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lease cost $390 $3,274 $574 $3,393(2) Excludes amortization of intangible assets, which is presented as a separate line item.(3) Stock-based compensation expense is included in the line items above as follows: Three months ended March 31, 2020 2019Cost of revenues $209 $848Selling and marketing 609 1,316Research and development 56 726General and administrative 1,784 4,063Total stock-based compensation expense $2,658 $6,953 0001158172 2020-01-01 2020-03-31 0001158172 2020-05-04 0001158172 2020-03-31 0001158172 2019-12-31 0001158172 us-gaap:InvestorMember 2019-12-31 0001158172 us-gaap:InvestorMember 2020-03-31 0001158172 2019-01-01 2019-03-31 0001158172 us-gaap:ResearchAndDevelopmentExpenseMember 2020-01-01 2020-03-31 0001158172 us-gaap:SellingAndMarketingExpenseMember 2019-01-01 2019-03-31 0001158172 us-gaap:ResearchAndDevelopmentExpenseMember 2019-01-01 2019-03-31 0001158172 us-gaap:CostOfSalesMember 2019-01-01 2019-03-31 0001158172 us-gaap:GeneralAndAdministrativeExpenseMember 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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________ 
FORM 10-Q
______________________________________
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
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)
(703438-2000
(Registrant's Telephone Number, Including Area Code)
 ________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share
 
SCOR
 
NASDAQ Global Select Market
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 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).   Yes   No 
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
 
 
Accelerated filer
 
Non-accelerated filer
 
 
 
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
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 
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of May 4, 2020, there were 70,208,183 shares of the registrant's Common Stock outstanding.
 




COMSCORE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2020
TABLE OF CONTENTS
 






CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We may make certain statements, including in this Quarterly Report on Form 10-Q, or 10-Q, including the information contained in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this 10-Q, and the information incorporated by reference in this 10-Q, that constitute 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 to identify these forward-looking statements by words such as "may," "will," "should," "could," "might," "expect," "plan," "anticipate," "believe," "estimate," "target," "goal," "predict," "intend," "potential," "continue," "seek" 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; expectations regarding the impact on our business of the COVID-19 pandemic and global measures to mitigate the spread of the virus; macroeconomic trends that we expect may influence our business, including any recession resulting from the pandemic; plans for business continuity, financing and capital expenditures; expectations regarding liquidity, customer payments and compliance with financing covenants and other payment obligations; expectations regarding the introduction of new products; effects of restructuring, remote work arrangements and other employment actions; regulatory compliance and expected changes in the regulatory or privacy landscape affecting our business; expected impact of litigation and regulatory proceedings; plans for stabilization, 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 expectations and assumptions as of the date of this 10-Q 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 within Item 1A, "Risk Factors" of this 10-Q and elsewhere within this report; those identified within Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2019; and those identified in other documents that we file from time to time with the U.S. Securities and Exchange Commission, or SEC.
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 forward-looking statements, which apply only as of the date of this 10-Q. You should carefully review the risk factors described in this 10-Q and in other documents that we file from time to time with the SEC. Except as required by applicable law, including the rules and regulations of the SEC, we undertake no obligation, and expressly disclaim any duty, to publicly update or revise forward-looking statements, whether as a result of any new information, future events or otherwise. Although we believe the expectations reflected in the forward-looking statements are reasonable as of the date of this 10-Q, our statements are not guarantees of future results, levels of activity, performance, or achievements, and actual outcomes and results may differ materially from those expressed in, or implied by, any of our statements.

i




PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
COMSCORE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
 
As of
 
As of
 
 
March 31, 2020

December 31, 2019

 
(Unaudited)


Assets
 



Current assets:
 



Cash and cash equivalents
 
$
36,927


$
46,590

Restricted cash
 
19,672


20,183

Accounts receivable, net of allowances of $2,147 and $1,919, respectively ($2,249 and $2,698 of accounts receivable attributable to related parties, respectively)
 
67,751


71,853

Prepaid expenses and other current assets ($1,061 and $1,180 attributable to related parties, respectively)
 
14,652


15,357

Total current assets
 
139,002


153,983

Property and equipment, net
 
29,943


31,693

Operating right-of-use assets
 
32,515


36,689

Other non-current assets
 
4,069


2,979

Deferred tax assets
 
2,131


2,374

Intangible assets, net
 
72,632


79,559

Goodwill
 
415,549


416,418

Total assets
 
$
695,841


$
723,695

Liabilities and Stockholders' Equity
 



Current liabilities:
 



Accounts payable ($3,336 and $2,510 attributable to related parties, respectively)
 
$
43,769


$
44,804

Accrued expenses ($6,353 and $6,902 attributable to related parties, respectively)
 
48,854


55,507

Contract liability ($2,314 and $1,519 attributable to related parties, respectively)
 
60,788


58,158

Customer advances
 
9,752


9,886

Warrants liability
 
3,074


7,725

Current operating lease liabilities
 
6,737

 
6,764

Other current liabilities
 
5,929


7,393

Total current liabilities
 
178,903


190,237

Secured term note
 
12,410

 
12,463

Financing derivatives (related parties)
 
19,200


21,587

Senior secured convertible notes (related parties)
 
186,115


184,075

Non-current operating lease liabilities
 
40,800


42,497

Deferred tax liabilities
 
389


287

Other non-current liabilities
 
12,563


13,575

Total liabilities
 
450,380


464,721

Commitments and contingencies
 



Stockholders' equity:
 



Preferred stock, $0.001 par value per share; 5,000,000 shares authorized at March 31, 2020 and December 31, 2019; no shares issued or outstanding as of March 31, 2020 and December 31, 2019
 



Common stock, $0.001 par value per share; 150,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 76,971,713 shares issued and 70,206,917 shares outstanding as of March 31, 2020, and 76,829,926 shares issued and 70,065,130 shares outstanding as of December 31, 2019
 
70


70

Additional paid-in capital
 
1,611,902


1,609,358

Accumulated other comprehensive loss
 
(15,206
)

(12,333
)
Accumulated deficit
 
(1,121,321
)

(1,108,137
)
Treasury stock, at cost, 6,764,796 shares as of March 31, 2020 and December 31, 2019
 
(229,984
)

(229,984
)
Total stockholders' equity
 
245,461


258,974

Total liabilities and stockholders' equity
 
$
695,841


$
723,695

See accompanying Notes to Condensed Consolidated Financial Statements.

