became effective on September 21, 2021.
Conversion Provisions
The Preferred Stock is convertible at the option of the holders at any time into a number of shares of Common Stock based on a conversion rate set in accordance with the Certificate of Designations of the Preferred Stock. The conversion rate is calculated as the product of (i) the conversion factor and (ii) the quotient of (A) the sum of the initial purchase price and accrued dividends with respect to each share of Preferred Stock divided by (B) the initial purchase price. The conversion right is subject to certain anti-dilution adjustments and customary provisions related to partial dividend periods. As of September 30, 2021, each share of Preferred Stock was convertible into 1.019375 shares of Common Stock.
At any time after the fifth anniversary of the Closing Date, the Company may elect to convert all of the outstanding shares of Preferred Stock into shares of Common Stock if (i) the closing sale price of the Company's Common Stock is greater than 140% of the conversion price as of such time, as may be adjusted pursuant to the Certificate of Designations, for certain periods, and (ii) the pro rata share of an aggregate of $100.0 million in dividends has been paid with respect to each share of Preferred Stock that was outstanding on the Closing Date and remains outstanding.
As of September 30, 2021, no shares of Preferred Stock have been converted into Common Stock.
Voting Rights
The holders of the Preferred Stock are entitled to vote as a single class with the holders of the Common Stock, with a vote equal to the number of shares of Common Stock into which the Preferred Stock could be converted, except that the conversion rate for this purpose will be equal to the product of the applicable conversion factor and 0.98091271. Each holder of Preferred Stock is subject to a voting threshold, which limits such holder's voting rights in the event that the holder's Preferred Stock represents voting rights that exceed 16.66% of the Company's Common Stock (including the Preferred Stock on an as-converted basis).
Dividend Rights
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, after January 1, 2022, such holders are entitled to request, and the Company will take all actions reasonably necessary to pay, a one-time dividend ("Special Dividend") equal to the highest dividend that the Company's Board of Directors ("Board") determines can be paid at the applicable time (or a lesser amount agreed upon by the holders), subject to additional conditions and limitations set forth in a Stockholders Agreement entered into by the Company and the holders on the Closing Date (the "Stockholders Agreement"). As set forth in the Stockholders Agreement, the Company may be obligated to obtain debt financing in order to effectuate the Special Dividend.
On June 30, 2021, in accordance with the Certificate of Designations of the Preferred Stock, the Company paid cash dividends totaling $4.8 million to the holders of the Preferred Stock, representing dividends accrued for the period from the Closing Date through June 29, 2021. The next scheduled dividend payment date for the Preferred Stock is June 30, 2022. For the three and nine months ended September 30, 2021, dividends to holders of the Preferred Stock, including those both paid and accrued, totaled $3.9 million and $8.7 million, respectively.
Anti-Dilution Adjustments
The Preferred Stock is subject to anti-dilution adjustment upon the occurrence of certain events, including issuance of certain dividends or distributions to holders of Common Stock, split or combination of Common Stock, reclassification of Common Stock into a greater or lesser number of shares, or certain repurchases of Common Stock, subject to limitations set forth in the Certificate of Designations.
Liquidation Preference and Change of Control Provisions
The Preferred Stock ranks senior to the Common Stock with respect to dividend rights and rights on the distribution of assets in the event of a liquidation, dissolution or winding up of the affairs of the Company, and ranks junior to secured and unsecured indebtedness. The Preferred Stock has a liquidation preference equal to the higher of (i) the initial purchase price, increased by accrued dividends per share, and (ii) the amount per share of Preferred Stock that a holder would have received if such holder, immediately prior to such liquidation, dissolution or winding up of the affairs of the Company, converted such share into Common Stock.
The Preferred Stock includes a change of control put option which allows the holders of the Preferred Stock to require the Company to repurchase such holders' shares at a purchase price equal to the initial purchase price, increased by accrued dividends. The change of control put option was determined to be a derivative liability under ASC 815, Derivatives and Hedging. As of September 30, 2021, the probability of a change of control was determined to be remote, and the fair value of the change of control derivative was determined to be negligible. To the extent the holders of the Preferred Stock do not exercise the put option in a covered change of control, the Company has the right to redeem the remaining Preferred Stock at a redemption price equal to the initial purchase price, increased by accrued dividends.
