comScore, Inc. (NASDAQ:SCOR) Q4 2023 Earnings Call Transcript
comScore, Inc. (NASDAQ:SCOR) Q4 2023 Earnings Call Transcript March 6, 2024
comScore, Inc. misses on earnings expectations. Reported EPS is $-6.69 EPS, expectations were $0.8. comScore, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the comScore Fourth Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, John Tinker, Vice President, Investor Relations.
John Tinker: Thank you, operator. Before we begin our prepared remarks, I'd like to remind all of you that the following discussion contains forward-looking statements. These forward-looking statements include comments about our plans, expectations and prospects and are based on our view as of today, March 6, 2024. Our actual results in future periods may differ materially from those currently expected because of a number of risks and uncertainties. These risks and uncertainties include those outlined in our 10-K, 10-Q and other filings with the SEC which you can find on our website or at www.sec.gov. We disclaim any duty or obligation to update our forward-looking statements to reflect new information after today's call. We will be discussing non-GAAP measures during this call for which we have provided reconciliations in today's press release and on our website.
Please note that we will be referring to slides on this call which are also available on our website www.comscore.com under Investor Relations, Events and Presentations. Finally, comScore intends to file a proxy statement and related materials with the SEC in connection with the 2024 Annual Meeting of Stockholders. Our directors and certain officers will be participants in the solicitation of proxies in connection with the annual meeting. Stockholders are encouraged to read the proxy statement and related materials when they become available as they will contain important information, including the identity of the participants and their direct or indirect interest by security holdings or otherwise. As you may know, 180-degree capital submitted notice of its intent to nominate a candidate for election to the Board and submit a proposal for consideration at the annual meeting.
At this time, we will make no further comment or take any questions on 180-degree capital nomination and proposal on any related matters. I'll now turn the call over to comScore's Chief Executive Officer, Jon Carpenter. Jon?
Jonathan Carpenter: Thanks, John and thank you, everyone, for joining us this evening. 2023 had both highs and lows for the business. On the positive side, we accomplished a number of things which our team should be very proud of and I believe set us up well for a return to sustainable growth. I'm more confident than ever that we're headed in the right direction. We delivered on our adjusted EBITDA margin goals, made key cross-platform product innovations and revamped our go-to-market operations. We received conditional certification from the U.S. JIC and we're the only measurement player who received this certification and is also working toward MRC accreditation of a TV measurement product. We also drove significant growth in both comScore Campaign Ratings, our product that measures cross-platform advertising campaigns and Proximic, our cross-platform audience activation business that provides both IV-based and ID free solutions.
We believe we're just starting to see the kind of growth that we can expect across these key areas of our business. At the same time, we did fall short of our revenue target for the year. Macro challenges did have a material impact on our custom business last year, especially in the back half, where the custom business was down double digits. Additionally, there are end markets that we serve that have been and are likely to remain challenged. Specifically, we saw low single-digit declines in the part of the business that supports large traditional network clients where linear ad spend is expected to remain under pressure as dollars continue to shift to digital platforms. And our business last year was certainly not immune to some of these pressures.
That being said, our new go-to-market structure under the leadership of Chief Commercial Officer, Steve Bagdasarian, along with key innovations across our campaign ratings and Proximic products are already delivering results for us, aligning our growth with the fastest-growing areas of need within the market. And the bookings we printed in the second half of the year are 2 of the most promising renewal periods we've had in the last 2 years. In fact, the progress we made in '23 sets us up nicely to deliver on our '24 expectations. Our cost control and technology transformation work has continued to help us deliver stronger operating margins in 2023. Our combination of local TV speed and precision helped us deliver yet another year of double-digit growth in our local business.
Finally, we've made substantial progress in our key cross-platform products, Proximic and CCR. The market has responded incredibly well to the value we're delivering with those 2 product areas to the tune of well over 30% year-over-year growth. Given that these businesses represent approximately 10% of our total business last year, we're confident we're just scratching the surface on what our opportunity for 2024 looks like. But before we go any further on '24, I'll let Mary Margaret take you through our '23 numbers in a bit more detail.
