Document
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
________________________________ 
FORM 10-Q
 
 ________________________________ 
(Mark One)
    x   
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         
Commission file number: 001-33520
 ________________________________ 
 comScore, Inc.
(Exact name of registrant as specified in its charter)
 
 ________________________________ 
 
Delaware
 
54-1955550
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)

11950 Democracy Drive, Suite 600
Reston, Virginia 20190
(Address of Principal Executive Offices)
(703) 438-2000
(Registrant’s Telephone Number, Including Area Code)

 ________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ¨ No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ¨  No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
  
ý
  
Accelerated filer
  
o
Non-accelerated filer
  
o (Do not check if a smaller reporting company)
  
Smaller reporting company
  
o
 
 
 
 
Emerging growth company
 
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨    No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of February 28, 2018, there were 54,689,047 shares of the registrant’s common stock outstanding.
 



Table of Contents

COMSCORE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2017
TABLE OF CONTENTS
 
 
 




Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this "10-Q"), including the information contained in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report, and the information incorporated by reference in this 10-Q contain forward-looking statements within the meaning of federal and state securities laws. Forward-looking statements are all statements other than statements of historical fact. We attempt, whenever possible, to identify these forward-looking statements by words such as may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “continue,” “seek” or the negative of those words and other comparable words. Similarly, statements that describe our business strategy, goals, prospects, opportunities, outlook, objectives, plans or intentions are also forward-looking statements. These statements may relate to, but are not limited to, expectations of future operating results or financial performance, macroeconomic trends that we expect may influence our business, plans for capital expenditures, expectations regarding the introduction of new products, regulatory compliance and expected changes in the regulatory landscape affecting our business, planned remediation activities, plans for relisting our common stock, expected impact of litigation and litigation settlements, including the expected contribution by insurance providers, plans for growth and future operations, effects of acquisitions, divestitures and partnerships, as well as assumptions relating to the foregoing.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These statements are based on current expectations and assumptions regarding future events and business performance and involve known and unknown risks, uncertainties and other factors that may cause actual events or results to be materially different from any future events or results expressed or implied by these statements. These factors include those set forth in the following discussion and elsewhere within this report.

We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this 10-Q. You should carefully review the risk factors described in other documents that we file from time to time with the U.S. Securities and Exchange Commission, or "SEC". Except as required by applicable law, including the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements, whether as a result of any new information, future events or otherwise, other than through the filing of periodic reports in accordance with the Securities Exchange Act of 1934, as amended. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.



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PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
COMSCORE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 
June 30,
2017
 
December 31,
2016
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
47,638

 
$
84,111

Restricted cash
10,397

 
4,230

Marketable securities
28,446

 
28,412

Accounts receivable, net of allowances of $2,053 and $2,100 respectively ($5,109 and $8,412 of accounts receivable attributable to related parties)
85,325

 
96,230

Prepaid expenses and other current assets ($0 and $2,923 attributable to related parties)
17,732

 
19,450

Insurance recoverable on litigation settlements
17,333

 

Total current assets
206,871

 
232,433

Property and equipment, net
34,703

 
42,001

Other non-current assets ($0 and $185 attributable to related parties)
7,048

 
7,176

Deferred tax assets
4,847

 
5,117

Intangible assets, net
177,289

 
194,168

Goodwill
641,462

 
639,897

Total assets
$
1,072,220

 
$
1,120,792

Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable ($1,284 and $17 attributable to related parties)
$
11,691

 
$
7,204

Accrued expenses ($5,200 and $5,141 attributable to related parties)
49,057

 
52,907

Accrued litigation settlements
19,100

 

Other short-term liabilities
2,926

 
2,860

Deferred revenues ($4,416 and $4,654 attributable to related parties)
105,015

 
99,412

Deferred rent
787

 
590

Capital lease obligations
10,215

 
12,904

Total current liabilities
198,791

 
175,877

Deferred rent
10,077

 
9,009

Deferred revenue
878

 
2,733

Deferred tax liabilities
9,243

 
7,688

Capital lease obligations
4,736

 
8,003

Other long-term liabilities
8,845

 
12,629

Total liabilities
232,570

 
215,939

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized; no shares issued or outstanding at June 30, 2017 and December 31, 2016

 

Common Stock, $0.001 par value per share; 100,000,000 shares authorized; 60,041,572 shares issued and 57,276,776 shares outstanding as of June 30, 2017 and 59,937,393 shares issued and 57,172,597 shares outstanding as of December 31, 2016, respectively
60

 
60

Additional paid-in capital
1,392,107

 
1,380,881

Accumulated other comprehensive loss
(9,431
)
 
(12,420
)
Accumulated deficit
(407,116
)
 
(327,698
)
Treasury stock, at cost, 2,764,796 shares as of June 30, 2017 and December 31, 2016, respectively
(135,970
)
 
(135,970
)
Total stockholders’ equity
839,650

 
904,853

Total liabilities and stockholders’ equity
$
1,072,220

 
$
1,120,792

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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COMSCORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except share and per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenues (1)
$
99,439

 
$
100,494

 
$
200,300

 
$
191,818

 
 
 
 
 
 
 
 
Cost of revenues (1) (2) (3)
47,301

 
44,523

 
94,614

 
81,050

Selling and marketing (1) (2) (3)
31,190

 
32,307

 
60,923

 
62,919

Research and development (1) (2) (3)
21,502

 
22,075

 
42,522

 
43,191

General and administrative (1) (2) (3)
13,310

 
18,675

 
31,095

 
63,971

Investigation and audit related (1)
17,399

 
15,479

 
35,077

 
21,974

Amortization of intangible assets
8,443

 
8,238

 
17,178

 
14,263

Gain on asset disposition

 

 

 
(33,457
)
Settlement of litigation, net
(915
)
 
2,620

 
618

 
2,510

Total expenses from operations
138,230

 
143,917

 
282,027

 
256,421

Loss from operations
(38,791
)
 
(43,423
)
 
(81,727
)
 
(64,603
)
Interest (expense) income, net (1)
(252
)
 
8

 
(406
)
 
(89
)
Other income, net
2,683

 
3,522

 
5,867

 
6,707

Loss from foreign currency transactions
(1,205
)
 
(286
)
 
(1,225
)
 
(1,394
)
Loss before income taxes
(37,565
)
 
(40,179
)
 
(77,491
)
 
(59,379
)
Income tax (provision) benefit
(1,061
)
 
(805
)
 
(1,927
)
 
5,292

Net loss
$
(38,626
)
 
$
(40,984
)
 
$
(79,418
)
 
$
(54,087
)
Net loss available to common stockholders per common share:
 
 
 
 
 
 
 
Basic
$
(0.67
)
 
$
(0.72
)
 
$
(1.38
)
 
$
(1.00
)
Diluted
$
(0.67
)
 
$
(0.72
)
 
$
(1.38
)
 
$
(1.00
)
Weighted-average number of shares used in per share calculation - Common Stock:
 
 
 
 
 
 
 
Basic
57,498,228

 
57,138,787

 
57,386,516

 
54,231,361

Diluted
57,498,228

 
57,138,787

 
57,386,516

 
54,231,361

 
 
 
 
 
 
 
 
Comprehensive loss:
 
 
 
 
 
 
 
Net loss
$
(38,626
)
 
$
(40,984
)
 
$
(79,418
)
 
$
(54,087
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
2,352

 
(558
)
 
2,955

 
1,103

Unrealized gains on marketable securities, net
34

 
101

 
34

 
203

Reclassification of realized loss on the sale of marketable securities, net

 

 

 
19

Total comprehensive loss
$
(36,240
)
 
$
(41,441
)
 
$
(76,429
)
 
$
(52,762
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

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(1)  Transactions with related parties are included in the line items above as follows (refer to Footnote 8, Related Party Transactions of the Notes to Unaudited Condensed Consolidated Financial Statements for additional information):

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016
Revenues
$
3,033


$
2,082


$
6,345


$
4,509











Cost of revenues
3,140


4,251


6,887


5,298

Selling and marketing
33


547


68


584

Research and development
24


1,083


53


1,128

General and administrative
137


124


161


157

Investigation and audit related
3,523




6,857















Interest income, net
195


298


403


601

 
 
 
 
 
 
 
 
(2)  Amortization of stock-based compensation expense is included in the line items above as follows:
 
 

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016
Cost of revenues
$
433


$
2,409


$
1,062


$
4,052

Selling and marketing
1,532


1,934


2,978


8,439

Research and development
450


1,494


1,271


4,310

General and administrative
409


2,397


1,333


22,299


$
2,824


$
8,234


$
6,644


$
39,100

 
 
 
 
 
 
 
 
(3)  Excludes amortization of intangible assets, as it is presented separately in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


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COMSCORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Six Months Ended June 30,
 
2017
 
2016
Operating activities
 
 
 
Net loss
$
(79,418
)
 
$
(54,087
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation
11,996

 
13,021

Amortization of intangible assets
17,178

 
14,263

Provision for bad debts
102

 
397

Stock-based compensation
6,644

 
39,100

Deferred tax provision (benefit)
1,808

 
(5,328
)
Gain on dispositions

 
(33,457
)
Realized loss on marketable securities

 
19

Loss from equity method investment
63

 
137

Loss on asset disposition of property plant and equipment
24

 
45

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
11,724

 
11,638

Prepaid expenses and other assets
(15,693
)
 
(3,445
)
Accounts payable, accrued expenses, and other liabilities
19,149

 
(13,893
)
Deferred revenue
2,912

 
2,855

Deferred rent
1,253

 
(175
)
Net cash used in operating activities
(22,258
)
 
(28,910
)
 
 
 
 
Investing activities
 
 
 
Net cash received in disposition of assets

 
42,980

Acquisitions, net of cash acquired


 
37,086

Acquisitions, net of cash acquired (related party)


 
(27,328
)
Sales of marketable securities


 
2,188

Purchase of property and equipment
(4,021
)
 
