Item 1. – Financial Statements
Cision Ltd. and its Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share and share
amounts)
(Unaudited)
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
84,192
|
|
|
$
|
148,654
|
|
Accounts receivable, net
|
|
|
113,821
|
|
|
|
113,008
|
|
Prepaid expenses and other current assets
|
|
|
21,426
|
|
|
|
19,896
|
|
Total current assets
|
|
|
219,439
|
|
|
|
281,558
|
|
Property and equipment, net
|
|
|
54,032
|
|
|
|
53,578
|
|
Other intangible assets, net
|
|
|
406,515
|
|
|
|
456,291
|
|
Goodwill
|
|
|
1,179,597
|
|
|
|
1,136,403
|
|
Other assets
|
|
|
6,429
|
|
|
|
7,528
|
|
Total assets
|
|
$
|
1,866,012
|
|
|
$
|
1,935,358
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
13,251
|
|
|
$
|
13,349
|
|
Accounts payable
|
|
|
12,560
|
|
|
|
13,327
|
|
Accrued compensation and benefits
|
|
|
25,718
|
|
|
|
25,873
|
|
Other accrued expenses
|
|
|
75,128
|
|
|
|
73,483
|
|
Current portion of deferred revenue
|
|
|
140,493
|
|
|
|
140,351
|
|
Total current liabilities
|
|
|
267,150
|
|
|
|
266,383
|
|
Long-term debt, net of current portion
|
|
|
1,206,313
|
|
|
|
1,266,121
|
|
Deferred revenue, net of current portion
|
|
|
1,258
|
|
|
|
1,412
|
|
Deferred tax liability
|
|
|
65,068
|
|
|
|
62,617
|
|
Other liabilities
|
|
|
20,778
|
|
|
|
22,456
|
|
Total liabilities
|
|
|
1,560,567
|
|
|
|
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 September 30, 2018 and December 31, 2017
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.0001 par value, 480,000,000 shares authorized; 132,713,555 and 122,634,922 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
|
|
|
13
|
|
|
|
12
|
|
Additional paid-in capital
|
|
|
795,668
|
|
|
|
771,813
|
|
Accumulated other comprehensive loss
|
|
|
(55,907
|
)
|
|
|
(35,111
|
)
|
Accumulated deficit
|
|
|
(434,329
|
)
|
|
|
(420,345
|
)
|
Total stockholders' equity
|
|
|
305,445
|
|
|
|
316,369
|
|
Total liabilities and stockholders' equity
|
|
$
|
1,866,012
|
|
|
$
|
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 Loss
(in thousands, except share and per share
amounts)
(Unaudited)
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
$
|
177,236
|
|
|
$
|
159,729
|
|
|
$
|
544,004
|
|
|
$
|
462,678
|
|
Cost of revenue
|
|
|
69,177
|
|
|
|
53,287
|
|
|
|
200,212
|
|
|
|
147,571
|
|
Gross profit
|
|
|
108,059
|
|
|
|
106,442
|
|
|
|
343,792
|
|
|
|
315,107
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
27,367
|
|
|
|
27,931
|
|
|
|
85,345
|
|
|
|
83,231
|
|
Research and development
|
|
|
7,292
|
|
|
|
5,661
|
|
|
|
22,282
|
|
|
|
16,679
|
|
General and administrative
|
|
|
39,002
|
|
|
|
36,127
|
|
|
|
126,762
|
|
|
|
117,819
|
|
Amortization of intangible assets
|
|
|
20,167
|
|
|
|
22,829
|
|
|
|
60,681
|
|
|
|
66,306
|
|
Total operating costs and expenses
|
|
|
93,828
|
|
|
|
92,548
|
|
|
|
295,070
|
|
|
|
284,035
|
|
Operating income
|
|
|
14,231
|
|
|
|
13,894
|
|
|
|
48,722
|
|
|
|
31,072
|
|
Non operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gains (losses)
|
|
|
2,196
|
|
|
|
802
|
|
|
|
10,277
|
|
|
|
(1,832
|
)
|
Interest and other income, net
|
|
|
380
|
|
|
|
177
|
|
|
|
472
|
|
|
|
2,450
|
|
Interest expense
|
|
|
(19,785
|
)
|
|
|
(23,063
|
)
|
|
|
(59,947
|
)
|
|
|
(96,306
|
)
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
(51,872
|
)
|
|
|
(2,432
|
)
|
|
|
(51,872
|
)
|
Total non operating loss
|
|
|
(17,209
|
)
|
|
|
(73,956
|
)
|
|
|
(51,630
|
)
|
|
|
(147,560
|
)
|
Loss before income taxes
|
|
|
(2,978
|
)
|
|
|
(60,062
|
)
|
|
|
(2,908
|
)
|
|
|
(116,488
|
)
|
Provision for (benefit from) income taxes
|
|
|
3,070
|
|
|
|
(13,653
|
)
|
|
|
10,016
|
|
|
|
(27,938
|
)
|
Net loss
|
|
$
|
(6,048
|
)
|
|
$
|
(46,409
|
)
|
|
$
|
(12,924
|
)
|
|
$
|
(88,550
|
)
|
Other comprehensive income (loss) - foreign currency translation adjustments
|
|
|
(2,479
|
)
|
|
|
13,371
|
|
|
|
(20,796
|
)
|
|
|
35,965
|
|
Comprehensive loss
|
|
$
|
(8,527
|
)
|
|
$
|
(33,038
|
)
|
|
$
|
(33,720
|
)
|
|
$
|
(52,585
|
)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(1.47
|
)
|
Weighted-average shares outstanding used in computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
131,104,859
|
|
|
|
120,584,316
|
|
|
|
127,507,314
|
|
|
|
60,120,689
|
|
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)
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,924
|
)
|
|
$
|
(88,550
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
100,186
|
|
|
|
103,392
|
|
Non-cash interest charges and amortization of debt discount and deferred financing costs
|
|
|
10,158
|
|
|
|
62,824
|
|
Equity-based compensation expense
|
|
|
3,713
|
|
|
|
2,944
|
|
Provision for doubtful accounts
|
|
|
3,972
|
|
|
|
2,247
|
|
Deferred income taxes
|
|
|
3,437
|
|
|
|
(29,970
|
)
|
Unrealized foreign currency losses (gains)
|
|
|
(10,338
|
)
|
|
|
1,551
|
|
Gain on sale of business
|
|
|
—
|
|
|
|
(1,785
|
)
|
Other
|
|
|
86
|
|
|
|
(171
|
)
|
Changes in operating assets and liabilities, net of effects of acquisitions and disposal:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
967
|
|
|
|
7,018
|
|
Prepaid expenses and other current assets
|
|
|
(1,133
|
)
|
|
|
1,072
|
|
Other assets
|
|
|
(726
|
)
|
|
|
113
|
|
Accounts payable
|
|
|
(1,721
|
)
|
|
|
(2,110
|
)
|
Accrued compensation and benefits
|
|
|
(321
|
)
|
|
|
(10,207
|
)
|
Other accrued expenses
|
|
|
(7,320
|
)
|
|
|
(4,123
|
)
|
Deferred revenue
|
|
|
1,767
|
|
|
|
(3,593
|
)
|
Other liabilities
|
|
|
(14
|
)
|
|
|
(2,310
|
)
|
Net cash provided by operating activities
|
|
|
89,789
|
|
|
|
38,342
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(10,325
|
)
|
|
|
(7,746
|
)
|
Software development costs
|
|
|
(12,026
|
)
|
|
|
(11,365
|
)
|
Acquisitions of businesses, net of cash acquired of $2,711 and $12,355
|
|
|
(66,463
|
)
|
|
|
(54,992
|
)
|
Proceeds from disposal of business
|
|
|
—
|
|
|
|
23,675
|
|
Change in restricted cash
|
|
|
5
|
|
|
|
607
|
|
Net cash used in investing activities
|
|
|
(88,809
|
)
|
|
|
(49,821
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
—
|
|
|
|
5,000
|
|
Repayment of revolving credit facility
|
|
|
—
|
|
|
|
(38,475
|
)
|
Payment of amounts due to Cision Owner
|
|
|
—
|
|
|
|
(1,940
|
)
|
Proceeds from term credit facility, net of debt discount of $10,091
|
|
|
—
|
|
|
|
1,275,634
|
|
Repayments of term credit facility
|
|
|
(59,989
|
)
|
|
|
(1,494,501
|
)
|
Payments on capital lease obligations
|
|
|
—
|
|
|
|
(171
|
)
|
Payments of deferred financing costs
|
|
|
(294
|
)
|
|
|
—
|
|
Proceeds from merger and recapitalization
|
|
|
—
|
|
|
|
305,210
|
|
Payment of contingent consideration
|
|
|
(2,873
|
)
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
|
(63,156
|
)
|
|
|
50,757
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(2,286
|
)
|
|
|
2,319
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(64,462
|
)
|
|
|
41,597
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
148,654
|
|
|
|
35,135
|
|
End of period
|
|
$
|
84,192
|
|
|
$
|
76,732
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows information
|
|
|
|
|
|
|
|
|
Issuance of securities by Cision Owner in connection with acquisition
|
|
$
|
—
|
|
|
$
|
7,000
|
|
Non-cash contribution from Cision Owner in connection with merger
|
|
|
—
|
|
|
|
451,139
|
|
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 Australia, Brazil, Canada, China, France, Germany, Hong Kong, India, Indonesia,
