Item 1. – Financial Statements
Cision Ltd. and its Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share and share
amounts)
(Unaudited)
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
82,913
|
|
|
$
|
104,769
|
|
Accounts receivable, net
|
|
|
140,024
|
|
|
|
120,882
|
|
Prepaid expenses and other current assets
|
|
|
32,311
|
|
|
|
22,824
|
|
Total current assets
|
|
|
255,248
|
|
|
|
248,475
|
|
Property and equipment, net
|
|
|
60,496
|
|
|
|
57,210
|
|
Other intangible assets, net
|
|
|
427,393
|
|
|
|
377,146
|
|
Goodwill
|
|
|
1,426,470
|
|
|
|
1,171,859
|
|
Operating lease right-to-use assets
|
|
|
65,737
|
|
|
|
-
|
|
Deferred tax asset
|
|
|
4,101
|
|
|
|
4,034
|
|
Other assets
|
|
|
8,762
|
|
|
|
7,652
|
|
Total assets
|
|
$
|
2,248,207
|
|
|
$
|
1,866,376
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
13,953
|
|
|
$
|
13,210
|
|
Accounts payable
|
|
|
15,265
|
|
|
|
15,603
|
|
Accrued compensation and benefits
|
|
|
37,745
|
|
|
|
29,323
|
|
Operating lease liabilities
|
|
|
14,626
|
|
|
|
-
|
|
Other accrued expenses
|
|
|
80,936
|
|
|
|
82,507
|
|
Current portion of deferred revenue
|
|
|
170,588
|
|
|
|
139,725
|
|
Total current liabilities
|
|
|
333,113
|
|
|
|
280,368
|
|
Long-term debt, net of current portion
|
|
|
1,271,218
|
|
|
|
1,205,760
|
|
Deferred revenue, net of current portion
|
|
|
1,130
|
|
|
|
1,098
|
|
Operating lease liabilities, net of current portion
|
|
|
66,206
|
|
|
|
-
|
|
Deferred tax liability
|
|
|
74,407
|
|
|
|
69,232
|
|
Other liabilities
|
|
|
10,738
|
|
|
|
21,601
|
|
Total liabilities
|
|
|
1,756,812
|
|
|
|
1,578,059
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 20,000,000 shares authorized; no shares issued and outstanding at March 31, 2019 and December 31, 2018
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.0001 par value, 480,000,000 shares authorized; 148,328,727 and 132,716,541 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
|
|
|
15
|
|
|
|
13
|
|
Additional paid-in capital
|
|
|
981,813
|
|
|
|
797,222
|
|
Accumulated other comprehensive loss
|
|
|
(62,090
|
)
|
|
|
(68,941
|
)
|
Accumulated deficit
|
|
|
(428,343
|
)
|
|
|
(439,977
|
)
|
Total stockholders' equity
|
|
|
491,395
|
|
|
|
288,317
|
|
Total liabilities and stockholders' equity
|
|
$
|
2,248,207
|
|
|
$
|
1,866,376
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
Cision Ltd. and its Subsidiaries
Condensed Consolidated Statements of
Operations and Comprehensive Income
(in thousands, except share and per share
amounts)
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
$
|
185,804
|
|
|
$
|
179,293
|
|
Cost of revenue
|
|
|
66,053
|
|
|
|
64,278
|
|
Gross profit
|
|
|
119,751
|
|
|
|
115,015
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
33,233
|
|
|
|
29,708
|
|
Research and development
|
|
|
8,543
|
|
|
|
6,700
|
|
General and administrative
|
|
|
51,965
|
|
|
|
46,222
|
|
Amortization of intangible assets
|
|
|
18,811
|
|
|
|
20,250
|
|
Total operating costs and expenses
|
|
|
112,552
|
|
|
|
102,880
|
|
Operating income
|
|
|
7,199
|
|
|
|
12,135
|
|
Non operating income (expense):
|
|
|
|
|
|
|
|
|
Foreign exchange gains (losses)
|
|
|
3,082
|
|
|
|
(7,883
|
)
|
Interest and other income (loss), net
|
|
|
317
|
|
|
|
(256
|
)
|
Gain on sale of business
|
|
|
28,144
|
|
|
|
-
|
|
Interest expense
|
|
|
(19,273
|
)
|
|
|
(19,688
|
)
|
Loss on extinguishment of debt
|
|
|
(355
|
)
|
|
|
(2,432
|
)
|
Total non operating income (loss)
|
|
|
11,915
|
|
|
|
(30,259
|
)
|
Income (loss) before income taxes
|
|
|
19,114
|
|
|
|
(18,124
|
)
|
Provision for (benefit from) income taxes
|
|
|
7,480
|
|
|
|
(17,682
|
)
|
Net income (loss)
|
|
$
|
11,634
|
|
|
$
|
(442
|
)
|
Other comprehensive income – foreign currency translation adjustments
|
|
|
6,851
|
|
|
|
7,075
|
|
Comprehensive income
|
|
$
|
18,485
|
|
|
$
|
6,633
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.08
|
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
(0.00
|
)
|
Weighted-average shares outstanding used in computing per share amounts:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
145,413,574
|
|
|
|
123,946,264
|
|
Diluted
|
|
|
146,356,683
|
|
|
|
123,946,264
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
Cision Ltd. and its Subsidiaries
Condensed Consolidated Statements of
Stockholders’ Equity (Deficit)
(in thousands, except share and per share
amounts)
(Unaudited)
|
|
Share
Capital
|
|
|
Additional Paid-in
|
|
|
Accumulated
Other
|
|
|
Accumulated
|
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
$
|
|
|
Capital
|
|
|
Comprehensive
Loss
|
|
|
Deficit
|
|
|
Equity
(Deficit)
|
|
Balances at December 31,
2017
|
|
|
122,634,922
|
|
|
$
|
12
|
|
|
$
|
771,813
|
|
|
$
|
(35,111
|
)
|
|
$
|
(420,345
|
)
|
|
$
|
316,369
|
|
Adoption of new accounting
standards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(986
|
)
|
|
|
4,762
|
|
|
|
3,776
|
|
Issuance of shares for acquisition
|
|
|
1,735,269
|
|
|
|
-
|
|
|
|
20,144
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,144
|
|
Vesting of RSU’s
|
|
|
375
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Equity-based compensation
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
1,341
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,341
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(442
|
)
|
|
|
(442
|
)
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,075
|
|
|
|
-
|
|
|
|
7,075
|
|
Balances at March
31, 2018
|
|
|
124,370,566
|
|
|
$
|
12
|
|
|
$
|
793,298
|
|
|
$
|
(29,022
|
)
|
|
$
|
(416,025
|
)
|
|
$
|
348,263
|
|
|
|
Share
Capital
|
|
|
Additional Paid-in
|
|
|
Accumulated
Other
|
|
|
Accumulated
|
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
$
|
|
|
Capital
|
|
|
Comprehensive
Loss
|
|
|
Deficit
|
|
|
Equity
(Deficit)
|
|
Balances at December 31,
2018
|
|
|
132,716,541
|
|
|
$
|
13
|
|
|
$
|
797,222
|
|
|
$
|
(68,941
|
)
|
|
$
|
(439,977
|
)
|
|
$
|
288,317
|
|
Issuance of shares for acquisitions
|
|
|
15,591,186
|
|
|
|
2
|
|
|
|
182,246
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182,248
|
|
Vesting of RSU’s
|
|
|
375
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercise of stock options
|
|
|
20,625
|
|
|
|
-
|
|
|
|
264
|
|
|
|
-
|
|
|
|
-
|
|
|
|
264
|
|
Equity-based compensation
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
2,081
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,081
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,634
|
|
|
|
11,634
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,851
|
|
|
|
-
|
|
|
|
6,851
|
|
Balances at March
31, 2019
|
|
|
148,328,727
|
|
|
$
|
15
|
|
|
$
|
981,813
|
|
|
$
|
(62,090
|
)
|
|
$
|
(428,343
|
)
|
|
$
|
491,395
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
Cision Ltd. and its Subsidiaries
Condensed Consolidated Statements of
Cash Flows
(in thousands)
(Unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
11,634
|
|
|
$
|
(442
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
31,021
|
|
|
|
33,277
|
|
Non-cash interest charges and amortization of debt discount and deferred financing costs
|
|
|
2,780
|
|
|
|
3,198
|
|
Equity-based compensation expense
|
|
|
2,081
|
|
|
|
1,341
|
|
Provision for doubtful accounts
|
|
|
267
|
|
|
|
1,572
|
|
Deferred income taxes
|
|
|
35
|
|
|
|
(18,791
|
)
|
Unrealized foreign currency (gains) losses
|
|
|
(3,008
|
)
|
|
|
7,864
|
|
Gain on sale of business
|
|
|
(28,144
|
)
|
|
|
—
|
|
Payment of contingent consideration
|
|
|
(4,296
|
)
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
60
|
|
Changes in operating assets and liabilities, net of effects of acquisitions and disposal:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(6,171
|
)
|
|
|
(6,812
|
)
|
Prepaid expenses and other current assets
|
|
|
(2,779
|
)
|
|
|
(2,950
|
)
|
Operating lease right-of-use assets
|
|
|
4,384
|
|
|
|
-
|
|
Other assets
|
|
|
(442
|
)
|
|
|
48
|
|
Accounts payable
|
|
|
(2,701
|
)
|
|
|
(443
|
)
|
Accrued compensation and benefits
|
|
|
5,098
|
|
|
|
(17
|
)
|
Other accrued expenses
|
|
|
(843
|
)
|
|
|
(3,330
|
)
|
Deferred revenue
|
|
|
18,420
|
|
|
|
20,853
|
|
Operating lease liabilities
|
|
|
(2,144
|
)
|
|
|
-
|
|
Other liabilities
