Item 1. – Financial Statements
Cision Ltd. and
its Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share and share amounts)
(Unaudited)
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
107,848
|
|
|
$
|
148,654
|
|
Accounts receivable, net
|
|
|
127,433
|
|
|
|
113,008
|
|
Prepaid expenses and other current
assets
|
|
|
24,026
|
|
|
|
19,896
|
|
Total current assets
|
|
|
259,307
|
|
|
|
281,558
|
|
Property and equipment, net
|
|
|
55,351
|
|
|
|
53,578
|
|
Other intangible assets, net
|
|
|
462,378
|
|
|
|
456,291
|
|
Goodwill
|
|
|
1,198,360
|
|
|
|
1,136,403
|
|
Other assets
|
|
|
5,656
|
|
|
|
7,528
|
|
Total assets
|
|
$
|
1,981,052
|
|
|
$
|
1,935,358
|
|
Liabilities and Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
13,430
|
|
|
$
|
13,349
|
|
Accounts payable
|
|
|
14,123
|
|
|
|
13,327
|
|
Accrued compensation and benefits
|
|
|
26,885
|
|
|
|
25,873
|
|
Other accrued expenses
|
|
|
80,302
|
|
|
|
73,483
|
|
Current portion of deferred revenue
|
|
|
162,938
|
|
|
|
140,351
|
|
Total current liabilities
|
|
|
297,678
|
|
|
|
266,383
|
|
Long-term debt, net of current portion
|
|
|
1,273,747
|
|
|
|
1,266,121
|
|
Deferred revenue, net of current portion
|
|
|
1,340
|
|
|
|
1,412
|
|
Deferred tax liability
|
|
|
42,840
|
|
|
|
62,617
|
|
Other liabilities
|
|
|
21,991
|
|
|
|
22,456
|
|
Total liabilities
|
|
|
1,637,596
|
|
|
|
1,618,989
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 20,000,000 shares authorized; no shares
issued and outstanding at March 31, 2018 and December 31, 2017
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.0001 par value, 480,000,000 shares authorized;
124,370,566 and 122,634,922 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively
|
|
|
12
|
|
|
|
12
|
|
Additional paid-in capital
|
|
|
793,298
|
|
|
|
771,813
|
|
Accumulated other comprehensive loss
|
|
|
(28,036
|
)
|
|
|
(35,111
|
)
|
Accumulated deficit
|
|
|
(421,818
|
)
|
|
|
(420,345
|
)
|
Total stockholders' equity
|
|
|
343,456
|
|
|
|
316,369
|
|
Total liabilities and stockholders'
equity
|
|
$
|
1,981,052
|
|
|
$
|
1,935,358
|
|
The accompanying
notes are an integral part of these condensed consolidated financial statements.
Cision Ltd. and
its Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except share and per share amounts)
(Unaudited)
|
|
Three
Months Ended
March
31,
|
|
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
$
|
179,293
|
|
|
$
|
145,818
|
|
Cost of revenue
|
|
|
64,278
|
|
|
|
45,066
|
|
Gross profit
|
|
|
115,015
|
|
|
|
100,752
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
29,679
|
|
|
|
27,290
|
|
Research and development
|
|
|
6,700
|
|
|
|
5,452
|
|
General and administrative
|
|
|
46,222
|
|
|
|
40,232
|
|
Amortization of intangible assets
|
|
|
20,250
|
|
|
|
21,011
|
|
Total operating costs and expenses
|
|
|
102,851
|
|
|
|
93,985
|
|
Operating income
|
|
|
12,164
|
|
|
|
6,767
|
|
Non operating income (expense):
|
|
|
|
|
|
|
|
|
Foreign exchange losses
|
|
|
(7,883
|
)
|
|
|
(1,948
|
)
|
Interest and other income (loss), net
|
|
|
(256
|
)
|
|
|
2,049
|
|
Interest expense
|
|
|
(19,688
|
)
|
|
|
(36,915
|
)
|
Loss on extinguishment of debt
|
|
|
(2,432
|
)
|
|
|
—
|
|
Total non operating loss
|
|
|
(30,259
|
)
|
|
|
(36,814
|
)
|
Loss before income taxes
|
|
|
(18,095
|
)
|
|
|
(30,047
|
)
|
Benefit from income taxes
|
|
|
(17,682
|
)
|
|
|
(7,054
|
)
|
Net loss
|
|
$
|
(413
|
)
|
|
$
|
(22,993
|
)
|
Other comprehensive income – foreign
currency translation adjustments
|
|
|
7,075
|
|
|
|
5,894
|
|
Comprehensive income (loss)
|
|
$
|
6,662
|
|
|
$
|
(17,099
|
)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.81
|
)
|
Weighted-average shares outstanding used in computing
per share amounts:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
123,946,264
|
|
|
|
28,369,644
|
|
The accompanying
notes are an integral part of these condensed consolidated financial statements.
Cision Ltd. and
its Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
Three Months Ended March
31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(413
|
)
|
|
$
|
(22,993
|
)
|
Adjustments to reconcile net loss to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
33,277
|
|
|
|
32,592
|
|
Non-cash interest charges and amortization of debt discount
and deferred financing costs
|
|
|
3,198
|
|
|
|
7,149
|
|
Equity-based compensation expense
|
|
|
1,341
|
|
|
|
993
|
|
Provision for doubtful accounts
|
|
|
1,572
|
|
|
|
368
|
|
Deferred income taxes
|
|
|
(18,791
|
)
|
|
|
(7,858
|
)
|
Unrealized currency translation losses
|
|
|
7,864
|
|
|
|
1,775
|
|
Gain on sale of business
|
|
|
—
|
|
|
|
(1,785
|
)
|
Other
|
|
|
60
|
|
|
|
(164
|
)
|
Changes in operating assets and liabilities, net of effects
of acquisitions and disposal:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(6,812
|
)
|
|
|
1,637
|
|
Prepaid expenses and other current assets
|
|
|
(2,979
|
)
|
|
|
423
|
|
Other assets
|
|
|
48
|
|
|
|
64
|
|
Accounts payable
|
|
|
(443
|
)
|
|
|
(625
|
)
|
Accrued compensation and benefits
|
|
|
(17
|
)
|
|
|
(8,597
|
)
|
Other accrued expenses
|
|
|
(3,330
|
)
|
|
|
1,932
|
|
Deferred revenue
|
|
|
20,853
|
|
|
|
9,656
|
|
Other liabilities
|
|
|
875
|
|
|
|
(1,729
|
)
|
Net cash provided by operating activities
|
|
|
36,303
|
|
|
|
12,838
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(3,739
|
)
|
|
|
(3,513
|
)
|
Software development costs
|
|
|
(5,033
|
)
|
|
|
(4,074
|
)
|
Acquisitions of businesses, net of cash acquired of $2,711
and $11,457
|
|
|
(62,713
|
)
|
|
|
(49,081
|
)
|
Proceeds from disposal of business
|
|
|
—
|
|
|
|
23,675
|
|
Net cash used in investing activities
|
|
|
(71,485
|
)
|
|
|
(32,993
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from term credit facility, net of debt discount
of $1,108
|
|
|
—
|
|
|
|
28,892
|
|
Repayments of term credit facility
|
|
|
(3,362
|
)
|
|
|
(2,825
|
)
|
Payments on capital lease obligations
|
|
|
—
|
|
|
|
(58
|
)
|
Payments of deferred financing costs
|
|
|
(131
|
)
|
|
|
—
|
|
Payment of contingent consideration
|
|
|
(2,873
|
)
|
|
|
—
|
|
Net cash provided by (used in) financing
activities
|
|
|
(6,366
|
)
|
|
|
26,009
|
|
Effect of exchange rate changes
on cash and cash equivalents
|
|
|
742
|
|
|
|
341
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(40,806
|
)
|
|
|
6,195
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
148,654
|
|
|
|
35,135
|
|
End of period
|
|
$
|
107,848
|
|
|
$
|
41,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows
information
|
|
|
|
|
|
|
|
|
Issuance of securities by Cision Owner in connection
with acquisition
|
|
$
|
—
|
|
|
$
|
7,000
|
|
Issuance of shares for acquisition
|
|
|
20,143
|
|
|
|
—
|
|
The accompanying
notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial
Statements
1. Organization
Cision Ltd., a Cayman Islands company
and its subsidiaries (collectively, “Cision”, or the “Company”), is a leading provider of cloud-based
software, media intelligence and distribution services, and other related professional services to the marketing and public relations
industry. Communications professionals use the Company’s products and services to identify and connect with media influencers,
manage industry relationships, create and distribute content, monitor media coverage, perform advanced analytics and measure the
effectiveness of their campaigns. The Company has primary offices in Chicago, Illinois, Beltsville, Maryland, Ann Arbor, Michigan,
New York, New York, Cleveland, Ohio, and Albuquerque, New Mexico with additional offices in the United States, as well as China,
Finland, France, Hong Kong, Germany, India, Indonesia, Malaysia, Norway, Portugal, Sweden, Taiwan and the United Kingdom.
On March 19, 2017, the Company entered
into a definitive agreement (the “Merger Agreement”) with Capitol Acquisition Corp. III (NASDAQ: CLAC; “Capitol”),
a public investment vehicle, whereby the parties agreed to merge, resulting in the Company becoming a publicly listed company.
This merger closed on June 29, 2017 (“Merger”), which resulted in the following (the “Transactions”):
|
·
|
Holders of 490,078 shares of Capitol common stock sold in its
initial public offering exercised their rights to convert those shares to cash at a conversion price of approximately $10.04
per share, or an aggregate of approximately $4.9 million. The per share conversion price of approximately $10.04 for holders
of public shares electing conversion was paid out of Capitol’s trust account, which had a balance immediately prior
to the closing of approximately $326.3 million.
|
|
·
|
Of the remaining funds in the trust account: (i) approximately
$16.2 million was used to pay Capitol’s transaction expenses and (ii) the balance of approximately $305.2 million was
released to Cision to be used for working capital and general corporate purposes, including to pay down $294.0 million of
the 2016 Second Lien Credit Facility, plus a 1% fee and interest. The debt repayment occurred in July 2017 (see Note 5).
|
|
·
|
Immediately after giving effect to the Transactions (including
as a result of the conversions described above and certain forfeitures of Capitol common stock and warrants immediately prior
to the closing), there were 120,512,402 ordinary shares and warrants to purchase 24,375,596 ordinary shares of Cision issued
and outstanding.
|
|
·
|
Upon the closing, Capitol’s common stock, warrants and
units ceased trading, and Cision’s ordinary shares and warrants began trading on the NYSE and NYSE MKT, respectively,
under the symbol “CISN” and “CISN WS,” respectively.
|
|
·
|
Upon the completion of the Transactions, Canyon Holdings (Cayman),
L.P., (“Cision Owner”) an exempted limited partnership formed for the purpose of owning and acquiring Cision through
a series of transactions, received 82,075,873 ordinary shares of the Company and 1,969,841 warrants to purchase ordinary shares
of the Company, in exchange for all of the share capital and $450.5 million in Convertible Preferred Equity Certificates (“CPECs”)
of Cision. Cision Owner also obtained the right to receive certain additional securities of the Company upon the occurrence
of certain events. In October 2017, as a result of the Company’s share price meeting the Minimum Target per the
Merger Agreement, the Company issued 2,000,000 shares to Cision Owner.
|
|
·
|
At the closing of the Transactions, Cision Owner held approximately
68% of the issued and outstanding ordinary shares of the Company and stockholders of Capitol held approximately 32% of the
issued and outstanding shares of the Company.
|
The Merger Agreement, Transactions and
items related thereto are more fully described in the Company’s proxy statement/prospectus filed on June 15, 2017.
2. Significant Accounting Policies
Basis of Presentation and Earnings
per Share
The Transactions were accounted for as
a reverse merger in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
This determination was primarily based on Cision comprising the ongoing operations of the combined entity, Cision’s senior
management comprising the majority of the senior management of the combined company, and the prior shareholders of Cision having
a majority of the voting power of the combined entity. Accordingly, the Transactions have been treated equivalent to Cision issuing
stock for the net monetary assets of Capitol, accompanied by a recapitalization. The net assets of Capitol at the merger date
have been stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Transactions
in these financial statements are those of Cision. As a result, these financial statements represent the continuation of Cision
Ltd. and the historical shareholders’ equity and earnings per share calculations of Cision prior to the Transactions have
been retrospectively adjusted for the equivalent number of shares received by Cision’s Owner, where applicable, pursuant
to the Transactions. The accumulated deficit of Cision has been carried forward after the Transactions.
Notes to Condensed
Consolidated Financial Statements (continued)
Prior to the June 29, 2017 Transactions,
earnings per share was calculated using the two-class method. On June 29, 2017, all outstanding classes of equity of Cision were
contributed in exchange for 82,075,873 common shares. Immediately after the Transactions, 120,512,402 common shares were outstanding.