Mary Curry: Thank you, Jon. Total revenue for the full year was $371.3 million, down 1.3% from $376.4 million in 2022. The Cross Platform Solutions revenue of $162.5 million was down 0.9% from 2022. As Jon mentioned, we're impacted by the linear ad spend pressure the major networks are experiencing which resulted in a decline in our national TV revenue in 2023 from lower renewals. This decline was offset by double-digit growth in local TV and 4% growth in our movies business compared to the prior year. Revenue from Digital Ad Solutions of $208.8 million was down 1.7% compared to $212.5 million a year ago. The decline was primarily driven by lower deliveries of certain custom digital products which were impacted by the macroeconomic environment, along with the decline in syndicated digital revenue.
These declines were partially offset by the growth we're seeing in our Proximic and CCR products which, on a combined basis, grew 34% over 2022. Adjusted EBITDA for the year was $44 million, up 17.5% from 2022, resulting in an adjusted EBITDA margin of 11.9%. If you exclude the foreign exchange impact from adjusted EBITDA, this year's result of $46.9 million is up 29% over the prior year. Even though our top line was challenged in 2023, we were successful in achieving our adjusted EBITDA margin goal which is a testament to the hard work our teams have done to make disciplined and intentional decisions around spend. Our core operating expenses for 2023 were down nearly 5% over the prior year, primarily due to lower employee compensation as a result of our restructuring efforts.
As part of the restructuring plan, we also reduced our physical office footprint and we're continuing to transform our business operations and simplify our tech stack to drive additional efficiencies as we move into 2024. Our fourth quarter results tell a very similar story. Total revenue for the fourth quarter was $95.1 million, down 3.2% from $98.2 million in the same quarter a year ago. Cross Platform Solutions revenue of $39.9 million was down 7% from 2022, again, primarily driven by the decline in national TV, partially offset by growth in our movies business. Digital Ad Solutions revenue of $55.2 million was roughly flat with the prior year. Similar to the full year results, the decline in revenue was primarily driven by the lower deliveries of certain custom digital products and lower syndicated digital revenue which were offset by the growth of our Proximic and CCR products which when combined, grew more than 50% over the prior year quarter.
Adjusted EBITDA for the quarter was $16.4 million, up 36.8% from the prior quarter, resulting in an adjusted EBITDA margin of 17.3%. If you exclude the foreign exchange impact from adjusted EBITDA, the fourth quarter result of $18.7 million is up 12.9% over the prior year. Our core operating expenses were down 4.5% compared to the fourth quarter of 2022, again, primarily due to lower employee compensation from our restructuring efforts. With that, I'll turn it back to Jon to talk about where we're headed.
Jonathan Carpenter: Thanks, Mary Margaret. The ANA estimates as much as $22 billion of the $88 billion in open web programmatic ad spend is wasted and that's a staggering amount. That waste and the rapidly increasing complexity across the media landscape that's fueling it is what we're focused on helping our clients address and navigate successfully. We're doing that by focusing on connecting audiences across all screens and markets, leveraging our currency-grade local and national linear TV, digital streaming and social data assets to help advertisers reach their intended audiences efficiently and publishers to more effectively communicate the value of their audiences to those advertisers. When we think about what that means for comScore in 2024, there are 3 key areas that we're focused on: first, cross-platform product adoption and specifically our CCR and Proximic offerings.
Second, digital resilience as we finally start to see indicators that our syndicated digital business is turning the corner and three, in continued local growth and expansion, leveraging our cross-platform capabilities alongside our leading local linear data to deliver value for our local clients. We're already seeing encouraging signs in each of these areas early in 2024 as evidenced by acceleration of the adoption of our cross-platform products, key metrics for our digital business improving and 2 major announcements with leading local station group clients. A big reason we're able to put up wins like this is that we're just built differently from other measurement companies. That's giving us a serious advantage as the world becomes more cross-platform and more programmatic.