|
|
|
3,701
|
|
|
|
875
|
|
Net cash provided by operating activities
|
|
|
28,893
|
|
|
|
36,303
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(4,377
|
)
|
|
|
(3,739
|
)
|
Software development costs
|
|
|
(7,954
|
)
|
|
|
(5,033
|
)
|
Acquisitions of businesses, net of cash and restricted cash acquired of $6,068 and $2,711
|
|
|
(148,541
|
)
|
|
|
(62,713
|
)
|
Proceeds from disposal of business
|
|
|
44,865
|
|
|
|
-
|
|
Other
|
|
|
21
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(115,986
|
)
|
|
|
(71,485
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
40,000
|
|
|
|
-
|
|
Repayment of revolving credit facility
|
|
|
(40,000
|
)
|
|
|
-
|
|
Proceeds from term credit facility, net of debt discount of $1,013
|
|
|
73,987
|
|
|
|
-
|
|
Repayments of term credit facility
|
|
|
(3,494
|
)
|
|
|
(3,362
|
)
|
Payments of deferred financing costs
|
|
|
(1,619
|
)
|
|
|
(131
|
)
|
Proceeds from the exercise of stock options
|
|
|
264
|
|
|
|
-
|
|
Payment of contingent consideration
|
|
|
(3,695
|
)
|
|
|
(2,873
|
)
|
Net cash provided by (used in) financing activities
|
|
|
65,443
|
|
|
|
(6,366
|
)
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
|
|
|
394
|
|
|
|
742
|
|
Decrease in cash, cash equivalents, and restricted cash
|
|
|
(21,256
|
)
|
|
|
(40,806
|
)
|
Cash, cash equivalents, and restricted cash
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
104,769
|
|
|
|
148,654
|
|
End of period
|
|
$
|
83,513
|
|
|
$
|
107,848
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
82,913
|
|
|
$
|
107,848
|
|
Restricted cash, included in prepaid expenses and other current assets
|
|
|
600
|
|
|
|
-
|
|
Total cash, cash equivalents, and restricted cash
|
|
$
|
83,513
|
|
|
$
|
107,848
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows information
|
|
|
|
|
|
|
|
|
Issuance of shares for acquisitions
|
|
|
182,248
|
|
|
|
20,143
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial
Statements
1. Organization
Cision Ltd., a Cayman Islands company and
its subsidiaries (collectively, “Cision”, or the “Company”), is a leading provider of cloud-based software,
media intelligence and distribution services, and other related professional services to the marketing and public relations industry.
Communications professionals use the Company’s products and services to identify and connect with media influencers, manage
industry relationships, create and distribute content, monitor media coverage, perform advanced analytics and measure the effectiveness
of their campaigns. The Company has primary offices in Chicago, Illinois, Beltsville, Maryland, Ann Arbor, Michigan, New York,
New York, Cleveland, Ohio, and Albuquerque, New Mexico with additional offices in the United States, as well as Australia, Brazil,
Canada, China, France, Germany, Hong Kong, India, Indonesia, Malaysia, Mexico, Portugal, Singapore, South Korea, Sweden, Taiwan,
the United Kingdom, and Vietnam.
On March 19, 2017, the Company entered
into a definitive agreement (the “Merger Agreement”) with Capitol Acquisition Corp. III (NASDAQ: CLAC; “Capitol”),
a public investment vehicle, whereby the parties agreed to merge, resulting in the Company becoming a publicly listed company.
This merger closed on June 29, 2017 (“Merger”), which resulted in the following (the “Transactions”):
|
·
|
Holders of 490,078 shares of Capitol common stock sold in its initial public offering exercised their rights to convert those shares to cash at a conversion price of approximately $10.04 per share, or an aggregate of approximately $4.9 million. The per share conversion price of approximately $10.04 for holders of public shares electing conversion was paid out of Capitol’s trust account, which had a balance immediately prior to the closing of approximately $326.3 million.
|
|
·
|
Of the remaining funds in the trust account: (i) approximately $16.2 million was used to pay Capitol’s transaction expenses and (ii) the balance of approximately $305.2 million was released to Cision to be used for working capital and general corporate purposes, including to pay down $294.0 million of the 2016 Second Lien Credit Facility, plus a 1% fee and interest. The debt repayment occurred in July 2017.
|
|
·
|
Immediately after giving effect to the Transactions (including as a result of the conversions described above and certain forfeitures of Capitol common stock and warrants immediately prior to the closing), there were 120,512,402 shares of common stock and warrants to purchase 24,375,596 shares of common stock of Cision issued and outstanding. During the year ended December 31, 2018, all warrants were converted to 6,342,989 common shares.
|
|
·
|
Upon the closing, Capitol’s common stock, warrants and units ceased trading, and Cision’s common stock and warrants began trading on the NYSE and NYSE MKT, respectively, under the symbol “CISN” and “CISN WS,” respectively.
|
|
·
|
Upon the completion of the Transactions, Canyon Holdings (Cayman), L.P., (“Cision Owner”) an exempted limited partnership formed for the purpose of owning and acquiring Cision through a series of transactions, received 82,075,873 shares of common stock of the Company and 1,969,841 warrants to purchase common stock of the Company, in exchange for all of the share capital and $450.5 million in Convertible Preferred Equity Certificates (“CPECs”) of Cision. Cision Owner also obtained the right to receive certain additional securities of the Company upon the occurrence of certain events. As a result of the Company’s share price meeting certain milestones set forth in the Merger Agreement in October 2017 and September 2018 the Company issued an aggregate of 4,000,000 shares to Cision Owner.
|
|
·
|
At the closing of the Transactions, Cision Owner held approximately 68% of the issued and outstanding common stock of the Company and stockholders of Capitol held approximately 32% of the issued and outstanding shares of the Company. During the year ended December 31, 2018, Cision Owner initiated a series of transactions that resulted in its holding dropping below 50% of the issued and outstanding ordinary shares of the Company; causing the Company to cease to qualify as a “controlled company” under the New York Stock Exchange listing standards.
|
The Merger Agreement, the Transactions
and items related thereto are more fully described in the Company’s proxy statement/prospectus filed on June 15, 2017.
Notes to Condensed Consolidated Financial
Statements (continued)
2. Significant Accounting Policies
Basis of Presentation and Earnings
per Share
The accompanying consolidated financial
statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes
required by GAAP. In the opinion of management, all adjustments (consisting of normal accruals) considered for a fair statement
have been included. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated
balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date, but does
not include all disclosures including notes required by GAAP. Operating results for the three months ended March 31, 2019 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2019 or any other period. The accompanying
unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form
10-K filed on March 1, 2019.
Certain prior period amounts have been
adjusted to conform with the adoption of ASU 2014-09,
Revenue from Contracts with Customers
(Topic 606 or the “new
revenue standard”) during the fourth quarter of 2018, effective as of January 1, 2018.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make certain estimates and assumptions. On an on-going basis, the Company evaluates
its estimates, including, but not limited to, those related to the allowance for doubtful accounts, software development costs,
useful lives of property, equipment and internal use software, intangible assets and goodwill, contingent liabilities, and fair
value of equity-based awards and income taxes. The Company bases its estimates on various assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities
as well as the reported amounts of revenues and expenses during the period. Actual results could differ from these estimates.