Malaysia, Mexico, Portugal, Singapore, South Korea, Sweden, Taiwan, the United Kingdom, and Vietnam.
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.
|
|
·
|
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 shares of common stock and warrants to purchase 24,375,596 shares of common stock of Cision issued and outstanding. During the nine months ended September 30, 2018, all warrants were converted to 6,342,989 common shares (see Note 7).
|
|
·
|
Upon the closing, Capitol’s common stock, warrants and units ceased trading, and Cision’s common stock 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 shares of common stock of the Company and 1,969,841 warrants to purchase common stock 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. As
a result of the Company’s share price meeting certain milestones set forth in the Merger Agreement in October 2017 and September
2018 the Company issued an aggregate of 4,000,000 shares to Cision Owner.
|
|
·
|
At the closing of the Transactions, Cision Owner held approximately 68% of the issued and outstanding common stock of the Company and stockholders of Capitol held approximately 32% of the issued and outstanding shares of the Company. During the nine months ended September 30, 2018, Cision Owner initiated a series of transactions that resulted in its holding dropping below 50% of the issued and outstanding ordinary shares of the Company; causing the Company to cease to qualify as a “controlled company” under the New York Stock Exchange listing standards.
|
The Merger Agreement, the 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 completion of the 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 are calculated based on the weighted number of common shares then outstanding. As part of the
Transactions, the historical number of outstanding common shares were 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.
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 and nine months ended September 30,
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.
Fair Value Measurements
The Company measures certain financial assets
and liabilities at fair value pursuant to a fair value hierarchy based on inputs to valuation techniques that are used to measure
fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing
an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s
pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels:
Level 1
|
|
Inputs are quoted prices in active markets for identical assets or liabilities.
|
|
|
|
Level 2
|
|
Inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
|
|
|
|
Level 3
|
|
Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
|
Recent Accounting Pronouncements
The Company is an Emerging Growth Company and historically has adopted new accounting standards using
the effective dates available for nonpublic entities. However, as of December 31, 2018, the Company will no longer be classified
as an Emerging Growth Company and will be adopting new accounting standards in accordance with the effective dates set for public
companies. All new accounting standards with public effective dates that have lapsed as of December 31, 2018, will be implemented
by the Company during the fourth quarter of 2018 using the transition methods set forth by the FASB. The planned adoption dates
outlined below have been updated to reflect the Company’s new required effective dates.
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. 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 its 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 its 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 during the fourth quarter of 2018, effective for
fiscal year 2018, 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 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. The Company will adopt this ASU effective the fourth quarter of 2018. 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. ASU 2016-02 is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2018, and early adoption is permitted. The Company is in the process of evaluating
the impact of this standard 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 fourth quarter of 2018, 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 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. The Company will adopt this ASU effective the fourth quarter of 2018. The
Company does not believe the adoption of this standard will have a material impact 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 August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820)
, which modifies the disclosure requirements related to fair value measurements. The ASU
eliminates the requirement to disclosure and amount and reasons for transfers between Level 1 and Level 2 fair value hierarchy,
the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. Entities will
now be required to disclose the changes in unrealized gains and losses included in other comprehensive income for recurring Level
3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value
measurements. This ASU is effective for fiscal years beginning after December 15, 2019, early adoption is permitted. The Company
is in the process of evaluating the impact of this standard on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14,
Compensation – Retirement Benefits- Defined Benefit Plans – General (Subtopic 715-20)
, which modifies the disclosure
requirements for defined benefit pensions and other postretirement plans. The ASU adds and removes disclosure requirements from
the current standard in an effort to improve the effectiveness of retirement benefit disclosures. The ASU is effective for fiscal
years ended after December 15, 2020, early adoption is permitted. The Company is in the process of evaluating the impact of this
standard on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15,
Intangibles – Goodwill and Other – Internal-Use
Software (Subtopic 350-40)
, which clarifies the accounting for costs of implementing a cloud computing service arrangement.
The ASU requires companies to capitalize the implementation costs associated with cloud computing service arrangements, regardless
as to whether the contract contains a license. The ASU is effective for annual periods in 2020, including interim periods. The
Company is in the process of evaluating the impact of this standard 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 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 nine months ended September 30, 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 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.
During the nine months ended September 30, 2018, the Company made a measurement period adjustment to the initial purchase
price allocation resulting in a goodwill decrease of $2.0 million. 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 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 completed the purchase
price allocation as of 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
|
|
During the nine months ended September 30,
2018, the Company made certain measurement period adjustments to the initial purchase price allocation resulting in a decrease
in accounts receivable, net of $0.2 million and an increase in accounts payable and accrued liabilities of $1.3 million and an
increase in goodwill of $1.5 million.