1



COMSCORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except share and per share data)
 
 
Three months ended March 31,

 
2020
 
2019
Revenues (1)
 
$
89,528


$
102,294


 
 
 
 
Cost of revenues (1) (2) (3) (4)
 
45,798


53,407

Selling and marketing (1) (2) (3) (4)
 
19,213


24,840

Research and development (2) (3) (4)
 
10,136


18,216

General and administrative (1) (2) (3) (4)
 
15,543


19,545

Investigation and audit related
 


842

Amortization of intangible assets
 
6,918


8,105

Impairment of right-of-use and long-lived assets
 
4,671

 

Restructuring
 


(70
)
Total expenses from operations
 
102,279


124,885

Loss from operations
 
(12,751
)

(22,591
)
Interest expense, net (1)
 
(8,846
)

(6,759
)
Other income, net
 
7,194


2,969

Gain from foreign currency transactions
 
804


38

Loss before income taxes
 
(13,599
)

(26,343
)
Income tax benefit (provision)
 
415


(1,171
)
Net loss
 
$
(13,184
)
 
$
(27,514
)
Net loss per common share:
 
 
 
 
Basic and diluted
 
$
(0.19
)

$
(0.46
)
Weighted-average number of shares used in per share calculation - Common Stock:
 
 
 
 
Basic and diluted
 
70,127,939


59,958,203

Comprehensive loss:
 
 
 
 
Net loss
 
$
(13,184
)

$
(27,514
)
Other comprehensive loss:
 
 
 
 
Foreign currency cumulative translation adjustment
 
(2,873
)

(621
)
Total comprehensive loss
 
$
(16,057
)

$
(28,135
)

 
 
 
 
 
 
 
 
(1) Transactions with related parties are included in the line items above (refer to Footnote 8, Related Party Transactions, of the Notes to Condensed Consolidated Financial Statements for additional information).
(2) Excludes amortization of intangible assets, which is presented as a separate line item.
(3) Stock-based compensation expense is included in the line items above as follows:
 
 
 
 
 
 
 

 
 
 
 
 
Three months ended March 31,

 
 
 
 
 
2020

2019
Cost of revenues
 
 
 
 
 
$
209


$
848

Selling and marketing
 
 
 
 
 
609


1,316

Research and development
 
 
 
 
 
56


726

General and administrative
 
 
 
 
 
1,784


4,063

Total stock-based compensation expense
 
 
 
 
 
$
2,658


$
6,953


 
 
 
 
 
 
 
 
(4) Lease cost, net of sublease income, is included in the line items above as follows:
 
 
 
 
 
 
 
Three months ended March 31, 2020
 
Three months ended March 31, 2019
 
 
Amortization of Right-of-Use Assets
 
Operating Lease Cost
 
Amortization of Right-of-Use Assets
 
Operating Lease Cost
Cost of revenues
 
$
285

 
$
891

 
$
421

 
$
1,101

Selling and marketing
 
41

 
1,099

 
61

 
1,164

Research and development
 
44

 
601

 
61

 
749

General and administrative
 
20

 
683

 
31

 
379

Total lease cost
 
$
390

 
$
3,274

 
$
574

 
$
3,393

 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

2



COMSCORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
 (In thousands, except share data)

Common Stock

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Treasury stock, at cost

Total
Stockholders'
Equity
Shares

Amount

Balance as of December 31, 2019
70,065,130

 
$
70

 
$
1,609,358

 
$
(12,333
)
 
$
(1,108,137
)
 
$
(229,984
)
 
$
258,974

Net loss

 

 

 

 
(13,184
)
 

 
(13,184
)
Foreign currency translation adjustment

 

 

 
(2,873
)
 

 

 
(2,873
)
Restricted stock units vested
157,384

 

 

 

 

 

 

Payments for taxes related to net share settlement of equity awards
(15,597
)
 

 
(65
)
 

 

 

 
(65
)
Stock-based compensation

 

 
2,609

 

 

 

 
2,609

Balance as of March 31, 2020
70,206,917


$
70


$
1,611,902


$
(15,206
)

$
(1,121,321
)

$
(229,984
)

$
245,461

 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Treasury stock, at cost
 
Total
Stockholders'
Equity
Shares
 
Amount
 
Balance as of December 31, 2018
59,389,830

 
$
59

 
$
1,561,208

 
$
(10,621
)
 
$
(769,095
)
 
$
(229,984
)
 
$
551,567

Adoption of ASC 842

 

 

 

 
(46
)
 

 
(46
)
Net loss

 

 

 

 
(27,514
)
 

 
(27,514
)
Foreign currency translation adjustment

 

 

 
(621
)
 

 

 
(621
)
Exercise of Common Stock options, net
68,259

 

 
1,191

 

 

 

 
1,191

Restricted stock units vested
552,651

 
1

 
4,610

 

 

 

 
4,611

Payments for taxes related to net share settlement of equity awards
(52,853
)
 

 
(1,138
)
 

 

 

 
(1,138
)
Stock-based compensation

 

 
5,888

 

 

 

 
5,888

Balance as of March 31, 2019
59,957,887

 
$
60

 
$
1,571,759

 
$
(11,242
)
 
$
(796,655
)
 
$
(229,984
)
 
$
533,938


See accompanying Notes to Condensed Consolidated Financial Statements.