Fair Value Measurements
The Company measures certain financial
assets and liabilities at fair value pursuant to a fair value hierarchy based on inputs to valuation techniques that are used to
measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would
use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a
reporting entity’s pricing based upon its own market assumptions. The fair value hierarchy consists of the following three
levels:
Level 1
|
|
Inputs are quoted prices in active markets for identical assets or liabilities.
|
|
|
|
Level 2
|
|
Inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
|
|
|
|
Level 3
|
|
Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
|
Revenue Recognition
The Company accounts
for revenue contracts with customers by applying the requirements of Accounting Standards Codification Topic 606,
Revenue
from Contracts with Customers
(Topic 606), which includes the following steps:
•
|
Identification of the contract, or contracts with a customer.
|
•
|
Identification of the performance obligations in the contract.
|
•
|
Determination of the transaction price.
|
•
|
Allocation of the transaction price to the performance obligations in the contract.
|
•
|
Recognition of the revenue when, or as, the Company satisfies a performance obligation.
|
The Company derives its revenue from access
to its cloud based technology platform and related media management and analysis services sold on a subscription basis. Revenue
is also derived from the distribution of press releases on both a subscription basis and separately from non-subscription arrangements.
Dependent on the nature of the distribution contract with the customer, the Company recognizes revenue on subscription basis over
the contract term of the subscription, or on a per-transaction basis when the press releases are made available to the public.
Subscription services include access to
the Company’s software platform and associated hosting services, content and content updates, customer support and media
management and analysis services. Subscription services are recognized ratably over the contractual period that the services are
delivered, beginning on the date in which such service is made available to the customer. Subscription agreements are typically
one year in length and are non-cancelable, though customers have the right to terminate their agreements if the Company materially
breaches its obligations under the agreement. Software subscription agreements do not provide customers the right to take possession
of the software at any time. The Company does not charge customers an upfront fee for use of the platform and implementation activities
are insignificant and not subject to a separate fee. In certain cases, the Company charges annual membership fees which are recognized
ratably over the one-year membership period.
The Company accounts for a contract when
both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can
be identified and payment terms can be identified, the contract has commercial substance and it is probable that the Company will
collect substantially all of the consideration. Revenue is recognized when, or as, performance obligations are satisfied by transferring
control of the promised service to a customer. The transaction price for subscription arrangements and services is generally fixed
at contract inception. The Company’s standard payment terms are generally net 30 days. For transaction-based services, which
predominantly comprise press release distributions, customers are invoiced in the month the release is made available to the public.
In the event that a customer arrangement
contains multiple services, the Company determines whether such goods or services are distinct performance obligations that should
be accounted for separately in the arrangement. When arrangements contain multiple performance obligations, further evaluation
is usually not required given such performance obligations are generally recognized over time using the same measure of progress
and thus, are accounted for as a single performance obligation. Otherwise, when allocating the transaction price in the arrangement,
the Company uses the estimated standalone selling price of each distinct performance obligation. In order to estimate the standalone
selling prices, the Company relies on the price charged for stand-alone sales, expected cost plus margin and adjusted market assessment
approaches. Revenue is then recognized over the pattern of performance as each obligation is satisfied as discussed above.
As of March 31, 2019, the Company’s
remaining performance obligations were $171.7 million, approximately 99.3% of which is expected to be recognized as revenue over
the next twelve months and the remainder thereafter. During the three months ended March 31, 2019, the Company recognized $63.7
million in revenue that was recorded as deferred revenue as of December 31, 2018.
Notes to Condensed Consolidated Financial
Statements (continued)
Recent Accounting Pronouncements
New Accounting Pronouncements Adopted
We adopted ASU
No. 2016-02,
Leases (Topic 842)
, as of January 1, 2019, using the effective date method for the modified retrospective
approach. Comparative periods were not restated. In addition, the Company elected the package of practical expedients permitted
under the transaction guidance within the new standard, which among other things, allowed us to carry forward the historical lease
classification. The Company also elected the practical expedients pertaining to short-term lease exemptions at transition and going
forward. For office leases beginning in 2019 and later, the Company accounts for lease components (components of a contract for
which the Company economically benefits from their use and is not highly interrelated with other right of use assets underlying
the contract such as base rent) separately from the non-lease components (e.g., common-area maintenance costs). For datacenter
leases beginning in 2019 and later, the Company elected the practical expedient to combine its lease and non-lease components that
meet the defined criteria and will account for the lease component under Topic 842.
Topic 842 includes
multiple changes with one of the most significant impacts being the addition of a right-to-use (“ROU”) asset and a
lease liability to the balance sheet for operating leases. A ROU asset represents the Company’s right to use an underlying
asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the
lease. An additional change under Topic 842 is the lease term evaluation. Under Topic 842, a leasee shall extend the lease term
beyond the original contract term if the company is reasonably certain to exercise their renewal option.
The adoption of
the new standard resulted in the recording of ROU assets and lease liabilities of approximately $73.2 million and $85.3
million, respectively, as of January 1, 2019. The ROU asset is net of prepaid expenses of $(0.2) million and deferred rent of $12.3
million which was included in other accrued expenses of $1.8 million and other liabilities of $10.5 million on the consolidated
balance sheets as of December 31, 2018. The standard did not materially impact our consolidated net earnings and had no impact
on cash flows. The adoption of the new standard also resulted in significant additional disclosures regarding the Company’s
leasing activities, as discussed in Note 5.
In February 2018, the FASB issued ASU
2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income, which will allow a reclassification from accumulated other comprehensive income to retained earnings
for the tax effects resulting from “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution
on the Budget for Fiscal Year 2018” (the “Act”) that are stranded in accumulated other comprehensive income.
This ASU also requires certain disclosures about stranded tax effects; however, it does not change the underlying guidance that
requires that the effect of a change in tax laws or rates be included in income from continuing operations. This ASU is effective
on January 1, 2019, with early adoption permitted. It must be applied either in the period of adoption or retrospectively to each
period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company
adopted ASU 2018-02 during the first quarter of 2019 and it did not have a material impact on the Company’s condensed consolidated
financial statements.
Recent Accounting Pronouncements Not Yet Effective
In August 2018, the FASB issued ASU
2018-13,
Fair Value Measurement (Topic 820)
, which modifies the disclosure requirements related to fair value measurements.
The ASU eliminates the requirement to disclosure and amount and reasons for transfers between Level 1 and Level 2 fair value hierarchy,
the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. Entities will
now be required to disclose the changes in unrealized gains and losses included in other comprehensive income for recurring Level
3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value
measurements. This ASU is effective for fiscal years beginning after December 15, 2019, early adoption is permitted. The Company
is in the process of evaluating the impact of this standard on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14,
Compensation – Retirement Benefits- Defined Benefit Plans – General (Subtopic 715-20)
, which modifies the disclosure
requirements for defined benefit pensions and other postretirement plans. The ASU adds and removes disclosure requirements from
the current standard in an effort to improve the effectiveness of retirement benefit disclosures. The ASU is effective for fiscal
years ended after December 15, 2020, early adoption is permitted. The Company is in the process of evaluating the impact of this
standard on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15,
Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)
, which clarifies the accounting for
costs of implementing a cloud computing service arrangement. The ASU requires companies to capitalize the implementation costs
associated with cloud computing service arrangements, regardless as to whether the contract contains a license. The ASU is effective
for annual periods in 2020, including interim periods. The Company is in the process of evaluating the impact of this standard
on its consolidated financial statements.
Notes to Condensed Consolidated Financial
Statements (continued)
3. Business Combinations and Dispositions
Purchase of Prime
On January 23, 2018, the Company
completed its acquisition of PRIME Research (“Prime”). The purchase price was approximately €75.7 million
($94.1 million) and consisted of approximately €53.1 million ($65.4 million) in cash consideration, the issuance of
approximately 1.7 million shares of common stock valued at €16.4 million ($20.1 million), and up to €6.2 million
($8.6 million) of deferred payments due within 18 months. The Company has the discretion to pay up to €2.5 million ($3.1
million) of the deferred payments with common stock. The acquisition of Prime expanded the Company’s comprehensive
data-driven offerings that help communications professionals identify influencers, craft meaningful campaigns, and attribute
business value to those efforts. At the date of the acquisition, Prime had over 700 employees with offices in Brazil, China,
Germany, India, Switzerland, the United Kingdom, and the United States.