Goodwill is not 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 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 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 on or before December 31, 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.
Notes to Condensed
Consolidated Financial Statements (continued)
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
shares of common stock 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
common stock. 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 nine months ended September 30, 2018 and were included
in general and administrative expense in the condensed consolidated statements of operations and comprehensive 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 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 December 31, 2018.
(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.
Other 2018 Acquisition
During the
third quarter of 2018, the Company purchased certain immaterial technology and development assets to expand its products and services
offerings, and the results of this acquisition have been included in the consolidated results from the acquisition date. The estimate
of fair value for the assets acquired and liabilities assumed was based upon a preliminary calculation and valuation and is subject
to change as additional information related to estimates during the measurement period is obtained (up to one year from the acquisition
date). The primary areas of those preliminary estimates relate to certain identifiable intangible assets and goodwill.
The acquired entities of Bulletin Intelligence, Argus, CEDROM, and Prime together contributed revenue
of $32.0 million and $16.6 million for the three months ended September 30, 2018 and 2017, respectively, and $98.2 million and
$25.5 million for the nine months ended September 30, 2018 and 2017, respectively. Net income or 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 and the other 2018 acquisition as if they had occurred as of January 1, 2017. The pro forma results exclude the other acquisition
in 2018 discussed above, as it was deemed not material. 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 September 30,
|
|
|
Nine months ended September 30,
|
|
(in thousands, except per share data)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
$
|
177,527
|
|
|
$
|
176,252
|
|
|
$
|
547,633
|
|
|
$
|
531,605
|
|
Net loss
|
|
|
(5,632
|
)
|
|
|
(45,654
|
)
|
|
|
(10,294
|
)
|
|
|
(91,272
|
)
|
Net loss per share - basic and diluted
|
|
|
(0.04
|
)
|
|
|
(0.38
|
)
|
|
|
(0.08
|
)
|
|
|
(1.52
|
)
|
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
|
|
Adjustments of Bulletin Intelligence
|
|
|
(1,950
|
)
|
Adjustments of Argus
|
|
|
1,477
|
|
Acquisition of Prime Research
|
|
|
57,465
|
|
Other goodwill
(1)
|
|
|
1,346
|
|
Effects of foreign currency
|
|
|
(15,144
|
)
|
Balance as of September 30, 2018
|
|
$
|
1,179,597
|
|
(1)
Not significant to the Company’s reported operating results or financial position.
Definite-lived intangible assets consisted
of the following at September 30, 2018 and December 31, 2017:
|
|
September 30, 2018
|
|
(in thousands)
|
|
Gross
Carrying
Amount
|
|
|
Foreign
Currency
Translation
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Trade names and brand
|
|
$
|
372,010
|
|
|
$
|
(5,172
|
)
|
|
$
|
(106,300
|
)
|
|
$
|
260,538
|
|
Customer relationships
|
|
|
321,862
|
|
|
|
(16,476
|
)
|
|
|
(194,980
|
)
|
|
|
110,406
|
|
Purchased technology
|
|
|
145,951
|
|
|
|
(6,620
|
)
|
|
|
(103,760
|
)
|
|
|
35,571
|
|
Balances at September 30, 2018
|
|
$
|
839,823
|
|
|
$
|
(28,268
|
)
|
|
$
|
(405,040
|
)
|
|
$
|
406,515
|
|
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 September 30, 2018
|
|
Years
|
|
Trade names and brand
|
|
|
12.0
|
|
Customer relationships
|
|
|
6.6
|
|
Purchased technology
|
|
|
3.5
|
|
Future expected amortization of intangible
assets at September 30, 2018 is as follows:
(in thousands)
|
|
|
|
Remainder of 2018
|
|
$
|
26,320
|
|
2019
|
|
|
86,067
|
|
2020
|
|
|
63,196
|
|
2021
|
|
|
51,704
|
|
2022
|
|
|
38,536
|
|
Thereafter
|
|
|
140,692
|
|
|
|
$
|
406,515
|
|
5. Debt
Debt consisted of the following at September
30, 2018 and December 31, 2017:
|
|
September 30, 2018
|
|
(in thousands)
|
|
Short-Term
|
|
|
Long-Term
|
|
|
Total
|
|
2017 First Lien Credit Facility
|
|
$
|
13,251
|
|
|
$
|
1,248,591
|
|
|
$
|
1,261,842
|
|
Unamortized debt discount and issuance costs
|
|
|
—
|
|
|
|
(42,278
|
)
|
|
|
(42,278
|
)
|
Balances at September 30, 2018
|
|
$
|
13,251
|
|
|
$
|
1,206,313
|
|
|
$
|
1,219,564
|
|
|
|
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. The margins on the term loans under the 2017 First Lien Credit Facility 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 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 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
September 30, 2018, the applicable interest rate under the 2017 First Lien Dollar Term Credit Facility and the 2017 First Lien
Euro Term Credit Facility was 5.64% 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 September 30, 2018, the Company had no
outstanding borrowings and $1.5 million of outstanding letters of credit under the 2017 Revolving Credit Facility and $1,261.8
million outstanding under the 2017 First Lien Credit Facility.
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. During
the nine months ended September 30, 2018, the Company made $50.0 million in voluntary prepayments and as a result wrote down $1.9
million of deferred financing and debt issuance costs.
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 common stock (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 common stock or similar equity interests. As of September 30, 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.
The fair value of the Company’s First
Lien Credit Facility at September 30, 2018 and December 31, 2017 was $1,268.5 million and $1,347.3 million, respectively. The fair
value of the Company’s First and Second Lien debt was considered Level 2 in the fair value hierarchy.
Notes to Condensed Consolidated Financial
Statements (continued)
Future Minimum Principal Payments
Future minimum principal payments of debt as
of September 30, 2018 are as follows:
(in thousands)
|
|
|
|
Remainder of 2018
|
|
$
|
3,313
|
|
2019
|
|
|
13,251
|
|
2020
|
|
|
13,251
|
|
2021
|
|
|
13,251
|
|
2022
|
|
|
13,251
|
|
Thereafter
|
|
|
1,205,525
|
|
|
|
$
|
1,261,842
|
|
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 September 30, 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 loss in a manner consistent with the statements of operations’
classification of an employee’s salary and benefits as follows:
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Cost of revenue
|
|
$
|
151
|
|
|
$
|
84
|
|
|
$
|
376
|
|
|
$
|
225
|
|
Selling and marketing
|
|
|
192
|
|
|
|
65
|
|
|
|
416
|
|
|
|
175
|
|
Research and development
|
|
|
171
|
|
|
|
70
|
|
|
|
392
|
|
|
|
249
|
|
General and administrative
|
|
|
989
|
|
|
|
799
|
|
|
|
2,529
|
|
|
|
2,295
|
|
Total equity-based compensation expense
|
|
$
|
1,503
|
|
|
$
|
1,018
|
|
|
$
|
3,713
|
|
|
$
|
2,944
|
|
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 reserved up to 6,100,000 shares
of common stock 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. Stock options are granted
with an exercise price equal to the market value of the Company’s common stock at the grant date and generally vest over
four years based upon continuous service and expire ten years from the grant date. Restricted stock units are granted with an exercise
price equal to the market value of the Company's common stock at the time of grant. Conditions of the performance-based restricted
stock units are based on achievement of pre-established performance goals and objectives within the next year and vest over four
years based on continuing employment. Conditions of the performance-based stock options are also based on achievement of pre-established
performance goals and objectives within the next year, vest over four years based on continuing employment, and have an expiration
of ten years.