Subsequent to the Merger, earnings per share will be calculated based on the weighted number of common shares then outstanding.
As part of the Transactions, the historical number of outstanding common shares of Class B-1, Class C-1 and Class V, in aggregate,
has been adjusted to 28,369,644 common shares, in order to retroactively reflect the Merger exchange ratio. Historical earnings
per share also gives effect to this adjustment through June 29, 2017, the date of the Merger. This retroactive adjustment also
eliminates the need for a two-class method earnings per share calculation (Note 7).
The accompanying consolidated financial
statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all the information and
footnotes required by GAAP. In the opinion of management, all adjustments (consisting of normal accruals) considered for a fair
statement have been included. The accompanying condensed consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet as of December 31, 2017 included herein was derived from the audited financial statements
as of that date, but does not include all disclosures including notes required by GAAP. Operating results for the three months
ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018
or any other period. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with
the Company’s Annual Report on Form 10-K filed on March 13, 2018.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make certain estimates and assumptions. On an on-going basis, the Company evaluates
its estimates, including, but not limited to, those related to the allowance for doubtful accounts, software development costs,
useful lives of property, equipment and internal use software, intangible assets and goodwill, contingent liabilities, and fair
value of equity-based awards and income taxes. The Company bases its estimates on various assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets
and liabilities as well as the reported amounts of revenues and expenses during the period. Actual results could differ from these
estimates.
Recent Accounting Pronouncements
As long as the Company remains an Emerging
Growth Company, the Company plans to adopt new accounting standards using the effective dates available for nonpublic entities
except as otherwise noted below.
New Accounting Pronouncements Adopted
In March 2016, the FASB issued ASU 2016-09,
Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting.
ASU 2016-09, which amends several
aspects of accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and
statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company has elected to early
adopt this guidance on a prospective basis beginning January 1, 2018. The Company has also elected to continue its historical accounting
practice of estimating forfeitures in determining the amount of stock-based compensation expense to recognize, rather than accounting
for forfeitures as they occur. Therefore, the adoption of ASU 2016-09 did not have an impact on the Company’s consolidated
financial statements.
In October 2016, the FASB issued ASU No.
2016-16,
Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory
. The amendments of ASU No. 2016-16
were issued to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory.
Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset
has been sold to an outside party which has resulted in diversity in practice and increased complexity within financial reporting.
The amendments of this ASU would require an entity to recognize the income tax consequences of an intra-entity transfer of an
asset other than inventory when the transfer occurs and do not require new disclosure requirements. The Company elected to early
adopt ASU 2016-16 in the first quarter of fiscal 2018 and applied the guidance on a modified retrospective basis and recorded
a cumulative-effect adjustment to retained earnings in the amount of $1.1 million.
In January 2017, the FASB issued ASU 2017-04,
Intangibles-Goodwill and Other (Topic 350)
. The ASU eliminates Step 2 of the goodwill impairment test, which requires determining
the fair value of assets acquired or liabilities assumed in a business combination. Under the amendments in this update, a goodwill
impairment test is performed by comparing the fair value of the reporting unit with its carrying amount. An entity should recognize
an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company elected to early adopt
ASU 2017-04 in the first quarter of fiscal 2018 and it did not have an impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09,
Compensation – Stock Compensation: Scope of Modification Accounting
, which provides guidance about which changes to
the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity will account
for the effects of a modification unless the fair value of the modified award is the same as the original award, the vesting conditions
of the modified award are the same as the original award and the classification of the modified award as an equity instrument or
liability instrument is the same as the original award. The Company adopted ASU 2017-09 in the first quarter of fiscal 2018 and
it did not have an impact on the Company’s consolidated financial statements.
Notes to Condensed
Consolidated Financial Statements (continued)
Recent Accounting Pronouncements Not Yet Effective
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. Topic 606 supersedes existing revenue recognition requirements in ASU
Topic 605,
Revenue Recognition
, and requires the recognition of revenue when promised goods or services are transferred
to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those
goods or services. The accounting for the recognition of costs related to obtaining customer contracts under Topic 606 is significantly
different than current guidance, and Topic 606 will likely result in sales commissions and certain other costs capitalized, which
will then be amortized over an estimated customer life. The Company will adopt this ASU effective for fiscal year 2019 using the
modified retrospective transition method. The Company is in the process of evaluating the impact of this standard on its consolidated
financial statements.
In February 2018, the FASB issued ASU
2018-02,
Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income
, which will allow a reclassification from accumulated other comprehensive income to retained earnings
for the tax effects resulting from “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution
on the Budget for Fiscal Year 2018” (the “Act”) that are stranded in accumulated other comprehensive income.
This ASU also requires certain disclosures about stranded tax effects; however, it does not change the underlying guidance that
requires that the effect of a change in tax laws or rates be included in income from continuing operations. This ASU is effective
on January 1, 2019, with early adoption permitted. It must be applied either in the period of adoption or retrospectively to each
period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company is
in the process of evaluating the impact of this standard on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
. The amendments in this update clarify the definition
of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted
for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including
acquisitions, disposals, goodwill, and consolidation. This ASU is effective for the Company’s fiscal year 2019 and interim
periods within that year. The Company does not believe the adoption of this standard will have a material impact on its consolidated
financial statements.
In November 2016, the FASB issued ASU
2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the Emerging Issues Task Force),
which requires
restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement
of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance
sheet. This ASU is effective for the Company’s fiscal year 2019, with early adoption permitted. The Company does not believe
the adoption of this standard will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842)
. ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance
sheet and requires expanded disclosures about leasing arrangements. This ASU is effective for the Company’s fiscal year
2020 and interim periods within 2021, with early adoption permitted. The Company is in the process of evaluating the impact of
this standard on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities
. This change primarily
affects the accounting for equity investments, financial liabilities under the fair value options and the presentation and disclosure
requirements for financial instruments. This ASU is effective for the Company’s fiscal year 2019, with early adoption permitted
for certain provisions for the new guidance. The Company does not believe the adoption of this standard will have a material impact
on its consolidated financial statements.
Notes to Condensed
Consolidated Financial Statements (continued)
3. Business Combinations and Dispositions
Sale of Vintage Net Assets
On March 10, 2017, the Company sold substantially
all of the assets of its Vintage corporate filings business for approximately $26.6 million and received approximately $23.7 million
in cash after escrow and expenses. The transaction resulted in a gain of approximately $1.8 million which was recorded as other
income in the consolidated statements of operations and comprehensive income (loss). The Company was required to provide the purchaser
with certain immaterial transition services through the end of 2017.
Purchase of Bulletin Intelligence
On March 27, 2017, the Company acquired
all of the membership interests of Bulletin Intelligence, LLC, Bulletin News Network, LLC, and Bulletin News Investment, LLC (collectively,
“Bulletin Intelligence”). The Company acquired Bulletin Intelligence to expand the Company’s ability to deliver
actionable intelligence to senior leadership teams. During the three months ended March 31, 2017, the Company incurred acquisition-related
transaction costs of $1.0 million, which are included in general and administrative expense in the condensed consolidated statements
of operations and comprehensive income (loss). The acquisition was accounted for under the purchase method of accounting. The operating
results have been included in the accompanying condensed consolidated financial statements beginning March 27, 2017.
The purchase price was $71.8 million and
consisted of $60.5 million in cash, the issuance of 70,000 Class A Shares by Cision Owner with a fair value of $5.2 million and
contingent consideration valued at $6.1 million. The fair value of the contingent consideration was determined using a Monte Carlo
simulation which utilized management's projections of Bulletin Intelligence revenues over the earn-out period, and is considered
a Level 3 measurement. Changes in fair value subsequent to the acquisition date will be recognized in earnings each reporting
period until the arrangement is settled. The Company is required to pay contingent consideration that can be earned during the
years ending December 31, 2017 and December 31, 2018 for each year dependent on the achievement of financial targets as defined
by the agreement with no cap. For the year ended December 31, 2017, the former owners of Bulletin Intelligence earned $2.9 million
in relation to the earn out, which was paid in March 2018. On the date of acquisition, the Company entered into a loan agreement
with Cision Owner for $7.0 million and recorded a payable to Cision Owner of $7.0 million in the condensed consolidated balance
sheet, which was contributed in the quarter ended June 30, 2017. The $1.8 million difference between the fair value of the Class
A Units and the amount due to Cision Owner has been recorded as interest expense.
The purchase price has been allocated
to the assets acquired and liabilities assumed based on fair values as of the acquisition date.
The following table summarizes the allocation
of the purchase price paid by the Company to the fair value of the assets and liabilities of Bulletin Intelligence acquired on
March 27, 2017. The identifiable intangible assets include the trade name, customer relationships and purchased technology and
are being amortized over four to ten years on an accelerated basis. The Company completed the purchase price allocation during
the three months ended March 31, 2018.
(in thousands)
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,457
|
|
Accounts receivable, net
|
|
|
5,232
|
|
Prepaid and other assets
|
|
|
216
|
|
Property, equipment and software, net
|
|
|
704
|
|
Trade name
|
|
|
1,070
|
|
Customer relationships
|
|
|
28,870
|
|
Purchased technology
|
|
|
9,510
|
|
Goodwill
|
|
|
19,520
|
|
Total assets acquired
|
|
|
76,579
|
|
Accounts payable and accrued liabilities
|
|
|
(3,481
|
)
|
Deferred revenue
|
|
|
(1,271
|
)
|
Total liabilities assumed
|
|
|
(4,752
|
)
|
Net assets acquired
|
|
$
|
71,827
|
|
Goodwill will be deductible for tax purposes.
The excess of the purchase price over the total net identifiable assets has been recorded as goodwill, which is attributable primarily
to synergies expected from the expanded technology and service capabilities from the integrated business as well as the value
of the assembled workforce.
Purchase of Argus
On June 22, 2017, the Company acquired
all of the outstanding shares of L’Argus de la Presse (“Argus”), a Paris-based provider of media monitoring
solutions, for €6.0 million (approximately $6.8 million) paid in cash at closing and up to €1.1 million (approximately
$1.2 million) to be paid in cash over the next four years, subject to a working capital adjustment. The Company acquired Argus
to deliver enhanced access to French media content, helping its global customer base understand and quantify the impact of their
communications and media coverage in France.
Notes to Condensed
Consolidated Financial Statements (continued)
The acquisition was accounted for under
the purchase method of accounting. The operating results have been included in the accompanying condensed consolidated financial
statements beginning June 22, 2017.
The purchase price has been allocated
to the assets acquired and liabilities assumed based on fair values as of the acquisition date.
The following table summarizes the allocation
of the purchase price based on currently available information by the Company to the fair value of the assets and liabilities
of Argus acquired on June 22, 2017. The amounts related to intangible assets shown below are subject to adjustment as additional
information is obtained about the facts and circumstances that existed at the date of acquisition. The identifiable intangible
assets include the trade name, customer relationships and purchased technology and are being amortized over four to eight years
on an accelerated basis. The Company expects to complete the purchase price allocation during the three months ended June 30,
2018.
(in thousands)
|
|
|
|
Cash and cash equivalents
|
|
$
|
897
|
|
Accounts receivable, net
|
|
|
12,543
|
|
Prepaid and other assets
|
|
|
2,346
|
|
Property, equipment and software, net
|
|
|
5,543
|
|
Trade name
|
|
|
79
|
|
Customer relationships
|
|
|
1,989
|
|
Purchased technology
|
|
|
796
|
|
Goodwill
|
|
|
5,092
|
|
Total assets acquired
|
|
|
29,285
|
|
Accounts payable, accrued liabilities, and other liabilities
|
|
|
(16,610
|
)
|
Deferred revenue
|
|
|
(4,627
|
)
|
Total liabilities assumed
|
|
|
(21,237
|
)
|
Net assets acquired
|
|
$
|
8,048
|
|
Goodwill is not deductible for tax purposes.
The preliminary purchase price is subject to customary post-closing adjustments. The excess of the purchase price over the total
net identifiable assets has been recorded as goodwill which is attributable primarily to synergies expected from the expanded
technology and service capabilities from the integrated business as well as the value of the assembled workforce in accordance
with GAAP.
Purchase of CEDROM
On December 19, 2017, the Company acquired
all of the outstanding shares of CEDROM, a Montréal-based provider of digital media monitoring solutions, for CAD 33.1
million (approximately $25.9 million) paid in cash at closing, subject to a working capital adjustment. The Company acquired CEDROM
to enhance access to media content from print, radio, television, web, and social media to help customers understand and quantify
the impact of their communications in Canada and France.
The acquisition was accounted for under
the purchase method of accounting. The operating results have been included in the accompanying condensed consolidated financial
statements beginning December 19, 2017.
The purchase price has been preliminarily
allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date.