Total acquisition costs related to the
Prime acquisition were $5.4 million of which $2.3 million were incurred during the year ended December 31, 2018 and were included
in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss. The acquisition
was accounted for under the purchase method of accounting. The operating results are included in the accompanying condensed consolidated
financial statements from January 23, 2018.
The purchase price has been preliminarily
allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date.
The following table summarizes the preliminary
allocation of the purchase price by the Company to the fair value of the assets and liabilities of Prime. The amounts related to
taxes and intangible assets shown below are preliminary and subject to adjustment as additional information is obtained about the
facts and circumstances that existed at the date of acquisition. The identifiable intangible assets include the trade name, customer
relationships and purchased technology and are being amortized over three to eleven years on an accelerated basis. The Company
completed the purchase price allocation in January 2019.
(in thousands)
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,711
|
|
Accounts receivable, net
|
|
|
8,186
|
|
Prepaid and other assets
|
|
|
1,320
|
|
Property, equipment and software, net
|
|
|
1,207
|
|
Trade name
|
|
|
1,436
|
|
Customer relationships
|
|
|
17,903
|
|
Purchased technology
|
|
|
9,881
|
|
Goodwill
|
|
|
57,465
|
|
Total assets acquired
|
|
|
100,109
|
|
Accounts payable, accrued liabilities, and other liabilities
|
|
|
(5,627
|
)
|
Deferred revenue
|
|
|
(426
|
)
|
Total liabilities assumed
|
|
|
(6,053
|
)
|
Net assets acquired
|
|
$
|
94,056
|
|
Approximately $39.6 million of goodwill
is deductible for tax purposes. The excess of the purchase price over the total net identifiable assets has been recorded as goodwill
which is primarily attributable to synergies expected from the expanded technology and service capabilities from the integrated
business as well as the value of the assembled workforce in accordance with GAAP.
Other 2018 Acquisition
During the third quarter of 2018, the Company
purchased certain immaterial technology and development assets to expand its products and services offerings, and the results of
this acquisition have been included in the consolidated results from the acquisition date. The estimate of fair value for the assets
acquired and liabilities assumed was based upon a preliminary calculation and valuation and is subject to change as additional
information related to estimates during the measurement period is obtained (up to one year from the acquisition date). The primary
areas of those preliminary estimates relate to certain identifiable intangible assets and goodwill.
Notes to Condensed Consolidated Financial
Statements (continued)
Purchase of Falcon
On January 3, 2019, the Company completed its acquisition of
Falcon.io (“Falcon”). The purchase price was approximately €102.4 million ($117.8 million) and consisted of approximately
€52.6 million ($60.5 million) in cash consideration, the issuance of approximately 5.1 million ordinary shares valued at
€49.8 million ($57.3 million), and up to €5.2 million ($6.0 million) of deferred payments due within 12 months in cash
of €2.4 million ($2.8 million) and ordinary shares of €2.8 million ($3.2 million). The cash portion of the consideration
was funded with a combination of cash on hand and borrowings under the Company’s Revolving Credit Facility. The Company
drew approximately $40.0 million under its Revolving Credit Facility in connection with the closing of the Falcon acquisition,
all of which was repaid during the quarter ended March 31, 2019. The acquisition of Falcon solidifies the Company’s market
leadership in driving the future of earned media management, moving beyond the tactical nature of PR point solutions. At the date
of the acquisition, Falcon had over 250 employees with offices in Denmark, Germany, Hungry, Australia, Bulgaria, and the United
States.
Total acquisition costs related to the
Falcon acquisition were $2.4 million of which $2.0 million were incurred during the three months ended March 31, 2019 and are
included in general and administrative expense in the condensed consolidated statements of operations and comprehensive income. The
acquisition was accounted for under the purchase method of accounting. The operating results are included in the accompanying condensed
consolidated financial statements from January 3, 2019.
The purchase price has been preliminarily
allocated to the assets acquired and liabilities assumed based on estimated fair values as of the acquisition date.
The following table summarizes the preliminary
allocation of the purchase price by the Company to the fair value of the assets and liabilities of Falcon. The amounts related
to taxes and intangible assets shown below are preliminary and subject to adjustment as additional information is obtained about
the facts and circumstances that existed at the date of acquisition. The identifiable intangible assets include the trade name,
customer relationships and purchased technology and are being amortized over three to seven years on an accelerated basis. The
Company expects to complete the purchase price allocation on or before January 3, 2020.
(in thousands)
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,492
|
|
Accounts receivable, net
|
|
|
5,575
|
|
Prepaid and other assets
|
|
|
1,113
|
|
Property, equipment and software, net
|
|
|
204
|
|
Trade name
|
|
|
483
|
|
Customer relationships
|
|
|
33,825
|
|
Purchased technology
|
|
|
4,940
|
|
Goodwill
|
|
|
87,674
|
|
Total assets acquired
|
|
|
137,306
|
|
Accounts payable and accrued liabilities
|
|
|
(8,811
|
)
|
Deferred revenue
|
|
|
(7,627
|
)
|
Deferred taxes
|
|
|
(3,048
|
)
|
Total liabilities assumed
|
|
|
(19,486
|
)
|
Net assets acquired
|
|
$
|
117,820
|
|
Goodwill is not deductible for tax purposes.
The preliminary purchase price is subject to customary post-closing adjustments. The excess of the purchase price over the total
net identifiable assets has been recorded as goodwill which is primarily attributable to synergies expected from the expanded technology
and service capabilities from the integrated business as well as the value of the assembled workforce in accordance with GAAP.
Purchase of TrendKite
On January 23, 2019, the Company completed
its acquisition of TrendKite. The purchase price was approximately $219.0 million and consisted of approximately $94.1 million
in cash consideration, the issuance of approximately 10.3 million ordinary shares valued at $124.9 million, and up to $3.2 million
of deferred payments due in 12 months in cash of approximately $1.3 million and ordinary shares of approximately $1.9 million.
The cash portion of the consideration was funded with a combination of cash on hand and additional borrowing under the First Lien
Dollar Credit Facility, as disclosed in Note 6. The acquisition of TrendKite will enhance the ability of the Company’s customer
base to demonstrate and measure the business impact of their earned media. At the date of acquisition, TrendKite had over 200 employees
with offices in the United States and the United Kingdom.
Total acquisition costs related to the
TrendKite acquisition were $3.8 million of which $2.9 million were incurred during the three months ended March 31, 2019 and are
included in general and administrative expense in the condensed consolidated statements of operations and comprehensive income.
The acquisition was accounted for under the purchase method of accounting. The operating results are included in the accompanying
condensed consolidated financial statements from January 23, 2019.
The purchase price has been preliminarily
allocated to the assets acquired and liabilities assumed based on estimated fair values as of the acquisition date.
The following table summarizes the preliminary
allocation of the purchase price by the Company to the fair value of the assets and liabilities of TrendKite. The amounts related
to taxes and intangible assets shown below are preliminary and subject to adjustment as additional information is obtained about
the facts and circumstances that existed at the date of acquisition. The identifiable intangible assets include the trade name,
customer relationships and purchased technology and are being amortized over three to eleven years on an accelerated basis. The
Company expects to complete the purchase price allocation on or before January 23, 2020.
(in thousands)
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,976
|
|
Accounts receivable, net
|
|
|
7,714
|
|
Prepaid and other assets
|
|
|
1,676
|
|
Property, equipment and software, net
|
|
|
820
|
|
Trade name
|
|
|
380
|
|
Customer relationships
|
|
|
31,930
|
|
Purchased technology
|
|
|
4,915
|
|
Goodwill
|
|
|
185,108
|
|
Total assets acquired
|
|
|
234,519
|
|
Accounts payable and accrued liabilities
|
|
|
(4,611
|
)
|
Deferred revenue
|
|
|
(8,924
|
)
|
Deferred taxes
|
|
|
(2,025
|
)
|
Total liabilities assumed
|
|
|
(15,560
|
)
|
Net assets acquired
|
|
$
|
218,959
|
|
Goodwill is not deductible for tax purposes.
The preliminary purchase price is subject to customary post-closing adjustments. The excess of the purchase price over the total
net identifiable assets has been recorded as goodwill which is primarily attributable to synergies expected from the expanded technology
and service capabilities from the integrated business as well as the value of the assembled workforce in accordance with GAAP.