As described above, the Preferred Stock is contingently redeemable upon certain deemed liquidation events, such as a change in control. Because a deemed liquidation event could constitute a redemption event outside of the Company's control, all shares of Preferred Stock have been presented outside of permanent equity in mezzanine equity on the Condensed Consolidated Balance Sheets.
2019 Issuance and Sale of Common Stock and Warrants
On June 23, 2019, the Company entered into a Securities Purchase Agreement with CVI, pursuant to which CVI agreed to purchase (i) 2,728,513 shares of Common Stock (the "Initial Shares"), at a price of $7.33 per share and (ii) Series A Warrants, Series B-1 Warrants, Series B-2 Warrants and Series C Warrants, for aggregate gross proceeds of $20.0 million (the "Private Placement"). The Private Placement closed on June 26, 2019 (the "CVI Closing Date"). The Series B-1 Warrants and Series B-2 Warrants expired on January 29, 2020 and August 3, 2020, respectively.
The Series C Warrants were exercised on October 10, 2019. As a result of this exercise, the Company issued 2,728,513 shares of Common Stock to CVI on October 14, 2019. In addition, the number of shares issuable under the Company's Series A Warrants was increased by 2,728,513.
The Series A Warrants are exercisable by the holders for a period of five years from the CVI Closing Date and are currently exercisable into 5,457,026 shares of Common Stock, which is equal to the Initial Shares plus the number of shares issued pursuant to the exercise of the Series C Warrants (described above). The exercise price for the Series A Warrants was $12.00 upon issuance but was subsequently adjusted, as described below. The Series A Warrants may be exercised for cash or through a net settlement feature under certain circumstances.
The exercise price for the Series A Warrants is subject to anti-dilution adjustment in certain circumstances, including upon certain issuances of capital stock. Upon the issuance of the Preferred Stock, the Company adjusted the exercise price of the Series A Warrants from $12.00 to $2.4719 per share, the closing price of the Transactions.
CVI will not have the right to exercise any warrant that would result in CVI beneficially owning more than 4.99% of the outstanding Common Stock after giving effect to such exercise. CVI has the right, in its discretion, to raise this threshold up to 9.99% with 60 days' notice to the Company. In addition, if and to the extent the exercise of any warrants would, together with the issuances of the Initial Shares and the shares issued pursuant to the exercise of any other warrants, result in the issuance of 20.0% or more of the outstanding Common Stock of the Company on the CVI Closing Date (the "Exchange Cap"), the Company intends to, in lieu of issuing such shares, settle the obligation to issue such shares in cash.
Management determined each warrant to be a freestanding financial instrument that qualifies for liability treatment as a result of net cash settlement features associated with the Exchange Cap provision or upon a change in control. Each warrant is initially measured at fair value and classified as a current liability on the Condensed Consolidated Balance Sheet, with subsequent changes in fair value recorded in earnings. To determine the fair value of each warrant, management utilized an option pricing model supplemented with Monte Carlo analyses in periods with multiple warrants outstanding where certain features resulted in additional valuation complexity.
The estimated fair value of the Series A Warrants as of September 30, 2021 was $13.8 million. Refer to Footnote 6, Fair Value Measurements, for information on the Level 3 inputs utilized for the determination of the fair value of the warrants.
6.Fair Value Measurements
The Company's financial instruments measured at fair value in the accompanying Condensed Consolidated Balance Sheets on a recurring basis consist of the following:
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As of
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As of
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September 30, 2021
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December 31, 2020
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(In thousands)
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Level 1
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Level 2
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Level 3
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Total
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Level 1
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Level 2
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Level 3
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Total
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Assets:
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Money market funds (1)
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$
|
2,929
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|
$
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—
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|
|
$
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—
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|
|
$
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2,929
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$
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11,928
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$
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—
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$
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—
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$
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11,928
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Liabilities:
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Warrants issued: (2)
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Series A
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$
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—
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$
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—
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$
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13,769
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$
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13,769
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$
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—
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$
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—
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|
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$
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2,831
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|
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$
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2,831
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Financing derivatives: no hedging designation (3)
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Interest rate reset
|
—
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|
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—
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|
|
—
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|
|
—
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|
|
—
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|
|
—
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|
|
11,300
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|
|
11,300
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Secured term note: (4)
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Interest make-whole derivative
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—
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|
|
—
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|
|
—
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|
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—
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|
|
—
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|
|
—
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|
|
871
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|
|
871
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Total liabilities
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$
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—
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|
|
$
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—
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|
|
$
|
13,769
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|
|
$
|
13,769
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|
$
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—
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|
|
$
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—
|
|
|
$
|
15,002
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|
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$
|
15,002
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(1) Level 1 cash equivalents are invested in money market funds that are intended to maintain a stable net asset value of $1.00 per share by investing in liquid, high quality U.S. dollar-denominated money market instruments with maturities less than three months.