The following table summarizes the preliminary
allocation of the purchase price based on currently available information by the Company to the fair value of the assets and liabilities
of CEDROM. The amounts related to taxes and intangible assets shown below are preliminary and subject to adjustment as additional
information is obtained about the facts and circumstances that existed at the date of acquisition. The identifiable intangible
assets include the trade name, customer relationships and purchased technology and are being amortized over five to twelve years
on an accelerated basis. The Company expects to complete the purchase price allocation during the three months ended June 30,
2018.
Notes to Condensed
Consolidated Financial Statements (continued)
(in thousands)
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,394
|
|
Accounts receivable, net
|
|
|
2,955
|
|
Prepaid and other assets
|
|
|
1,749
|
|
Property, equipment and software, net
|
|
|
1,256
|
|
Trade name
|
|
|
1,061
|
|
Customer relationships
|
|
|
3,517
|
|
Purchased technology
|
|
|
7,765
|
|
Goodwill
|
|
|
16,642
|
|
Total assets acquired
|
|
|
37,339
|
|
Accounts payable, accrued liabilities, and other liabilities
|
|
|
(4,288
|
)
|
Deferred revenue
|
|
|
(3,709
|
)
|
Deferred taxes
|
|
|
(3,412
|
)
|
Total liabilities assumed
|
|
|
(11,409
|
)
|
Net assets acquired
|
|
$
|
25,930
|
|
Goodwill is not deductible for tax purposes.
The preliminary purchase price is subject to customary post-closing adjustments. The excess of the purchase price over the total
net identifiable assets has been recorded as goodwill which is primarily attributable to synergies expected from the expanded
technology and service capabilities from the integrated business as well as the value of the assembled workforce in accordance
with GAAP.
Purchase of Prime
On January 23, 2018, the Company completed
its acquisition of PRIME Research (“Prime”). The purchase price was approximately €75.7 million ($94.1 million)
and consisted of approximately €53.1 million ($65.4 million) in cash consideration, the issuance of approximately 1.7 million
ordinary shares valued at €16.4 million ($20.1 million), and up to €6.2 million ($8.6 million) of deferred payments
due within 18 months. The Company has the discretion to pay up to €2.5 million ($3.1 million) of the deferred payments with
ordinary shares. The acquisition of Prime will expand the Company’s comprehensive data-driven offerings that help communications
professionals identify influencers, craft meaningful campaigns, and attribute business value to those efforts. At the date
of the acquisition, Prime had over 700 employees with offices in Brazil, China, Germany, India, Switzerland, the United Kingdom,
and the United States.
Total acquisition costs related to the
Prime acquisition were $5.4 million of which $2.3 million were incurred during the three months ended March 31, 2018 and were included
in general and administrative expense in the condensed consolidated statements of operations and comprehensive income (loss). The
acquisition was accounted for under the purchase method of accounting. The operating results are included in the accompanying condensed
consolidated financial statements from January 23, 2018.
The purchase price has been preliminarily
allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date.
The following table summarizes the preliminary
allocation of the purchase price based on currently available information by the Company to the fair value of the assets and liabilities
of Prime. The amounts related to taxes and intangible assets shown below are preliminary and subject to adjustment as additional
information is obtained about the facts and circumstances that existed at the date of acquisition. The identifiable intangible
assets include the trade name, customer relationships and purchased technology and are being amortized over three to eleven years
on an accelerated basis. The Company expects to complete the purchase price allocation on or before January 31, 2019.
(in thousands)
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,711
|
|
Accounts receivable, net
|
|
|
8,186
|
|
Prepaid and other assets
|
|
|
1,320
|
|
Property, equipment and software, net
|
|
|
1,207
|
|
Trade name
|
|
|
1,436
|
|
Customer relationships
|
|
|
17,903
|
|
Purchased technology
|
|
|
9,881
|
|
Goodwill
|
|
|
57,465
|
|
Total assets acquired
|
|
|
100,109
|
|
Accounts payable, accrued liabilities, and other liabilities
|
|
|
(5,627
|
)
|
Deferred revenue
|
|
|
(426
|
)
|
Total liabilities assumed
|
|
|
(6,053
|
)
|
Net assets acquired
|
|
$
|
94,056
|
|
Notes to Condensed
Consolidated Financial Statements (continued)
Approximately $38.8 million of goodwill
is deductible for tax purposes pending any purchase price adjustments. The preliminary purchase price is subject to customary
post-closing adjustments. The excess of the purchase price over the total net identifiable assets has been recorded as goodwill
which is primarily attributable to synergies expected from the expanded technology and service capabilities from the integrated
business as well as the value of the assembled workforce in accordance with GAAP.
The acquired entities of Bulletin Intelligence,
Argus, CEDROM and Prime together contributed revenue of $31.1 million for the three months ended March 31, 2018. Net loss from
these acquisitions for the same period is impracticable to determine due to the extent of integration activities.
Supplemental Unaudited Pro Forma
Information
The unaudited pro forma information below
gives effect to the acquisitions of Bulletin Intelligence, Argus, and CEDROM as if they had occurred as of January 1, 2016 and
Prime as if it had occurred as of January 1, 2017. The pro forma results presented below show the impact of the acquisitions and
related costs as well as the increase in interest expense related to acquisition-related debt.
|
|
Three Months Ended March
31,
|
|
(in thousands, except per share data)
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
$
|
182,334
|
|
|
$
|
175,118
|
|
Net income (loss)
|
|
|
1,398
|
|
|
|
(24,593
|
)
|
Net income (loss) per share – basic and
diluted
|
|
|
0.01
|
|
|
|
(0.87
|
)
|
4. Goodwill and Intangibles
Changes in the carrying amounts of goodwill
since December 31, 2017 consisted of the following:
(in thousands)
|
|
|
|
Balance as of December 31, 2017
|
|
$
|
1,136,403
|
|
Measurement period adjustment of Bulletin Intelligence
|
|
|
(1,950
|
)
|
Acquisition of Prime Research
|
|
|
57,465
|
|
Effects of foreign currency
|
|
|
6,442
|
|
Balance as of March 31, 2018
|
|
$
|
1,198,360
|
|
Definite-lived intangible assets consisted
of the following at March 31, 2018 and December 31, 2017:
|
|
March 31, 2018
|
|
(in thousands)
|
|
Gross
Carrying
Amount
|
|
|
Foreign
Currency
Translation
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Trade names and brand
|
|
$
|
371,871
|
|
|
$
|
(1,028
|
)
|
|
$
|
(86,187
|
)
|
|
$
|
284,656
|
|
Customer relationships
|
|
|
321,862
|
|
|
|
(10,470
|
)
|
|
|
(179,334
|
)
|
|
|
132,058
|
|
Purchased technology
|
|
|
143,711
|
|
|
|
(4,721
|
)
|
|
|
(93,326
|
)
|
|
|
45,664
|
|
Balances at March 31, 2018
|
|
$
|
837,444
|
|
|
$
|
(16,219
|
)
|
|
$
|
(358,847
|
)
|
|
$
|
462,378
|
|
Notes to Condensed
Consolidated Financial Statements (continued)
|
|
December 31, 2017
|
|
(in thousands)
|
|
Gross
Carrying
Amount
|
|
|
Foreign
Currency
Translation
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Trade names and brand
|
|
$
|
370,435
|
|
|
$
|
(1,519
|
)
|
|
$
|
(75,273
|
)
|
|
$
|
293,643
|
|
Customer relationships
|
|
|
302,009
|
|
|
|
(12,472
|
)
|
|
|
(168,460
|
)
|
|
|
121,077
|
|
Purchased technology
|
|
|
133,830
|
|
|
|
(5,276
|
)
|
|
|
(86,983
|
)
|
|
|
41,571
|
|
Balances at December 31, 2017
|
|
$
|
806,274
|
|
|
$
|
(19,267
|
)
|
|
$
|
(330,716
|
)
|
|
$
|
456,291
|
|
Weighted-average useful life at March 31, 2018
|
|
Years
|
|
Trade names and brand
|
|
|
12.5
|
|
Customer relationships
|
|
|
6.8
|
|
Purchased technology
|
|
|
3.8
|
|
Future expected amortization of intangible
assets at March 31, 2018 is as follows:
(in thousands)
|
|
|
|
Remainder of 2018
|
|
$
|
79,383
|
|
2019
|
|
|
86,622
|
|
2020
|
|
|
63,454
|
|
2021
|
|
|
51,871
|
|
2022
|
|
|
38,532
|
|
Thereafter
|
|
|
142,516
|
|
|
|
$
|
462,378
|
|
5. Debt
Debt consisted of the following at March
31, 2018 and December 31, 2017:
|
|
March 31, 2018
|
|
(in thousands)
|
|
Short-Term
|
|
|
Long-Term
|
|
|
Total
|
|
2017 First Lien Credit Facility
|
|
$
|
13,430
|
|
|
$
|
1,322,821
|
|
|
$
|
1,336,251
|
|
Unamortized debt discount and issuance
costs
|
|
|
—
|
|
|
|
(49,074
|
)
|
|
|
(49,074
|
)
|
Balances at March 31, 2018
|
|
$
|
13,430
|
|
|
$
|
1,273,747
|
|
|
$
|
1,287,177
|
|
|
|
December 31, 2017
|
|
(in thousands)
|
|
Short-Term
|
|
|
Long-Term
|
|
|
Total
|
|
2017 First Lien Credit Facility
|
|
$
|
13,349
|
|
|
$
|
1,318,262
|
|
|
$
|
1,331,611
|
|
Unamortized debt discount and issuance costs
|
|
|
—
|
|
|
|
(52,141
|
)
|
|
|
(52,141
|
)
|
Balances at December 31, 2017
|
|
$
|
13,349
|
|
|
$
|
1,266,121
|
|
|
$
|
1,279,470
|
|
2017 First Lien Credit Facility
On August 4, 2017, the Company entered
into a refinancing amendment and incremental facility amendment (the “2017 First Lien Credit Facility”) to the 2016
First Lien Credit Facility, with Deutsche Bank AG, New York Branch, as administrative agent and collateral agent, and a syndicate
of commercial lenders. The 2017 First Lien Credit Facility provided for a tranche of refinancing term loans which refinanced the
term loans under the 2016 First Lien Credit Facility in full and provided for additional term loans of $131.2 million. Upon effectiveness
of the 2017 First Lien Credit Facility, the 2017 First Lien Credit Facility consists of:
|
(i)
|
a revolving credit facility, which
permits borrowings and letters of credit of up to $75.0 million (the “2017 Revolving
Credit Facility”), of which up to $25.0 million may be used or issued as standby
and trade letters of credit;
|
|
(ii)
|
a $960.0 million Dollar-denominated
term credit facility (the “2017 First Lien Dollar Term Credit Facility”);
and
|
Notes to Condensed
Consolidated Financial Statements (continued)
|
(iii)
|
a €250.0 million Euro-denominated
term credit facility (the “2017 First Lien Euro Term Credit Facility”) and,
together with the 2017 First Lien Dollar Term Credit Facility, the “2017 First
Lien Term Credit Facility” and collectively with the 2017 Revolving Credit Facility,
the “2017 First Lien Credit Facility”).
|
The Company used the proceeds from the
2017 First Lien Term Credit Facility to repay all amounts then outstanding under the 2016 First Lien Credit Facility, all amounts
outstanding under the 2016 Second Lien Credit Facility, pay all related fees and expenses, and retained remaining cash for general
corporate purposes. The Company terminated the 2016 Second Lien Credit Facility in connection with establishing the 2017 First
Lien Credit Facility.
On December 14, 2017, the Company amended
the 2017 First Lien Credit Facility to borrow an additional $75.0 million of 2017 First Lien Dollar Term Credit Facility. The
Company used the money for its acquisition of Prime Research Group.
On February 8, 2018, the Company completed
its debt repricing transaction on its 2017 First Lien Credit Facility and 2017 Revolver Credit Facility. The 2017 First Lien Credit
Facility margins were lowered for the alternate base rate, LIBOR rate and EURIBOR rate by 1.00%, 1.00% and 0.75%, respectively.
The 2017 Revolver Credit Facility margins were lowered for the alternate base rate, LIBOR rate and EURIBOR rate by 0.75%, 0.75%
and 0.50%, respectively.
The obligations under the 2017 First Lien
Credit Facility are collateralized by substantially all of the assets of Cision’s subsidiary, Canyon Companies S.à.r.l.
and each of its subsidiaries organized in the United States (or any state thereof), the United Kingdom, the Netherlands, Luxembourg,
and Ireland, subject to certain exceptions.
Interest is charged on U.S. dollar borrowings
under the 2017 First Lien Credit Facility, at the Company’s option, at a rate based on (1) the adjusted LIBOR (a rate equal
to the London interbank offered rate adjusted for statutory reserves) or (2) the alternate base rate (a rate that is highest of
the (i) Deutsche Bank AG, New York Branch’s prime lending rate, (ii) the overnight federal funds rate plus 50 basis points
or (iii) the one-month adjusted LIBOR plus 1%), in each case, plus an applicable margin.