Notes to Condensed Consolidated Financial
Statements (continued)
Sale of iContact
On January 22, 2019 the Company sold its
email marketing business for approximately $49.3 million of cash consideration, net of working capital adjustments, with up to
an additional $4.0 million in cash based upon meeting certain business performance measures over the next 12 months. The fair value of the contingent consideration was $1.9 million based on the net present value of future cash flows using
internal models. The Company
used the proceeds to pay down the Revolving Credit Facility.
Supplemental Unaudited Pro Forma
Information
The acquired entities of Prime, Falcon
and TrendKite together contributed revenue of $21.8 million and $9.3 million for the three months ended March 31, 2019 and 2018,
respectively. Net income or loss from these acquisitions for the same period is impracticable to determine due to the extent of
integration activities.
The unaudited pro forma information
below gives effect to the acquisition of Prime as if it had occurred as of January 1, 2017 and Falcon and TrendKite as if they had occurred as of January 1, 2018. The pro forma results exclude the other acquisition in 2018 discussed
above, as it was deemed not material. The pro forma results presented below show the impact of the acquisitions and related
costs as well as the increase in interest expense related to acquisition-related debt.
|
|
Three months ended March 31,
|
|
(in thousands, except per share data)
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
$
|
190,581
|
|
|
$
|
193,475
|
|
Net income (loss)
|
|
|
15,400
|
|
|
|
(6,612
|
)
|
Net income (loss) per share - basic
|
|
|
0.10
|
|
|
|
(0.05
|
)
|
Net income (loss) per share - diluted
|
|
|
0.10
|
|
|
|
(0.05
|
)
|
4. Goodwill and Intangibles
Changes in the carrying amounts of goodwill
since December 31, 2018 consisted of the following:
(in thousands)
|
|
|
|
Balance as of December 31, 2018
|
|
$
|
1,171,859
|
|
Acquisition of Falcon
|
|
|
87,674
|
|
Acquisition of TrendKite
|
|
|
185,108
|
|
Sale of iContact
|
|
|
(21,289
|
)
|
Effects of foreign currency
|
|
|
3,118
|
|
Balance as of March 31, 2019
|
|
$
|
1,426,470
|
|
Definite-lived intangible assets consisted
of the following at March 31, 2019 and December 31, 2018:
|
|
March 31, 2019
|
|
(in thousands)
|
|
Gross
Carrying
Amount
|
|
|
Foreign
Currency
Translation
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Trade names and brand
|
|
$
|
370,873
|
|
|
$
|
(7,065
|
)
|
|
$
|
(123,807
|
)
|
|
$
|
240,001
|
|
Customer relationships
|
|
|
357,958
|
|
|
|
(18,339
|
)
|
|
|
(184,985
|
)
|
|
|
154,634
|
|
Purchased technology
|
|
|
138,746
|
|
|
|
(7,079
|
)
|
|
|
(98,909
|
)
|
|
|
32,758
|
|
Balances at March 31, 2019
|
|
$
|
867,577
|
|
|
$
|
(32,483
|
)
|
|
$
|
(407,701
|
)
|
|
$
|
427,393
|
|
Notes to Condensed Consolidated Financial
Statements (continued)
|
|
December 31, 2018
|
|
(in thousands)
|
|
Gross
Carrying
Amount
|
|
|
Foreign
Currency
Translation
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Trade names and brand
|
|
$
|
372,010
|
|
|
$
|
(8,143
|
)
|
|
$
|
(115,954
|
)
|
|
$
|
247,913
|
|
Customer relationships
|
|
|
321,862
|
|
|
|
(18,967
|
)
|
|
|
(203,031
|
)
|
|
|
99,864
|
|
Purchased technology
|
|
|
145,951
|
|
|
|
(7,408
|
)
|
|
|
(109,174
|
)
|
|
|
29,369
|
|
Balances at December 31, 2018
|
|
$
|
839,823
|
|
|
$
|
(34,518
|
)
|
|
$
|
(428,159
|
)
|
|
$
|
377,146
|
|
Weighted-average useful life at March 31, 2019
|
|
Years
|
|
Trade names and brand
|
|
|
11.5
|
|
Customer relationships
|
|
|
6.6
|
|
Purchased technology
|
|
|
3.1
|
|
Future expected amortization of intangible
assets at March 31, 2019 is as follows:
(in thousands)
|
|
|
|
Remainder of 2019
|
|
$
|
72,604
|
|
2020
|
|
|
84,679
|
|
2021
|
|
|
66,363
|
|
2022
|
|
|
48,423
|
|
2023
|
|
|
35,223
|
|
Thereafter
|
|
|
120,101
|
|
|
|
$
|
427,393
|
|
5. Leases
The Company has various non-cancelable
operating leases, primarily related to office real estate and datacenters, that expire through 2035 and generally contain renewal
options for up to five years. Under ASC 842, the lease term includes options to extend or terminate the lease when the Company
is reasonably certain that it will exercise the option. The Company will monitor events or changes in circumstances that impact
the timing or amount of future lease payments and will adjust the lease liability and corresponding ROU asset as necessary. For
office leases beginning in 2019 and later, the Company accounts for lease components (components of a contract for which the Company
economically benefits from their use and is not highly interrelated with other right of use assets underlying the contract such
as base rent) separately from the non-lease components (e.g., common-area maintenance costs). For datacenter leases beginning
in 2019 and later, the Company elected the practical expedient to combine its lease and non-lease components that meet the defined
criteria and will account for the lease component under Topic 842. The Company has no significant financing leases. Lastly,
the Company has not entered into any future office space leases that will create significant rights and obligations for the Company.
At inception of
a contract, the Company determines if the contract contains a lease based on requirements of ASC 842. If a lease with a term greater
than 1 year is identified, the Company will add a ROU asset and lease liability to the balance sheet. The Company has elected the
practical expedient and expenses all leases with a contract term of 1 year or less. The Company recognizes a lease liability based
on the net present value of total lease payments which utilizes an implicit discount rate based on the Company’s collateralized
borrowing rate placed on a yield curve. The incremental borrowing rate for a lease is the rate of interest the Company would have
to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. To derive the ROU asset,
the Company makes required adjustments, such as indirect costs and prepaid or deferred balances, to the lease liability. We recognize
operating lease expense on a straight-line basis over the term of the lease within operating expenses and cost of revenue.