(4,704
)
Net cash (used in) provided by investing activities
(4,021
)
 
50,222

 
 
 
 
Financing activities
 
 
 
Financing proceeds received on subscription receivable (related party)



5,822

 
3,535

Proceeds from the exercise of stock options

 
4,139

Repurchase of common stock (withholding taxes)
(1,262
)
 
(18,097
)
Repurchase of common stock (treasury shares)

 
(27,292
)
Principal payments on capital leases and software license arrangements
(8,608
)
 
(9,451
)
Net cash used in financing activities
(4,048
)
 
(47,166
)
Effect of exchange rate changes on cash
21

 
(471
)
Net decrease in cash, cash equivalents and restricted cash
(30,306
)
 
(26,325
)
Cash, cash equivalents and restricted cash at beginning of period
88,341

 
146,986

Cash, cash equivalents and restricted cash at end of period
$
58,035

 
$
120,661

 
 
 
 
Cash and cash equivalents
$
47,638

 
$
116,884

Restricted cash
10,397

 
3,777

Total cash, cash equivalents and restricted cash
$
58,035

 
$
120,661

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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COMSCORE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.
Organization
comScore, Inc., together with its consolidated subsidiaries (collectively, "comScore" or the “Company”), headquartered in Reston, Virginia, is a global information and analytics company that measures audiences, consumer behavior and advertising across media platforms. On January 29, 2016, the Company completed a merger with Rentrak Corporation ("Rentrak"), a global media measurement and advanced consumer targeting company serving the entertainment, television, movie, video and advertising industries. Refer to Footnote 3, Business Combinations and Dispositions.
Operating segments are defined as components of a business that can earn revenues and incur expenses for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker ("CODM"). The Company’s CODM is its Principal Executive Officer, who decides how to allocate resources and assess performance. The Company operates in one operating segment. A single management team reports to the CODM who manages the entire business. The Company’s CODM reviews consolidated results of operations to make decisions, allocate resources and assess performance and does not evaluate the profit or loss from any separate geography or product lines. The Company's President and Executive Vice Chairman assumed the role of CODM following the retirement of the Company's Chief Executive Officer in November 2017.
As a result of the delay in the Company's filings of its Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, the Company’s common stock ("Common Stock") was delisted from The Nasdaq Global Select Market on May 30, 2017. Upon the suspension of trading of the Company’s Common Stock on The Nasdaq Global Select Market, the Common Stock has been traded on the OTC Pink Tier under the symbol “SCOR.”
Uses and Sources of Liquidity and Management’s Plans
The Company’s primary need for liquidity is to fund working capital requirements of its businesses, capital expenditures and for general corporate purposes. The Company incurred significant investigation and audit related expenses, which significantly reduced working capital as of June 30, 2017.  In response to this reduction, in December 2017, the Company announced that it was implementing an organizational restructuring to reduce staffing levels by approximately 10% and exit certain geographic regions, to enable the Company to decrease its global costs and more effectively align resources to business priorities. To increase the Company’s available working capital, on January 16, 2018, the Company entered into certain agreements with funds affiliated with or managed by Starboard Value LP (collectively, “Starboard”), pursuant to which, among other things, the Company issued and sold to Starboard $150.0 million of senior secured convertible notes (“Notes") in exchange for $85.0 million in cash and 2,600,000 shares of Common Stock valued at $65.0 million. The Company also granted to Starboard an option (the “Notes Option”) to purchase up to an additional $50.0 million of Notes in exchange for a range of $15.0 million to $35.0 million of Common Stock, at Starboard’s option, and the balance in cash.
In addition, under the agreements, the Company has the right to conduct a rights offering (the “Rights Offering”), which would be open to all stockholders of the Company, for up to $150.0 million in senior secured convertible notes (the “Rights Offering Notes”). Starboard also agreed to backstop up to $100.0 million in aggregate principal amount of Rights Offering Notes through the purchase of additional Notes, with such backstop obligation to be reduced by the principal amount of Notes purchased by Starboard pursuant to the Notes Option, if any. If undertaken, the Rights Offering would provide a minimum of $50.0 million to $70.0 million in cash if not fully subscribed (depending on whether Starboard exercises the Notes Option and assuming that any Notes purchased by Starboard pursuant to the backstop obligation will be issued on the same terms as the Rights Offering Notes), and at least $105.0 million in cash if fully subscribed, as stockholders of the Company who elect to participate in the Rights Offering will be allowed to elect to have up to 30% of the value of the Rights Offering Notes they acquire pursuant thereto delivered through the sale to or exchange with the Company of shares of Common Stock. For additional information, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
The Company believes that the restructuring and financing actions discussed above are probable of occurring and satisfying the Company’s estimated liquidity needs within one year after the date that the financial statements are issued. However, the Company cannot predict, with certainty, the outcome of its actions to generate liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned.

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2.
Summary of Significant Accounting Policies
Critical Accounting Polices and Estimates
For a description of the Company's critical accounting policies, accounting standards recently adopted and recent pronouncements please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 23, 2018.
Basis of Presentation and Consolidation
The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned domestic and foreign subsidiaries. All intercompany transactions and balances are eliminated upon consolidation.
Unaudited Interim Financial Information
The interim Condensed Consolidated Financial Statements included in this quarterly report on Form 10-Q have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, for a quarterly report on Form 10-Q and are adequate to make the information presented not misleading. The interim Condensed Consolidated Financial Statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These interim Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed on March 23, 2018 with the SEC. The results of operations for the six months ended June 30, 2017 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2017 or thereafter. All references to June 30, 2017 and 2016 in the Notes to Unaudited Condensed Consolidated Financial Statements are unaudited.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expense during the reporting periods. Significant estimates and assumptions are inherent in the analysis and the measurement of management's best estimate of selling price, deferred tax assets, the identification and quantification of income tax liabilities due to uncertain tax positions, the valuation and recoverability of goodwill and intangible assets, the assessment of potential loss from contingencies, the valuation of assets and liabilities acquired in a business combination, and the allowance for doubtful accounts. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates. On an ongoing basis, the Company evaluates its estimates and assumptions.
Loss Per Share
Basic net loss per common share excludes dilution for potential Common Stock issuances and is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. In periods where the Company reports a net loss, the effect of anti-dilutive stock options, restricted stock units and non-vested restricted stock awards are excluded and diluted loss per share is equal to basic loss per share. The weighted-average shares outstanding for Common Stock, used in per share calculations, has been adjusted to reflect share repurchases made during the six months ended June 30, 2016.
The following is a summary of Common Stock equivalents for the securities outstanding during the respective periods that have been excluded from the earnings per share calculations.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Stock options, restricted stock units, restricted stock and stock appreciation rights
3,296,348

 
3,228,921

 
3,377,927

 
3,148,555


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The weighted-average shares of Common Stock outstanding have been adjusted to reflect repurchases made during the six months ended June 30, 2016.
Share Repurchases
As part of the Company's repurchase program, which was announced in February 2016 and suspended on March 5, 2016, shares were purchased in open market transactions or pursuant to trading plans that were adopted in accordance with Rule 10b5-1 of the Exchange Act. The timing, manner, price and amount of any repurchases could be determined at the Company's discretion, and the share repurchase program could be suspended, terminated or modified at any time for any reason. Shares repurchased were classified as treasury stock. Share repurchases for the three and six months ended June 30, 2017 and 2016 under the Company's share repurchase program were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions, except share and per share data)
2017
 
2016
 
2017
 
2016
Total number of shares repurchased

 

 

 
675,672

Average price paid per share
$

 
$

 
$

 
$
40.39

Total value of shares repurchased (as measured at time of repurchase)
$

 
$

 
$

 
$
27.3

February 2016 Share Repurchase Program
On February 17, 2016, the Company announced that the Board of Directors (the "Board") had approved the adoption of a new share repurchase program, superseding prior programs, for $125 million of Common Stock. On March 5, 2016, the Board suspended the share repurchase program indefinitely, with such suspension to be re-evaluated following the completion of the Audit Committee’s investigation and the Company regaining compliance with its SEC reporting requirements.
Other Income, Net
The following is a summary of other income, net:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
2017
 
2016
 
2017
 
2016
Transition services agreement income from the DAx disposition
$
2,630

 
$
3,375

 
$
5,827

 
$
6,610

Other income
53

 
147

 
40

 
97

Total other income, net
$
2,683

 
$
3,522

 
$
5,867

 
$
6,707


3.
Business Combinations and Dispositions
There were no business combinations or dispositions during the three or six months ended June 30, 2017.
Rentrak Merger
On January 29, 2016, the Company completed a merger (the "Merger") with Rentrak for total consideration of $753.4 million. Pursuant to the Agreement and Plan of Merger and Reorganization, dated as of September 29, 2015, Rum Acquisition Corporation, an Oregon corporation and a wholly-owned subsidiary of the Company, merged with and into Rentrak with Rentrak surviving the Merger as a wholly-owned subsidiary of the Company. The key economic drivers underlying the Merger include Rentrak’s complementary proprietary technology and services in the television market, the ability to combine the Company’s digital information with Rentrak’s television information to provide cross-media products and services, and opportunities to cross-sell to each other’s customer base.
The unaudited pro forma summary presented in the table below displays consolidated information of the Company as if the Merger had occurred on January 1, 2016 for all periods presented. The pro forma financial information is presented for informational purposes only and does not necessarily reflect the results that would have occurred had the Merger taken place on January 1, 2016, nor is it necessarily indicative of future results. No effect has been given to cost reductions or operating synergies relating to the integration of Rentrak into the Company's operations. In addition, there is no tax adjustment necessary for the pro forma adjustments as a result of the Company's tax valuation allowance position.

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For the six months ended June 30, 2016, the results of Rentrak operations for the period subsequent to the Merger are included in the "As reported" column for the period January 29, 2016 through June 30, 2016.
 