The margin applicable to loans under the
2017 First Lien Dollar Term Credit Facility bearing interest at the alternate base rate is 3.25%; the margin applicable to loans
under the 2017 First Lien Dollar Term Credit Facility bearing interest at the adjusted LIBOR is 4.25%, provided that each such
rate is reduced by 25 basis points if the first lien net leverage ratio of Canyon Companies S.à.r.l. and its restricted
subsidiaries under the 2017 First Lien Credit Facility is less than or equal to 4.00:1.00 at the end of the most recent fiscal
quarter. Interest is charged on Euro borrowings under the 2017 First Lien Credit Facility at a rate based on the adjusted EURIBOR
(a rate equal to the Euro interbank offered rate adjusted for statutory reserves), plus an applicable margin. The margin applicable
to loans under the 2017 First Lien Euro Term Credit Facility bearing interest at the adjusted LIBOR is 4.25%, provided that each
such rate is reduced by 25 basis points if the first lien net leverage ratio of Canyon Companies S.à.r.l. and its restricted
subsidiaries under the 2017 First Lien Credit Facility is less than or equal to 4.00:1.00 at the end of the most recent fiscal
quarter. As of March 31, 2018, the applicable interest rate under the 2017 First Lien Dollar Term Credit Facility and the 2017
First Lien Euro Term Credit Facility was 5.13% and 3.50%, respectively.
The margin applicable to loans under the
2017 Revolving Credit Facility bearing interest at the alternate base rate, the adjusted LIBOR, and the adjusted Euro interbank
offered rate bear interest at rates of 3.00%, 4.00%, and 4.00% respectively; provided that each such rate is reduced by 25 basis
points if the first lien net leverage ratio of Canyon Companies S.à.r.l. and its restricted subsidiaries under the 2017
First Lien Credit Facility is less than or equal to 4.00:1.00 at the end of the most recent fiscal quarter. The maturity dates
of the 2017 Revolving Credit Facility and the 2017 First Lien Term Credit Facility are June 16, 2022 and June 16, 2023, respectively.
As of March 31, 2018, the Company had
no outstanding borrowings and $1.1 million of outstanding letters of credit under the 2017 Revolving Credit Facility and $1,336.3
million outstanding under the 2017 First Lien Credit Facility.
The Company incurred approximately $2.0
million in financing costs in connection with the February 2018 repricing of the 2017 First Lien Credit Facility of which $0.1
million are being amortized using the effective interest method. As a result of this transaction, the Company recorded a loss on
extinguishment of $2.4 million.
The Company began to make quarterly principal
payments starting December 31, 2017 under each of the 2017 First Lien Dollar Term Credit Facility of $2.6 million and the 2017
First Lien Euro Term Credit Facility of €0.6 million (which amount may be reduced by the application of voluntary and mandatory
prepayments pursuant to the terms of the 2017 First Lien Credit Facility), with the remaining balance due June 16, 2023.
Notes to Condensed
Consolidated Financial Statements (continued)
The Company may also be required to make
certain mandatory prepayments of the 2017 First Lien Credit Facility out of excess cash flow and upon the receipt of proceeds
of asset sales and certain insurance proceeds (in each case, subject to certain minimum dollar thresholds and rights to reinvest
the proceeds as set forth in the 2017 First Lien Credit Facility).
The 2017 First Lien Credit Facility includes
a total net leverage financial maintenance covenant. Such covenant requires that, as of the last day of each fiscal quarter, the
total net leverage ratio of Canyon Companies S.à.r.l. and its restricted subsidiaries under the 2017 First Lien Credit
Facility cannot exceed the applicable ratio set forth in the 2017 First Lien Credit Facility for such quarter (subject to certain
rights to cure any failure to meet such ratio as set forth in the 2017 First Lien Credit Facility). The 2017 First Lien Credit
Facility is also subject to certain customary affirmative covenants and negative covenants. Under the 2017 First Lien Credit Facility,
the Company’s subsidiaries have restrictions on making cash dividends, subject to certain exceptions, including that the
subsidiaries are permitted to declare and pay cash dividends: (a) in any amount, so long as the total net leverage ratio under
the 2017 First Lien Credit Facility would not exceed 3.75 to 1.00 after making such payment; (b) in an amount per annum not greater
than 6.0% of (i) the market capitalization of the Company’s ordinary shares (based on the average closing price of its shares
during the 30 trading days preceding the declaration of such payment) plus (ii) the $305.2 million in proceeds we received in
the business combination with Capitol; (c) in an amount that does not exceed the sum of (i) $20.0 million, plus (ii) 50% of consolidated
net income of the Company’s subsidiaries from January 1, 2016 to the end of the most recent quarter plus (iii) certain other
amounts set forth in the definition of “Available Amount” in the Company’s 2017 First Lien Credit Facility (provided
that it may only include the amounts of consolidated net income described in clause (ii) if the Company’s total net leverage
ratio would not exceed 5.00 to 1.00 after making such payment); and (d) in an amount that does not exceed the total net proceeds
we receive from any public or private offerings of its ordinary shares or similar equity interests. As of March 31, 2018, the
Company was in compliance with these covenants.
The 2017 First Lien Credit Facility provides
that an event of default will occur upon specified change of control events. “Change in Control” is defined to include,
among other things, the failure by Cision Owner, its affiliates and certain other “Permitted Holders” to beneficially
own, directly or indirectly through one or more holding company parents of Cision, a majority of the voting equity of the borrower
thereunder.
Notes to Condensed
Consolidated Financial Statements (continued)
Future Minimum Principal Payments
Future minimum principal payments of debt
as of March 31, 2018 are as follows:
(in thousands)
|
|
|
|
Remainder of 2018
|
|
$
|
9,987
|
|
2019
|
|
|
13,349
|
|
2020
|
|
|
13,349
|
|
2021
|
|
|
13,349
|
|
2022
|
|
|
13,349
|
|
Thereafter
|
|
|
1,272,868
|
|
|
|
$
|
1,336,251
|
|
6. Stockholders’ Equity and
Equity-Based Compensation
Preferred Stock
The Company is authorized to issue 20,000,000
shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined
from time to time by the Company’s board of directors. As of March 31, 2018 and December 31, 2017, there are no shares of
preferred stock issued or outstanding.
Common Stock
The Company is authorized to issue 480,000,000
shares of common stock with a par value of $0.0001 per share.
Prior to the Merger, Cision Owner issued
equity units to employees for compensation purposes pursuant to the terms of its limited partnership agreement. Stock-based compensation
was recorded based on the grant date fair values of these awards and will continue to be recorded until full vesting of these
units has occurred. As a result of the consummation of the Merger, these outstanding units, held by Cision Owner, were converted
into common stock of Cision. Any forfeitures of unvested units will be redistributed to existing unit holders and not returned
to the Company. Equity awards to employees subsequent to the Merger will be made pursuant to the Company’s 2017 Omnibus
Incentive Plan described below.
Equity-based compensation is classified
in the condensed consolidated statements of operations and comprehensive income (loss) in a manner consistent with the statements
of operations’ classification of an employee’s salary and benefits as follows:
|
|
Three Months Ended March 31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Cost of revenue
|
|
$
|
136
|
|
|
$
|
70
|
|
Selling and marketing
|
|
|
88
|
|
|
|
66
|
|
Research and development
|
|
|
123
|
|
|
|
109
|
|
General and administrative
|
|
|
994
|
|
|
|
748
|
|
Total equity-based compensation expense
|
|
$
|
1,341
|
|
|
$
|
993
|
|
The 2017 Omnibus Incentive Plan
In June 2017, the Company adopted the
2017 Omnibus Incentive Plan (the “2017 Plan”). The 2017 Plan provides for grants of stock options, stock appreciation
rights, restricted stock, other stock-based awards and other cash-based awards. Directors, officers and other employees of the
Company and its subsidiaries, as well as others performing consulting or advisory services for the Company, are eligible for grants
under the 2017 Plan.
The 2017 Plan reserves up to 6,100,000
ordinary shares of the Company for issuance in accordance with the plan’s terms, subject to certain adjustments. The purpose
of the plan is to provide the Company’s officers, directors, employees and consultants who, by their position, ability and
diligence are able to make important contributions to the Company’s growth and profitability, with an incentive to assist
the Company in achieving its long-term corporate objectives, to attract and retain executive officers and other employees of outstanding
competence and to provide such persons with an opportunity to acquire an equity interest in the Company.
Notes to Condensed
Consolidated Financial Statements (continued)
The Company estimated the fair value of
employee stock options using the Black-Scholes option pricing model. The fair values of stock options granted under the 2017 Plan
were estimated using the following assumptions:
|
|
Three Months Ended March
31, 2018
|
|
Stock price volatility
|
|
|
50
|
%
|
Expected term (years)
|
|
|
6.3
|
|
Risk-free interest rate
|
|
|
2.3
|
%
|
Dividend yield
|
|
|
0
|
%
|
A summary of employee stock option activity
for the three months ended March 31, 2018 under the Company’s 2017 Plan is presented below:
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise
Price per
Share
|
|
|
Weighted-
Average
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2017
|
|
|
691,500
|
|
|
$
|
12.78
|
|
|
|
9.7
|
|
|
$
|
—
|
|
Granted
|
|
|
117,500
|
|
|
|
12.00
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(46,000
|
)
|
|
|
12.78
|
|
|
|
—
|
|
|
|
—
|
|
Options outstanding as of March 31, 2018
|
|
|
763,000
|
|
|
$
|
12.66
|
|
|
|
9.5
|
|
|
$
|
—
|
|
The aggregate intrinsic value is calculated
as the difference between the exercise price of the underlying stock option awards and the quoted closing price of the Company’s
common stock as of March 31, 2018.
A summary of restricted stock units activity
for the three months ended March 31, 2018 under the Company’s 2017 Plan is presented below:
|
|
Number of Shares
Underlying
Stock Awards
|
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Restricted stock units outstanding as of December 31, 2017
|
|
|
34,945
|
|
|
$
|
12.40
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(375
|
)
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Restricted stock units outstanding as of March 31, 2018
|
|
|
34,570
|
|
|
$
|
12.40
|
|
As of March 31, 2018, the Company had
$4.2 million of unrecognized compensation expense related to the unvested portion of outstanding stock options and restricted
stock units expected to be recognized on a straight-line basis over the weighted-average remaining service period.
7. Net Loss Per share
Basic net loss per share is computed by
dividing net loss by the weighted-average number of shares of common stock outstanding during the period as retroactively adjusted
for the Merger (Note 1). For the three months ended March 31, 2018 and 2017, the Company has excluded the potential effect of
warrants to purchase shares of common stock totaling 800,349 shares, additional earn out shares, as described in Note 1, and the
dilutive effect of stock options and restricted stock awards, as described in Note 6, in the calculation of diluted loss per share,
as the effect would be anti-dilutive due to losses incurred. As a result, diluted loss per common share is the same as basic loss
per common share for all periods presented below.
|
|
Three Months Ended March
31,
|
|
(in thousands, except share and per
share data)
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(413
|
)
|
|
$
|
(22,993
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding – basic
and diluted
|
|
|
123,946,264
|
|
|
|
28,369,644
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.81
|
)
|
Notes to Condensed
Consolidated Financial Statements (continued)
8. Income Taxes
The provision for income taxes is based
on the current estimate of the annual effective tax rate adjusted to reflect the tax impact of items discrete to the fiscal period.
The Company expects its annual effective tax rate to be approximately 106.5% in 2018. The benefit for income taxes results in an
effective tax rate of 97.7% for the three months ended March 31, 2018. The difference between the annual effective rate and the
effective rate in the quarter accounts for subsidiaries with pre-tax losses for which no tax benefit can be recognized and subsidiaries
in jurisdictions with a zero percent tax rate. This rate includes the impact of permanent differences and an increase in the valuation
allowance expected to be necessary at the end of the year for certain disallowed interest in the United States and United Kingdom.
The United States permanent differences are primarily related to nondeductible transaction costs, nondeductible equity compensation
and income from Canadian subsidiaries that is taxable in the United States as a result of the Tax Cuts and Jobs Act of 2017 (the
“Tax Act”). The United Kingdom permanent differences are primarily related to nondeductible interest expense. The increase
in the valuation allowance in both countries is related to tax deferred interest expense that is not more likely than not realizable.
The effective tax rate for the three months
ended March 31, 2017 was a benefit of 23.5%. The benefit from income taxes for the quarter ended March 31, 2017 was primarily driven
by non-operating losses resulting from significant interest expense and the reversal of deferred tax liabilities relating to intangible
assets.
SAB 118 addresses situations where the
accounting is incomplete for certain income tax effects of the Tax Act upon issuance of a company’s financial statements
for the reporting period which include the enactment date. SAB 118 allows for a provisional amount to be recorded if it is a reasonable
estimate of the impact of the Tax Act. Additionally, SAB 118 allows for a measurement period to finalize the impacts of the Tax
Act, not to extend beyond one year from the date of enactment.