Lease Cost (in thousands)
|
|
Three Months Ended
March 31, 2019
|
|
|
|
|
|
Operating lease cost
|
|
$
|
5,766
|
|
Short-term lease cost
|
|
|
612
|
|
Variable lease cost
|
|
|
1,116
|
|
Sublease income
|
|
|
(181
|
)
|
Total lease cost
|
|
$
|
7,313
|
|
Operating leases (thousands)
|
|
Classification
|
|
March 31, 2019
|
|
|
|
|
|
|
|
Operating right-of-use assets
|
|
Operating right-of-use assets
|
|
$
|
65,737
|
|
|
|
|
|
|
|
|
Operating lease liabilities
(current)
|
|
Operating lease liabilities (current)
|
|
|
14,626
|
|
Operating lease liabilities
(net of current portion)
|
|
Operating lease liabilities
(net of current portion)
|
|
|
66,206
|
|
Total operating lease liabilities
|
|
|
|
$
|
80,832
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
|
7.0 years
|
|
Weighted average discount rate
|
|
|
|
|
5.1
|
%
|
The following is a schedule, by years, of maturities of lease
liabilities as of March 31, 2019 (in thousands):
Remainder of 2019
|
|
$
|
13,466
|
|
2020
|
|
|
16,617
|
|
2021
|
|
|
13,991
|
|
2022
|
|
|
12,229
|
|
2023
|
|
|
8,497
|
|
Thereafter
|
|
|
32,803
|
|
Total lease payments
|
|
|
97,603
|
|
Less: imputed interest
|
|
|
(16,771
|
)
|
Present value of lease liabilities
|
|
$
|
80,832
|
|
As previously disclosed in our 2018 Form 10-K and under the previous lease accounting standard, future minimum lease payments
under non-cancelable operating leases as of December 31, 2018 were as follows (in thousands):
2019
|
|
$
|
16,288
|
|
2020
|
|
|
15,682
|
|
2021
|
|
|
13,416
|
|
2022
|
|
|
12,494
|
|
2023
|
|
|
8,806
|
|
Thereafter
|
|
|
27,773
|
|
Total future minimum payments
|
|
$
|
94,459
|
|
|
|
Three Months Ended
March 31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
4,025
|
|
ROU assets obtained in exchange for new operating lease liabilities
|
|
|
|
|
Operating leases
|
|
$
|
(5,772
|
)
|
Notes to Condensed Consolidated Financial Statements (continued)
6. Debt
Debt consisted of the following at March
31, 2019 and December 31, 2018:
|
|
March 31, 2019
|
|
(in thousands)
|
|
Short-Term
|
|
|
Long-Term
|
|
|
Total
|
|
2017 First Lien Credit Facility
|
|
$
|
13,953
|
|
|
$
|
1,306,563
|
|
|
$
|
1,320,516
|
|
Unamortized debt discount and issuance costs
|
|
|
—
|
|
|
|
(35,345
|
)
|
|
|
(35,345
|
)
|
Balances at March 31, 2019
|
|
$
|
13,953
|
|
|
$
|
1,271,218
|
|
|
$
|
1,285,171
|
|
|
|
December 31, 2018
|
|
(in thousands)
|
|
Short-Term
|
|
|
Long-Term
|
|
|
Total
|
|
2017 First Lien Credit Facility
|
|
$
|
13,210
|
|
|
$
|
1,241,253
|
|
|
$
|
1,254,463
|
|
Unamortized debt discount and issuance costs
|
|
|
—
|
|
|
|
(35,493
|
)
|
|
|
(35,493
|
)
|
Balances at December 31, 2018
|
|
$
|
13,210
|
|
|
$
|
1,205,760
|
|
|
$
|
1,218,970
|
|
2017 First Lien Credit Facility
On August 4, 2017, the Company entered
into a refinancing amendment and incremental facility amendment (the “2017 First Lien Credit Facility”) to the 2016
First Lien Credit Facility, with Deutsche Bank AG, New York Branch, as administrative agent and collateral agent, and a syndicate
of commercial lenders. The 2017 First Lien Credit Facility provided for a tranche of refinancing term loans which refinanced the
term loans under the 2016 First Lien Credit Facility in full and provided for additional term loans of $131.2 million. Upon effectiveness
of the 2017 First Lien Credit Facility, the 2017 First Lien Credit Facility consists of:
|
(i)
|
a revolving credit facility, which permits borrowings and letters of credit of up to $75.0 million (the “2017 Revolving Credit Facility”), of which up to $25.0 million may be used or issued as standby and trade letters of credit;
|
|
(ii)
|
a $960.0 million Dollar-denominated term credit facility (the “2017 First Lien Dollar Term Credit Facility”); and
|
|
(iii)
|
a €250.0 million Euro-denominated term credit facility (the “2017 First Lien Euro Term Credit Facility”) and, together with the 2017 First Lien Dollar Term Credit Facility, the “2017 First Lien Term Credit Facility” and collectively with the 2017 Revolving Credit Facility, the “2017 First Lien Credit Facility”).
|
The Company used the proceeds from the
2017 First Lien Term Credit Facility to repay all amounts then outstanding under the 2016 First Lien Credit Facility, all amounts
outstanding under the 2016 Second Lien Credit Facility, pay all related fees and expenses, and retained remaining cash for general
corporate purposes. The Company terminated the 2016 Second Lien Credit Facility in connection with establishing the 2017 First
Lien Credit Facility.
On December 14, 2017, the Company amended
the 2017 First Lien Credit Facility to borrow an additional $75.0 million of 2017 First Lien Dollar Term Credit Facility. The Company
used the money for its acquisition of Prime Research Group.
On February 8, 2018, the Company completed
its debt repricing transaction on its 2017 First Lien Credit Facility. The margins on the term loans under the 2017 First Lien
Credit Facility were lowered for the alternate base rate, LIBOR rate and EURIBOR rate by 1.00%, 1.00% and 0.75%, respectively.
The 2017 Revolver Credit Facility margins were lowered for the alternate base rate, LIBOR rate and EURIBOR rate by 0.75%, 0.75%
and 0.50%, respectively. The Company incurred approximately $2.0 million in financing costs in connection with the February 2018
repricing of the 2017 First Lien Credit Facility of which $0.1 million are being amortized using the effective interest method.
As a result of this transaction, the Company recorded a loss on extinguishment of $2.4 million.
Notes to Condensed Consolidated Financial
Statements (continued)
On October 22, 2018, the Company completed
another debt repricing transaction on its 2017 First Lien Credit Facility. The margins for the term loans under the Company’s
2017 First Lien Credit Facility were lowered for the alternate base rate, LIBOR rate and EURIBOR rate each by 0.50%. The 2017 Revolving
Credit Facility margins were lowered for the alternate base rate, LIBOR rate, and EURIBOR rate each by 0.50%. The Company incurred
approximately $2.3 million in financing costs in connection with the October 2018 repricing of the 2017 First Lien Credit Facility,
of which $0.3 million are being amortized using the effective interest method. As a result of this transaction, the Company recorded
a loss on extinguishment of $7.0 million.
On December 28, 2018, the Company entered
into an Incremental Facility Amendment to increase the revolving credit facility by $25.0 million from $75.0 million to $100.0
million. The Company drew approximately $40.0 million of dollar borrowings under its Revolving Credit Facility in connection with
the closing of the Falcon acquisition, all of which was repaid during the quarter ended March 31, 2019.
On January 11, 2019, the Company amended
the 2017 First Lien Facility to borrow an additional $75.0 million of the 2017 First Lien Dollar Term Credit Facility. The Company
used the money for its acquisition of TrendKite. As a result of this transaction, the Company recorded a loss on extinguishment of $0.4 million.
The obligations under the 2017 First Lien
Credit Facility are collateralized by substantially all of the assets of Cision’s subsidiary, Canyon Companies S.à.r.l.
and each of its subsidiaries organized in the United States (or any state thereof), the United Kingdom, the Netherlands, Luxembourg,
and Ireland, subject to certain exceptions.
Interest is charged on U.S. dollar borrowings
under the 2017 First Lien Credit Facility, at the Company’s option, at a rate based on (1) the adjusted LIBOR (a rate equal
to the London interbank offered rate adjusted for statutory reserves) or (2) the alternate base rate (a rate that is highest of
the (i) Deutsche Bank AG, New York Branch’s prime lending rate, (ii) the overnight federal funds rate plus 50 basis points
or (iii) the one-month adjusted LIBOR plus 1%), in each case, plus an applicable margin.
The margin applicable to loans under the
2017 First Lien Dollar Term Credit Facility bearing interest at the alternate base rate is 3.25%; the margin applicable to loans
under the 2017 First Lien Dollar Term Credit Facility bearing interest at the adjusted LIBOR is 4.25%, provided that each such
rate is reduced by 25 basis points if the first lien net leverage ratio of Canyon Companies S.à.r.l. and its restricted
subsidiaries under the 2017 First Lien Credit Facility is less than or equal to 4.00:1.00 at the end of the most recent fiscal
quarter. Interest is charged on Euro borrowings under the 2017 First Lien Credit Facility at a rate based on the adjusted EURIBOR
(a rate equal to the Euro interbank offered rate adjusted for statutory reserves), plus an applicable margin. The margin applicable
to loans under the 2017 First Lien Euro Term Credit Facility bearing interest at the adjusted LIBOR is 4.25%, provided that each
such rate is reduced by 25 basis points if the first lien net leverage ratio of Canyon Companies S.à.r.l. and its restricted
subsidiaries under the 2017 First Lien Credit Facility is less than or equal to 4.00:1.00 at the end of the most recent fiscal
quarter. As of March 31, 2019, the applicable interest rate under the 2017 First Lien Dollar Term Credit Facility and the 2017
First Lien Euro Term Credit Facility was 5.35% and 3.00%, respectively.
The margin applicable to loans under the
2017 Revolving Credit Facility bearing interest at the alternate base rate, the adjusted LIBOR, and the adjusted Euro interbank
offered rate bear interest at rates of 3.00%, 4.00%, and 4.00% respectively; provided that each such rate is reduced by 25 basis
points if the first lien net leverage ratio of Canyon Companies S.à.r.l. and its restricted subsidiaries under the 2017
First Lien Credit Facility is less than or equal to 4.00:1.00 at the end of the most recent fiscal quarter. The maturity dates
of the 2017 Revolving Credit Facility and the 2017 First Lien Term Credit Facility are June 16, 2022 and June 16, 2023, respectively.
As of March 31, 2019, the Company had no
outstanding borrowings and $1.4 million of outstanding letters of credit under the 2017 Revolving Credit Facility and $1,320.5
million outstanding under the 2017 First Lien Credit Facility.