(2) The fair values of the warrants are derived from techniques which utilize inputs, certain of which are significant and unobservable, that result in classification as Level 3 fair value measurements.
(3) The fair values of the financing derivatives are derived from techniques which utilize inputs, certain of which are significant and unobservable, that result in classification as Level 3 fair value measurements. Extinguishment of the Notes on March 10, 2021 resulted in derecognition of the interest rate reset derivative liability.
(4) The fair value of the embedded derivative within the Secured Term Note is derived from techniques which utilize inputs, certain of which are significant and unobservable, that result in classification as Level 3 fair value measurements. Extinguishment of the Secured Term Note on March 10, 2021 resulted in settlement of the interest make-whole derivative liability.
There were no changes to the Company's valuation methodologies during the three and nine months ended September 30, 2021 or 2020.
The following tables present the changes in the Company's recurring Level 3 fair valued instruments for the nine months ended September 30, 2021 and 2020, respectively:
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(In thousands)
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Interest Make-whole Derivative Liability
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Financing Derivative Liabilities
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Warrants Liability
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Balance as of December 31, 2020
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$
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871
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|
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$
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11,300
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|
|
$
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2,831
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|
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|
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Total losses (gains) included in other income (expense), net (1)
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150
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|
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(1,800)
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|
|
10,938
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Settlement or derecognition upon extinguishment of host debt (2)
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(1,021)
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|
|
(9,500)
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|
|
—
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|
Balance as of September 30, 2021
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$
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—
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|
|
$
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—
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|
|
$
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13,769
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(1) All losses and gains were recorded in other income (expense), net in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
(2) Refer to Footnote 4, Debt for additional information on the extinguishment of the Notes and Secured Term Note.
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|
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(In thousands)
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Financing Derivative Liabilities
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Warrants Liability
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Balance as of December 31, 2019
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|
$
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21,587
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|
|
$
|
7,725
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|
|
|
|
|
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Total gains included in other income (expense), net (1)
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|
(6,887)
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|
|
(5,765)
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|
|
|
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|
|
Balance as of September 30, 2020
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|
$
|
14,700
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|
|
$
|
1,960
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|
(1) Represents $5.6 million gain due to change in fair value of interest rate reset derivative liability, $0.1 million gain due to change in fair value of make-whole change of control redemption, $1.2 million gain due to change in fair value of qualifying change of control redemption derivative liability, $5.6 million gain due to change in fair value of the Series A Warrant, and $0.2 million gain due to change in fair value of the Series B-2 Warrant. All gains were recorded in other income (expense), net in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
The following table displays the valuation technique and the significant inputs, certain of which are unobservable, for the Company's Level 3 liabilities that existed at the end of the current reporting period, as of September 30, 2021 and December 31, 2020 that are measured at fair value on a recurring basis:
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|
|
Fair Value Measurements
|
|
|
Significant Valuation Technique
|
|
Significant Valuation Inputs
|
|
September 30, 2021
|
|
December 31, 2020
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|
Warrants liability
|
|
Option pricing model
|
|
Stock price
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|
$3.90
|
|
$2.49
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|
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|
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Exercise price
|
|
$2.47
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|
$12.00
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|
|
|
|
Volatility
|
|
90.0%
|
|
80.0%
|
|
|
|
|
Term
|
|
2.74 years
|
|
3.49 years
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|
|
|
|
Risk-free rate
|
|
0.5%
|
|
0.2%
|
|
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The fair value of the Company's warrants liability is estimated using an option pricing model. The primary sensitivity in the valuation of the warrants liability is driven by the Common Stock price at the measurement date and the estimated volatility of the Common Stock over the remaining term.