Estimates were used in determining the
amount of the Tax Act’s one-time transition tax on the Company’s Canadian subsidiaries’ accumulated, unremitted
earnings, the balance of deferred tax assets and liabilities subject to the reduction in the U.S. federal tax rate, and the required
change in valuation allowance required as a result of the new limitations on interest deductibility. Additional information (primarily
prior year tax returns and underlying historical data to calculate the cumulative earnings and profits adjustments) is required
to accurately complete the determination of the impact of the Tax Act on the aforementioned items.
In accordance with SAB 118, we recorded,
as a provisional estimate, a $11.9 million non-cash tax expense through income from continuing operations in the period ended
December 31, 2017. This amount is a reasonable estimate of the tax effects of the Tax Act on our financial statements. We will
continue to analyze the effects of the Tax Act on the financial statements and operations and record any additional impacts as
they are identified during the measurement period provided for in SAB 118. No adjustments have been made to the provisional amounts
as of March 31, 2018.
The Company’s estimates related
to liabilities for uncertain tax positions require it to make judgments regarding the sustainability of each uncertain tax position
based on its technical merits. If it determines it is more likely than not that a tax position will be sustained based on its
technical merits, the Company records the impact of the position in its condensed consolidated financial statements at the largest
amount that is greater than fifty percent likely of being realized upon ultimate settlement. The estimates are updated at each
reporting date based on the facts, circumstances and information available. As of March 31, 2018, the Company believes the reasonably
possible total amount of unrecognized tax benefits that could increase or decrease in the next twelve months as a result of various
statute expirations, audit closures, and/or tax settlements would not be material to its condensed consolidated financial statements.
9. Commitments and Contingencies
The Company has various non-cancelable
operating leases, primarily related to office real estate, that expire through 2035 and generally contain renewal options for
up to five years. Lease incentives, payment escalations and rent holidays specified in the lease agreements are accrued or deferred
as appropriate as a component of rent expense which is recognized on a straight-line basis over the terms of occupancy. As of
March 31, 2018 and December 31, 2017, lease related liabilities of $13.4 million and $10.2 million, respectively, is included
in other liabilities.
Notes to Condensed
Consolidated Financial Statements (continued)
Rent expense was $4.6 million and $3.2
million for the three months ended March 31, 2018 and 2017, respectively.
Litigation and Claims
The Company from time to time is subject
to lawsuits, investigations and claims arising out of the ordinary course of business, including those related to commercial transactions,
contracts, government regulation, and employment matters. In the opinion of management, based on all known facts, all such matters
are either without merit or are of such kind, or involve such amounts that would not have a material effect on the financial position
or results of operations of the Company if disposed of unfavorably.
10. Geographic Information
The following table lists revenue for
the three months ended March 31, 2018 and 2017 by geographic region:
|
|
Three Months Ended March
31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Americas – U.S.
|
|
$
|
106,399
|
|
|
$
|
99,860
|
|
Rest of Americas
|
|
|
15,365
|
|
|
|
11,928
|
|
EMEA
|
|
|
50,576
|
|
|
|
28,788
|
|
APAC
|
|
|
6,953
|
|
|
|
5,242
|
|
|
|
$
|
179,293
|
|
|
$
|
145,818
|
|
The following table lists long-lived assets,
net of amortization, as of March 31, 2018 and December 31, 2017 by geographic region:
(in thousands)
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Long-lived assets, net
|
|
|
|
|
|
|
|
|
Americas – U.S.
|
|
$
|
1,151,968
|
|
|
$
|
1,141,210
|
|
Rest of Americas
|
|
|
141,048
|
|
|
|
145,837
|
|
EMEA
|
|
|
396,076
|
|
|
|
336,937
|
|
APAC
|
|
|
32,652
|
|
|
|
29,816
|
|
|
|
$
|
1,721,744
|
|
|
$
|
1,653,800
|
|
11. Subsequent Event
In April 2018, the Company reduced its
2017 First Lien Dollar Credit Facility by making a $30.0 million voluntary prepayment pursuant to the terms of our 2017 First Lien
Credit Facility.
CISION LTD. AND ITS SUBSIDIARIES
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including
the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking
statements regarding future events and our future results, which are intended to be covered by the safe harbor provision for forward-looking
statements provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical
facts are statements that could be deemed forward-looking statements. Words such as “achieve,” “anticipate,”
“assumes,” “believes,” “continue,” “could,” “estimate,” “expects,”
“forecast,” “hope,” “intend,” “may,” “plan,” “potential,”
“predict,” “should,” “will,” “would,” variations of such words and similar expressions
are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future
financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances
are forward-looking statements. Although such statements are based on currently available financial and economic data as well
as management’s estimates and expectations, forward-looking statements are inherently uncertain and involve risks and uncertainties
that could cause our actual results to differ materially from what may be inferred from the forward-looking statements. Therefore,
actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors potentially
contributing to such differences include, among others:
Cision Ltd. and its subsidiaries (“we”,
the “Company” or “Cision”) believes it is important to communicate our expectations to our securityholders.
However, there may be events in the future that Cision’s management is not able to predict accurately or over which Cision
has no control. The risk factors and cautionary language discussed in this report provide examples of risks, uncertainties and
events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements,
including among other things:
|
·
|
our estimates of the size of the markets for our products and
services;
|
|
·
|
the rate and degree of market acceptance of our products and
services;
|
|
·
|
the success of other technologies that compete with our products
and services or that may become available in the future;
|
|
·
|
the efficacy of our sales and marketing efforts;
|
|
·
|
the volatility of currency exchange rates;
|
|
·
|
volatility of market price and liquidity of our Ordinary Shares
and other of our securities;
|
|
·
|
our ability to effectively scale and adapt our technology;
|
|
·
|
our ability to identify and integrate acquisitions and technologies
into our platform;
|
|
·
|
our plans to continue to expand internationally;
|
|
·
|
the performance and security of our services;
|
|
·
|
our ability to maintain the listing of our securities on a national securities exchange;
|
|
·
|
potential litigation involving Cision;
|
|
·
|
our ability to retain and attract qualified employees and key personnel;
|
|
·
|
our ability to maintain, protect and enhance our brand and intellectual
property;
|
|
·
|
general economic conditions; and
|
|
·
|
the result of future financing efforts.
|
All forward-looking statements attributable
to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. In addition,
all forward-looking statements speak only as of the date of this report. We undertake no obligations to update or publicly revise
any forward-looking statements, whether as a result of new information, future events or otherwise other than as required under
the federal securities laws. Undue reliance should not be placed on these forward-looking statements.
Item 2. – Management’s
Discussion and Analysis of Financial Condition and Results of Operations
This item should be read with our condensed
consolidated financial statements and related notes included in Part I, Item 1
-
“Financial Statements.” This
item also contains forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially
from those forward-looking statements. Refer to “Forward-Looking Statements” for additional information.
Overview
We are a leading global provider of PR
software, media distribution, media intelligence and related professional services, according to Burton-Taylor International Consulting
LLC, as measured by total revenue. Public relations and communications professionals use our products and services to help manage,
execute, and measure their strategic public relations and communications programs. Similar to Bloomberg for finance professionals,
LinkedIn for HR professionals, and Salesforce for sales professionals, we are an industry standard SaaS solution for PR and marketing
professionals, and are deeply embedded in industry workflow.
We deliver a sophisticated, easy-to-use
platform for communicators to reach relevant media influencers and craft compelling campaigns that impact customer behavior. With
rich monitoring and analytics, Cision Communications Cloud (“C3”), a cloud-based platform that integrates each of
our point solutions into a single unified interface, arms brands with the insights they need to link their earned media to strategic
business objectives, while aligning it with owned and paid channels. This platform enables companies and brands to build consistent,
meaningful and enduring relationships with influencers and buyers in order to amplify their marketplace influence. We have more
than 75,000 customers and an expansive global reach, spanning most major international markets around the globe including those
outside of the United States such as Canada, China, India, EMEA, and Latin America, which, in aggregate, accounted for 35% of
our 2017 revenue.
We have undergone a strategic transformation
since GTCR’s initial investment in 2014, evolving into a PR and marketing software leader through a series of complementary
acquisitions. The acquisitions of Cision and Vocus, Inc. (“Vocus”) in 2014 and their subsequent merger established
the foundation of the core media database, monitoring and analysis business. Over the 12 months following this initial merger,
we acquired Discovery Group Holdings Ltd. (“Gorkana”) to expand our global footprint and also completed acquisitions
of Visible, Inc. (“Visible”) and Viralheat, Inc. (“Viralheat”) to enhance our social media functionality.
The subsequent acquisition of PRN Group (“PR Newswire”) in 2016 added the depth and breadth of a global distribution
network and making us, we believe, to be the only vendor with a comprehensive global solution for PR professionals. Following
these acquisitions, in October 2016, we introduced our C3 platform. In the first quarter of 2017, we acquired Bulletin Intelligence,
LLC, Bulletin News Network, LLC and Bulletin News Investment, LLC (collectively, “Bulletin Intelligence”) to expand
our capability to provide expert-curated executive briefings for the Executive Office of the President and corporate C-Suite executives.
In the second quarter of 2017, we acquired L’Argus de la Presse (“Argus”), a Paris-based provider of media monitoring
services to expand our media monitoring solutions and enhance our access to French media content. We acquired CEDROM-SNi Inc.
(“CEDROM”) in December 2017 and PRIME Research Group (“Prime”) in January 2018 in order to further expand
upon our media measurement and analysis services and improve our digital media monitoring solutions.
We provide our comprehensive solution principally
through subscription contracts which are generally one year or longer, with different tiers of pricing depending on the level of
functionality and customer support required. Our SaaS delivery model provides a stable recurring revenue base. In 2017, we generated
$673.6 million of revenue, on a pro forma basis assuming a full year of revenue from Bulletin Intelligence, Argus, and CEDROM revenues,
and, on the same pro forma basis, approximately 83% of our revenue is generated by customers purchasing services on a subscription
or recurring basis. We consider services recurrent if customers routinely purchase these services from us pursuant to negotiated
“rate card” or similar arrangements, even if we do not have subscription agreements with them. On a pro forma basis,
assuming a full year of revenue from Bulletin Intelligence, Argus, and CEDROM, our top 25 customers accounted for approximately
4% of 2017 revenues.
Acquisition
During the three months ended March 31,
2018, we made one new acquisition:
Acquisition of PRIME Research
.
On January 23, 2018, we completed our acquisition of PRIME Research (“Prime”). The purchase price was approximately
€75.7 million ($94.1 million) and consisted of approximately €53.1 million ($65.4 million) in cash consideration, the
issuance of approximately 1.7 million ordinary shares valued at €16.4 million ($20.1 million), and up to €6.2 million
($8.6 million) of deferred payments due within 18 months. We have the discretion to pay up to €2.5 million ($3.1 million)
of the deferred payments with ordinary shares. The acquisition of Prime will expand our comprehensive data-driven offerings that
help communications professionals identify influencers, craft meaningful campaigns, and attribute business value to those efforts.
At the date of the acquisition, Prime had over 700 employees with offices in Brazil, China, Germany, India, Switzerland, the United
Kingdom, and the United States.
Sources of Revenues
We derive our revenue from subscription
arrangements and related professional services in connection with our cloud-based software and services offerings. We also derive
revenues from news distribution services on both a subscription basis and separately from non-subscription arrangements. We recognize
revenue when there is persuasive evidence of an arrangement, the service has been provided to the customer, the collection of
the fee is probable and the amount of the fee to be paid by the customer is fixed or determinable.
Our separate units of accounting consist
of subscription services, transactional services and professional services. The subscription services include access to our cloud-based
software, hosting services, content and content updates and customer support. Our subscription agreements are typically one to
three years in length and are non-cancelable, though customers have the right to terminate their agreements for cause if we materially
breach our obligations under the agreement. Subscription agreements do not provide customers the right to take possession of the
software at any time. We do not charge customers an up-front fee for use of the technology. Implementation activities are insignificant
and not subject to a separate fee. In certain cases, we charge annual membership fees which are recognized over the one-year membership
period.
We also distribute individual news releases
to thousands of distribution points on the Internet, which are then indexed by major search engines and also directly to journalists
and other key constituents. Dependent on the nature of the contract with the customer, we recognize revenue on a subscription
basis over the term of the subscription, or on a per-transaction basis when the press releases are made available to the public.
Professional services include broadcast
and webcast production. For these services, revenue is recognized when the specific performance is completed and customer acceptance
is received.