By measuring from the bottom up starting at the household level and building up to a national view, comScore is able to provide cross-platform data with the speed and precision needed to let advertisers optimize in-flight campaigns. Our announcements with both Nexstar a few weeks ago and last week with TEGNA are a validation of the approach that we're taking and we're excited to have such important partners leaning in and expanding their relationships with comScore. Our comprehensive view of audiences across national, local, digital, streaming linear or walled gardens is why we believe comScore is built for the future of programmatic cross-platform media. Given that, when we look at the market, we're not simply just focused on the linear TV ad market.
We're focused on influencing the total market of more than $400 billion in ad spend as the world becomes increasingly programmatic and audiences become increasingly fragmented. Building on that, with comScore Campaign Ratings, we announced a key enhancement just a few weeks ago, adding local market data to CCR, this enhancement allows advertisers to advertise nationally and then optimize locally, something that wasn't previously possible. Beyond enabling an advertiser to understand how their campaign is performing across different markets, the speed and accuracy with which we're able to deliver this data makes it possible for advertisers to optimize their ad campaigns in flight, shifting dollars to the most performing channels and driving the outcomes they need more efficiently.
Along with that announcement a few weeks ago, you may have seen our deal with the Trade Desk to integrate CCR with local reporting into their platform. This partnership will help the Trade Desk clients optimize their campaigns, eliminating waste and delivering the outcomes they need as efficiently as possible. Prior to releasing this feature, we saw an increase of more than 80% in impressions measured by comScore Campaign Ratings in January of this year versus January of last year. And as we move into the second quarter of this year and our integration with the Trade Desk begins to ramp, we expect to see that growth accelerate. Cross-platform adoption, digital resilience and local expansion are the things we're focused on in '24. These pillars, coupled with a relentless effort to scale our capabilities profitably point to a solid '24 ahead.
I look forward to updating you on our progress as we go throughout the year. And with that, I'll turn it over to Mary Margaret to talk about our guidance.
Mary Curry: Thanks, Jon. Based on current trends and expectations, we believe our total revenue for 2024 will be between $375 million and $390 million. As Jon just laid out, there are a number of factors driving growth in 2024, including our continued growth in local TV, the stabilization of our syndicated digital business and the accelerated growth of our cross-platform products, Proximic and CCR. When thinking about our revenue guidance for 2024, I think it's important to talk about some of the factors that will influence the timing of revenue growth as we move through the year. First, we expect our growth in Proximic and CCR to ramp over the coming 3 or 4 months as new integrations roll out and clients are onboarded, delivering a more pronounced revenue impact in the back half of the year.
Second, we anticipate that our national TV revenue will continue to be impacted by the linear ad spend pressure that major networks are experiencing and the demand for custom digital products will continue to be unpredictable as we move into 2024. And finally, we expect the improvement we're seeing in syndicated digital to take a couple of quarters to translate into a better year-over-year revenue results. As a result, we expect revenue in the first quarter of 2024 to be lower than the first quarter of 2023, with the majority of our expected revenue growth occurring in the back half of the year. For adjusted EBITDA, we expect continued improvement of our adjusted EBITDA margin in 2024 and anticipate the full year margin will be between 12% and 15%.
In addition to top line growth, the key factors driving the increased margins include the continued impacts of the restructuring initiatives we executed in 2023 and the disciplined product innovation we're undertaking as we continue to transform how we operate. As we think about core operating expenses, we'd ideally like to keep costs as flat as possible year-over-year. But we also know we need to make investments in certain areas of the business, such as data and cloud computing costs in order for our cross-platform products to scale in a way that will drive meaningful revenue growth. These additional costs anticipated to be between $5 million and $8 million have been built into our plan for 2024 and are included in the guidance I'm giving today.
Similar to last year, we expect our margin rate to scale as we move through the year. With that, I'll turn it back over to Jon for closing remarks.
Jonathan Carpenter: Thanks, Mary Margaret. Thanks, everybody. At this time, operator, we will open it up for any questions.
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