7.Accrued Expenses
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As of
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As of
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(In thousands)
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September 30, 2021
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December 31, 2020
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Accrued data costs
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$
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16,848
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$
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19,375
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Payroll and payroll-related
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|
10,904
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|
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14,653
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Professional fees
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|
3,113
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|
|
4,848
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Other
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9,213
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9,504
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Total accrued expenses
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$
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40,078
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$
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48,380
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8.Related Party Transactions
Transactions with WPP plc
As of September 30, 2021 (based on public filings), WPP plc and its affiliates ("WPP") owned 11,319,363 shares of the Company's outstanding Common Stock, representing 13.8% of the outstanding Common Stock. The Company provides WPP, in the normal course of business, services amongst its different product lines and receives various services from WPP supporting the Company's data collection efforts.
The Company's results from transactions with WPP, as reflected in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), are as follows:
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Three Months Ended September 30,
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Nine Months Ended September 30,
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(In thousands)
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2021
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2020
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2021
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2020
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Revenues
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$
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3,467
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|
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$
|
3,109
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$
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10,080
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$
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10,069
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Cost of revenues
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2,580
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|
2,461
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9,673
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7,200
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The Company has the following balances related to transactions with WPP, as reflected in the Condensed Consolidated Balance Sheets:
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As of
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As of
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(In thousands)
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September 30, 2021
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December 31, 2020
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Assets
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Accounts receivable, net
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$
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3,889
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$
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4,045
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Prepaid expenses and other current assets
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|
907
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1,496
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Liabilities
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Accounts payable
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$
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1,313
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$
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2,817
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Accrued expenses
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|
382
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|
|
835
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Contract liabilities
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|
3,677
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|
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3,538
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Other non-current liabilities
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|
1,012
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—
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Transactions with Charter, Qurate and Pine
Charter, Qurate and Pine each hold 33.3% of the outstanding shares of Preferred Stock, which are entitled to convert into shares of Common Stock and to vote as a single class with the holders of the Common Stock as described in Footnote 5, Convertible Redeemable Preferred Stock and Stockholders' Equity. In addition, Charter, Qurate and Pine each designated two directors to the Company's Board in accordance with the Stockholders Agreement.
As of September 30, 2021, Charter, Qurate and Pine each owned 27,509,203 shares of the Company's outstanding Preferred Stock. On June 30, 2021, in accordance with the Certificate of Designations of the Preferred Stock, the Company made cash dividend payments totaling $4.8 million to the holders of the Preferred Stock, representing dividends accrued for the period from the Closing Date through June 29, 2021. As of September 30, 2021, accrued dividends to the holders of Preferred Stock totaled $4.0 million.
Concurrent with the closing of the Transactions on March 10, 2021, the Company entered into a ten-year Data License Agreement ("DLA") with Charter Communications Operating, LLC ("Charter Operating"), an affiliate of Charter. Under the DLA, Charter Operating will bill the Company for license fees according to a payment schedule that gradually increases from $10.0 million in the first year of the term to $32.3 million in the tenth year of the term. The Company recognizes expense for the license fees ratably over the term. A portion of the annual license fees is allocated to a base license comparable to the Company's prior license with Charter Operating. The remaining fees are allocated to the additional data sets contemplated by the DLA and the designation and related endorsement of the Company as Charter Operating's preferred data measurement partner for the term.
The Company's results from transactions with Charter and its affiliates, as reflected in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), are detailed below:
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|
|
(In thousands)
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Three Months Ended September 30, 2021
|
|
Nine Months Ended September 30, 2021
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Revenues
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$
|
487
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|
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$
|
1,366
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Cost of revenues
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5,529
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|
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16,471
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The Company has the following liability balances related to transactions with Charter and its affiliates, as reflected in the Condensed Consolidated Balance Sheet:
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As of
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|
|
(In thousands)
|
|
September 30, 2021
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|
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|
|
Accounts payable
|
|
$
|
6,697
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|
|
|
Accrued expenses
|
|
3,476
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
5,346
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|
|
|
The Company recognized revenues of $0.2 million and $0.6 million from transactions with Qurate and its affiliates in the normal course of business during the three and nine months ended September 30, 2021, respectively, as reflected in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
The Company had no transactions, other than the issuance of shares of Preferred Stock and related matters, with Pine for the three and nine months ended September 30, 2021.