The Company began to make quarterly principal
payments starting December 31, 2017 under each of the 2017 First Lien Dollar Term Credit Facility of $2.8 million and the 2017
First Lien Euro Term Credit Facility of €0.6 million (which amount may be reduced by the application of voluntary and mandatory
prepayments pursuant to the terms of the 2017 First Lien Credit Facility), with the remaining balance due June 16, 2023.
Notes to Condensed Consolidated Financial
Statements (continued)
The Company may also be required to make
certain mandatory prepayments of the 2017 First Lien Credit Facility out of excess cash flow and upon the receipt of proceeds of
asset sales and certain insurance proceeds (in each case, subject to certain minimum dollar thresholds and rights to reinvest the
proceeds as set forth in the 2017 First Lien Credit Facility).
The 2017 First Lien Credit Facility includes
a total net leverage financial maintenance covenant. Such covenant requires that, as of the last day of each fiscal quarter, the
total net leverage ratio of Canyon Companies S.à.r.l. and its restricted subsidiaries under the 2017 First Lien Credit Facility
cannot exceed the applicable ratio set forth in the 2017 First Lien Credit Facility for such quarter (subject to certain rights
to cure any failure to meet such ratio as set forth in the 2017 First Lien Credit Facility). The 2017 First Lien Credit Facility
is also subject to certain customary affirmative covenants and negative covenants. Under the 2017 First Lien Credit Facility, the
Company’s subsidiaries have restrictions on making cash dividends, subject to certain exceptions, including that the subsidiaries
are permitted to declare and pay cash dividends: (a) in any amount, so long as the total net leverage ratio under the 2017 First
Lien Credit Facility would not exceed 3.75 to 1.00 after making such payment; (b) in an amount per annum not greater than 6.0%
of (i) the market capitalization of the Company’s common stock (based on the average closing price of its shares during the
30 trading days preceding the declaration of such payment) plus (ii) the $305.2 million in proceeds we received in the business
combination with Capitol; (c) in an amount that does not exceed the sum of (i) $20.0 million, plus (ii) 50% of consolidated net
income of the Company’s subsidiaries from January 1, 2016 to the end of the most recent quarter plus (iii) certain other
amounts set forth in the definition of “Available Amount” in the Company’s 2017 First Lien Credit Facility (provided
that it may only include the amounts of consolidated net income described in clause (ii) if the Company’s total net leverage
ratio would not exceed 5.00 to 1.00 after making such payment); and (d) in an amount that does not exceed the total net proceeds
we receive from any public or private offerings of its common stock or similar equity interests. As of March 31, 2019, the Company
was in compliance with these covenants.
The 2017 First Lien Credit Facility provides
that an event of default will occur upon specified change of control events. “Change in Control” is defined to include,
among other things, the failure by Cision Owner, its affiliates and certain other “Permitted Holders” to beneficially
own, directly or indirectly through one or more holding company parents of Cision, a majority of the voting equity of the borrower
thereunder.
The fair value of the Company’s First
Lien Credit Facility at March 31, 2019 and December 31, 2018 was $1,307.9 million and $1,210.5 million, respectively. The fair
value of the Company’s First and Second Lien debt was considered Level 2 in the fair value hierarchy.
Future Minimum Principal Payments
Future minimum principal payments of debt
as of March 31, 2019 are as follows:
(in thousands)
|
|
|
|
Remainder of 2019
|
|
$
|
10,465
|
|
2020
|
|
|
13,953
|
|
2021
|
|
|
13,953
|
|
2022
|
|
|
13,953
|
2023
|
|
|
13,953
|
Thereafter
|
|
|
1,254,239
|
|
|
$
|
1,320,516
|
|
Notes to Condensed Consolidated Financial Statements (continued)
7. Stockholders’ Equity and
Equity-Based Compensation
Preferred Stock
The Company is authorized to issue 20,000,000
shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined
from time to time by the Company’s board of directors. As of March 31, 2019 and December 31, 2018, there are no shares of
preferred stock issued or outstanding.
Common Stock
The Company is authorized to issue 480,000,000
shares of common stock with a par value of $0.0001 per share.
Equity-based compensation is classified
in the condensed consolidated statements of operations and comprehensive loss in a manner consistent with the statements of operations’
classification of an employee’s salary and benefits as follows:
|
|
Three months ended March 31,
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
Cost of revenue
|
|
$
|
101
|
|
|
$
|
136
|
|
Selling and marketing
|
|
|
280
|
|
|
|
88
|
|
Research and development
|
|
|
254
|
|
|
|
123
|
|
General and administrative
|
|
|
1,446
|
|
|
|
994
|
|
Total equity-based compensation expense
|
|
$
|
2,081
|
|
|
$
|
1,341
|
|
The 2017 Omnibus Incentive Plan
In June 2017, the Company adopted the 2017
Omnibus Incentive Plan (the “2017 Plan”). The 2017 Plan provides for grants of stock options, stock appreciation rights,
restricted stock, other stock-based awards and other cash-based awards. Directors, officers and other employees of the Company
and its subsidiaries, as well as others performing consulting or advisory services for the Company, are eligible for grants under
the 2017 Plan.
The 2017 Plan reserved up to 6,100,000
shares of common stock of the Company for issuance in accordance with the plan’s terms, subject to certain adjustments. The
purpose of the plan is to provide the Company’s officers, directors, employees and consultants who, by their position, ability
and diligence are able to make important contributions to the Company’s growth and profitability, with an incentive to assist
the Company in achieving its long-term corporate objectives, to attract and retain executive officers and other employees of outstanding
competence and to provide such persons with an opportunity to acquire an equity interest in the Company. Stock options are granted
with an exercise price equal to the market value of the Company’s common stock at the grant date and generally vest over
four years based upon continuous service and expire ten years from the grant date. Restricted stock units are granted with an exercise
price equal to the market value of the Company's common stock at the time of grant. Conditions of the performance-based restricted
stock units are based on achievement of pre-established performance goals and objectives within the next year and vest over four
years based on continuing employment. Conditions of the performance-based stock options are also based on achievement of pre-established
performance goals and objectives within the next year, vest over four years based on continuing employment, and have an expiration
of ten years.
Notes to Condensed Consolidated Financial
Statements (continued)
The Company estimated the fair value of
employee stock options using the Black-Scholes option pricing model. The fair values of stock options granted under the 2017 Plan
were estimated using the following assumptions:
|
|
Three Months Ended
March 31, 2019
|
|
Stock price volatility
|
|
|
42.0
|
%
|
Expected term (years)
|
|
|
6.3
|
|
Risk-free interest rate
|
|
|
2.5
|
%
|
Dividend yield
|
|
|
0
|
%
|
A summary of employee stock option activity
for the three months ended March 31, 2019 under the Company’s 2017 Plan is presented below:
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise
Price per
Share
|
|
|
Weighted-
Average
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
(thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2018
|
|
|
2,112,500
|
|
|
$
|
14.43
|
|
|
|
9.3
|
|
|
|
|
|
Granted
|
|
|
1,020,000
|
|
|
|
12.32
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
(20,625
|
)
|
|
|
12.78
|
|
|
|
—
|
|
|
|
|
|
Forfeited
|
|
|
(399,000
|
)
|
|
|
14.71
|
|
|
|
—
|
|
|
|
|
|
Options outstanding as of March 31, 2019
|
|
|
2,712,875
|
|
|
$
|
13.61
|
|
|
|
9.4
|
|
|
$
|
2,063,315
|
|
Options vested as of March 31, 2019
|
|
|
141,500
|
|
|
$
|
12.62
|
|
|
|
8.5
|
|
|
$
|
162,998
|
|
The aggregate intrinsic value is calculated
as the difference between the exercise price of the underlying stock option awards and the quoted closing price of the Company’s
common stock as of March 31, 2019. The Company received $0.3 million in cash proceeds from the exercise of stock options during the
three months ended March 31, 2019. No stock options were exercised during the three months ended March 31, 2018.
A summary of restricted stock units activity
for the three months ended March 31, 2019 under the Company’s 2017 Plan is presented below:
|
|
Number of
Shares
Underlying
Stock
Awards
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Restricted stock units outstanding as of December 31, 2018
|
|
|
326,394
|
|
|
$
|
15.28
|
|
Granted
|
|
|
1,677,500
|
|
|
|
12.36
|
|
Vested
|
|
|
(375
|
)
|
|
|
12.78
|
|
Forfeited
|
|
|
(38,125
|
)
|
|
|
15.07
|
|
Restricted stock units outstanding as of March 31, 2019
|
|
|
1,965,394
|
|
|
$
|
12.79
|
|
As of March 31, 2019, the Company had
$31.2 million of unrecognized compensation expense related to the unvested portion of outstanding stock options and restricted
stock units expected to be recognized on a straight-line basis over the weighted-average remaining service period of 3.7 years.