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:
|
|
Nine Months Ended
September 30, 2018
|
|
Stock price volatility
|
|
|
38 - 50
|
%
|
Expected term (years)
|
|
|
6.3
|
|
Risk-free interest rate
|
|
|
2.01 - 2.89
|
%
|
Dividend yield
|
|
|
0
|
%
|
A summary of employee stock option activity
for the nine months ended September 30, 2018 under the Company’s 2017 Plan is presented below:
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise
Price per
Share
|
|
|
Weighted-
Average
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
(thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2017
|
|
|
691,500
|
|
|
$
|
12.78
|
|
|
|
9.7
|
|
|
|
|
|
Granted
|
|
|
2,130,000
|
|
|
|
15.05
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Forfeited
|
|
|
(139,500
|
)
|
|
|
12.78
|
|
|
|
—
|
|
|
|
|
|
Options outstanding as of September 30, 2018
|
|
|
2,682,000
|
|
|
$
|
14.58
|
|
|
|
9.6
|
|
|
$
|
5,946
|
|
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 September 28, 2018.
A summary of restricted stock units activity
for the nine months ended September 30, 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
|
|
|
466,220
|
|
|
|
—
|
|
Vested
|
|
|
(375
|
)
|
|
|
—
|
|
Forfeited
|
|
|
(21,500
|
)
|
|
|
—
|
|
Restricted stock units outstanding as of September 30, 2018
|
|
|
479,290
|
|
|
$
|
15.20
|
|
As of September 30, 2018, the Company had $16.2 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 and nine months ended
September 30, 2017, the Company has excluded the potential effect of warrants to purchase shares of common stock totaling 281,019
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.
During the nine months ended September 30, 2018, all warrants were converted to 6,342,989 common shares. For the three and nine
months ended September 30, 2018, the Company has excluded the potential effect of the warrants prior to their conversion, 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.
Notes
to Condensed Consolidated Financial Statements (continued)
|
|
Three months ended September 30,
|
|
(in thousands, except share and per share data)
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,048
|
)
|
|
$
|
(46,409
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic and diluted
|
|
|
131,104,859
|
|
|
|
120,584,316
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.38
|
)
|
|
|
Nine months ended September 30,
|
|
(in thousands, except share and per share data)
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,924
|
)
|
|
$
|
(88,550
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic and diluted
|
|
|
127,507,314
|
|
|
|
60,120,689
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(1.47
|
)
|
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 annual effective tax rate calculation excludes subsidiaries
with pre-tax losses for which no tax benefit can be recognized. The Company’s estimates its annual effective tax rate to
be approximately 81.27% in 2018. The difference between the annual effective tax rate and the effective tax rate in the quarter
is due to subsidiaries with pre-tax losses for which no tax benefit can be recognized and subsidiaries with pre-tax losses in jurisdictions
with a zero percent tax rate that have been removed from pre-tax book income before the annual effective tax rate is applied. The
amount of pre-tax book loss removed is approximately $15.6 million. The difference also includes the impact of a $0.1 million expense
from enacted state law changes and a $0.5 million benefit from an adjustment to the SAB 118 provisional amount that were both discrete
to the fiscal period. This rate includes the impact of permanent differences and an increase in the valuation allowance 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 nine months
ended September 30, 2017 was a benefit of 24.0%. The benefit from income taxes for the nine months ended September 30, 2017 resulted
from a pre-tax loss and reversal of deferred tax liabilities relating to intangibles.
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, the Company recorded, as a provisional estimate, an $11.9 million non-cash
tax expense in the period ended December 31, 2017. This amount is a reasonable estimate of the tax effects of the Tax Act on the
financial statements. The Company will continue to analyze the effects of the Tax Act on the financial statements and record any
additional impacts as they are identified during the measurement period provided for in SAB 118. The provisional amounts have been
adjusted for a $0.5 million benefit related to state nonconformity to the disallowed interest provisions of the Tax Act. The final
adjustment to the provisional estimate will be made during the fourth quarter once all state tax returns have been filed and in
anticipation of the IRS issuing final tax regulations by the end of the year.
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 September 30, 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 September 30, 2018 and December 31, 2017, lease related liabilities
of $12.4 million and $10.2 million, respectively, is included in other liabilities.
Notes to Condensed Consolidated Financial
Statements (continued)
Rent expense was $4.9 million and $4.3 million
for the three months ended September 30, 2018 and 2017, respectively, and $14.0 million and $10.9 million for the nine months ended
September 30, 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
and nine months ended September 30, 2018 and 2017 by geographic region:
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas - U.S.
|
|
$
|
107,219
|
|
|
$
|
100,125
|
|
|
$
|
323,639
|
|
|
$
|
306,167
|
|
Rest of Americas
|
|
|
15,364
|
|
|
|
12,563
|
|
|
|
47,604
|
|
|
|
38,040
|
|
EMEA
|
|
|
46,585
|
|
|
|
40,307
|
|
|
|
149,092
|
|
|
|
100,430
|
|
APAC
|
|
|
8,068
|
|
|
|
6,734
|
|
|
|
23,669
|
|
|
|
18,041
|
|
|
|
$
|
177,236
|
|
|
$
|
159,729
|
|
|
$
|
544,004
|
|
|
$
|
462,678
|
|
The following table lists long-lived assets,
net of amortization, as of September 30, 2018 and December 31, 2017 by geographic region:
(in thousands)
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Long-lived assets, net
|
|
|
|
|
|
|
|
|
Americas – U.S.
|
|
$
|
1,116,477
|
|
|
$
|
1,141,210
|
|
Rest of Americas
|
|
|
134,850
|
|
|
|
145,837
|
|
EMEA
|
|
|
364,636
|
|
|
|
336,937
|
|
APAC
|
|
|
30,610
|
|
|
|
29,816
|
|
|
|
$
|
1,646,573
|
|
|
$
|
1,653,800
|
|
11. Subsequent Events
On October 22, 2018, the Company completed its debt repricing transaction on its 2017 First Lien Credit
Facility. The margins for the term loans under the Company’s 2017 First Lien Credit Facility were lowered for the alternate
base rate, LIBOR rate and EURIBOR rate each by 0.50%. The 2017 Revolver Credit Facility margins were lowered for the alternate
base rate, LIBOR rate and EURIBOR rate each by 0.50%.
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”) believe 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 the market
price and liquidity of our ordinary shares;
|
|
·
|
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 twelve 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,
and, on the same pro forma basis, approximately 83% of our revenue was 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
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 shares of common stock 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 common stock. 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.