Transactions with Starboard
In 2018, the Company entered into certain agreements with Starboard, then a beneficial owner of more than 5.0% of the Company's outstanding Common Stock. Refer to Footnote 4, Debt, for further information regarding these agreements and the Company's issuance of Notes to Starboard in 2018. As a result of these agreements and the transactions contemplated thereby, Starboard ceased to be a beneficial owner of more than 5.0% of the Company's outstanding Common Stock in January 2018. In addition, pursuant to a prior agreement with Starboard, the Company provided Starboard the right to designate certain members to the Company's Board. As of December 31, 2018, Starboard had no remaining right to designate any directors to the Board. As of September 30, 2021, there were no directors remaining on the Board who were designated by Starboard.
In the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), the Company recorded interest expense, inclusive of non-cash accretion of issuance discount and deferred financing costs, related to the Notes of $6.6 million during the nine months ended September 30, 2021; and $8.4 million and $24.8 million during the three and nine months ended September 30, 2020, respectively. The Company recorded no interest expense related to the Notes during the three months ended September 30, 2021.
In connection with the extinguishment of the Notes on March 10, 2021, the Company issued 3,150,000 Conversion Shares to Starboard valued at $9.6 million as discussed in Footnote 4, Debt, which amount was included as a component of loss on extinguishment of debt in the Condensed Consolidated Statement of Operations and Comprehensive Loss.
The Company had no outstanding balances related to Starboard as of September 30, 2021. The outstanding balances for the Notes, related financing derivatives, and other non-current liabilities as of December 31, 2020 are reflected in the Condensed Consolidated Balance Sheets.
9.Commitments and Contingencies
Contingencies
The Company is involved in various legal proceedings from time to time. The Company establishes reserves for specific legal proceedings when management determines that the likelihood of an unfavorable outcome is probable, and the amount of loss can be reasonably estimated. The Company has also identified certain other legal matters where an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. In these cases, the Company does not establish a reserve until it can reasonably estimate the loss. Legal fees related to contingencies are expensed as incurred. The outcomes of legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to the Company's operating results and cash flows for a particular period.
Privacy Class Action Litigation
On September 11, 2017, the Company and a wholly owned subsidiary, Full Circle Studies, Inc., ("Full Circle"), received demand letters on behalf of named plaintiffs and all others similarly situated alleging that the Company and Full Circle collected personal information from users under the age of 13 without verifiable parental consent in violation of Massachusetts law and the federal Children's Online Privacy Protection Act. The letters alleged that the Company and Full Circle collected such personal information by embedding advertising software development kits in applications created or developed by The Walt Disney Company. The letters sought monetary damages, attorneys' fees and damages under Massachusetts law. On June 4, 2018, the plaintiffs filed amended complaints with the U.S. District Court for the Northern District of California adding the Company and Full Circle as defendants in a purported class action (captioned Rushing, et al v. The Walt Disney Company, et al., Case No. 3:17-cv-04419-JD) against Disney, Twitter and other defendants, alleging violations of California's constitutional right to privacy and intrusion upon seclusion law, New York's deceptive trade practices statute, and Massachusetts' deceptive trade practices and right to privacy statutes. The complaints alleged damages in excess of $5.0 million, with any award to be apportioned among the defendants. On February 26, 2020, the Company and Full Circle reached an agreement with the plaintiffs to settle the complaints in full, with no admission of liability, in return for injunctive relief and payment of the plaintiffs' attorneys' fees, to be covered by the Company's insurance. The settlement received preliminary court approval on September 24, 2020. The settlement received final court approval on April 12, 2021.
Other Matters
In addition to the matters described above, the Company is, and may become, a party to a variety of legal proceedings from time to time that arise in the normal course of the Company's business. While the results of such legal proceedings cannot be predicted with certainty, management believes that, based on current knowledge, the final outcome of any such current pending matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Regardless of the outcome, legal proceedings can have an adverse effect on the Company because of defense costs, diversion of management resources and other factors.
Indemnification
The Company has entered into indemnification agreements with each of the Company's directors and certain officers, and the Company's amended and restated certificate of incorporation requires it to indemnify each of its officers and directors, to the fullest extent permitted by Delaware law, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Company. The Company has paid and may in the future pay legal counsel fees incurred by current and former directors and officers who are involved in legal proceedings that require indemnification.
Similarly, certain of the Company's commercial contracts require it to indemnify contract counterparties under specified circumstances, and the Company may incur legal counsel fees and other costs in connection with these obligations.