3



COMSCORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
Three Months Ended March 31,

 
2020

2019
Operating activities:
 



Net loss
 
$
(13,184
)

$
(27,514
)
Adjustments to reconcile net loss to net cash used in operating activities:
 



Depreciation
 
3,384


3,106

Non-cash operating lease expense
 
1,369


1,427

Amortization expense of finance leases
 
390


574

Amortization of intangible assets
 
6,918


8,105

Stock-based compensation
 
2,658


6,953

Deferred tax provision
 
42


441

Change in fair value of financing derivatives
 
(2,387
)

(4,100
)
Change in fair value of warrants liability
 
(4,651
)
 

Change in fair value of investment in equity securities
 


1,712

Impairment of right-of-use and long-lived assets
 
4,671



Accretion of debt discount
 
1,769


1,319

Amortization of deferred financing costs
 
348


252

Other
 
492


(138
)
Changes in operating assets and liabilities:
 




Accounts receivable
 
2,820


12,506

Prepaid expenses and other assets
 
(1,022
)

1,818

Accounts payable, accrued expenses and other liabilities
 
(9,522
)

(2,544
)
Contract liability and customer advances
 
2,893


(2,500
)
Operating lease liabilities
 
(1,769
)

(2,993
)
Net cash used in operating activities
 
(4,781
)

(1,576
)

 



Investing activities:
 



Proceeds from sale of investment in equity securities 
 


705

Purchases of property and equipment
 
(45
)

(1,836
)
Capitalized internal-use software costs
 
(3,872
)

(3,109
)
Net cash used in investing activities
 
(3,917
)

(4,240
)

 



Financing activities:
 



Proceeds from the exercise of stock options
 


1,191

Payments for taxes related to net share settlement of equity awards
 
(65
)

(1,138
)
Principal payments on finance leases
 
(407
)

(694
)
Principal payments on software license arrangements
 
(77
)

(823
)
Net cash used in financing activities
 
(549
)

(1,464
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
(927
)

(75
)
Net decrease in cash, cash equivalents and restricted cash
 
(10,174
)

(7,355
)
Cash, cash equivalents and restricted cash at beginning of period
 
66,773


50,198

Cash, cash equivalents and restricted cash at end of period
 
$
56,599


$
42,843


 




 
As of March 31,

 
2020

2019
Cash and cash equivalents
 
$
36,927


$
36,741

Restricted cash
 
19,672


6,102

Total cash, cash equivalents and restricted cash
 
$
56,599


$
42,843

 
 
 
 
 
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Supplemental cash flow disclosures:
 
 
 
 
Interest paid ($6,120 and $3,046 attributable to related party, respectively)
 
$
6,795

 
$
3,181

Income taxes paid (received), net of refunds
 
338

 
(348
)
 
 
 
 
 
Supplemental disclosures of non-cash activities:
 
 
 
 
Change in accounts payable and accrued expenses related to capital expenditures
 
$
423

 
$
1,170

Settlement of restricted stock unit liability
 

 
4,610

See accompanying Notes to Condensed Consolidated Financial Statements.

4



COMSCORE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.
Organization
comScore, Inc., together with its consolidated subsidiaries (collectively, "Comscore" or the "Company"), headquartered in Reston, Virginia, is a global information and analytics company that measures audiences, consumer behavior and advertising across media platforms.
Operating segments are defined as components of a business that can earn revenues and incur expenses for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker ("CODM"). The Company's CODM is its principal executive officer, who decides how to allocate resources and assess performance. The Company has one operating segment. A single management team reports to the CODM, who manages the entire business. The Company's CODM reviews consolidated results of operations to make decisions, allocate resources and assess performance and does not evaluate the profit or loss from any separate geography or product line.
Uses and Sources of Liquidity and Management's Plans
The Company's primary need for liquidity is to fund working capital requirements and capital expenditures of its business. Since 2017, the Company has implemented certain organizational restructuring plans to reduce staffing levels, exit certain geographic regions, and rationalize its leased properties, to enable the Company to decrease its global costs, more effectively align resources to business priorities, and maintain compliance with its financial covenants, as described in Footnote 4, Long-Term Debt. For additional information related to the Company's restructuring plans, refer to Footnote 10, Organizational Restructuring.
The Company has secured the following long-term financing in order to increase its available working capital:
During 2018, the Company entered into certain agreements with funds affiliated with or managed by Starboard Value LP (collectively, "Starboard"), pursuant to which the Company issued and sold to Starboard a total of $204.0 million in senior secured convertible notes as well as warrants to purchase shares of the Company's common stock, par value $0.001 per share (the "Common Stock") in exchange for $100.0 million in cash and 4,000,000 shares of Common Stock. For additional information, refer to Footnote 4, Long-term Debt.
On June 26, 2019, the Company issued 2,728,513 shares of Common Stock and four series of warrants in a private placement to CVI Investments, Inc. ("CVI") in exchange for gross cash proceeds of $20.0 million. On October 14, 2019, the Company issued 2,728,513 shares of Common Stock to CVI upon exercise by CVI of the Series C warrant. For additional information, refer to Footnote 5, Stockholders' Equity.
On December 31, 2019, the Company's wholly owned subsidiary, Rentrak B.V., entered into an agreement with several third parties (collectively the "Noteholder") for a secured term note (the "Secured Term Note") in exchange for gross proceeds of $13.0 million. The Secured Term Note matures on December 31, 2021, is cash collateralized, and has an annual interest rate of 9.75% that is payable monthly in arrears. For additional information, refer to Footnote 4, Long-term Debt.
As of March 31, 2020, the Company was in compliance with its covenants under the senior secured convertible notes and the Secured Term Note, inclusive of the Company's restricted cash balances.
The COVID-19 pandemic and related government mandates and restrictions have had a significant impact on the media, advertising and entertainment industries in which the Company operates. While to date, the COVID-19 pandemic has not had a severe direct impact on the Company's business, customer payment delays and requests to modify contractual payment terms have negatively impacted the Company's liquidity and cash flows to some extent and are expected to have a more significant impact in future periods, including the second quarter of 2020. In addition, the spread of COVID-19 has led to disruption and volatility in global capital and credit markets, which, depending on future developments, could impact the Company's ability to access capital resources on terms acceptable to the Company or allowable under its current financing arrangements, or at all. Liquidity could also be negatively affected by a decrease in demand for the Company's products and services or by additional losses from operations, whether related to the COVID-19 pandemic or otherwise. While the Company is taking actions to mitigate the impact of COVID-19, further reduce operating costs and improve its working capital balance, these steps may not be successful or adequate to offset declines in cash collections. If the Company's efforts to reduce costs are not sufficient, or if cash collection efforts are further impacted by the COVID-19 pandemic, the Company may not be able maintain compliance with the affirmative and negative covenants in its senior secured convertible notes and Secured Term Note or to meet its financial obligations to vendors or others.
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). The CARES Act, among other things, includes tax provisions for the deferral of certain employer payroll tax liabilities, refundable employee retention credits, rollbacks of Tax Cuts and Jobs Act ("TCJA") limitations on net operating losses, the acceleration of alternative minimum