Six Months Ended June 30, 2016
(Amounts in thousands, except share and per share amounts)
As reported
 
Pro forma adjustment
 
Pro forma
Revenues
$
191,818

 
$
8,116

(1)
$
199,934

Operating expenses
256,421

 
(18,872
)
(2)
237,549

Net (loss) income
(54,087
)
 
26,988

 
(27,099
)
 
 
 
 
 
 
Basic net loss per common share
$
(1.00
)
 
 
 
$
(0.48
)
Diluted net loss per common share
(1.00
)
 
 
 
(0.48
)
Weighted-average number of shares used in per share calculation - Common Stock:
 
 
 
 
 
Basic
54,231,361

 
2,815,969

(3)
57,047,330

Diluted
54,231,361

 
2,815,969

(3)
57,047,330

(1) The Rentrak pro forma adjustment for revenue for the six months ended June 30, 2016 relates to the unaudited results of Rentrak for the period January 1, 2016 through January 28, 2016.
(2) The Rentrak pro forma adjustments for operating expenses for the six months ended June 30, 2016 consist of the following:
Add:
 
 
Unaudited results for the period January 1, 2016 through January 28, 2016, excluding expenses incurred directly attributable to the Merger
 
$
9,472

Amortization of acquired Rentrak intangibles for the period January 1, 2016 through January 28, 2016
 
2,028

 
 
 
Less:
 
 
One-time stock-based compensation expense associated with accelerated equity awards upon consummation of the Merger
 
(21,866
)
Transaction fees
 
(8,506
)
 
 
$
(18,872
)
(3) The comScore pro forma adjustment to the weighted-average number of shares used in the basic and diluted per share calculations is to show the effect of the Common Stock issued upon consummation of the Merger as if the Merger occurred on January 1, 2016 instead of January 29, 2016.
Acquisition of Compete
On April 28, 2016, the Company closed an asset purchase agreement to acquire certain assets of Compete, Inc. ("Compete"), a wholly-owned subsidiary of WPP plc ("WPP"), a related party to the Company at the time of the acquisition. The Compete assets were acquired for $27.3 million in cash, net of a working capital adjustment of $1.4 million. The Company acquired the Compete assets to expand its presence in certain verticals, such as the auto industry and financial services, with improved solution offerings regarding digital performance, including robust path to purchase, advertising impact analysis and shopping configuration analysis. The Company entered into an agreement for Compete to provide transition services, including engineering, financial, human resources, business contract support, marketing and training services to the Company through December 31, 2016. The Company determined that the acquired assets from Compete were not significant under applicable accounting requirements and therefore has not included pro forma adjustments pursuant to ASC 805.
During the three and six months ended June 30, 2016, the Company recognized revenue attributable to the Compete assets acquired of approximately $3.0 million. As of June 30, 2017 and December 31, 2016, the Company was owed $0.6 million and $3.7 million, respectively, from Compete associated with billing and collections that were to be remitted to the Company from the acquired customer contracts. The amounts due from Compete are included in total related party accounts receivable on the Condensed Consolidated Balance Sheets.

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During the three and six months ended June 30, 2016, the Company incurred $3.6 million in expenses associated with the transition services agreement with Compete. There were not transition services expenses incurred during 2017. The Company determined that the acquired assets from Compete were not significant and has not included pro forma adjustments required by ASC 805.

Disposition of Digital Analytix and Adobe Strategic Partnership Agreement
On November 5, 2015, the Company executed a definitive agreement to sell and exclusively license certain assets, rights and properties primarily related to the business operations of the Company’s Digital Analytix ("DAx") solution, including certain exclusively DAx-related agreements with customers and certain intellectual property (the “Disposed Assets”) to Adobe Systems Incorporated (“Adobe”). On January 21, 2016, the sale was completed and in consideration for the Disposed Assets, Adobe paid $45.0 million in cash to the Company and provided the Company a license agreement (the "Holdback License") valued at $2.0 million. The Holdback License allowed the Company to service, for one-year, certain non-DAx customers using the proprietary technology sold to Adobe as the Company developed an alternative platform. The Company recognized a gain on disposition of DAx during the six months ended June 30, 2016 of $33.5 million.
On February 10, 2016, the Company and Adobe signed an agreement referred to as a Strategic Partnership Agreement ("SPA"). The Company has determined that the SPA represents a contemporaneous agreement with the DAx disposition through which no value would be obtained by the Company. As a result, the Company has accounted for this agreement as part of the sale of the DAx business rather than as a separate contract. As part of the SPA, the Company agreed to pay Adobe $8.0 million, in three installments. The initial payment of $4.0 million was made upon execution of the SPA and the remaining two payments were to be due on the first and second anniversary dates of the SPA. The SPA was recorded as a liability at the closing of the SPA and reduced the gain on the DAx disposition.
The Company agreed to continue to employ certain personnel needed to operate the Disposed Assets and to provide support to Adobe pursuant to a transition services agreement ("TSA") for a three-year term. The Company’s expenses related to the TSA are recorded as general and administrative expenses as incurred and Adobe's payment of these costs were reflected in other income in the same period as the expenses are incurred. Pursuant to the TSA, the Company recognized other income of $2.6 million and $3.4 million, for the three months ended June 30, 2017 and 2016, respectively. For the six months ended June 30, 2017 and 2016, the Company has recognized other income of $5.8 million and $6.6 million, respectively.

4.
Fair Value Measurements
Fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The accounting standard for fair value measurements establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — observable inputs such as quoted prices in active markets;
Level 2 — inputs other than the quoted prices in active markets that are observable either directly or indirectly;
Level 3 — unobservable inputs of which there is little or no market data, which require the Company to develop its own
assumptions.
A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The financial instruments measured at fair value in the accompanying Condensed Consolidated Balance Sheets on a recurring basis consist of the following:
 
 
June 30, 2017
 
December 31, 2016
(In thousands)
 
Level 1
 
Level 1
Money market funds (1)
 
$
680

 
$
9,475

Marketable securities:
 
 
 
$

Fixed-income mutual fund (2)
 
$
28,446

 
$
28,412

(1) Level 1 cash and cash equivalents are invested in money market funds that are intended to maintain a stable net asset value of $1.00 per share by investing in liquid, high quality U.S. dollar-denominated money market instruments with maturities less than three months.
(2) The fair value of the Company's marketable securities is determined based on a quoted market price.
As of June 30, 2017, the Company does not have any assets or liabilities that are measured at fair value on a recurring basis other than money market funds and marketable securities. Due to their short-term nature, the carrying amounts reported in the interim Condensed Consolidated Financial Statements approximate the fair value for accounts receivable, accounts payable and accrued expenses. The Company believes the carrying value of its capitalized lease obligations approximate their fair value as the terms

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and interest rates approximate market rates (Level 2). There were no changes to the Company's valuation methodologies during the six months ended June 30, 2017. As of June 30, 2017, there are no securities in an unrealized loss position.

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5.
Accrued Expenses
Accrued expenses consist of the following:
 (In thousands)
 
June 30, 2017
 
December 31, 2016
Payroll and payroll-related
 
13,923

 
20,042

Professional fees
 
10,224

 
13,780

Accrued data costs
 
13,647

 
8,473

Amounts due to Adobe
 
7,281

 
2,668

Other
 
3,982

 
7,944

 
 
$
49,057

 
$
52,907


6.
Commitments and Contingencies
Contingencies
The Company is involved in various legal proceedings from time to time.  The Company establishes reserves for specific legal proceedings when management determines that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. The Company has also identified certain other legal matters where an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. In these cases, the Company does not establish a reserve until it can reasonably estimate the loss. Legal fees are expensed as incurred. The outcomes of legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to the Company's operating results and cash flows for a particular period.  
Rentrak Merger Litigation
In October 2015, four class action complaints were filed in the Multnomah County Circuit Court in Oregon in connection with the Company's merger with Rentrak, which became a wholly-owned subsidiary of the Company on January 29, 2016. On November 23, 2015, these four actions were consolidated as In re Rentrak Corporation Shareholders Litigation, with the Company, Rentrak and certain former directors and officers of Rentrak named as defendants. On July 21, 2016, the lead plaintiff filed a second amended class action complaint, which alleged that Rentrak and its former officers and directors breached their fiduciary duties to Rentrak stockholders by, among other things, failing to disclose all material facts necessary for a fully informed stockholder vote on the merger. The complaint also alleged that the Company aided and abetted these alleged breaches of fiduciary duties. The complaint sought equitable relief in the form of a rescission of the merger, rescissionary damages, attorneys’ fees and costs. On February 6, 2017, a separate action, John Hulme v. William P. Livek et al., was also filed in the Multnomah County Circuit Court in Oregon, alleging materially similar claims and seeking the same relief as that of In re Rentrak. On March 24, 2017, the court dismissed the lead plaintiff’s aiding-and-abetting claim against the Company, and allowed the lead plaintiff to replead the claim. The court also dismissed the lead plaintiff’s claim seeking rescission of the merger.
On April 17, 2017, the parties in all cases reached an agreement in principle, settling all claims in the above-referenced matters. The defendants or their insurers agreed to pay the plaintiff class $19.0 million, of which amount the Company would contribute $1.7 million, or approximately 9%, and the remainder will be funded by the Company's insurers. On May 24, 2017, the court signed an order granting preliminary approval of the parties' stipulation of settlement. The Company's contribution of $1.7 million was paid on July 18, 2017. A fairness hearing for final approval of the settlement took place on September 12, 2017, and the court granted final approval of the settlement and entered the final approval order that day. The relevant time periods for any appeal have lapsed and the settlement is final.
Derivative Litigation
The Consolidated Virginia Derivative Action. In May 2016 and July 2016, two purported shareholder derivative actions, Terry Murphy v. Serge Matta et al. and Ron Levy v. Serge Matta et al., were filed in the Circuit Court of Fairfax County, Virginia against the Company as a nominal defendant and against certain of its current and former directors and officers. The complaints alleged that the defendants intentionally or recklessly made materially false or misleading statements regarding the Company and asserted claims of breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets against the defendants. The complaints sought declarations that the plaintiffs can maintain the action on behalf of the Company, declarations that the individual defendants have breached fiduciary duties or aided and abetted such breaches, awards to the Company for