Warrant Exchange
In May 2018, we completed an exchange offer relating to our outstanding warrants, whereby the holders
of the warrants were offered 0.26 of our common stock for each outstanding warrant tendered (the “Warrant Exchange Offer”).
In connection with the closing of the Warrant Exchange Offer, we issued an aggregate of 6,100,209 shares of common stock in exchange
for 23,462,423 warrants. In June 2018, the 1,037,577 outstanding warrants that did not participate in the exchange were converted
into 242,780 shares of common stock pursuant to an amendment to the warrant agreement authorized in connection with the Warrant
Exchange Offer. As a result of these transactions, there were no warrants outstanding as of September 30, 2018.
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 and media measurement and analysis services.
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, developed technology and customer relationships acquired through our
acquisitions.
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 and nine months ended September 30, 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
September 30, 2018
|
|
|
Three Months Ended
September 30, 2017
|
|
|
Nine Months Ended
September 30, 2018
|
|
|
Nine Months Ended
September 30, 2017
|
|
Revenue
|
|
$
|
177,236
|
|
|
|
100.0
|
%
|
|
$
|
159,729
|
|
|
|
100.0
|
%
|
|
$
|
544,004
|
|
|
|
100.0
|
%
|
|
$
|
462,678
|
|
|
|
100.0
|
%
|
Cost of revenue
|
|
|
69,177
|
|
|
|
39.0
|
%
|
|
|
53,287
|
|
|
|
33.4
|
%
|
|
|
200,212
|
|
|
|
36.8
|
%
|
|
|
147,571
|
|
|
|
31.9
|
%
|
Gross profit
|
|
|
108,059
|
|
|
|
61.0
|
%
|
|
|
106,442
|
|
|
|
66.6
|
%
|
|
|
343,792
|
|
|
|
63.2
|
%
|
|
|
315,107
|
|
|
|
68.1
|
%
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
27,367
|
|
|
|
15.4
|
%
|
|
|
27,931
|
|
|
|
17.5
|
%
|
|
|
85,345
|
|
|
|
15.7
|
%
|
|
|
83,231
|
|
|
|
18.0
|
%
|
Research and development
|
|
|
7,292
|
|
|
|
4.1
|
%
|
|
|
5,661
|
|
|
|
3.5
|
%
|
|
|
22,282
|
|
|
|
4.1
|
%
|
|
|
16,679
|
|
|
|
3.6
|
%
|
General and administrative
|
|
|
39,002
|
|
|
|
22.0
|
%
|
|
|
36,127
|
|
|
|
22.6
|
%
|
|
|
126,762
|
|
|
|
23.3
|
%
|
|
|
117,819
|
|
|
|
25.5
|
%
|
Amortization of intangible assets
|
|
|
20,167
|
|
|
|
11.4
|
%
|
|
|
22,829
|
|
|
|
14.3
|
%
|
|
|
60,681
|
|
|
|
11.2
|
%
|
|
|
66,306
|
|
|
|
14.3
|
%
|
Total operating costs and expenses
|
|
|
93,828
|
|
|
|
52.9
|
%
|
|
|
92,548
|
|
|
|
57.9
|
%
|
|
|
295,070
|
|
|
|
54.2
|
%
|
|
|
284,035
|
|
|
|
61.4
|
%
|
Operating income
|
|
|
14,231
|
|
|
|
8.0
|
%
|
|
|
13,894
|
|
|
|
8.7
|
%
|
|
|
48,722
|
|
|
|
9.0
|
%
|
|
|
31,072
|
|
|
|
6.7
|
%
|
Non operating income (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gains (losses)
|
|
|
2,196
|
|
|
|
1.2
|
%
|
|
|
802
|
|
|
|
0.5
|
%
|
|
|
10,277
|
|
|
|
1.9
|
%
|
|
|
(1,832
|
)
|
|
|
(0.4
|
)%
|
Interest and other income, net
|
|
|
380
|
|
|
|
0.2
|
%
|
|
|
177
|
|
|
|
0.1
|
%
|
|
|
472
|
|
|
|
0.1
|
%
|
|
|
2,450
|
|
|
|
0.5
|
%
|
Interest expense
|
|
|
(19,785
|
)
|
|
|
(11.2
|
)%
|
|
|
(23,063
|
)
|
|
|
(14.4
|
)%
|
|
|
(59,947
|
)
|
|
|
(11.0
|
)%
|
|
|
(96,306
|
)
|
|
|
(20.8
|
)%
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(51,872
|
)
|
|
|
(32.5
|
)%
|
|
|
(2,432
|
)
|
|
|
(0.4
|
)%
|
|
|
(51,872
|
)
|
|
|
(11.2
|
)%
|
Total non operating loss
|
|
|
(17,209
|
)
|
|
|
(9.7
|
)%
|
|
|
(73,956
|
)
|
|
|
(46.3
|
)%
|
|
|
(51,630
|
)
|
|
|
(9.5
|
)%
|
|
|
(147,560
|
)
|
|
|
(31.9
|
)%
|
Loss before income taxes
|
|
|
(2,978
|
)
|
|
|
(1.7
|
)%
|
|
|
(60,062
|
)
|
|
|
(37.6
|
)%
|
|
|
(2,908
|
)
|
|
|
(0.5
|
)%
|
|
|
(116,488
|
)
|
|
|
(25.2
|
)%
|
Provision for (benefit from) income taxes
|
|
|
3,070
|
|
|
|
1.7
|
%
|
|
|
(13,653
|
)
|
|
|
(8.5
|
)%
|
|
|
10,016
|
|
|
|
1.8
|
%
|
|
|
(27,938
|
)
|
|
|
(6.0
|
)%
|
Net loss
|
|
$
|
(6,048
|
)
|
|
|
(3.4
|
)%
|
|
$
|
(46,409
|
)
|
|
|
(29.1
|
)%
|
|
$
|
(12,924
|
)
|
|
|
(2.4
|
)%
|
|
$
|
(88,550
|
)
|
|
|
(19.1
|
)%
|
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 and offering-related
costs and expenses; (b) stock-based compensation expense; (c) deferred revenue reduction from purchase accounting; (d) gains on
sale of business; (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
September 30, 2018
|
|
|
Three Months
Ended
September 30, 2017
|
|
|
Nine Months
Ended
September 30, 2018
|
|
|
Nine Months
Ended
September 30, 2017
|
|
Net loss
|
|
$
|
(6,048
|
)
|
|
$
|
(46,409
|
)
|
|
$
|
(12,924
|
)
|
|
$
|
(88,550
|
)
|
Depreciation and amortization
|
|
|
33,308
|
|
|
|
36,102
|
|
|
|
100,186
|
|
|
|
103,392
|
|
Interest expense and loss on extinguishment of debt
|
|
|
19,785
|
|
|
|
74,935
|
|
|
|
62,379
|
|
|
|
148,178
|
|
Income tax
|
|
|
3,070
|
|
|
|
(13,653
|
)
|
|
|
10,016
|
|
|
|
(27,938
|
)
|
Acquisition and offering-related costs
|
|
|
12,843
|
|
|
|
5,234
|
|
|
|
32,621
|
|
|
|
25,524
|
|
Stock-based compensation
|
|
|
1,503
|
|
|
|
1,018
|
|
|
|
3,713
|
|
|
|
2,944
|
|
Deferred revenue reduction from purchase accounting
|
|
|
291
|
|
|
|
646
|
|
|
|
1,457
|
|
|
|
751
|
|
Gain on sale of business
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,785
|
)
|
Sponsor fees and expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
284
|
|
Unrealized translation (gain) loss
|
|
|
(2,089
|
)
|
|
|
(843
|
)
|
|
|
(10,338
|
)
|
|
|
1,551
|
|
Adjusted EBITDA
|
|
$
|
62,663
|
|
|
$
|
57,030
|
|
|
$
|
187,110
|
|
|
$
|
164,351
|
|
Three Months Ended September 30, 2018 Compared to the Three
Months Ended September 30, 2017
Revenue
Revenue for the three months ended September
30, 2018 increased $17.5 million, or 11.0%, to $177.2 million. This increase was primarily driven by our acquisitions of CEDROM
and Prime and growth in our Americas and APAC operations, offset by a decline in our EMEA operations and an increase in the value
of the U.S. dollar versus a number of foreign currencies, principally the Canadian Dollar, the Swedish Krona, and the Euro. Revenue
from the acquisitions of CEDROM (acquired on December 19, 2017) and Prime (acquired on January 23, 2018) was $15.3 million for
the three months ended September 30, 2018. Revenue from our Americas operations, excluding CEDROM and Prime, increased $3.3 million
for the three months ended September 30, 2018, due primarily to organic growth in subscription and transaction revenues. Revenue
from our APAC operations, excluding PRIME, increased $1.0 million due primarily to growth in transaction revenues. Revenue from