5



tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. To preserve its cash balances, the Company began deferring certain payroll taxes starting in April 2020, as permitted by the CARES Act. In addition, the Company plans to claim the refundable employee retention credit created by the CARES Act during the second quarter of 2020. The Company continues to assess the effect of the CARES Act and additional legislation and government guidance related to the COVID-19 pandemic.
The Company's liquidity could be significantly affected if the Company is unable to maintain compliance with the covenants in its senior secured convertible notes and Secured Term Note, including the minimum cash balance requirements described in Footnote 4, Long-term Debt. If the Company fails to comply with its covenants, it could be required to redeem the senior secured convertible notes and the Secured Term Note at a premium. As of March 31, 2020, there was $217.0 million outstanding under the senior secured convertible notes and the Secured Term Note. The source of funds for any redemption of the notes would be the Company's available cash and other financing, to the extent available. Based on the Company's current plans, including the cost-reduction initiatives described above and other actions within management's control, the Company does not anticipate a breach of these covenants that would result in an event of default under the senior secured convertible notes or the Secured Term Note; however, subsequent to March 31, 2020, the holders of the senior secured convertible notes have questioned the Company's compliance with the minimum cash balance requirements therein. As noted, any breach of covenants under the senior secured convertible notes could have a material impact on the Company's liquidity.
The Company continues to be focused on maintaining flexibility in terms of sources, amounts, and timing of any potential financing, refinancing or strategic transaction, in order to best position the Company for future success. The Company believes that its sources of funding, after taking into account the restructuring and financing transactions described above and additional cost-reduction initiatives undertaken by management in 2020, will be sufficient to satisfy the Company's estimated liquidity needs and allow the Company to remain in compliance with its covenants under the senior secured convertible notes and the Secured Term Note for at least one year after the date that these financial statements are issued. However, the Company cannot predict with certainty the outcome of its actions to generate liquidity, including the availability of additional financing, or whether such actions would generate the expected liquidity as currently planned. The Company also cannot predict the duration and magnitude of the COVID-19 pandemic or its effects on the Company's business or liquidity or any action that may be taken by the holders of the senior secured convertible notes, as described above.

2.
Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned domestic and foreign subsidiaries. All intercompany transactions and balances are eliminated upon consolidation.
Reclassification
Certain amounts in the prior year financial statements have been reclassified to conform to the current quarter presentation. Specifically, current accrued litigation settlements have been aggregated within other current liabilities on the Condensed Consolidated Balance Sheets.
Unaudited Interim Financial Information
The interim Condensed Consolidated Financial Statements included in this quarterly report have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for a quarterly report on Form 10-Q and are adequate to make the information presented not misleading. The interim Condensed Consolidated Financial Statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These interim Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 10-K"). The Condensed Consolidated Results of Operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2020 or thereafter. All references to March 31, 2020 and 2019 in the Notes to Condensed Consolidated Financial Statements are unaudited.

6



Use of Estimates and Judgments in the Preparation of the Condensed Consolidated Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expense during the reporting periods. Significant estimates and judgments are inherent in the analysis and the measurement of management's standalone selling price, principal versus agent revenue recognition, determination of performance obligations, determination of transaction price, including the determination of variable consideration and allocation of transaction price to performance obligations, deferred tax assets and liabilities, including the identification and quantification of income tax liabilities due to uncertain tax positions, the valuation and recoverability of goodwill, intangible and other long-lived assets, the determination of appropriate discount rates for lease accounting, the probability of exercising either lease renewal or termination clauses, the assessment of potential loss from contingencies, the fair value determination of financing derivative liabilities and warrants, the allowance for doubtful accounts, valuation of options and performance-based and market-based stock awards. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. For the three months ended March 31, 2020, management specifically considered the impact of the COVID-19 pandemic and related matters in evaluating the Company's goodwill, intangible and other long-lived assets, lease accounting, contingencies, fair value determinations and allowance for doubtful accounts.
Due to the inherent uncertainty involved in making estimates, particularly in the current environment, actual results reported in future periods may be affected by changes in those estimates. The Company evaluates its estimates and assumptions on an ongoing basis.
Other Income, Net
 