When sold together, revenue from our different
service offerings are accounted for separately as those services have value on a standalone basis and do not involve a significant
degree of risk or unique acceptance criteria. We allocate revenue to each element in a multiple element arrangement based on a
selling price hierarchy. The selling price for a deliverable is based on its vendor-specified objective evidence (“VSOE”),
if available, third-party evidence (“TPE”), if VSOE is not available, or estimated selling price, if neither VSOE
nor TPE is available. As we have been unable to establish VSOE or TPE for the elements of its arrangements due to factors such
as a high number of varied service offerings sold on a subscription basis to differing customer concentrations as well as varied
discounting practices and unobservable competitive data for similar services, we estimate selling prices by analyzing multiple
factors such as historical pricing trends, customer renewal activity, and discounting practices. The volume of multiple element
arrangements we sold in which any element of the arrangement has a revenue attribution pattern different to the other elements
was not significant for all periods presented. Sales and other taxes collected from customers to be remitted to government authorities
are excluded from revenues.
Cost of Revenue and Operating Expenses
Cost of Revenue.
Cost
of revenue consists primarily of compensation for training, editorial and support personnel, hosting and network infrastructure
costs, royalty and license fees for content, press release distribution costs, third-party contractor fees, equipment and software
maintenance costs, amortization of our proprietary database and purchased technology, amortization of capitalized software development
costs, and depreciation associated with computer equipment and software.
Sales and Marketing Expenses.
Our sales and marketing expenses consist primarily of compensation for our sales and marketing personnel, related travel
costs, sales commissions and incentives, marketing programs, promotional events, webinars, and other brand building expenses.
Research and Development Expenses.
Our research and development expenses consist primarily of compensation for our software application development
personnel and fees to third-party software development firms. Capitalized software development costs are amortized using the straight-line
method over the useful life of the software, which is generally two years. All other research and developmental costs are expensed
as incurred.
General and Administrative Expenses.
Our general and administrative expenses consist primarily of compensation and related expenses for general corporate
functions such as executive, legal, finance, human resources, and administrative personnel, as well as costs for external legal,
accounting and other professional services, acquisition and other related expenses, restructuring costs, third-party payment processing
and credit card fees, facilities rent, and other corporate expenses.
Depreciation and Amortization.
Depreciation includes depreciation of property, equipment and software. Assets acquired under capital leases and leasehold
improvements are amortized. Amortization of assets acquired under capital leases is included in depreciation and amortization
expense. When assets are retired or otherwise disposed of, the asset and related accumulated depreciation are eliminated from
the accounts and resulting gain or loss is recorded in the results of operations. Amortization of intangible assets consist primarily
of the amortization of intangibles related to trade name, brand, and customer relationships acquired through our acquisitions
of Vocus, Visible, Gorkana, Viralheat, PR Newswire, Bulletin Intelligence, Argus, CEDROM, and Prime.
Factors Impacting our Results
Acquisitions and Dispositions
In connection with any acquisition, we
are required to recognize any assets acquired and liabilities assumed measured at fair value as of that date. With respect to
determining fair value, the excess of the purchase price over these allocations will be assigned to goodwill, which is not amortized
for accounting purposes but is subject to testing for impairment, at least annually, and whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. The allocation of the purchase price of any assets
acquired in an acquisition will result in increases in amortization expense relating to acquired intangible assets, because we
will record the fair value of the acquired intangible assets. We amortize the intangible assets over their estimated useful lives.
Impact of Foreign Exchange Rates
We report in U.S. dollars, and the functional
currency of our foreign operating subsidiaries is the local currency, including the British Pound, the Euro, the Swedish Krona
and the Canadian Dollar. Many of these currencies have weakened significantly against the U.S. dollar since the end of 2014. Approximately
41% of our revenues are generated in non-U.S. dollar-denominated currencies. The financial statements of these subsidiaries are
translated into U.S. dollars using exchange rates in effect at each balance sheet date for assets and liabilities and average exchange
rates during the period for revenues and expenses. To the extent we experience significant currency fluctuations, our results of
operations may be impacted.
Retention of, and Expansion within,
our Existing Customer Base
Growth of our customer base is important
to our continued revenue growth. With our recent acquisition history, we have the opportunity to expand our customer base and
to use our new platforms for cross-selling opportunities. Our ability to execute on cross-selling strategies and successfully
integrate our acquisitions will have an impact on our results.
Price Competition Could Affect our
Business
We face intense price competition in all
areas of our business. We have in the past lowered prices, and may need to do so in the future to attempt to gain or maintain
market share. Additionally, we have also been, and may once again be, required to adjust pricing to respond to actions by competitors,
which could adversely impact operating results.
Investment Shift by PR Professionals
from “Paid” to “Earned” Media
As the needs of PR and communications
professionals have evolved, we are increasingly distributing non-press release content over our network, including multimedia,
infographics, white papers and other forms of brand-created content. Companies are progressively more focused on earned media,
and we are well-positioned to take advantage of this structural shift in the market. Our results will be affected as the mix of
content distributed over our network evolves and PR and communications professionals focus additional spend on earned media.
Increasing Budgets for PR Departments
The switch to social channels as a company’s
preferred method to interface with clients and customers has fueled the demand for PR and communications skills and solutions
worldwide. PR budgets are increasing as businesses lower paid marketing budgets and leverage the shift towards earned media by
actively monitoring and engaging in conversations about their products and services online. To the extent this trend continues,
our results of operations will be impacted by this evolution in spending practice.
Market Adoption of Cloud-Based Knowledge
Software
We are focused on expanding market awareness
of our cloud-based PR solutions. Although we have seen companies adopt our solutions, we expect further growth to coincide with
the rapid increase of online content and influencers and new digital media channels. In response to this trend, we have transitioned
from traditional print monitoring services to cloud-based solutions capable of managing the entire lifecycle of a PR campaign.
To the extent this trend continues, we expect our revenues to experience growth.
Key Performance Measures
The measures of revenue and Adjusted EBITDA
are the measures currently utilized by management to assess performance, and we disclose these measures to investors to assist
them in providing a meaningful understanding of our performance. We are in the process of an operational, technological and financial
integration effort for all recently combined businesses. One of our current objectives is to identify the most relevant key performance
indicators to stakeholders for the fully integrated business. The determination as to when we will be able to identify these performance
measures will be dependent on our ability to migrate customers from legacy platforms onto the C3 platform. When such integration
and implementation is complete and such measures are available and utilized by management, these measures will be included in
future disclosures to investors.
Results of Operations
This section includes a summary of our
historical results of operations, followed by detailed comparisons of our results for the three months ended March 31, 2018 and
2017. We have derived this data from our unaudited condensed consolidated financial statements included elsewhere in this report.
The following table shows certain income
statement data in thousands of dollars and percentages for the periods indicated:
|
|
Three Months Ended
March 31, 2018
|
|
|
Three Months Ended
March 31, 2017
|
|
Revenue
|
|
$
|
179,293
|
|
|
|
100.0
|
%
|
|
$
|
145,818
|
|
|
|
100.0
|
%
|
Cost of revenue
|
|
|
64,278
|
|
|
|
35.9
|
%
|
|
|
45,066
|
|
|
|
30.9
|
%
|
Gross profit
|
|
|
115,015
|
|
|
|
64.1
|
%
|
|
|
100,752
|
|
|
|
69.1
|
%
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
29,679
|
|
|
|
16.6
|
%
|
|
|
27,290
|
|
|
|
18.7
|
%
|
Research and development
|
|
|
6,700
|
|
|
|
3.7
|
%
|
|
|
5,452
|
|
|
|
3.7
|
%
|
General and administrative
|
|
|
46,222
|
|
|
|
25.8
|
%
|
|
|
40,232
|
|
|
|
27.6
|
%
|
Amortization of intangible assets
|
|
|
20,250
|
|
|
|
11.3
|
%
|
|
|
21,011
|
|
|
|
14.4
|
%
|
Total operating costs and expenses
|
|
|
102,851
|
|
|
|
57.4
|
%
|
|
|
93,985
|
|
|
|
64.5
|
%
|
Operating income
|
|
|
12,164
|
|
|
|
6.8
|
%
|
|
|
6,767
|
|
|
|
4.6
|
%
|
Non operating income (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange losses
|
|
|
(7,883
|
)
|
|
|
(4.4
|
)%
|
|
|
(1,948
|
)
|
|
|
(1.3
|
)%
|
Interest and other income, net
|
|
|
(256
|
)
|
|
|
(0.1
|
)%
|
|
|
2,049
|
|
|
|
1.4
|
%
|
Interest expense
|
|
|
(19,688
|
)
|
|
|
(11.0
|
)%
|
|
|
(36,915
|
)
|
|
|
(25.3
|
)%
|
Loss on extinguishment of debt
|
|
|
(2,432
|
)
|
|
|
(1.4
|
)%
|
|
|
—
|
|
|
|
—
|
|
Total non operating loss
|
|
|
(30,259
|
)
|
|
|
(16.9
|
)%
|
|
|
(36,814
|
)
|
|
|
(25.2
|
)%
|
Loss before income taxes
|
|
|
(18,095
|
)
|
|
|
(10.1
|
)%
|
|
|
(30,047
|
)
|
|
|
(20.6
|
)%
|
Benefit from income taxes
|
|
|
(17,682
|
)
|
|
|
(9.9
|
)%
|
|
|
(7,054
|
)
|
|
|
(4.8
|
)%
|
Net loss
|
|
$
|
(413
|
)
|
|
|
(0.2
|
)%
|
|
$
|
(22,993
|
)
|
|
|
(15.8
|
)%
|
Net Loss to Adjusted EBITDA Reconciliation
We define Adjusted EBITDA as net income
(loss), determined in accordance with GAAP, for the period presented, before depreciation and amortization, interest expense and
loss on extinguishment of debt, and income taxes, further adjusted to exclude the following items: (a) acquisition-related costs
and expenses; including severance costs; (b) stock-based compensation expense; (c) deferred revenue reduction from purchase accounting;
(d) gains or losses related to divested businesses or assets groups; (e) sponsor fees and expenses; and (f) unrealized (gain)
or loss on foreign currency translation.
We believe Adjusted EBITDA, when considered
along with other performance measures, is a useful measure as it reflects certain drivers of the business, such as sales growth
and operating costs. We believe Adjusted EBITDA can be useful in providing an understanding of the underlying operating results
and trends and an enhanced overall understanding of our financial performance and prospects for the future. While Adjusted EBITDA
is not a recognized measure under GAAP, management uses this financial measure to evaluate and forecast business performance.
Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income
as it does not take into account certain requirements, such as capital expenditures and related depreciation, principal and interest
payments, and tax payments. Adjusted EBITDA is not a presentation made in accordance with GAAP, and our use of the term Adjusted
EBITDA may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the
method of calculation and differences due to items subject to interpretation.
The presentation of non-GAAP financial
information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and
presented in accordance with GAAP. You should read this discussion and analysis of our financial condition and results of operations
together with the unaudited condensed consolidated financial statements and the related notes thereto also included within.
The following table outlines the reconciliation from net loss
to Adjusted EBITDA for the periods indicated:
(in thousands)
|
|
Three Months
Ended
March 31, 2018
|
|
|
Three Months
Ended
March 31, 2017
|
|
Net loss
|
|
$
|
(413
|
)
|
|
$
|
(22,993
|
)
|
Depreciation and amortization
|
|
|
33,277
|
|
|
|
32,592
|
|
Interest expense and loss on extinguishment of debt
|
|
|
22,120
|
|
|
|
36,915
|
|
Income tax
|
|
|
(17,682
|
)
|
|
|
(7,054
|
)
|
Acquisition and offering related costs
|
|
|
10,887
|
|
|
|
8,240
|
|
Stock-based compensation
|
|
|
1,341
|
|
|
|
993
|
|
Deferred revenue reduction from purchase accounting
|
|
|
869
|
|
|
|
—
|
|
Gain on sale of business
|
|
|
—
|
|
|
|
(1,785
|
)
|
Sponsor fees and expenses
|
|
|
—
|
|
|
|
140
|
|
Unrealized translation loss
|
|
|
7,864
|
|
|
|
1,775
|
|
Adjusted EBITDA
|
|
$
|
58,263
|
|
|
$
|
48,823
|
|
Three Months Ended March 31, 2018 Compared to the Three
Months Ended March 31, 2017
Revenue
Revenue for the three months ended March
31, 2018 increased $33.5 million, or 23.0%, to $179.3 million. This increase was primarily driven by our acquisitions of Bulletin
Intelligence, Argus, CEDROM and Prime, a decrease in the value of the U.S. dollar versus a number of foreign currencies, principally
the British Pound and the Euro, and growth in our Canadian and European operations, offset by the divestiture of our Vintage business.