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damages sustained, purported corporate governance reforms, awards to the Company of restitution from the individual defendants and reasonable attorneys’ and experts’ fees. On February 8, 2017, the Levy plaintiff filed a motion for leave to file an amended complaint, attaching a proposed amended complaint (the “Proposed Amended Complaint”) alleging claims substantially similar to those alleged in the original complaint. On April 7, 2017, the Murphy and Levy parties filed a consent order consolidating the Murphy and Levy actions and designating the Proposed Amended Complaint as the operative complaint in the action if the court grants the motion for leave to file an amended complaint. The court entered the consent order on April 13, 2017 and granted the motion for leave to amend the complaint on May 19, 2017, designating the Proposed Amended Complaint as the operative complaint in the consolidated action.
The Assad Action. On April 14, 2017, another purported shareholder derivative action, George Assad v. Gian Fulgoni et al., was filed in the Circuit Court of Fairfax County, Virginia against the Company as a nominal defendant and against the same current and former directors and officers of the Company as the Murphy and Levy actions, as well as certain additional individuals. The Assad complaint alleges claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment, as well as a claim seeking to compel the Company's Board to hold an annual stockholders’ meeting. In addition to an order compelling the Board to hold an annual stockholders’ meeting, the Assad complaint seeks judgment against the defendants in the amount by which the Company was allegedly damaged, an order directing defendants to provide operations reports and financial statements for all previous quarters allegedly identified by the Audit Committee as inaccurate, purported corporate governance reforms, the restriction of proceeds of defendants’ trading activities pending judgment, an award of restitution from the defendants, and an award of attorneys’ fees and costs. On May 25, 2017, the Assad plaintiff moved to vacate or modify the consent order in the consolidated Murphy and Levy actions insofar as that order appointed lead counsel and to allow for submission of briefs regarding the appointment of lead counsel. Lead counsel in the consolidated case responded to this motion on June 2, 2017. The court has not taken action on these motions. From June to August 2017, the parties filed, and the court entered, several agreed orders extending the time for parties who had been served to respond to the Assad complaint. On August 4, 2017, the Company moved for an order of consolidation of the Assad action into the consolidated Virginia action. The motion has not been brought for a hearing due to the pendency of the proposed derivative litigation settlement.
The Consolidated Federal Derivative Action. In December 2016 and February 2017, two purported shareholder derivative actions, Wayne County Employees’ Retirement System v. Fulgoni et al. and Michael C. Donatello v. Gian Fulgoni et al., were filed in the District Court for the Southern District of New York against the Company and certain of the Company's current and former directors and officers. The complaints alleged, among other things, that the defendants provided materially false and misleading information regarding the Company, its business and financial performance. The Donatello complaint also alleged that the defendants breached their fiduciary duties, failed to maintain internal controls and were unjustly enriched to the detriment of the Company. The complaints sought awards of monetary damages, purported corporate governance reforms, the award of punitive damages, and attorneys’, accountants’ and experts’ fees and other relief. On March 3, 2017, the court granted a stay pending consideration of the parties’ stipulation to consolidate the Wayne County and Donatello actions. On April 25, 2017, the court signed and entered the parties’ stipulation to consolidate the two actions and lead plaintiffs filed a consolidated amended complaint on May 25, 2017. On June 20, 2017 and August 25, 2017, the court entered the parties’ stipulations and proposed orders temporarily staying the case and extending the time for the Company and all defendants to respond to the complaint. Following the proposed settlement discussions noted below, the court entered the parties’ stipulation and proposed order further staying proceedings pending application for preliminary approval of settlement on September 21, 2017.
Proposed Derivative Litigation Settlement. On September 10, 2017 the Company, along with all derivative plaintiffs and named individual defendants, reached a proposed settlement, subject to court approval, to resolve all of the above shareholder derivative actions on behalf of the Company. Under the terms of the proposed settlement, the Company would receive a $10.0 million cash payment, funded by the Company’s insurer. Pursuant to this proposed settlement, the Company has agreed, subject to court approval, to contribute $8.0 million in comScore Common Stock toward the payment of attorneys’ fees. The Company has also agreed as part of the proposed settlement to adopt certain corporate governance and compliance terms that were negotiated by derivative plaintiffs’ counsel and the Company. On January 31, 2018 the parties entered into a Stipulation of Settlement and the plaintiffs filed a motion for preliminary approval of the settlement on February 2, 2018. The Court held a hearing on the plaintiffs' motion for preliminary approval on February 14, 2018, indicated that it would grant preliminary approval with minor modifications to the proposed notice of settlement and scheduled a hearing to determine whether to finally approve settlement on June 7, 2018. On February 23, 2018, the Court entered an order preliminarily approving the proposed settlement. As of December 31, 2017, the Company reserved $8.0 million in accrued litigation settlements, and recorded $10.0 million in insurance recoverable on litigation settlements for the insurance proceeds expected from our insurers. For 2017, $2.0 million was recorded as a reduction to investigation and audit related expenses on the Company's Consolidated Statements of Operations and Comprehensive Loss. As of June 30, 2017, the Company had not recognized the proposed settlement in the Condensed Consolidated Balance Sheet.

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Oregon Section 11 Litigation
In October 2016, a class action complaint, Ira S. Nathan v. Serge Matta et al., was filed in the Multnomah County Circuit Court in Oregon against certain of the Company's current and former directors and officers and Ernst & Young LLP ("EY"). The complaint alleged that the defendants provided untrue statements of material fact in the Company's registration statement on Form S-4 filed with the SEC and declared effective on December 23, 2015. The complaint sought a determination of the propriety of the class, a finding that the defendants are liable and an award of attorneys’ and experts’ fees. On March 17, 2017, a separate action, John Hulme v. Serge Matta et al., was filed in the Multnomah County Circuit Court in Oregon alleging materially similar claims as the Nathan complaint against the same defendants. On April 18, 2017, the Nathan and Hulme cases were consolidated by order of the court. On April 24, 2017, all defendants filed motions to dismiss. After the motion was fully briefed and after a hearing, the Court denied all motions to dismiss on August 4, 2017. The parties are currently engaged in discovery, and on September 25, 2017, the Hulme plaintiff moved to certify the class. The Company filed its opposition to the Hulme plaintiff’s motion to certify the class on November 9, 2017. The Court held a hearing on the motion on December 5, 2017, and at that hearing, the Court deferred ruling on the motion until February 14, 2018 pending the proposed settlement in the Fresno County Employees’ Retirement Association case (“Fresno County”, described below). On February 14, 2018, following a hearing, the Court granted class certification only as to EY and deferred ruling on class certification as to all other defendants, pending the final approval hearing in Fresno County scheduled for June 7, 2018. The outcome of this matter is unknown but the Company does not believe a material loss was probable or estimable as of June 30, 2017 or December 31, 2016.
Federal Securities Class Action Litigation
Also in October 2016, a consolidated class action complaint, Fresno County Employees’ Retirement Association et al. v. comScore, Inc. et al., was filed in the District Court for the Southern District of New York against the Company, certain of the Company's current and former directors and officers, Rentrak and certain former directors and officers of Rentrak. On January 13, 2017, the lead plaintiffs filed a second consolidated amended class action complaint, which alleged that the defendants provided materially false and misleading information regarding the Company and its financial performance, including in the Company and Rentrak’s joint proxy statement/prospectus, and failed to disclose material facts necessary in order to make the statements made not misleading. The complaint sought a determination of the propriety of the class, compensatory damages and the award of reasonable costs and expenses incurred in the action, including attorneys’ and experts’ fees. The Company and the individual defendants filed motions to dismiss, the court held oral argument on those motions on July 14, 2017, however, on July 28, 2017, the court denied those motions. On September 10, 2017, the parties reached a proposed settlement, subject to court approval, pursuant to the terms of which the settlement class will receive a total of $27.2 million in cash and $82.8 million in Common Stock to be issued and contributed by comScore to a settlement fund to resolve all claims asserted against the Company. All of the $27.2 million in cash would be funded by the Company's insurers. The Company has the option to fund all or a portion of the $82.8 million with cash in lieu of Common Stock. The proposed settlement further provides that comScore denies all claims of wrongdoing or liability. On December 28, 2017, the parties entered into a Stipulation and Agreement of Settlement to be filed in the United States District Court for the Southern District of New York. The plaintiffs filed a motion for preliminary approval of the settlement on January 12, 2018. On January 29, 2018, the Court held a hearing regarding the plaintiffs' motion for preliminary approval and entered an order granting preliminary approval of the settlement that same day. The settlement remains subject to final approval by the Court, and to that end, the Court has scheduled a hearing to determine whether to finally approve the settlement on June 7, 2018. As of December 31, 2017, the Company has reserved $110.0 million in accrued litigation settlements for the gross settlement amount, and recorded $27.2 million in insurance recoverable on litigation settlements for the insurance proceeds expected from the Company's insurers. As of June 30, 2017, the Company had not recognized the proposed settlement in the Condensed Consolidated Balance Sheet.
Delaware General Corporation Law Section 211 Litigation
On July 25, 2017, Starboard Value and Opportunity Master Fund Ltd., a comScore shareholder, filed a verified complaint in the Delaware Court of Chancery pursuant to Delaware General Corporation Law Section 211(c), alleging that the Company had not held an annual meeting of stockholders for the election of directors since July 21, 2015 and seeking an order compelling the Company to hold an annual meeting. The plaintiff also moved for an order expediting proceedings. The court granted the order to expedite shortly thereafter, and the parties agreed to a trial date of September 14, 2017. The parties exchanged discovery on an expedited basis and filed pretrial briefs on September 7, 2017. On September 13, 2017, the parties agreed to continue the trial date to September 29, 2017. On September 28, 2017, the Company entered into an agreement with Starboard Value LP and certain of its affiliates (collectively, “Starboard”), which, beneficially owned approximately 4.8% of the Company's outstanding Common Stock as of that date, regarding, among other things, the membership and composition of the Board. Starboard also agreed to dismiss its litigation against the Company. On September 29, 2017, the parties canceled the trial and on October 2, 2017, the parties filed a joint stipulation dismissing the case with prejudice.