Three Months Ended March 31,
(In thousands)
2020
 
2019
Change in fair value of warrants liability
$
4,651

 
$

Change in fair value of financing derivatives
2,387

 
4,100

Change in fair value of investment in equity securities

 
(1,712
)
Other
156

 
581

Total other income, net
$
7,194

 
$
2,969


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 shares of Common Stock outstanding for the period. 250,000 shares of Common Stock issuable upon the exercise of warrants held by Starboard ("penny warrants") were included in the number of outstanding shares used for the computation of basic net loss per share prior to the exercise of those warrants on April 3, 2019. In periods where the Company reports a net loss, the effect of anti-dilutive stock options, stock appreciation rights, restricted stock units, deferred stock units, senior secured convertible notes and warrants are excluded and diluted net loss per share is equal to basic loss per share.
The following is a summary of the Common Stock equivalents for the securities outstanding during the respective periods that have been excluded from the computation of diluted net loss per common share, as their effect would be anti-dilutive:
 
Three Months Ended March 31,
 
2020
 
2019
Stock options, stock appreciation rights, restricted stock units, deferred stock units, senior secured convertible notes and warrants
16,986,614

 
8,100,585


Impairment of Right-of-use ("ROU") and Long-lived Assets
The Company applies the provisions of Accounting Standards Codification ("ASC") 360, Property, Plant and Equipment, to determine whether ROU and related long-lived assets may be impaired. The Company evaluates its ROU and long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of such assets may not be recoverable. For facility lease ROU and related long-lived assets, the Company compares the estimated undiscounted cash flows generated by a sublease to the current carrying value of the ROU and related long-lived assets. If the undiscounted cash flows are less than the carrying value of the ROU and related long-lived assets, the Company records an impairment loss equal to the excess of the ROU and long-lived assets' carrying value over their fair value consistent with other long-lived assets.
The Company performed an interim analysis as of March 31, 2020, as changes in market conditions indicated the carrying value of certain facility lease ROU and other long-lived assets may not be recoverable, and determined that certain ROU assets, and related leasehold improvements, were impaired.

7



The Company recorded a $4.7 million non-cash impairment charge related to its ROU assets, and related leasehold improvements, for the three months ended March 31, 2020, with corresponding reductions of $2.8 million and $1.9 million to the operating lease ROU asset and property and equipment, net line items, respectively, in the Condensed Consolidated Balance Sheet as of March 31, 2020. The impairment charge was driven by changes in the Company's projected undiscounted cash flows for certain properties, primarily as a result of changes in the real estate market related to the COVID-19 pandemic, that led to an increase in the estimated marketing time, and a reduction of expected receipts, for properties currently on the market for sublease. The fair value of these ROU assets, and related leasehold improvements, was estimated using an income approach and a discount rate of 12.0%. After recognition of the impairment charge, the adjusted carrying values of the ROU assets, and related leasehold improvements, were $2.0 million and $0.5 million, respectively, as of March 31, 2020.
Although the Company believes that the carrying values of its long-lived assets are appropriately stated, future changes in strategy or market conditions, significant technological developments or significant changes in legal or regulatory factors could significantly impact these judgments and require adjustments to recorded asset balances.
Allowance for Doubtful Accounts
The Company generally grants uncollateralized credit terms to its customers and maintains an allowance for doubtful accounts to reserve for uncollectible receivables. Allowances are based on management's judgment, which considers historical collection experience adjusted for current conditions or expected future conditions based on reasonable and supportable forecasts, a specific review of all significant outstanding receivables, an assessment of company-specific credit conditions and general economic conditions. For the three months ended March 31, 2020, management specifically considered the impact of the COVID-19 pandemic and related matters, including customer payment delays and requests from customers to revise contractual payment terms, in determining the Company's allowance for doubtful accounts.
The following is a summary of the allowance for doubtful accounts:
 
 
Three Months Ended March 31,
(In thousands)
 
2020
 
2019
Beginning Balance
 
$
(1,919
)
 
$
(1,597
)
Additions
 
(492
)
 
138

Recoveries
 
(44
)
 
(241
)
Write-offs
 
308

 
17

Ending Balance
 
$
(2,147
)
 
$
(1,683
)

Accounting Standards Recently Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires consideration of forward-looking information to calculate credit loss estimates. These changes will result in an earlier recognition of credit losses. The amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the new standard effective January 1, 2020, and the standard did not have a material impact on the Condensed Consolidated Financial Statements or related disclosures based on historical collection trends, the financial condition of payment partners, and external market factors.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which removes and modifies certain disclosure requirements under Topic 820. The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the update and to delay adoption of the additional disclosures until their effective date. The Company adopted the new standard effective January 1, 2020 and the standard did not have a material impact on the Condensed Consolidated Financial Statements or related disclosures.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes primarily by eliminating certain exemptions. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the update and to delay adoption of the additional disclosures until their effective date. The Company is in the process of evaluating the guidance but does not believe that the adoption of this standard will have a material impact on the Condensed Consolidated Financial Statements or related disclosures.

8



3.
Revenue Recognition
The following table presents the Company's revenue disaggregated by solution group, geographical market and timing of transfer of products and services. The Company has one reportable segment in accordance with ASC 280, Segment Reporting; as such, the disaggregation of revenue below reconciles directly to its unique reportable segment.
 