our EMEA operations, excluding CEDROM and Prime, decreased $2.0 million for the three months ended September 30, 2018, due primarily
to lower transaction revenues associated with our media monitoring operations. The change in the U.S. dollar versus other foreign
currencies in 2018 compared to 2017 decreased revenue by approximately $1.4 million for the quarter ended September 30, 2018.
Cost of Revenue
Cost of revenue for the three months ended September 30, 2018 increased $15.9 million, or 29.8%, to $69.2
million. This increase was primarily driven by our acquisitions of CEDROM and Prime, increased acquisition related costs, and an
increase in consulting and professional fees, offset by lower content costs, lower depreciation and amortization expenses and an
increase in the value of the U.S. dollar versus a number of foreign currencies, principally the Canadian Dollar, the Swedish Krona,
and the Euro. Cost of revenue from CEDROM and Prime was $11.5 million for the three months ended September 30, 2018. Acquisition
related costs were $5.9 million for the three months ended September 30, 2018, a $5.4 million increase from the prior year period.
consulting and professional fees increased by $0.6 million in the three months ended September 30, 2018 versus the prior year period.
Content costs declined by $0.7 million in the three months ended September 30, 2018 versus the prior year period and depreciation
and amortization expenses declined by $1.0 million in the three months ended September 30, 2018 versus the prior year period. The
change in the U.S. dollar versus other foreign currencies in 2018 compared to 2017 decreased our cost of revenue by approximately
$0.4 million for the quarter ended September 30, 2018.
Sales and Marketing
Sales and marketing expenses for the three
months ended September 30, 2018 decreased $0.6 million, or 2.0%, to $27.4 million. This decrease was primarily driven by lower
sales and marketing compensation expenses resulting from our synergy efforts, lower professional fees, and an increase in the value
of the U.S. dollar versus a number of foreign currencies, principally the Canadian Dollar, the Swedish Krona, and the Euro, offset
by an increase in sales and marketing expenses from our acquisitions of CEDROM and Prime and an increase in our marketing program
spend. Sales and marketing compensation expense declined by approximately $1.0 million in the three months ended September 30,
2018 versus the prior year period. Professional fees declined by approximately $0.4 million in the three months ended September
30, 2018 versus the prior year period and the change in the U.S. dollar versus other foreign currencies in 2018 as compared to
2017 decreased our sales and marketing expenses by approximately $0.3 million for the quarter ended September 30, 2018. Sales and
marketing expenses from CEDROM and Prime was $0.6 million for the three months ended September 30, 2018.
Research and Development
Research and development expenses for the three months ended September 30, 2018 increased $1.6 million,
or 28.8%, to $7.3 million. This increase was primarily driven by our acquisitions of CEDROM and Prime and an increase in our external
consulting costs, offset by lower compensation expenses. Research and development expenses from CEDROM and Prime were $1.0 million
for the three months ended September 30, 2018. External consulting expenses increased by $0.8 million in the three months ended
September 30, 2018 versus the prior year period. Research and development compensation expense declined by approximately $0.2 million
in the three months ended September 30, 2018 versus the prior year period. The change in the U.S. dollar versus other foreign currencies
in 2018 compared to 2017 had a nominal impact on our research and development expenses for the quarter ended September 30, 2018.
General and Administrative
General and administrative expenses for the three months ended September 30, 2018 increased $2.9 million,
or 8.0%, to $39.0 million. General and administrative expenses from our acquisitions of CEDROM and Prime were $2.0 million for
the three months ended September 30, 2018. General and administrative expenses, excluding CEDROM and Prime, increased $0.9 million
for the three months ended September 30, 2018. The increase was due to an increase in acquisition related costs and an increase
in compensation expenses, offset by lower depreciation expense, reduced outside services, reduced rent expense, lower travel and
marketing expense, and a decrease in the value of the U.S. dollar versus a number of foreign currencies, principally the Canadian
Dollar, the Swedish Krona, and the Euro. Acquisition related expenses increased by $2.8 million, and compensation expenses increased
by $1.0 million during the three months ended September 30, 2018 versus the prior year period. Depreciation expense decreased by
$1.0 million, outside services decreased by $0.9 million, rent expense decreased by $0.5 million, and travel and meeting expenses
decreased by $0.3 million during the three months ended September 30, 2018 versus the prior year period. The change in the U.S.
dollar versus other foreign currencies in 2018 compared to 2017 decreased our general and administrative expenses by approximately
$0.4 million for the quarter ended September 30, 2018.
Foreign Exchange Gains (Losses)
We recognized a $2.2 million foreign exchange
gain for the three months ended September 30, 2018 and a $0.8 million foreign exchange gain for the three months ended September
30, 2017 due to fluctuations in foreign exchange rates that impacted the carrying value of certain intercompany notes and our
2017 First Lien Euro Term Credit Facility.
Interest Expense
Interest expense decreased $3.3 million, or
14.2%, from $23.1 million for the three months ended September 30, 2017 to $19.8 million for the three months ended September
30, 2018. This decrease was primarily the result of our entry into the 2017 First Lien Credit Facility on August 4, 2017, and
the subsequent February 8, 2018 debt repricing transaction of our 2017 First Lien Credit Facility that lowered interest rates on our debt. In conjunction with our entry into the 2017 First Lien Credit Facility, we repaid $370.0
million of our 2016 Second Lien Credit Facility and refinanced $1,175.0 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. We also made voluntary prepayments under our 2017 First Lien Credit Facility during the three months
ended September 30, 2018 of $10.0 million.