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Privacy Demand Letters
On September 11, 2017, the Company and a wholly-owned subsidiary, Full Circle Studies, Inc., (“Full Circle”) received demand letters on behalf of named plaintiffs and all others similarly situated alleging that the Company and Full Circle collected personal information from users under the age of 13 without verifiable parental consent in violation of Massachusetts General Laws chapter 93A and the federal Children’s Online Privacy Protection Act (“COPPA”), 15 U.S.C. §§ 6501-06. The letters alleged that the Company and Full Circle collected such personal information by embedding advertising software development kits ("SDKs") in applications created or developed by Disney. The letters sought monetary damages, attorneys’ fees and damages under Massachusetts law. The Company and Full Circle responded to the demand letters on October 11, 2017. The responses advised that, after investigating the allegations, the Company and Full Circle do not believe the threatened claims have any legal merit or factual support. No lawsuit has been filed. If a lawsuit is filed, the Company and Full Circle intend to vigorously defend ourselves.
Nielsen Arbitration/Litigation
On September 22, 2017, Nielsen Holdings PLC (“Nielsen”) filed for arbitration against comScore alleging that comScore breached the parties’ agreement regarding an alleged unauthorized use of Nielsen’s data to compete directly against Nielsen’s linear television services.  comScore denied the allegations, and the matter is pending. On September 22 and 25, 2017, Nielsen also filed a civil complaint against comScore in the United States District Court for the Southern District of New York before Judge Vernon Broderick seeking preliminary injunctive relief against any unauthorized use of Nielsen’s data.  On October 11, 2017, the Company responded and objected to the request for a preliminary injunction.  On March 6, 2018, Judge Broderick denied Nielsen's motion for preliminary injunction and stayed the case pending completion of arbitration. The Company is vigorously defending itself in these matters.
SEC Investigation
The United States Securities and Exchange Commission ("SEC") is investigating allegations regarding revenue recognition, internal controls, non-GAAP disclosures and whistleblower retaliation. The SEC has made no decisions regarding these matters including whether any securities laws have been violated. The Company is cooperating fully with the SEC.
Export Controls Review
The Company recently became aware of possible violations of U.S. export controls and economic sanctions laws and regulations involving the Company. The circumstances giving rise to these possible violations pertain to the Company’s collection of survey data from panelists within U.S. embargoed countries, as a part of the Company’s larger global survey efforts not intentionally targeted at such countries. The Company has filed a joint initial notice of voluntary disclosure with the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) and commenced an internal review to identify the causes and scope of transactions that could constitute violations of the OFAC and BIS regulations. The Company has notified OFAC and BIS of the ongoing internal review, which is being conducted with the assistance of outside counsel. If any violations are confirmed as part of the internal review, the Company could be subject to fines or penalties. Although the ultimate outcome of this matter is unknown, we believe that a material loss was not probable or estimable as of June 30, 2017 or December 31, 2016.
Other Matters
In addition to the matters described above, the Company is, and may become, a party to a variety of legal proceedings from time to time that arise in the normal course of the Company's business. While the results of such legal proceedings cannot be predicted with certainty, management believes that, based on current knowledge, the final outcome of any such current pending matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Regardless of the outcome, legal proceedings can have an adverse effect on the Company because of defense costs, diversion of management resources and other factors.
Indemnification
The Company has entered into indemnification agreements with each of the Company's directors and certain officers, and the Company's amended and restated certificate of incorporation requires it to indemnify each of its officers and directors, to the fullest extent permitted by Delaware law, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Company. The Company has paid and continues to pay legal counsel fees incurred by the present and former directors and officers who are involved in legal proceedings that require indemnification.
Similarly, certain of the Company's commercial contracts require it to indemnify contract counterparties under specified circumstances, and the Company may incur legal counsel fees and other costs in connection with these obligations.

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7.
Income Taxes
The Company’s income tax provision for interim periods is calculated by applying its estimated annual effective tax rate on ordinary income before taxes to year-to-date ordinary book income before taxes. The income tax effects of any extraordinary, significant unusual or infrequent items not included in ordinary book income are determined separately and recognized in the period in which the items arise.
During the three months ended June 30, 2017, the Company recorded an income tax provision of $1.1 million resulting in an effective tax rate of 2.8%. During the three months ended June 30, 2016, the Company recorded an income tax provision of $0.8 million resulting in an effective tax rate of 2.0%.
During the six months ended June 30, 2017, the Company recorded an income tax provision of $1.9 million resulting in an effective tax rate of 2.5%. During the six months ended June 30, 2016, the Company recorded an income tax benefit of $5.3 million resulting in an effective tax rate of 8.9%. These effective tax rates differ from the U.S. federal statutory rate of 35% primarily due to the effects of foreign tax rate differences and increases in the Company’s valuation allowance against its domestic deferred tax assets. Also included in the effective tax rate for the six months ended June 30, 2016 is the release of a portion of the Company’s valuation allowance against its domestic deferred tax assets as a result of the Rentrak Merger. The tax impact of the valuation allowance release was an income tax benefit of $6.9 million and is the primary reason for the decrease in the effective tax rate for the six months ended June 30, 2017 compared to the effective tax rate for the six months ended June 30, 2016.
As of June 30, 2017 and December 31, 2016, the Company had unrecognized tax benefits of approximately $2.4 million and $3.6 million, respectively. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense.
In December 2017, the Tax Cuts and Jobs Act was signed into law, which enacts significant changes to U.S. tax and related laws. No adjustments have been made to the balances as of or for the three or six months ended June 30, 2017. The impact of the new legislation will be reflected in the quarter ended December 31, 2017.

8.
Related Party Transactions
Transactions with WPP
As of June 30, 2017, WPP owned approximately 11,289,364 shares of the Company's outstanding Common Stock, representing approximately 19.7% ownership in the Company. The Company provides WPP and its affiliates, in the normal course of business, services amongst its different product lines and receives various services from WPP and its affiliates supporting the Company's data collection efforts.
On April 28, 2016, the Company entered into an asset purchase agreement to acquire certain assets of Compete, a wholly-owned subsidiary of WPP. The Compete assets were acquired for $27.3 million in cash, net of a working capital adjustment of $1.4 million. The Company acquired the Compete assets to expand its presence in certain verticals, such as the auto industry and financial services, with improved solution offerings regarding digital performance, including robust path to purchase, advertising impact analysis and shopping configuration analysis.
The Company entered into an agreement for Compete to provide transition services, including engineering, financial, human resources, business contract support, marketing and training services to the Company through December 31, 2016. The Company's results from transactions with WPP and its affiliates as reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss are detailed below:
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2017
 
2016
 
2017
 
2016
Revenues (1)
$
3,033

 
$
2,082

 
$
6,345

 
$
4,509

Cost of revenues
3,140

 
4,251

 
6,887

 
5,298

Selling and marketing
33

 
547

 
68

 
584

Research and development
24

 
1,083

 
53

 
1,128

General and administrative
25

 
124

 
49

 
157

Interest income
195

 
298

 
403

 
601


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(1) The Company entered into certain agreements with WPP and its affiliates that were not characterized as revenue arrangements under GAAP.  Accordingly, despite cash being received by the Company under these agreements, no revenue has been recognized other than imputed interest income on the net present value of anticipated future cash payments from WPP.  Refer to Footnote 3, Business Combinations and Acquisitions, of the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, for additional discussion of these agreements.

The Company has the following balances related to transactions with WPP and its affiliates reflected in the Condensed Consolidated Balance Sheets:
(In thousands)
June 30, 2017
 
December 31, 2016
Accounts receivable, net
$
5,109

 
$
8,412

Prepaid expenses and other current assets

 
2,923

Other non-current assets

 
185

Subscription receivable (additional paid-in capital)
15,443

 
21,266

Accounts payable

 
17

Accrued expenses
3,690

 
3,084

Deferred revenue
4,416

 
4,654

Transactions with CrossCountry Consulting LLC
From September 10, 2017 through October 16, 2017, David Kay served as Interim Chief Financial Officer and Treasurer of the Company. Mr. Kay is a co-founder and managing partner of CrossCountry Consulting LLC (“CrossCountry”), which has been providing the Company with accounting advisory services, audit preparation support and process improvement services since July 2016.
The Company's results from transactions with CrossCountry as reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss are detailed below:
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2017
 
2016
 
2017
 
2016
General and administrative
$
112

 
$

 
$
112

 
$

Investigation and audit related
3,523

 

 
6,857

 

The Company has the following balances related to transactions with CrossCountry reflected in the Condensed Consolidated Balance Sheets:
(In thousands)
June 30, 2017
 
December 31, 2016
Accounts payable
$
1,284

 
$

Accrued expenses
1,510

 
2,057

9.
Subsequent Events
For a discussion of the Company's significant subsequent events please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 23, 2018.