 
Three Months Ended March 31,
(In thousands)
 
2020
 
2019
By solution group:
 
 
 
 
Ratings and Planning (1)
 
$
63,521

 
$
70,577

Analytics and Optimization (1)
 
15,501

 
21,458

Movies Reporting and Analytics
 
10,506

 
10,259

Total
 
$
89,528

 
$
102,294

By geographical market:
 
 
 
 
United States
 
$
77,146

 
$
87,976

Europe
 
7,483

 
8,412

Latin America
 
2,020

 
2,402

Canada
 
1,562

 
1,840

Other
 
1,317

 
1,664

Total
 
$
89,528

 
$
102,294

By timing of revenue recognition:
 
 
 
 
Products and services transferred over time
 
$
71,917

 
$
76,461

Products and services transferred at a point in time
 
17,611

 
25,833

Total
 
$
89,528

 
$
102,294


(1) Beginning April 1, 2020, on a prospective basis only, the Company plans to classify revenue from certain new and extended custom agreements for services that utilize its syndicated data set as Ratings and Planning. Prior to April 1, 2020, revenue from these agreements was classified as Analytics and Optimization. The Company does not expect a material impact to either Ratings and Planning revenue or Analytics and Optimization revenue from this change, which is intended to better reflect management's categorization of the underlying services.
Contract Balances
The following table provides information about receivables, contract assets, contract costs, contract liabilities and customer advances from contracts with customers:
 
 
As of
 
As of
(In thousands)
 
March 31, 2020
 
December 31, 2019
Accounts receivable, net
 
$
67,751

 
$
71,853

Current and non-current contract assets
 
662

 
1,035

Current and non-current contract costs
 
691

 
799

Current contract liability
 
60,788

 
58,158

Current customer advances
 
9,752

 
9,886

Non-current contract liability
 
268

 
291

Significant changes in the contract assets and the contract liabilities balances are as follows:
 
 
Contract Liability (Current)
 
 
Three Months Ended March 31,
(In thousands)
 
2020
 
2019
Revenue recognized that was included in the opening contract liability balance
 
$
(33,315
)
 
$
(39,481
)
Cash received or amounts billed in advance and not recognized as revenue
 
37,116

 
39,200


Transaction Price Allocated to the Remaining Performance Obligations
As of March 31, 2020, approximately $225.0 million of revenue is expected to be recognized from remaining performance obligations that are unsatisfied (or partially unsatisfied) for non-cancelable contracts. The Company expects to recognize revenue on approximately 54% of these remaining performance obligations during the remainder of 2020, approximately 33% in 2021, and approximately 12% in 2022, with the remainder recognized thereafter.

9



Costs to Obtain or Fulfill a Contract
As of March 31, 2020 and December 31, 2019, the Company had $0.7 million and $0.8 million, respectively, in capitalized contract costs. For the three months ended March 31, 2020, amortized and expensed contract costs were $0.3 million. For the three months ended March 31, 2019, amortized and expensed contract costs were $0.6 million.
4.
Long-term Debt
Issuance and Sale of Initial Notes
On January 16, 2018, the Company entered into certain agreements with Starboard, pursuant to which, among other things, the Company issued and sold to Starboard $150.0 million of senior secured convertible notes (the "Initial Notes") in exchange for $85.0 million in cash and 2,600,000 shares of Common Stock valued at $65.0 million. Based upon the fair value of the Common Stock on the closing date of the Initial Notes issuance, January 16, 2018, which was $24.45 per share, the difference of $1.4 million was recorded as an issuance discount to the Initial Notes. The Company also granted to Starboard an option (the "Notes Option") to acquire up to an additional $50.0 million in senior secured convertible notes (the "Option Notes" and together with the Initial Notes, the "Notes") and agreed to grant Starboard warrants to purchase 250,000 shares of Common Stock at a price of $0.01 per share, as adjusted pursuant to the terms of the warrants. The warrants were issued on October 12, 2018 and were exercised in full by Starboard on April 3, 2019 for 323,448 shares of Common Stock.
The conversion price for the Notes (the "Conversion Price") is equal to a 30.0% premium to the volume weighted average trading prices ("VWAP") of the Common Stock on each trading day during the 10 consecutive trading days commencing on January 16, 2018, subject to a Conversion Price floor of $28.00 per share. In accordance with the foregoing, the Conversion Price was set at $31.29.
The Notes mature on January 16, 2022. Based upon the determination of the Conversion Price, interest on the Notes accrued at 6.0% per year through January 30, 2019, when the interest rate reset to 12.0% per year through January 30, 2020. The interest rate reset on January 30, 2020 and will remain at 12.0% (subject to certain conditions) until February 1, 2021 (the "Interest Reset Date"). On the Interest Reset Date, the interest rate on the Notes will reset, and interest will thereafter accrue at a minimum of 4.0% per year and a maximum of 12.0% per year, based upon the then-applicable conversion premium in accordance with the terms of the Notes.
Interest on the Notes is payable on a quarterly basis in arrears from April 1, 2018, at the option of the Company, in cash, or, subject to certain conditions, through the issuance by the Company of additional shares of Common Stock ("PIK Interest Shares"). Any PIK Interest Shares so issued will be valued at the arithmetic average of the VWAP of the Common Stock on each trading day during the 10 consecutive trading days ending immediately preceding the applicable interest payment date. On each of January 2, 2020 and April 1, 2020, the Company paid quarterly accrued interest of $6.1 million in cash. The accrued interest liability of $6.1 million as of March 31, 2020 was classified within accrued expenses in the Condensed Consolidated Financial Statements.
The Notes contain certain affirmative and restrictive covenants with which the Company must comply, including covenants with respect to (i) limitations on additional indebtedness, (ii) limitations on liens, (iii) limitations on certain payments, (iv) maintenance of certain minimum cash balances (currently $40.0 million), and (v) the timely filing of certain disclosures with the SEC. The Company is in compliance with its Notes covenants as of the date of these financial statements, inclusive of the Company's restricted cash balances.
Issuance and Sale of Option Notes
On May 17, 2018, the Notes Option was exercised by Starboard, pursuant to which the Company issued and sold to Starboard $50.0 million of Option Notes in exchange for $15.0 million in cash and 1,400,000 shares of Common Stock valued at $35.0 million. Based upon the fair value of the Common Stock on the closing date of the Option Notes issuance, May 17, 2018, which was $21.75 per share, the difference of $4.6 million was recorded as an issuance discount to the Option Notes. The Option Notes have the same terms, including maturity, interest rate, convertibility, and security, as the Initial Notes, except with regard to the date from which interest began to accrue, which was May 17, 2018.
Financing Derivatives
The Notes contain an interest rate reset feature, make-whole change of control redemption feature, and a qualifying change of control redemption feature which the Company determined represent embedded derivatives that must be bifurcated and accounted for separately from the Notes. Refer to Footnote 6, Fair Value Measurements, for further information on the Level 3 inputs utilized for the determination of the fair value of the derivatives.