Revenue from Bulletin Intelligence, Argus, CEDROM and Prime was $31.1 million for the three months ended March 31, 2018, a $30.7
million increase from the prior year period. Revenue from our Canadian operations, excluding CEDROM, for the three months ended
March 31, 2018 increased $1.0 million, due primarily to increased press release distribution volumes. Revenue from our European
operations, excluding Argus, CEDROM, and Prime, for the three months ended March 31, 2018 increased $4.6 million, due primarily
to growth in our Nordics region and a decrease in the value of the U.S. dollar versus versus a number of foreign currencies, principally
the British Pound and the Euro. Revenue from our Vintage business for the three months ended March 31, 2017 was $3.4 million.
We divested our Vintage business in March 2017. The decrease in the U.S. dollar versus the British Pound, Euro, Canadian Dollar,
and other foreign currencies in 2018 compared to 2017 increased revenue by approximately $4.5 million for the quarter ended March
31, 2018.
Cost of Revenue
Cost of revenue for the three months ended
March 31, 2018 increased $19.2 million, or 42.6%, to $64.3 million. This increase was primarily driven by our acquisitions of
Bulletin Intelligence, Argus, CEDROM and Prime, and a decrease in the value of the U.S. dollar versus a number of foreign currencies,
principally the British Pound and the Euro, offset by a reduction in costs related to the divestiture of our Vintage business.
Cost of revenue from Bulletin Intelligence, Argus, CEDROM and Prime was $20.9 million for the three months ended March 31, 2018,
a $20.8 million increase from the prior year period. Cost of revenue attributed to our Vintage business for the three months ended
March 31, 2017 was $2.7 million. We divested our Vintage business in March 2017. The decrease in the U.S. dollar versus the British
Pound, Euro, Canadian Dollar, and other foreign currencies in 2018 compared to 2017 increased our cost of revenue by approximately
$1.3 million for the quarter ended March 31, 2018.
Sales and Marketing
Sales and marketing expenses for the three
months ended March 31, 2018 increased $2.4 million, or 8.8%, to $29.7 million. This increase was primarily driven by our acquisitions
of Bulletin Intelligence, Argus, CEDROM and Prime, and a decrease in the value of the U.S. dollar versus a number of foreign currencies,
principally the British Pound and the Euro, offset by a reduction in costs related to the divestiture of our Vintage business.
Sales and marketing expenses from Bulletin Intelligence, Argus, CEDROM and Prime were $2.9 million for the three months ended
March 31, 2018, a $2.9 million increase from the prior year period. Sales and marketing expenses attributed to our Vintage business
for the three months ended March 31, 2017 was $0.6 million. We divested our Vintage business in March 2017. The decrease in the
U.S. dollar versus the British Pound, Euro, Canadian Dollar, and other foreign currencies in 2018 compared to 2017 increased our
sales and marketing expenses by approximately $0.7 million for the quarter ended March 31, 2018.
Research and Development
Research and development expenses for the
three months ended March 31, 2018 increased $1.2 million, or 21.8%, to $6.7 million. This increase was primarily driven by our
acquisitions of Argus, CEDROM and Prime, and a decrease in the value of the U.S. dollar versus a number of foreign currencies,
principally the British Pound and the Euro, offset by a reduction in equipment and software costs of $0.4 million. Research and
development expenses from Argus, CEDROM and Prime were $1.5 million for the three months ended March 31, 2018, a $1.5 million increase
from the prior year period. The decrease in the U.S. dollar versus the British Pound, Euro, Canadian Dollar, and other foreign
currencies in 2018 compared to 2017 increased our research and development expenses by approximately $0.1 million for the quarter
ended March 31, 2018.
General and Administrative
General and administrative expenses for
the three months ended March 31, 2018 increased $6.0 million, or 14.9%, to $46.2 million. This increase was primarily driven by
our acquisitions of Bulletin Intelligence, Argus, CEDROM and Prime, a decrease in the value of the U.S. dollar versus a number
of foreign currencies, principally the British Pound and the Euro, a $1.5 million increase in acquisition related expenses, and
a $1.2 million increase in bad debt expense, offset by a $2.3 million reduction in compensation related expenses, a $0.5 million
reduction in depreciation expense, and a reduction in costs related to the divestiture of our Vintage business. General and administrative
expenses from Bulletin Intelligence, Argus, CEDROM and Prime were $6.0 million for the three months ended March 31, 2018, a $6.0
million increase from the prior year period. General and administrative expenses attributed to our Vintage business for the three
months ended March 31, 2017 was $0.2 million. We divested our Vintage business in March 2017. The decrease in the U.S. dollar
versus the British Pound, Euro, Canadian Dollar, and other foreign currencies in 2018 compared to 2017 increased our general and
administrative expenses by approximately $1.5 million for the quarter ended March 31, 2018.
Foreign Exchange Losses
We incurred a $7.9 million foreign exchange
loss for the three months ended March 31, 2018 and a $1.9 million foreign exchange loss for the three months ended March 31, 2017
due to fluctuations in foreign exchange rates that impacted the carrying value of certain intercompany notes.
Interest and Other Income, Net
We recognized $2.1 million of interest
and other income, net for the three months ended March 31, 2017, which was primarily the result of a $1.8 million gain recognized
on the disposal of our Vintage business.
Interest Expense
Interest expense decreased $17.2 million,
or 46.6%, from $36.9 million for the three months ended March 31, 2017 to $19.7 million for the three months ended March 31, 2018.
This decrease was primarily the result of our refinancing amendment and incremental facility amendment (the “2017 First Lien
Credit Facility”) to the 2016 First Lien Credit Facility that we entered into on August 4, 2017, and the subsequent February
8, 2018 debt repricing transaction of our 2017 First Lien Credit Facility and 2017 Revolver Credit Facility that lowered interest
rates on our debt. In conjunction with our refinancing amendment and incremental facility amendment, we repaid $370.0 million of
our 2016 Second Lien Credit Facility and refinanced $1,175 million in debt under our 2016 First Lien Credit Facility. The debt
repricing transaction lowered our LIBOR rate and EURIBOR rate with respect to the 2017 First Lien Credit Facility by 1.00% and
0.75%, respectively.
Benefit From Income Taxes
For the three months ended March 31, 2018,
we recorded a benefit from income taxes of $17.7 million versus a benefit from income taxes of $7.1 million for the three months
ended March 31, 2017. The benefit from income taxes for the quarter ended March 31, 2018 is a result of using the annual effective
tax rate methodology. The annual effective tax rate was impacted by unfavorable permanent differences and increases in valuation
in the United States and United Kingdom. The United States permanent differences are primarily related to nondeductible transaction
costs, nondeductible equity compensation and income from the Canadian subsidiaries that is taxable in the United States as a result
of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The United Kingdom permanent differences are primarily related
to nondeductible interest expense. The increase in the valuation allowance in both countries is related to tax deferred interest
expense that is not more likely than not realizable.
The benefit from income taxes for the
quarter ended March 31, 2017 was primarily driven by non-operating losses resulting from significant interest expense and the
reversal of deferred tax labilities relating to intangible assets.
Other Comprehensive Income (Loss)
Other comprehensive income was $7.1 million
and $5.9 million for the three months ended March 31, 2018 and 2017, respectively. Other comprehensive income for the quarter
ended March 31, 2018 was primarily due to foreign currency translation losses that resulted from a weakening of the U.S. dollar
versus certain foreign currencies, primarily the British Pound and the Euro, since December 31, 2017. Other comprehensive income
for the three months ended March 31, 2017 resulted from a weakening of the U.S. dollar versus certain foreign currencies, primarily
the Canadian Dollar and the Euro, since December 31, 2016.
Liquidity and Capital Resources
Overview
We fund our business primarily with cash
generated from operations and from borrowings under our credit facilities. We use cash to satisfy our contractual obligations
and to fund other non-contractual business needs.
Based on the terms of our credit facilities
and our current operations and expectations for continued growth, we believe that cash generated from operating activities, together
with available borrowings under our 2017 First Lien Credit Facility, will be adequate to meet our current and expected operating,
capital investment, acquisition financing and debt service obligations for the next twelve months, although no assurance can be
given in this regard.
We believe that our existing cash on hand
and cash flow from operations will be sufficient to fund our currently anticipated working capital, capital expenditure, and debt
service requirements, for at least the next twelve months. While we have a history of a negative working capital position, as
calculated by subtracting current liabilities from current assets, substantially all of this negative balance is created by deferred
revenue, which does not represent a liability that will be settled in cash. As of March 31, 2018, excluding both cash balances
and deferred revenue, our current assets exceed our current liabilities by $16.7 million.
The 2017 First Lien Credit Facility requires
quarterly principal repayments in the amount of $2.6 million and €0.6 million per quarter, which are insignificant compared
to the cash we expect to generate from operations. The 2017 First Lien Credit Facility does not mature until 2023, and therefore
is not considered to impact our liquidity needs over the next several years. We have been in compliance with all of our applicable
credit facility covenants through March 31, 2018.
Our cash flow from operations in all periods
to date has been adversely impacted by the cash costs incurred to execute the strategic business combinations we have made, which
include acquisition fees and expenses and integration costs required to achieve synergies. Acquisition-related costs and expenses
for historical periods are reflected in the Net Loss to Adjusted EBITDA Reconciliation included elsewhere in this report. While
the execution of these strategic business combinations use short-term operating cash, they generate significant long-term cost
reductions, revenue synergies and substantial incremental operating cash flow, once fully integrated. We believe that this incremental
cash flow will be substantial and will enable us to fund cash interest payments.
For the three months ended March 31, 2018,
net cash provided by operating activities was $36.3 million, which includes the cash costs incurred to execute the strategic business
combination we made during the first quarter of 2018. For the three months ended March 31, 2018, excluding the impact of the acquisition
of Prime, net cash used in investing activities was $8.8 million. For the three months ended March 31, 2018, net cash used in
financing activities was $6.4 million.
For these reasons, we believe that our
existing cash on hand and cash flow from operations will be sufficient to fund our currently anticipated working capital, capital
expenditure, and debt service requirements.
We do not currently expect to declare
dividends in the foreseeable future. The declaration of dividends will be subject to our actual future earnings and capital requirements
and to the discretion of our board of directors. Our board of directors may take into account such matters as general business
conditions, our financial results, capital requirements, contractual, legal and regulatory restrictions and such other factors
as our board of directors may deem relevant.
Our ability to pay cash dividends on our
ordinary shares will be subject to our continued compliance with the terms of our Credit Facilities. Under our 2017 First Lien
Credit Facility, our subsidiaries have restrictions on making cash dividends to us, subject to certain exceptions, including that
our subsidiaries are permitted to declare and pay cash dividends:
|
·
|
in any amount, so long as the total net leverage ratio under
our 2017 First Lien Credit Facility would not exceed 3.75 to 1.00 after making such payment;
|
|
·
|
in an amount per annum not greater than 6.0% of (i) the market
capitalization of our ordinary shares (based on the average closing price of our shares during the 30 trading days preceding
the declaration of such payment) plus (ii) the $305.2 million in proceeds we received in our business combination with Capitol;
|
|
·
|
in an amount that does not exceed the sum of (i) $20.0 million,
plus (ii) 50% of consolidated net income of our subsidiaries from January 1, 2016 to the end of the most recent quarter plus
(iii) certain other amounts set forth in the definition of “Available Amount” in our 2017 First Lien Credit Facility
(provided that we may only include the amounts of consolidated net income described in clause (ii) if our total net leverage
ratio would not exceed 5.00 to 1.00 after making such payments; and
|
|
·
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in an amount that does not exceed the total net proceeds we
receive from any public or private offerings of our ordinary shares or similar equity interests.
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As of March 31, 2018, we had $107.8 million
of cash and cash equivalents on hand, and we had aggregate unused availability of $73.9 million under our 2017 Revolving Credit
Facility. Borrowings under this facility bear interest at a variable rate and are a significant source of our liquidity. Our liquidity
needs, including our funding of acquisition activities, causes the aggregate amount of outstanding borrowings under our 2017 Revolving
Credit Facility to fluctuate. Accordingly, the amount of borrowing capacity available to us can fluctuate depending on operating
cash flows, debt service requirements and acquisition and investment activity.
Our future financial and operating performance,
ability to service or refinance our debt and ability to comply with covenants and restrictions contained in our credit agreements
governing our credit facilities will be subject to future economic conditions and to financial, business and other factors, many
of which are beyond our control and will be substantially dependent on the global economy, demand for our products and solutions
and our ability to successfully implement our business strategies.
As of March 31, 2018, $53.3 million of
cash and cash equivalents were held outside of the United States. We have not provided for income taxes on $44.9 million of undistributed
earnings of our foreign subsidiaries, other than certain Canadian subsidiaries, as the earnings are considered permanently reinvested.
Notwithstanding this, as part of the enactment of the Tax Act, we have accrued a $5.5 million transition tax related to our Canadian
subsidiaries. This amount includes an estimated $2.1 million of Canadian withholding taxes on the future repatriation of cash
from Canada to the United States. In addition, the tax provision for the three months ended March 31, 2018 for the United States
includes an income inclusion related to the earnings of its Canadian subsidiaries as a result of the recently enacted Tax Act.