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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and the related Notes to Unaudited Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, or 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events in future periods may differ materially from those anticipated or implied in these forward-looking statements as a result of many factors, including those discussed under Item 1A“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, or 2017 10-K, and elsewhere in this 10-Q. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this 10-Q.
Overview
We are a global information and analytics company that measures consumer audiences and advertising across media platforms. We create our products using a global data platform that combines information about content and advertising consumption on digital (smartphones, tablets and computers), television and movie screens with demographics and other descriptive information. We have developed proprietary data science that enables measurement of person-level and household-level audiences, removing duplicated viewing across devices and over time. This combination of data and methods helps companies across the media ecosystem better understand and monetize their broad range of audiences, and develop marketing plans and products to more efficiently and effectively reach those audiences. Our ability to unify behavioral and other descriptive data enables us to provide accredited audience ratings, advertising verification, and granular consumer segments that describe hundreds of millions of consumers. Our customers include buyers and sellers of advertising including digital publishers, television networks, content owners, advertisers, agencies and technology providers.
The platforms we measure include television sets, smartphones, computers, tablets, over-the-top devices and movie theaters, and the information we analyze crosses geographies, types of content and activities, including websites, mobile apps, video games, television and movie programming, electronic commerce and advertising.
Background of Audit Committee Investigation and Subsequent Management Review
In February 2016, the Audit Committee ("Audit Committee") of the comScore Board of Directors ("Board") commenced an internal investigation, with the assistance of outside advisors, into matters related to the Company's revenue recognition practices, disclosures, internal controls, corporate culture and certain employment practices. As a result of the issues identified in the Audit Committee's investigation and management's subsequent review, on September 12, 2016, the Company announced that the Audit Committee, in consultation with outside advisors and management, had concluded that the Company could no longer support the prior accounting for non-monetary contracts recorded by the Company during 2013, 2014 and 2015. As a result, we concluded that (i) our previously issued, unaudited quarterly and year-to-date Consolidated Financial Statements for the quarters ended March 31, June 30 and September 30, 2015 filed on Quarterly Reports on Form 10-Q on May 5, August 7, and November 6, 2015, respectively, (ii) our previously issued, audited Consolidated Financial Statements for the years ended December 31, 2014 and 2013 filed on Annual Reports on Form 10-K on February 20, 2015 and February 18, 2014, respectively (including the interim periods within those years) and (iii) our preliminary unaudited Condensed Consolidated Financial Statements for the quarter and year ended December 31, 2015 included as an exhibit to our Current Report on Form 8-K furnished on February 17, 2016, should no longer be relied upon.
On November 23, 2016, the Company, in a Current Report on Form 8-K, reported that the Audit Committee's investigation was complete and had concluded that, as a result of misconduct and errors in accounting determinations, adjustments to the Company's accounting for certain non-monetary and monetary transactions were required. As a result of the Audit Committee's conclusions and observations, we began a process of reviewing substantially all of our accounting policies, significant accounting transactions, related party transactions, and other financial, internal control and disclosure matters. In addition to the above-referenced adjustments related to revenue and expenses associated with non-monetary transactions, we also concluded that the accounting treatment for certain monetary transactions, certain business and asset acquisitions, our deferred tax assets and other accounting matters required adjustments. This review also identified various material weaknesses in internal control, including in our entity level controls and in certain accounting practices, all as described under Item 9A, "Controls and Procedures" in our 2017 10-K. For further information regarding the specific adjustments resulting from the investigation and subsequent management review, refer to Item 6, "Selected Financial Data" in our 2017 10-K.

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Nasdaq Delisting of our Common Stock
As a result of the delay in filing our periodic reports with the SEC, we were unable to comply with the listing standards of the Nasdaq Stock Market ("Nasdaq") and our common stock ("Common Stock") was suspended from trading on the Nasdaq Global Select Market effective February 8, 2017 and formally delisted effective May 30, 2017. Following the suspension of trading, our Common Stock has been traded on the OTC Pink Tier under the symbol “SCOR”. For further information regarding trading in our Common Stock, refer to Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Price Range of Common Stock” in our 2017 10-K.
Results of Operations
The following table sets forth selected unaudited Condensed Consolidated Statements of Operations data as a percentage of total revenues for each of the periods indicated. Percentages may not add due to rounding.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
(In thousands)
 
Dollars
 
% of Revenue
 
Dollars
 
% of Revenue
 
Dollars
 
% of Revenue
 
Dollars
 
% of Revenue
Revenues
 
$
99,439

 
100.0
 %
 
$
100,494

 
100.0
 %
 
$
200,300

 
100.0
 %
 
191,818

 
100.0
 %
Cost of revenues
 
47,301

 
47.6
 %
 
44,523

 
44.3
 %
 
94,614

 
47.2
 %
 
81,050

 
42.3
 %
Selling and marketing
 
31,190

 
31.4
 %
 
32,307

 
32.1
 %
 
60,923

 
30.4
 %
 
62,919

 
32.8
 %
Research and development
 
21,502

 
21.6
 %
 
22,075

 
22.0
 %
 
42,522

 
21.2
 %
 
43,191

 
22.5
 %
General and administrative
 
13,310

 
13.4
 %
 
18,675

 
18.6
 %
 
31,095

 
15.5
 %
 
63,971

 
33.3
 %
Investigation and audit related
 
17,399

 
17.5
 %
 
15,479

 
15.4
 %
 
35,077

 
17.5
 %
 
21,974

 
11.5
 %
Amortization of intangible assets
 
8,443

 
8.5
 %
 
8,238

 
8.2
 %
 
17,178

 
8.6
 %
 
14,263

 
7.4
 %
Gain on asset disposition
 

 
 %
 

 
 %
 

 
 %
 
(33,457
)
 
(17.4
)%
Settlement of litigation, net
 
(915
)
 
(0.9
)%
 
2,620

 
2.6
 %
 
618

 
0.3
 %
 
2,510

 
1.3
 %
Total expenses from operations
 
138,230

 
139.0
 %
 
143,917

 
143.2
 %
 
282,027

 
140.8
 %
 
256,421

 
133.7
 %
Loss from operations
 
(38,791
)
 
(39.0
)%
 
(43,423
)
 
(43.2
)%
 
(81,727
)
 
(40.8
)%
 
(64,603
)
 
(33.7
)%
Interest expense, net
 
(252
)
 
(0.3
)%
 
8

 
 %
 
(406
)
 
(0.2
)%
 
(89
)
 
 %
Other income, net
 
2,683

 
2.7
 %
 
3,522

 
3.5
 %
 
5,867

 
2.9
 %
 
6,707

 
3.5
 %
Loss from foreign currency transactions
 
(1,205
)
 
(1.2
)%
 
(286
)
 
(0.3
)%
 
(1,225
)
 
(0.6
)%
 
(1,394
)
 
(0.7
)%
Loss before income taxes
 
(37,565
)
 
(37.8
)%
 
(40,179
)
 
(40.0
)%
 
(77,491
)
 
(38.7
)%
 
(59,379
)
 
(31.0
)%
Income tax (provision) benefit
 
(1,061
)
 
(1.1
)%
 
(805
)
 
(0.8
)%
 
(1,927
)
 
(1.0
)%
 
5,292

 
2.8
 %
Net loss
 
$
(38,626
)
 
(38.8
)%
 
$
(40,984
)
 
(40.8
)%
 
$
(79,418
)
 
(39.6
)%
 
$
(54,087
)
 
(28.2
)%
The operating results of Rentrak Corporation (“Rentrak”) are included in the three and six months ended June 30, 2016 from the date of the consummation of the merger, January 29, 2016. Therefore, comparisons of our operating results between periods may not be meaningful, particularly as it relates to the operating results of Rentrak for the three and six months ended June 30, 2017 and 2016, respectively. Significant changes in our results of operations are more fully described below.
Results for the Three Months Ended June 30, 2017 Compared to the Three Months Ended June 30, 2016
Revenues
Our products and services are organized around measurement, planning and optimization in four offerings:
Digital Audience: focused on the size, engagement and other behavioral and qualitative characteristics of audiences around the world, across multiple digital platforms including computers, tablets, smartphones and other connected devices.
TV and Cross-Platform: focused on consumer viewership of both linear and on-demand television content in the U.S. at both the national level and in local markets. Provides a view of cross-platform consumer behavior when integrated with our Digital Audience and Advertising products and services.
Advertising: provides end-to-end solutions for planning, optimization and evaluation of advertising campaigns.
Movies: measures movie viewership, captures audience demographics and sentiment via social media and exit polling and provides software tools to movie studios and movie theater customers around the world.   

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We categorize our revenue along these four offerings; however, our shared cost structure is defined and tracked by function and not by our product offerings. These shared costs include, but are not limited to, employee costs, operational overhead, data centers and our technology that supports multiple product offerings.
Revenues from these four offerings of products and services are as follows:
 
 
Three Months Ended June 30,
(In thousands)
 
2017
 
2016
 
$ Variance
 
% Variance
Digital Audience
 
$
54,393

 
$
58,789

 
$
(4,396
)
 
(7.5
)%
TV and Cross-Platform
 
25,363

 
20,137

 
5,226

 
26.0
 %
Advertising
 
10,481

 
12,332

 
(1,851
)
 
(15.0
)%
Movies
 
9,202

 
9,236

 
(34
)
 
(0.4
)%
Total revenues
 
$
99,439

 
$
100,494

 
$
(1,055
)
 
(1.0
)%
Total revenues decreased by approximately $1.1 million, or 1.0% for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016. Increased revenue in TV and Cross-Platform was offset by decreased revenue in Digital Audience and Advertising.
The increase in TV and Cross-Platform revenue related to increased demand for our national and local TV station offerings. These products continued to experience growth from both the acquisition of new customers and the expansion of agreements with existing customers. The decrease in Digital Audience revenue related to both changes in our products and an evolving advertising market. Our investment to strengthen our products by adding mobile data sources resulted in disrupting some data trends, which impacted the stability of our reporting and impacted customers. As a result, some customers ceased purchases and others delayed renewals. In addition, changes in industry-wide ad buying has weakened smaller publishers and as such, some of our small customers did not renew in 2017. As a result, while our largest customers continued to purchase these products, our overall customer base shrunk during 2017.
Operating Expenses
The majority of our operating expenses consist of employee costs including salaries, benefits, and related personnel costs (including stock-based compensation), professional fees, data costs, expenses related to operating our network infrastructure, producing our products, and the recruitment, maintenance and support of our consumer panels, rent and other facility related costs, depreciation expense, amortization and litigation-related expenses. Our single largest operating expense relates to our people.
Total expenses from operations for the three months ended June 30, 2017 and June 30, 2016 are as follows:
 