10



The balance of the Notes as of March 31, 2020 and December 31, 2019 was as follows:
 
 
 
As of
 
 
 
March 31, 2020
(In thousands, except interest rates)
Stated Interest Rate
Effective Interest Rate
Face Value
Issuance Discount
Deferred Financing Costs
Net Carrying Value
Initial Notes, due January 16, 2022
12.0%
18.8%
$
153,500

$
(13,185
)
$
(2,448
)
$
137,867

Option Notes, due January 16, 2022
12.0%
14.9%
50,500

(2,114
)
(138
)
48,248

Total
 
 
$
204,000

$
(15,299
)
$
(2,586
)
$
186,115

 
 
 
As of
 
 
 
December 31, 2019
(In thousands, except interest rates)
Stated Interest Rate
Effective Interest Rate
Face Value
Issuance Discount
Deferred Financing Costs
Net Carrying Value
Initial Notes, due January 16, 2022
12.0%
18.8%
$
153,500

$
(14,703
)
$
(2,706
)
$
136,091

Option Notes, due January 16, 2022
12.0%
14.9%
50,500

(2,365
)
(151
)
47,984

Total
 
 
$
204,000

$
(17,068
)
$
(2,857
)
$
184,075


Due to the interest rate reset feature of the Notes, the potential future cash flows associated with the Notes are variable. Accordingly, the accretion schedule of debt discount and the amortization schedule of deferred financing costs are updated annually to reflect periodic changes in the future cash flows using the effective interest rate on a prospective basis.
The Company amortized $0.3 million in deferred financing costs related to the Notes during both the three months ended March 31, 2020 and 2019. The Company accreted $1.8 million and $1.3 million in issuance discount related to the Notes during the three months ended March 31, 2020 and 2019, respectively.
The estimated fair value of the Notes, using Level 3 inputs based on interest rates available for debt with terms and maturities similar to the Company's Notes, was $162.4 million as of March 31, 2020.
Guarantee and Security of Notes
The Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries (the "Guarantors") and are secured by a security interest in substantially all of the assets of the Company and the Guarantors, pursuant to a Guaranty, dated as of January 16, 2018, entered into by the Guarantors, and a Pledge and Security Agreement, dated as of January 16, 2018, among the Company, the Guarantors and Starboard Value and Opportunity Master Fund Ltd. as collateral agent.
Issuance of Secured Term Note
On December 31, 2019, the Company's wholly owned subsidiary, Rentrak B.V., entered into an agreement with the Noteholder for the Secured Term Note for aggregate gross proceeds of $13.0 million. The Secured Term Note, which is cash collateralized, matures on December 31, 2021 and has an annual interest rate of 9.75%. Interest is payable in arrears on the last business day of each calendar month commencing on January 31, 2020.
The Secured Term Note contains certain affirmative and restrictive covenants with which Rentrak B.V. must comply, including (i) maintenance of a minimum cash collateral balance of $14.8 million, (ii) provision of certain financial statements, (iii) limitations on additional indebtedness and liens, (iv) limitations on repayment of debt, (v) limitations on repurchase of stock, and (vi) limitations on disposition of assets. Rentrak B.V. is in compliance with the Secured Term Note covenants as of March 31, 2020.
The balance of the Secured Term Note as of March 31, 2020 and December 31, 2019 was as follows:
 
 
 
 
 
As of
 
 
 
 
 
March 31, 2020
(In thousands, except interest rates)
Stated Interest Rate
 
Effective Interest Rate
 
Face Value
 
Deferred Financing Costs
 
Net Carrying Value
Secured Term Note
9.75%
 
12.8%
 
$
13,000

 
$
(590
)
 
$
12,410


11



 
 
 
 
 
As of
 
 
 
 
 
December 31, 2019
(In thousands, except interest rates)
Stated Interest Rate
 
Effective Interest Rate
 
Face Value
 
Deferred Financing Costs
 
Net Carrying Value
Secured Term Note
9.75%
 
12.2%
 
$
13,000

 
$
(537
)
 
$
12,463


The Company amortized $0.1 million in deferred financing costs related to the Secured Term Note during the three months ended March 31, 2020.
The estimated fair value of the Secured Term Note, using Level 2 inputs based on interest rates available for debt with terms and maturities similar to the Company's Secured Term Note, was $15.2 million as of March 31, 2020.
Letters of Credit
In 2018, the Company entered into a Security Agreement with Wells Fargo Bank, N.A. to issue standby letters of credit. As of March 31, 2020, $3.3 million in letters of credit are outstanding and are cash collateralized under the Security Agreement with Wells Fargo Bank, N.A.
Failed Sale-Leaseback Transaction
In June 2019, the Company entered into a sale-leaseback arrangement with a vendor to provide $4.3 million in cash proceeds for previously acquired computer and other equipment. The arrangement is repayable over a 24-month term for total consideration of $4.8 million, with control of the equipment transferring to the vendor at the end of the leaseback term.
The Company concluded the leaseback would be classified as a financing lease. Therefore, the transaction was deemed a failed sale-leaseback and was accounted for as a financing arrangement. The assets continue to be depreciated over their useful lives, and payments are allocated between interest expense and repayment of the financing liability. The financing obligation is included within other current and other non-current liabilities on the Condensed Consolidated Balance Sheet, with $1.9 million classified as short-term and $1.2 million classified as long-term.
Future minimum payments related to the financing obligations under the failed sale-leaseback transaction as of March 31, 2020 are summarized below:
 