Loss on Extinguishment of Debt
In conjunction with the $294.0 repayment of
the 2016 Second Lien Credit Facility in July 2017 and our debt refinancing transaction in August 2017, we repaid all amounts outstanding
under the 2016 Second Lien Credit Facility and amended our 2016 First Lien Credit Facility. This was evaluated as a debt modification
versus an extinguishment under applicable guidance, and, as a result, we recorded a loss on extinguishment of debt of $51.9 million
during the three months ended September 30, 2017.
Provision For (Benefit From) Income Taxes
For the three months ended September 30, 2018, we recorded an expense from income taxes of $3.1 million
versus a benefit from income taxes of $13.7 million for the three months ended September 30, 2017. The expense from income taxes
for the quarter ended September 30, 2018 is a result of excluding subsidiaries with pre-tax losses for which no tax benefit can
be recognized in the calculation of the annual effective tax rate. The removal of subsidiaries with pre-tax losses creates pre-tax
income to which the annual effective tax rate is applied. The annual effective tax rate was also impacted by unfavorable permanent
differences and an increase to pre-tax book income. 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 benefit from income taxes for the three months ended September 30, 2017 was primarily driven by non-operating
losses resulting from higher interest expense resulting from our debt extinguishment and the reversal of deferred tax liabilities
relating to intangible assets during that period.
Other Comprehensive Income (Loss)
Other comprehensive loss was $2.5 million
for the three months ended September 30, 2018 versus other comprehensive income of $13.4 million for the three months ended September
30, 2017. Other comprehensive loss for the quarter ended September 30, 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 September 30, 2017 was primarily due to foreign
currency translation gains that resulted from a strengthening of the U.S. dollar versus certain foreign currencies, primarily
the Canadian Dollar and the Euro, since December 31, 2016.
Nine Months Ended September 30, 2018 Compared to the Nine
Months Ended September 30, 2017
Revenue
Revenue for the nine months ended September 30, 2018 increased $81.3 million, or 17.6%, to $544.0 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 Americas
and APAC operations, offset by the divestiture of our Vintage business. Revenue from Bulletin Intelligence, Argus, CEDROM and Prime
was $98.2 million for the nine months ended September 30, 2018, a $72.7 million increase from the prior year period. Revenue from
our Americas and APAC operations, excluding Bulletin Intelligence, CEDROM, and Prime increased $1.8 million for the nine months
ended September 30, 2018 versus the prior year period, due primarily to organic growth in subscription and transaction revenues.
The change in the U.S. dollar versus other foreign currencies in 2018 compared to 2017 increased revenue by approximately $5.8
million for the nine months ended September 30, 2018. We divested our Vintage business in March 2017.
Cost of Revenue
Cost of revenue for the nine months ended September 30, 2018 increased $52.6 million, or 35.7%, to $200.2
million. This increase was primarily driven by our acquisitions of Bulletin Intelligence, Argus, CEDROM and Prime, and an increase
in compensation costs, content costs, and acquisition related costs, 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 and a reduction in depreciation and amortization expenses. Cost of revenue from Bulletin Intelligence, Argus,
CEDROM and Prime was $69.6 million for the nine months ended September 30, 2018, a $53.9 million increase from the prior year period.
Compensation costs increased by $2.0 million, content costs increased by $0.9 million, and acquisition related costs increased
by $0.8 million during the nine months ended September 30, 2018 versus the prior year period. Cost of revenue attributed to our
Vintage business for the nine months ended September 30, 2017 was $2.7 million. We divested our Vintage business in March 2017.
The change in the U.S. dollar versus other foreign currencies in 2018 compared to 2017 increased our cost of revenue by approximately
$1.7 million for the nine months ended September 30, 2018. Depreciation and amortization expenses decreased by $2.6 million during
the nine months ended September 30, 2018 versus the prior year period.
Sales and Marketing
Sales and marketing expenses for the nine
months ended September 30, 2018 increased $2.1 million, or 2.5%, to $85.3 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 decrease in marketing program spend, a decrease in compensation costs,
a decrease in travel expenses, and a reduction in costs related to the divestiture of our Vintage business. Sales and marketing
expenses from Bulletin Intelligence, Argus, CEDROM and Prime were $8.4 million for the nine months ended September 30, 2018, a
$5.0 million increase from the prior year period. Marketing program spend decreased $1.3 million, compensation costs decreased
by $0.6 million, and travel expenses decreased by $0.5 million during the nine months ended September 30, 2018 versus the prior
year period. Sales and marketing expenses attributed to our Vintage business for the nine months ended September 30, 2017 was $0.6
million. We divested our Vintage business in March 2017. The change in the U.S. dollar versus other foreign currencies in 2018
compared to 2017 increased sales and marketing expenses by approximately $0.9 million for the nine months ended September 30, 2018.
Research and Development
Research and development expenses for the nine
months ended September 30, 2018 increased $5.6 million, or 33.6%, to $22.3 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. Research and development expenses from Argus, CEDROM and Prime were $6.1 million for the nine months
ended September 30, 2018, a $5.5 million increase from the prior year period. The change in the U.S. dollar versus other foreign
currencies in 2018 compared to 2017 increased research and development expenses by approximately $0.2 million for the nine months
ended September 30, 2018.
General and Administrative
General and administrative expenses for the nine months ended September 30, 2018 increased $8.9 million,
or 7.6%, to $126.8 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 an increase in bad debt expense, offset by a reduction in compensation related expenses, a 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 $18.1 million for the nine months ended September 30, 2018, an $11.8 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 general and administrative expenses by approximately $1.9 million for
the nine months ended September 30, 2018. Bad debt expense increased $1.1 million during the nine months ended September 30, 2018
versus the prior year period. Compensation related expenses decreased $2.6 million and depreciation expense decreased $1.6 million
during the nine months ended September 30, 2018 versus the prior year period. General and administrative expenses attributed to
our Vintage Business for the nine months ended September 30, 2017 was $0.2 million. We divested our Vintage business in March 2017.
Foreign Exchange Gains (Losses)
We recognized a $10.3 million foreign
exchange gain for the nine months ended September 30 2018 and a $1.8 million foreign exchange loss for the nine months ended
September 30, 2017 due to fluctuations in foreign exchange rates that impacted the carrying value of certain intercompany
notes and our 2017 First Lien Euro Term Credit Facility.
Interest and Other Income, Net
We recognized $2.5 million of interest and
other income, net for the nine months ended September 30, 2017, which was primarily driven by a $1.8 million gain on the sale
of our Vintage business.