 
Three Months Ended June 30,
(In thousands)
 
2017
 
% of Revenue
 
2016
 
% of Revenue
 
$ Variance
 
% Variance
Cost of revenues
 
$
47,301

 
47.6
 %
 
$
44,523

 
44.3
%
 
$
2,778

 
6.2
 %
Selling and marketing
 
31,190

 
31.4
 %
 
32,307

 
32.1
%
 
(1,117
)
 
(3.5
)%
Research and development
 
21,502

 
21.6
 %
 
22,075

 
22.0
%
 
(573
)
 
(2.6
)%
General and administrative
 
13,310

 
13.4
 %
 
18,675

 
18.6
%
 
(5,365
)
 
(28.7
)%
Investigation and audit related
 
17,399

 
17.5
 %
 
15,479

 
15.4
%
 
1,920

 
12.4
 %
Amortization of intangible assets
 
8,443

 
8.5
 %
 
8,238

 
8.2
%
 
205

 
2.5
 %
Settlement of litigation, net
 
(915
)
 
(0.9
)%
 
2,620

 
2.6
%
 
(3,535
)
 
(134.9
)%
Total expenses from operations
 
$
138,230

 
139.0
 %
 
$
143,917

 
143.2
%
 
$
(5,687
)
 
(4.0
)%
Total expenses from operations decreased by approximately $5.7 million, or 4.0%, for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016. This decrease was attributable to the following:
Decreased general and administrative expenses primarily due to merger and integration costs in 2016 related to our merger with Rentrak as well as decreased stock-based compensation expense.
Decreased settlement of litigation expenses due to net losses associated with the settlement of certain employee related matters that arose and were settled during the course of the three months ended June 30, 2016.
Decreased selling and marketing expenses in the 2017 period associated with services provided by Compete, Inc. (“Compete”) pursuant to a transition services agreement, as well as by our reduction in the use of outside professional firms.

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These decrease costs were offset by:
Increased cost of revenues expenses primarily from investments made to improve our operations, panel costs and systems and bandwidth costs to support our infrastructure to deliver our products and services, offset by a reduction in expense associated with engineering services provided by Compete as part of the transition services agreement.
Increased investigation and audit related expenses as a result of increased professional fees associated with legal and forensic accounting services rendered as part of our Audit Committee’s investigation and our subsequent review of policies, practices, internal controls and disclosure matters. Audit related expenses consist of professional fees associated with accounting related consulting services and external auditor fees associated with the audit of our Consolidated Financial Statements.
Cost of Revenues
Cost of revenues consists primarily of expenses related to operating our network infrastructure, producing our products, and the recruitment, maintenance and support of our consumer panels. Expenses associated with these areas include employee costs including salaries, benefits, stock-based compensation, and related personnel costs of network operations, survey operations, custom analytics and technical support, all of which are expensed as they are incurred. Cost of revenues also includes costs to obtain, process and cleanse our panel and census based data used in our products as well as operational costs associated with our data centers, including depreciation expense associated with computer equipment that supports our panels and systems, allocated overhead, which is comprised of rent and other facilities related costs, and depreciation expense generated by general purpose equipment and software.
Cost of revenues for the three months ended June 30, 2017 and 2016 are as follows:
 
Three Months Ended June 30,
(In thousands)
2017
 
% of Revenue
 
2016
 
% of Revenue
 
$ Change
 
% Change
Employee costs
$
15,102

 
15.2
%
 
$
15,195

 
15.1
%
 
$
(93
)
 
(0.6
)%
Data costs
10,155

 
10.2
%
 
6,931

 
6.9
%
 
3,224

 
46.5
 %
Panel costs
5,819

 
5.9
%
 
4,925

 
4.9
%
 
894

 
18.2
 %
Systems and bandwidth costs
4,711

 
4.7
%
 
5,173

 
5.1
%
 
(462
)
 
(8.9
)%
Rent and depreciation
4,416

 
4.4
%
 
4,187

 
4.2
%
 
229

 
5.5
 %
Professional fees
1,398

 
1.4
%
 
1,524

 
1.5
%
 
(126
)
 
(8.3
)%
Sample and survey costs
1,323

 
1.3
%
 
1,187

 
1.2
%
 
136

 
11.5
 %
Technology
1,264

 
1.3
%
 
994

 
1.0
%
 
270

 
27.2
 %
Royalties and resellers
1,187

 
1.2
%
 
876

 
0.9
%
 
311

 
35.5
 %
Compete transition services agreement

 
%
 
1,827

 
1.8
%

(1,827
)

(100.0
)%
Other
1,926

 
1.9
%
 
1,704

 
1.7
%
 
222

 
13.0
 %
Total cost of revenues
$
47,301

 
47.6
%
 
$
44,523

 
44.3
%
 
$
2,778

 
6.2
 %
Cost of revenues increased by $2.8 million, or 6.2%, for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016. This increase was primarily attributable to investments made to improve our operations and expansion of our TV data as well as our digital platform through purchases of additional mobile data and panels in the 2017 period. This investment was needed to support our products and expand our offerings. This increase was offset by the reduction in expense associated with the engineering services provided by Compete as part of the transition services agreement.
Selling and Marketing
Selling and marketing expenses consist primarily of employee costs including salaries, benefits, stock-based compensation, and other related costs paid to our direct sales force and industry experts, as well as costs related to online and offline advertising, industry conferences, promotional materials, public relations, other sales and marketing programs and allocated overhead, which is comprised of rent and other facilities related costs, and depreciation expense generated by general purpose equipment and software.

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Selling and marketing expenses for the three months ended June 30, 2017 and 2016 are as follows:
 
Three Months Ended June 30,
(In thousands)
2017
 
% of Revenue
 
2016
 
% of Revenue
 
$ Change
 
% Change
Employee costs
$
23,122

 
23.3
%
 
$
22,460

 
22.3
%
 
$
662

 
2.9
 %
Rent and depreciation
2,454

 
2.5
%
 
2,763

 
2.7
%
 
(309
)
 
(11.2
)%
Travel
2,047

 
2.1
%
 
2,102

 
2.1
%
 
(55
)
 
(2.6
)%
Professional fees
1,951

 
2.0
%
 
2,413

 
2.4
%
 
(462
)
 
(19.1
)%
Compete transition services agreement

 
%
 
562

 
0.6
%

(562
)

(100.0
)%
Other
1,616

 
1.6
%
 
2,007

 
2.0
%
 
(391
)
 
(19.5
)%
Total selling and marketing expenses
$
31,190

 
31.4
%
 
$
32,307

 
32.1
%
 
$
(1,117
)
 
(3.5
)%
Selling and marketing expenses decreased by $1.1 million, or 3.5%, for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016. This decrease was largely attributable to our reduction in outside professional fees and the reduction in expenses associated with the Compete transition services agreement.
Research and Development
Research and development expenses include new product development costs, consisting primarily of employee costs including salaries, benefits,stock-based compensation, and other related costs for personnel associated with research and development activities, third-party expenses to develop new products, third-party data costs and allocated overhead, which is comprised of rent and other facilities related costs, and depreciation expense related to general purpose equipment and software.
Research and development expenses for the three months ended June 30, 2017 and 2016 are as follows:
 
Three Months Ended June 30,
(In thousands)
2017
 
% of Revenue
 
2016
 
% of Revenue
 
$ Change
 
% Change
Employee costs
$
17,265

 
17.4
%
 
$
16,910

 
16.8
%
 
$
355

 
2.1
 %
Rent and depreciation
1,907

 
1.9
%
 
1,784

 
1.8
%
 
123

 
6.9
 %
Technology
1,050

 
1.1
%
 
831

 
0.8
%
 
219

 
26.4
 %
Professional fees
496

 
0.5
%
 
880

 
0.9
%
 
(384
)
 
(43.6
)%
Compete transition services agreement

 
%
 
1,110

 
1.1
%
 
(1,110
)
 
(100.0
)%
Other
784

 
0.8
%
 
560

 
0.6
%
 
224

 
40.0
 %
Total research and development expenses
$
21,502

 
21.6
%
 
$
22,075

 
22.0
%
 
$
(573
)
 
(2.6
)%
Research and development expenses decreased modestly by $573,000, or 2.6%, during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016. This decrease was primarily attributable to a reduction in the transition services agreement expenses and professional fees associated with the development of a platform following the acquisition of the Compete assets. These decreases were offset by an increase in employee costs.
General and Administrative
General and administrative expenses consist primarily of employee costs including salaries, benefits and other related costs (including stock-based compensation), and related expenses for executive management, finance, accounting, human capital, legal and other administrative functions, as well as professional fees, overhead, including allocated overhead, which is comprised of rent and other facilities related costs, and depreciation expense related to general purpose equipment and software, and expenses incurred for other general corporate purposes.