(In thousands)
Remainder of 2020
$
1,685

2021
1,422

Total
$
3,107


5.
Stockholders' Equity
2019 Issuance and Sale of Common Stock and Warrants
On June 23, 2019, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with CVI, pursuant to which CVI agreed to purchase (i) 2,728,513 shares of Common Stock (the "Initial Shares"), at a price of $7.33 per share and (ii) Series A Warrants, Series B-1 Warrants, Series B-2 Warrants and Series C Warrants, for aggregate gross proceeds of $20.0 million (the "Private Placement"). The Private Placement closed on June 26, 2019 (the "Closing Date").
The Series B-1 Warrants were exercisable by the holders at any time prior to the six-month anniversary of the Closing Date, as adjusted pursuant to the terms of the Series B-1 Warrants. The Series B-1 Warrants provided the holders the right to purchase an aggregate of up to 2,347,418 shares of Common Stock at an exercise price equal to $8.52 and could have been exercised for cash only. The Series B-1 Warrants expired in January 2020.
The Series B-2 Warrants are exercisable by the holders at any time prior to the twelve-month anniversary of the Closing Date, as adjusted pursuant to the terms of the Series B-2 Warrants. The Series B-2 Warrants provide the holders the right to purchase an aggregate of up to 1,121,076 shares of Common Stock at an exercise price equal to $8.92 and may be exercised for cash only. If all of the Series B-2 Warrants have not been exercised prior to their expiration date, the Company will have the right, subject to prior notice to the holders and certain equity, volume and other conditions, to force the exercise of any unexercised portion of the Series B-2 Warrants by such holders. Key conditions that may impact the ability of the Company to force the exercise of these warrants include a $3.96 minimum for the VWAP of the Common Stock leading up to the forced exercise date, a minimum threshold for trading volume, and the maintained effectiveness of a registration statement with the SEC. The forced exercise price for the Series B-2 Warrants, if applicable, will be 85.0% of the VWAP of the Common Stock on the date immediately preceding the expiration date of the Series B-2 Warrants.

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The Series A Warrants are exercisable for a period of five years from the Closing Date and are currently exercisable into 5,457,026 shares of Common Stock, which is equal to the Initial Shares plus the number of shares issued pursuant to the exercise of the Series C Warrants (described below). The exercise price for the Series A Warrants is $12.00. The Series A Warrants may be exercised for cash or through a net settlement feature.
The Series C Warrants are partially prepaid warrants (with a nominal remaining exercise price) that were not exercisable before September 21, 2019 and expire 90 days after the first anniversary of the Closing Date. CVI exercised the Series C Warrants on October 10, 2019. Because the VWAP of the Common Stock as of the date of exercise, discounted by 7.5%, was less than CVI's purchase price for the Initial Shares, the Company was required to issue to CVI a number of shares of Common Stock equal to (i) (x) CVI's purchase price for the Initial Shares divided by (y) 92.5% of the VWAP of the Common Stock leading up to September 21, 2019, subject to a floor of 50.0% of the price per Initial Share, less (ii) the number of Initial Shares issued to CVI on the Closing Date. As a result of this exercise, the Company issued 2,728,513 shares of Common Stock to CVI on October 14, 2019. In addition, the number of shares issuable under the Company's Series A Warrants was increased by 2,728,513.
The exercise prices for the Series A and Series B-2 Warrants are subject to anti-dilution adjustment in certain circumstances. In addition, if and to the extent the exercise of any warrants would, together with the issuances of the Initial Shares and the shares issued pursuant to the exercise of any other warrants, result in the issuance of 20.0% or more of the outstanding Common Stock of the Company on the Closing Date (the "Exchange Cap"), the Company intends to, in lieu of issuing such shares, settle the obligation to issue such shares in cash.
In addition, CVI will not have the right to exercise any warrant that would result in CVI beneficially owning more than 4.99% of the outstanding Common Stock after giving effect to such exercise. CVI has the right, in its discretion, to raise this threshold up to 9.99% with 60 days' notice to the Company. If any forced exercise of the Series B-2 Warrants would result in CVI beneficially owning more than 4.99% of the outstanding Common Stock, CVI will pay the applicable forced exercise price and no shares of Common Stock will be issued, but instead the aggregate number of shares of Common Stock issuable upon any exercise of the Series C Warrants will increase by an equal amount.
Pursuant to the transactions described above, the Company agreed to a 105-day lock-up period related to any future offering of equity or equity-linked securities and also agreed to provide CVI with registration rights relating to the Initial Shares and any shares issuable upon the exercise of the warrants. On June 26, 2019, the Company filed a prospectus supplement to its effective registration statement on Form S-3 to permit the resale of such shares.
Management determined each warrant to be a freestanding financial instrument that qualifies for liability treatment as a result of net cash settlement features associated with the Exchange Cap provision or upon a change in control. Each warrant is initially measured at fair value and classified as a current liability on the Condensed Consolidated Balance Sheet, with subsequent changes in fair value recorded in earnings. To determine the fair value of each warrant, management utilized a Monte Carlo simulation analysis within an option pricing model.
The estimated fair value of the warrants as of March 31, 2020 was $3.1 million. Refer to Footnote 6, Fair Value Measurements, for further information on the Level 3 inputs utilized for the determination of the fair value of the warrants.

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