The United States does not currently have accumulated earnings and profits and the majority of the other foreign jurisdictions
can distribute their earnings to us without significant additional taxation. Accordingly, we have determined that any deferred
tax liability associated with a distribution of the undistributed earnings would be immaterial.
Debt Obligations
The following describes the components
of our debt obligations as of March 31, 2018. For more information regarding these transactions, see Note 5 to our condensed consolidated
financial statements.
2017 First Lien Credit Facility
On August 4, 2017, we entered into a refinancing
amendment and incremental facility amendment to the 2016 First and Second Lien Credit Agreements, with Deutsche Bank AG, New York
Branch, as administrative agent and collateral agent, and a syndicate of commercial lenders from time to time party thereto. The
2017 First Lien Credit Facility provided for a tranche of refinancing term loans which refinanced the term loans under our 2016
First Lien Credit Agreement in full and provided for additional term loans of $131.2 million. The 2017 First Lien Credit Facility,
on the date of effectiveness, consisted of: (i) a revolving loan facility, which permits borrowings and letters of credit of up
to $75.0 million, of which, up to $25.0 million may be used or issued as standby and trade letters of credit; (ii) a $960.0 million
Dollar-denominated term credit facility (the “2017 First Lien Dollar Term Credit Facility”) and (iii) a €250.0
million Euro-denominated term credit facility (the “2017 First Lien Euro Term Credit Facility”). We used the proceeds
from the 2017 First Lien Term Credit Facility to repay all amounts then outstanding under our 2016 First Lien Credit Facility,
all amounts outstanding under our 2016 Second Lien Credit Facility, pay all related fees and expenses, and retained remaining
cash for general corporate purposes. We terminated the agreement governing the 2016 Second Lien Credit Facility in connection
with effecting the 2017 First Lien Credit Facility.
On December 14, 2017, we entered into an
incremental facility amendment to the 2017 First Lien Credit Facility. The Incremental Amendment provided for an incremental $75.0
million dollar-denominated term loan facility. The proceeds from the Incremental Facility were used to fund the Prime acquisition.
As of March 31, 2018, we had no outstanding borrowings and $1.1 million of outstanding letters of credit under our 2017 Revolving
Credit Facility and $1,336.3 million outstanding under the 2017 First Lien Term Credit Facility.
On February 8, 2018, we repriced our $1,417
million First Lien Credit Facility (the “Repricing”). The repriced first lien credit agreement consisted of a $75.0
million revolving loan facility and a $1,342 million term loan facility. The term loan facility consisted of $1,032 million of
U.S. dollar borrowings and €249 million of Euro borrowings. The term loans and revolving borrowings were repriced at an interest
rate of LIBOR plus 3.25% for dollar borrowings and EURIBOR plus 3.50% for Euro borrowings.
From time to time, we may incur incremental
revolving facilities and incremental term loan facilities under the 2017 First Lien Credit Facility in amounts not to exceed $100.0
million plus additional amounts subject to compliance with certain leverage ratios as set forth in the 2017 First Lien Credit
Facility and certain other amounts.
Interest is charged on U.S. dollar borrowings
under our 2017 First Lien Credit Facility, at our option, at a rate based on (1) the adjusted LIBOR (a rate equal to the London
interbank offered rate adjusted for statutory reserves) or (2) the alternate base rate (a rate that is highest of the (i) Deutsche
Bank AG, New York Branch’s prime lending rate, (ii) the overnight federal funds rate plus 50 basis points or (iii) the one-month
adjusted LIBOR plus 1%), in each case, plus an applicable margin.
Following the Repricing, the margin applicable
to U.S. dollar loans under the 2017 First Lien Dollar Term Credit Facility bearing interest at the alternate base rate is 2.25%;
the margin applicable to loans under the 2017 First Lien Dollar Term Credit Facility bearing interest at the adjusted LIBOR is
3.25%.
Interest is charged on Euro borrowings
under our 2017 First Lien Credit Facility at a rate based on the adjusted EURIBOR (a rate equal to the Euro interbank offered
rate adjusted for statutory reserves), plus an applicable margin. Following the Repricing, the margin applicable to loans under
the 2017 First Lien Euro Term Credit Facility bearing interest at the adjusted LIBOR is 3.50%.
Revolving borrowings in Canadian dollars
bear interest at the adjusted Canadian dollar banker’s acceptance rate plus an applicable margin. Following the Repricing,
the margin applicable to loans under the 2017 Revolving Credit Facility bearing interest at the alternate base rate, the adjusted
LIBOR, and the adjusted Euro interbank offered rate bear interest at rates of 2.25%, 3.25%, and 3.50%, respectively. As of March
31, 2018, the applicable interest rate under the 2017 First Lien Dollar Term Credit Facility and the 2017 First Lien Euro Term
Credit Facility was 5.13% and 3.50%, respectively.
We are obligated to make quarterly principal
payments under the 2017 First Lien Dollar Term Credit Facility of $2.6 million (which amount may be reduced by the application
of voluntary and mandatory prepayments pursuant to the terms of the 2017 First Lien Credit Facility), with the remaining balance
due June 16, 2023. We are obligated to make quarterly principal payments under the 2017 First Lien Euro Term Credit Facility of
€0.6 million (which amount may be reduced by the application of voluntary and mandatory prepayments pursuant to the terms
of the 2017 First Lien Credit Facility), with the remaining balance due June 16, 2023. The maturity date of the 2017 Revolving
Credit Facility is June 16, 2022.
We may also be required to make certain
mandatory prepayments of the 2017 First Lien Term Credit Facility out of excess cash flow and upon the receipt of proceeds of
asset sales and certain insurance proceeds (in each case, subject to certain minimum dollar thresholds and rights to reinvest
the proceeds as set forth in the 2017 First Lien Credit Facility). For the fiscal year ended December 31, 2017, no mandatory prepayments
were due pursuant to the terms of the 2017 First Lien Term Credit Facility.
The obligations under the 2017 First Lien
Credit Facility are secured by substantially all of the assets of Canyon Companies S.à.r.l. and each of its subsidiaries
organized in the United States (or any state thereof), the United Kingdom, the Netherlands, Luxembourg, and Ireland, subject to
certain exceptions.
The 2017 First Lien Credit Facility includes
a springing financial covenant applicable solely to the 2017 Revolving Credit Facility that is tested at such time that 35% or
more (excluding letters of credit that have been cash collateralized and letters of credit in an amount not to exceed $4.0 million)
of the aggregate commitments under the 2017 Revolving Credit Facility is drawn and outstanding. Such springing financial covenant
requires that, as of the last day of each fiscal quarter, the total net leverage ratio of Canyon Companies S.à.r.l. and
its restricted subsidiaries under the 2017 First Lien Credit Facility cannot exceed the applicable ratio set forth in the 2017
First Lien Credit Facility for such quarter (subject to certain rights to cure any failure to meet such ratio as set forth in
the 2017 First Lien Credit Facility). The 2017 First Lien Credit Facility is also subject to certain customary affirmative covenants
and negative covenants. Under our 2017 First Lien Credit Facility, our subsidiaries have restrictions on making cash dividends
to us, subject to certain exceptions, including that our subsidiaries are permitted to declare and pay cash dividends:
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·
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in any amount, so long as the total net leverage ratio under
our 2017 First Lien Credit Facility would not exceed 3.75 to 1.00 after making such payment;
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·
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in an amount per annum not greater than 6.0% of (i) the market
capitalization of our ordinary shares (based on the average closing price of our shares during the 30 trading days preceding
the declaration of such payment) plus (ii) the $305.2 million in proceeds we received in our business combination with Capitol;
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·
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in an amount that does not exceed the sum of (i) $20.0 million,
plus (ii) 50% of consolidated net income of our subsidiaries from January 1, 2016 to the end of the most recent quarter plus
(iii) certain other amounts set forth in the definition of “Available Amount” in our 2017 First Lien Credit Facility
(provided that we may only include the amounts of consolidated net income described in clause (ii) if our total net leverage
ratio would not exceed 5.00 to 1.00 after making such payment); and
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·
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in an amount that does not exceed the total net proceeds we
receive from any public or private offerings of our ordinary shares or similar equity interests.
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Our 2017 First Lien Credit Facility provides
that an event of default will occur upon specified change of control events. “Change in Control” is defined to include,
among other things, the acquisition of ownership, directly or indirectly, beneficially or of record, by any person or group, other
than certain permitted holders (directly or indirectly, including through one or more holding companies), of voting equity interests
representing 50% or more of the aggregate ordinary voting power represented by the issued and outstanding voting equity in Cision
Ltd.
Cash Flow Analysis
The following tables reflect the changes in cash flows for
the comparative periods presented.
|
|
Three Months Ended March
31,
|
|
|
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
Net Change
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
36,303
|
|
|
$
|
12,838
|
|
|
$
|
23,465
|
|
Investing activities
|
|
|
(71,485
|
)
|
|
|
(32,993
|
)
|
|
|
(38,492
|
)
|
Financing activities
|
|
|
(6,366
|
)
|
|
|
26,009
|
|
|
|
(32,375
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
742
|
|
|
|
341
|
|
|
|
401
|
|
Net change in cash and cash equivalents
|
|
$
|
(40,806
|
)
|
|
$
|
6,195
|
|
|
$
|
(47,001
|
)
|
Cash Flow Provided By Operating Activities
Net cash flows from operating activities
consists of net loss adjusted for non-cash items, such as: depreciation and amortization of property and equipment and intangible
assets, non-cash interest charges, deferred income taxes, unrealized currency translation losses, equity-based compensation and
for changes in net working capital assets and liabilities. The impact of changes in deferred income taxes primarily relates to
temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Generally, the most significant factor impacting changes in deferred income taxes relates to nondeductible
amortization expense associated with intangible assets.
Net cash provided by operating activities
increased $23.5 million to $36.3 million for the three months ended March 31, 2018, from net cash provided by operating activities
of $12.8 million for the three months ended March 31, 2017. Net cash provided by operating activities for the three months ended
March 31, 2018 reflects a $20.9 million increase in deferred revenue due to the timing of invoicing to our subscription customers,
a $6.8 million increase in accounts receivable due to the timing of customer invoicing, a $3.0 million increase in prepaid expenses
and other current assets primarily due to the timing of advance payments for business expenses, and a $3.3 million decrease in
other accrued expenses due to the timing of vendor invoices.
Net cash provided by operating activities
for the three months ended March 31, 2017 reflects a $9.7 million increase in deferred revenue due to the timing of invoicing
to our subscription customers, an $8.6 million decrease in accrued compensation and benefits due to the timing of payment of annual
bonuses, and a negative deferred income tax impact of $7.9 million due to a deferred tax benefit included within our tax provision.
Cash Flow Used In Investing Activities
Net cash used in investing activities
was $71.5 million for the three months ended March 31, 2018, which reflects $62.7 million used for our acquisition of Prime, net
of cash acquired. Net cash used in investing activities in the first quarter of 2018 reflects capitalized software development
costs of $5.0 million and purchases of property plant and equipment of $3.7 million.
Net cash used in investing activities
was $33.0 million for the three months ended March 31, 2017 included $49.1 million in cash, net of cash acquired, used for our
acquisition of Bulletin Intelligence and reflects capitalized software development costs of $4.1 million and purchases of property
and equipment of $3.5 million, offset by approximately $23.7 million in cash we received for the sale of Vintage, after funds
deposited in escrow and transaction expenses.
Cash Flow Provided By/Used In Financing
Activities
Net cash used in financing activities was
$6.4 million for the three months ended March 31, 2018 which reflects $3.4 million in repayments of our term loan facility, $0.1
million in deferred financing payments, and contingent consideration payments of $2.9 million related to the Bulletin Intelligence
earnout agreement.
Net cash provided by financing activities
was $26.0 million for the three months ended March 31, 2017, which reflects $2.8 million in repayments of our term loan facility
offset by borrowings under our term loan facility of $28.9 million used to fund our acquisition of Bulletin Intelligence.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet transactions
or interests.
Summary of Critical Accounting Policies
There were no significant changes to critical
accounting policies and estimates from those disclosed in
Critical Accounting Policies and Estimates
within
Cision’s
Management’s Discussion and Analysis of Financial Condition and Results of Operations
in our Annual Report on Form
10-K filed with the SEC on March 13, 2018.
Recent Accounting Pronouncements
See Note 2 to our Condensed Consolidated
Financial Statements for a discussion of recent accounting pronouncements.
Seasonality
We have experienced in the past, and expect
to continue to experience, seasonal fluctuations in our revenues as a result of press release cycles, primarily related to the
release of public company operating results and other corporate news events.
Effects of Inflation
While inflation may impact revenues and
cost of services, we believe the effects of inflation, if any, on the results of operations and financial condition have not been
significant. However, there can be no assurance that the results of operations and financial condition will not be materially
impacted by inflation in the future.