Interest Expense
Interest expense decreased $36.4 million,
or 37.8%, from $96.3 million for the nine months ended September 30, 2017 to $59.9 million for the nine months ended September
30, 2018. This decrease was primarily the result of our entry into the 2017 First Lien Credit Facility, and the subsequent February
8, 2018 debt repricing transaction that lowered interest rates on our debt. In conjunction with our entry into the 2017 First
Lien Credit Facility, 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. We also made voluntary prepayments under our 2017 First Lien
Credit Facility during the nine months ended September 30, 2018 of $50.0 million.
Loss on Extinguishment of Debt
In conjunction with the $294.0 repayment of
the 2016 Second Lien Credit Facility in July 2017 and our debt refinancing transaction in August 2017, we repaid all amounts outstanding
under the 2016 Second Lien Credit Facility and amended our 2016 First Lien Credit Facility. This was evaluated as a debt modification
versus an extinguishment under applicable guidance and, as a result, we recorded a loss on extinguishment of debt of $51.9 million
during the nine months ended September 30, 2017.
Provision For (Benefit From) Income Taxes
For the nine months ended September 30,
2018, we recorded an expense from income taxes of $10 million versus a benefit from income taxes of $27.9 million for the nine
months ended September 30, 2017. The expense from income taxes for the nine months ended September 30, 2018 is a result of excluding
subsidiaries with pre-tax losses for which no tax benefit can be recognized in the calculation of the annual effective tax rate.
The removal of subsidiaries with pre-tax losses creates pre-tax income to which the annual effective tax rate is applied. 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 nine months ended September 30, 2017 was primarily driven by non-operating
losses resulting from higher interest expense resulting from our debt extinguishment and the reversal of deferred tax liabilities
relating to intangible assets during that period.
The benefit from income taxes for the nine
months ended September 30, 2017 was primarily driven by non-operating losses resulting from significant interest expense and the
reversal of deferred tax liabilities related to intangible assets.
Other Comprehensive Income (Loss)
Other comprehensive loss was $20.8 million
for the nine months ended September 30, 2018 versus other comprehensive income of $36.0 million for the nine months ended September
30, 2017. Other comprehensive loss for the nine months ended September 30, 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 nine months ended September 30, 2017 was primarily due to foreign
currency translation gains that resulted from a strengthening of the U.S. dollar versus certain foreign currencies, primarily
the British Pound 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 2017 First Lien Credit Facility. 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 September 30, 2018, excluding both cash balances and deferred
revenue, our current assets exceed our current liabilities by $8.6 million.
The dollar and Euro tranches of our 2017 First
Lien Credit Facility require quarterly principal repayments in the amount of $2.6 million and €0.6 million per quarter, respectively,
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 September 30, 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 nine months ended September 30, 2018,
net cash provided by operating activities was $89.8 million, which includes the cash costs incurred to execute the strategic business
combination we made during the first nine months of 2018. For the nine months ended September 30, 2018, excluding the impact of
the acquisitions of Prime and certain technology and development assets acquired to expand our products and services offerings,
net cash used in investing activities was $22.3 million. For the nine months ended September 30, 2018, net cash used in financing
activities was $63.2 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 common
stock 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:
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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 common stock (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 the Merger;
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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 payments; 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 common stock or similar equity interests.
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As of September 30, 2018, we had $84.2 million of cash and cash equivalents on hand, and we had aggregate
unused availability of $73.5 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 September 30, 2018, $53.8 million of cash and cash equivalents were held outside of the United States.
We have not provided for income taxes on approximately $51.2 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 nine months ended September 30, 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 the
United States 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 September 30, 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 the 2017
First Lien Credit Facility 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.
On February 8, 2018, we repriced our
$1,417 million First Lien Credit Facility (the “February 2018 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. 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.
On April 30, 2018, June 29, 2018 and September
28, 2018 we made voluntary prepayments of $30.0 million,$10.0 million and $10.0 million, respectively. As of September 30, 2018,
we had no outstanding borrowings and $1.5 million of outstanding letters of credit under our 2017 Revolving Credit Facility and
$1,261.8 million outstanding under the 2017 First Lien Term Credit Facility.
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 September 30,
2018, the applicable interest rate under the 2017 First Lien Dollar Term Credit Facility and the 2017 First Lien Euro Term Credit
Facility was 5.64% and 3.50%, respectively.
On October 22, 2018, the Company completed its debt repricing transaction on its 2017 First Lien Credit
Facility. The margins for the term loans under our 2017 First Lien Credit Facility were lowered for the alternate base rate, LIBOR
rate and EURIBOR rate each by 0.50%. The 2017 Revolver Credit Facility margins were lowered for the alternate base rate, LIBOR
rate and EURIBOR rate each by 0.50%.
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. No excess cash flow payment was required during the nine
months ended September 30, 2018.
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 are 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 common stock (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 common stock 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.
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|
Nine Months Ended September 30,
|
|
|
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
Net Change
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
89,789
|
|
|
$
|
38,342
|
|
|
$
|
51,447
|
|
Investing activities
|
|
|
(88,809
|
)
|
|
|
(49,821
|
)
|
|
|
(38,988
|
)
|
Financing activities
|
|
|
(63,156
|
)
|
|
|
50,757
|
|
|
|
(113,913
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(2,286
|
)
|
|
|
2,319
|
|
|
|
(4,605
|
)
|
Net change in cash and cash equivalents
|
|
$
|
(64,462
|
)
|
|
$
|
41,597
|
|
|
$
|
(106,059
|
)
|
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
$51.4 million to $89.8 million for the nine months ended September 30, 2018, from net cash provided by operating activities of
$38.3 million for the nine months ended September 30, 2017. Net cash provided by operating activities for the nine months ended
September 30, 2018 reflects a $7.3 million decrease in other accrued expenses due to the timing of vendor invoices, a $1.8 million
increase in deferred revenue due to the timing of invoicing to our subscription customers, a $1.7 million decrease in accounts
payable due to the timing of vendor payments, and a $1.1 million increase in prepaid expenses and other current assets primarily
due to the timing of advance payments for business expenses.
Net cash provided by operating activities
for the nine months ended September 30, 2017 reflects a $3.6 million decrease in deferred revenue due to the timing of invoicing
to our subscription customers, a $10.2 million decrease in accrued compensation and benefits due to the timing of payment of annual
bonuses, and a deferred income tax impact of $30.0 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
$88.8 million for the nine months ended September 30, 2018, which reflects $66.5 million used for our acquisitions of Prime and
our other acquisition, net of cash acquired, capitalized software development costs of $12.0 million, and purchases of property
plant and equipment of $10.3 million.
Net cash used in investing activities was
$49.8 million for the nine months ended September 30, 2017. This figure included $55.0 million in cash, net of cash acquired,
used for our acquisitions of Bulletin Intelligence and Argus, and reflects capitalized software development costs of $11.4 million
and purchases of property and equipment of $7.7 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 $63.2
million for the nine months ended September 30, 2018, which reflects $60.0 million in repayments of our term loan facility, $0.3
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
$50.8 million for the nine months ended September 30, 2017, which reflects $305.2 million in proceeds from the issuance of equity
in connection with our merger with Capitol, offset by net repayments under our prior credit facility of $252.3 million.
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.