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General and administrative expenses for the three months ended June 30, 2017 and 2016 are as follows:
 
Three Months Ended June 30,
(In thousands)
2017
 
% of Revenue
 
2016
 
% of Revenue
 
$ Change
 
% Change
Employee costs
$
4,940

 
5.0
%
 
$
7,750

 
7.7
%
 
$
(2,810
)
 
(36.3
)%
Professional fees
2,660

 
2.7
%
 
3,271

 
3.3
%
 
(611
)
 
(18.7
)%
DAx transition services agreement
2,629

 
2.6
%
 
3,374

 
3.4
%

(745
)

(22.1
)%
Rent and depreciation
858

 
0.9
%
 
905

 
0.9
%
 
(47
)
 
(5.2
)%
Office expenses
498

 
0.5
%
 
524

 
0.5
%
 
(26
)
 
(5.0
)%
Other
1,725

 
1.7
%
 
2,851

 
2.8
%
 
(1,126
)
 
(39.5
)%
Total general and administrative expenses
$
13,310

 
13.4
%
 
$
18,675

 
18.6
%
 
$
(5,365
)
 
(28.7
)%
General and administrative expenses decreased by $5.4 million, or 28.7%, for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016. This decrease was largely attributable to a decrease in employee costs resulting primarily from a reduction in stock-based compensation expense. In addition, the 2017 period included decreases in professional fees related to merger and integration activities, as well as decreases in expenses associated with the transition services agreement we entered into with Adobe Systems Incorporated (“Adobe”) following our sale of our Digital Analytix business (“DAx”) to Adobe in January 2016.
Investigation and Audit Related
In February 2016, the Audit Committee commenced an internal investigation, with the assistance of outside advisors. Investigation, audit, and litigation related expenses were $17.4 million and $15.5 million for the three months ended June 30, 2017 and 2016, respectively. Investigation expenses include professional fees associated with legal and forensic accounting services rendered as part of the investigation. Audit related expenses consist of professional fees associated with accounting related consulting services and external auditor fees associated with the audit of our Consolidated Financial Statements. Litigation related expenses include legal fees associated with various lawsuits or investigations that were initiated either directly or indirectly as a result of the Audit Committee's investigation.
Amortization of Intangible Assets
Amortization expense consists of charges related to the amortization of intangible assets associated with acquisitions. Amortization of intangible assets increased by $0.2 million, or 2.5%, for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016, which was largely a result of the recognition of additional amortization expense during the three months ended June 30, 2017 associated with the definite-lived intangible assets associated with the April 28, 2016 acquisition of the Compete assets.
Settlement of Litigation, Net
Settlement of litigation, net, consists of losses from the settlement related to our various litigation matters, offset by gains from our patent litigation settlements. The losses are net of insurance proceeds. Settlement of litigation, net decreased by $3.5 million for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016. The increase is attributable to net losses associated with the settlement of certain employee related matters that arose and were settled during the course of the three months ended June 30, 2016. As of June 30, 2017, we had a total of $19.1 million in accrued litigation settlements and $17.3 million in insurance recoverable on litigation settlements on our consolidated balance sheets.
Interest Expense, Net
Interest expense, net, consists of interest income and interest expense. Interest income consists of interest earned from our cash and cash equivalent balances, marketable securities and imputed interest on the contracts entered into with WPP plc (“WPP”) and its affiliates. Interest expense relates to capital leases pursuant to several equipment loan and security agreements on financing of equipment, software and hardware purchases well as our revolving credit facility. Interest expense, net, increased by $260,000 for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016. The increase in interest expense, net is primarily attributable to decrease in imputed interest income on the minimum commitment contracts entered into with WPP and its affiliates as we continue to receive payments, therefore reducing the carrying value of these assets and a decrease in interest income.

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Table of Contents

Other Income, Net
Other income, net represents income and expenses incurred that are generally not recurring in nature nor part of our normal operations. The following is a summary of other income, net:
 
Three Months Ended June 30,
(In thousands)
2017
 
2016
Transition services agreement income from the DAx disposition
$
2,630

 
$
3,375

Other income
53

 
147

Total other income, net
$
2,683

 
$
3,522

Other income, net, was $2.7 million for the three months ended June 30, 2017 as compared to $3.5 million for the three months ended June 30, 2016. The decrease is largely attributable to a reduction in the transition services agreement income related to the DAx disposition in the 2017 period. Income from transition services represents Adobe's payment of costs incurred under the transition services agreement following the DAx disposition and are offset in general and administrative expenses. The decrease in 2017 compared to 2016 relates to reduced activity in the second year of the transaction services agreement.
Loss from Foreign Currency Transactions
Our foreign currency transactions are recorded primarily as a result of fluctuations in the exchange rate between the U.S. dollar and the foreign subsidiaries functional currency. For the three months ended June 30, 2017 and 2016, the loss from foreign currency transactions was $1.2 million and $0.3 million, respectively.
Results for the Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016
Revenues
 
 
 Six Months Ended June 30,
(In thousands)
 
2017
 
2016
 
$ Variance
 
% Variance
Digital Audience
 
$
112,303

 
$
116,945

 
$
(4,642
)
 
(4.0
)%
TV and Cross-Platform
 
47,384

 
33,980

 
13,404

 
39.4
 %
Advertising
 
22,041

 
24,273

 
(2,232
)
 
(9.2
)%
Movies
 
18,572

 
15,320

 
3,252

 
21.2
 %
DAx (1)
 

 
1,300

 
(1,300
)
 
(100.0
)%
Total revenues
 
$
200,300

 
$
191,818

 
$
8,482

 
4.4
 %
(1) On January 21, 2016, the sale of DAx was completed, and this revenue has been excluded from our four product and service offerings.
Total revenues increased by approximately $8.5 million, or 4.4% for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016. During 2017, increased revenue in TV and Cross-Platform and Movies were offset by decreased revenue from Digital Audience and Advertising. On January 29, 2016, we completed a merger with Rentrak, and as a result our revenues for the six months ended June 30, 2017 included six months of Rentrak revenue compared to five months of Rentrak revenue during the six months ended June 30, 2016, which is slightly offset by the inclusion of one month of DAx revenue in the period for 2016. The estimate for the January 2016 Rentrak revenue is approximately $8.1 million. The increase in TV and Cross-Platform revenue relates to continued strong demand for our national and local TV station offerings. These products continued to see solid growth both from the acquisition of new customers and the expansion of agreements with existing customers. Movies revenue increased as our global footprint remained strong and our products continued to result in higher contract prices. As we collect data from nearly all box office locations worldwide, our customers continued to expand and renew agreements.
The decrease in Digital Audience related to both changes in our products and an evolving advertising market. Our investment to strengthen our products by adding mobile data sources resulted in disrupting some of our data trends which impacted customers. As a result, some customers ceased purchases and others delayed renewals. In addition, changes in industry wide ad buying has weakened smaller publishers and as such, some of our small customers did not renew. As a result, while our largest customers continued to purchase these products, our customer base shrunk during the year.

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Table of Contents

Operating Expenses
In January 2016, we merged with Rentrak and as such, operating expenses for the six months ended June 30, 2016 reflect five months of combined activity.
Total operating expenses for the six months ended June 30, 2017 and 2016 are as follows:
 
 
Six Months Ended June 30,
(In thousands)
 
2017
 
2016
 
$ Variance
 
% Variance
Cost of revenues
 
$
94,614

 
$
81,050

 
$
13,564

 
16.7
 %
Selling and marketing
 
60,923

 
62,919

 
(1,996
)
 
(3.2
)%
Research and development
 
42,522

 
43,191

 
(669
)
 
(1.5
)%
General and administrative
 
31,095

 
63,971

 
(32,876
)
 
(51.4
)%
Investigation and audit related
 
35,077

 
21,974

 
13,103

 
59.6
 %
Amortization of intangible assets
 
17,178

 
14,263

 
2,915

 
20.4
 %
Gain on asset disposition
 

 
(33,457
)
 
33,457

 
(100.0
)%
Settlement of litigation, net
 
618

 
2,510

 
(1,892
)
 
(75.4
)%
Total expenses from operations
 
$
282,027

 
$
256,421

 
$
25,606

 
10.0
 %
Total expenses from operations increased by approximately $25.6 million, or 10.0%, for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016. This increase was attributable to the following:
Decreased gains from asset dispositions as the DAx disposition occurred during 2016 and there were no similar dispositions in 2017.
Increased cost of revenues expenses primarily from investments made to improve our operations, panel costs and systems and bandwidth costs to support our infrastructure to deliver our products and services. These increases were offset by the reduction in expense associated with the engineering services provided by Compete as part of the transition services agreement.
Increased investigation and audit related expenses as a result of increased expenditures related to professional fees associated with legal and forensic accounting services rendered as part of our Audit Committee’s investigation and our subsequent review of policies, practices, internal controls and disclosure matters. Audit related expenses consist of professional fees associated with accounting related consulting services and external auditor fees associated with the audit of our Consolidated Financial Statements.
Decreased general and administrative expenses primarily due to merger and integration costs in 2016 related to our merger with Rentrak as well as decreased stock-based compensation expense. The decrease in stock-based compensation was primarily attributable to the acceleration of equity awards held by certain Rentrak executives upon consummation of the merger in January 2016.

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Table of Contents

Cost of Revenues
Cost of revenues for the six months ended June 30, 2017 and 2016 are as follows:
 
Six Months Ended June 30,
(In thousands)
2017
 
% of Revenue
 
2016
 
% of Revenue
 
$ Change
 
% Change
Employee costs
$
29,197

 
14.6
%
 
$
28,661

 
14.9
%
 
$
536

 
1.9
 %
Data costs
19,720

 
9.8
%
 
14,289

 
7.4
%
 
5,431

 
38.0
 %
Panel costs
13,005

 
6.5
%
 
7,840

 
4.1
%
 
5,165

 
65.9
 %
Systems and bandwidth costs
10,055

 
5.0
%
 
8,537

 
4.5
%
 
1,518

 
17.8
 %
Rent and depreciation
8,969

 
4.5
%
 
8,164

 
4.3
%
 
805

 
9.9
 %
Consulting fees
2,894

 
1.4
%
 
2,666

 
1.4
%
 
228

 
8.6
 %
Sample and survey costs
2,694

 
1.3
%
 
2,353

 
1.2
%
 
341

 
14.5
 %
Technology
2,507

 
1.3
%
 
2,144

 
1.1
%
 
363

 
16.9
 %
Royalties and resellers
1,855

 
0.9
%
 
1,347

 
0.7
%
 
508

 
37.7
 %
Compete transition services agreement

 
%
 
1,827

 
1.0
%
 
(1,827
)
 
(100.0
)%
Other
3,718