Employee Stock Purchase Plan
As of December 17, 2018, the Company commenced
an Employee Stock Purchase Plan (“ESPP”) to allow eligible employees to have up to 10 percent of their annualized
base salary withheld and used to purchase Class A common stock, subject to a maximum of $5,000 worth of stock purchased in a calendar
year. The price per share of the Stock sold to Participants hereunder shall be the product of ninety percent (90%) multiplied
by the lower of: (i) the Fair Market Value of such share on the Entry Date of the Option Period in which the Employee elects to
become a participant; and (ii) the Fair Market Value of such share on the Exercise Date with respect to such Option Period:
provided,
however
, that in no event shall the Option Price per share be less than the part value of the Stock. The activity under the
ESPP was not significant for the quarter ended March 31, 2019.
Notes to Condensed Consolidated Financial
Statements (continued)
8. Net Income (Loss) Per share
Basic net income (loss) per share is computed
by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. For the three months
ended March 31, 2019, the Company has excluded earn out shares as described in Note 1, as the effect would be anti-dilutive. For
the three months ended March 31, 2018, the Company has excluded the potential effect of warrants to purchase shares of common stock
totaling 800,349 shares, additional earn out shares, as described in Note 1, and the dilutive effect of stock options and restricted
stock awards, as described in Note 7, in the calculation of diluted per share, as the effect would be anti-dilutive. As a result,
diluted income (loss) per common share is the same as basic income (loss) per common share for all periods presented below.
|
|
Three months ended March 31,
|
|
(in thousands, except share and per share data)
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
11,634
|
|
|
$
|
(442
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
145,413,574
|
|
|
|
123,946,264
|
|
Effect of dilutive common stock equivalents
|
|
|
943,109
|
|
|
|
-
|
|
Weighted-average shares outstanding
|
|
|
146,356,683
|
|
|
|
123,946,264
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic
|
|
$
|
0.08
|
|
|
$
|
(0.00
|
)
|
Net income (loss) per share- diluted
|
|
$
|
0.08
|
|
|
$
|
(0.00
|
)
|
9. Income Taxes
The provision for income taxes is based
on the current estimate of the annual effective tax rate adjusted to reflect the tax impact of items discrete to the fiscal period.
The annual effective tax rate calculation excludes subsidiaries with pre-tax losses for which no tax benefit can be recognized.
The Company estimates its annual effective tax rate to be approximately 42.4% in 2019. The provision for income taxes results
in an effective tax rate of 39.1% for the three months ended March 31,2019. The difference between the annual effective tax rate
and the effective tax rate in the quarter is due to subsidiaries with pre-tax losses for which no tax benefit can be recognized
and subsidiaries with pre-tax losses in jurisdictions with a zero percent tax rate that have been removed from pre-tax book income
before the annual effective tax rate is applied. The amount of pre-tax book loss removed is approximately $5.6 million. The difference
also includes the impact of a $3.2 million benefit primarily related to a change to the valuation allowance that is discrete to
the fiscal period. This rate includes the impact of permanent differences and a decrease in the valuation allowance for certain
disallowed interest in the United States and United Kingdom. The United States permanent differences are primarily related to the
gain on the sale of the iContact assets related to Goodwill, nondeductible transaction costs, nondeductible public company costs,
nondeductible equity compensation and income from Canadian subsidiaries that is taxable in the United States as a result of the
Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The United Kingdom permanent differences are primarily related to nondeductible
interest expense. The decrease in the valuation allowance in the U.S. is related to tax deferred interest expense.
The effective tax rate for the three months
ended March 31, 2018 was a benefit of 97.7%. The benefit from income taxes for the three months ended March 31, 2018 resulted from
a pre-tax loss and the impact of pre-tax losses for which no tax benefit can recognized, the impact of permanent differences and
the increase in the valuation allowance expected to be necessary at the end of the year for certain disallowed interest.
The Company’s estimates related to
liabilities for uncertain tax positions require it to make judgments regarding the sustainability of each uncertain tax position
based on its technical merits. If it determines it is more likely than not that a tax position will be sustained based on its technical
merits, the Company records the impact of the position in its condensed consolidated financial statements at the largest amount
that is greater than fifty percent likely of being realized upon ultimate settlement. The estimates are updated at each reporting
date based on the facts, circumstances and information available. As of March 31, 2019, the Company believes the reasonably possible
total amount of unrecognized tax benefits that could increase or decrease in the next twelve months as a result of various statute
expirations, audit closures, and/or tax settlements would not be material to its condensed consolidated financial statements.
10. Commitments and Contingencies
Litigation and Claims
The Company from time to time is subject to lawsuits, investigations
and claims arising out of the ordinary course of business, including those related to commercial transactions, contracts, government
regulation, and employment matters. In the opinion of management, based on all known facts, all such matters are either without
merit or are of such kind, or involve such amounts that would not have a material effect on the financial position or results of
operations of the Company if disposed of unfavorably.
Notes to Condensed Consolidated Financial
Statements (continued)
11. Geographic Information
The following table lists revenue for the
three months ended March 31, 2019 and 2018 by geographic region:
|
|
Three months ended March 31,
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Americas - U.S.
|
|
$
|
109,604
|
|
|
$
|
106,399
|
|
Rest of Americas
|
|
|
16,775
|
|
|
|
15,365
|
|
EMEA
|
|
|
51,649
|
|
|
|
50,576
|
|
APAC
|
|
|
7,776
|
|
|
|
6,953
|
|
|
|
$
|
185,804
|
|
|
$
|
179,293
|
|
The following table lists long-lived assets,
net of amortization, as of March 31, 2019 and December 31, 2018 by geographic region:
(in thousands)
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Long-lived assets, net
|
|
|
|
|
|
|
|
|
Americas – U.S.
|
|
$
|
1,336,716
|
|
|
$
|
1,101,919
|
|
Rest of Americas
|
|
|
138,520
|
|
|
|
130,797
|
|
EMEA
|
|
|
486,169
|
|
|
|
354,886
|
|
APAC
|
|
|
31,554
|
|
|
|
30,299
|
|
|
|
$
|
1,992,959
|
|
|
$
|
1,617,901
|
|
CISION LTD. AND ITS SUBSIDIARIES
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future
results, which are intended to be covered by the safe harbor provision for forward-looking statements provided by the Private Securities
Litigation Reform Act of 1995. All statements other than statements of historical facts are statements that could be deemed forward-looking
statements. Words such as “achieve,” “anticipate,” “assumes,” “believes,” “continue,”
“could,” “estimate,” “expects,” “forecast,” “hope,” “intend,”
“may,” “plan,” “potential,” “predict,” “should,” “will,”
“would,” variations of such words and similar expressions are intended to identify such forward-looking statements.
In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in
our businesses, and other characterizations of future events or circumstances are forward-looking statements. Although such statements
are based on currently available financial and economic data as well as management’s estimates and expectations, forward-looking
statements are inherently uncertain and involve risks and uncertainties that could cause our actual results to differ materially
from what may be inferred from the forward-looking statements. Therefore, actual results may differ materially and adversely from
those expressed in any forward-looking statements.
Cision Ltd. and its subsidiaries (“we”,
the “Company” or “Cision”) believe it is important to communicate our expectations to our securityholders.
However, there may be events in the future that Cision’s management is not able to predict accurately or over which Cision
has no control. The risk factors and cautionary language discussed in this report provide examples of risks, uncertainties and
events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements,
including among other things:
|
·
|
our estimates of the size of the markets for our products and services;
|
|
·
|
the rate and degree of market acceptance of our products and services;
|
|
·
|
the success of other technologies that compete with our products and services or that may become available in the future;
|
|
·
|
the efficacy of our sales and marketing efforts;
|
|
·
|
the volatility of currency exchange rates;
|
|
·
|
volatility of the market price and liquidity of our ordinary shares;
|
|
·
|
our ability to effectively scale and adapt our technology;
|
|
·
|
our ability to identify and integrate acquisitions and technologies into our platform;
|
|
·
|
our plans to continue to expand internationally;
|
|
·
|
the performance and security of our services;
|
|
·
|
our ability to maintain the listing of our securities on a national securities exchange;
|
|
·
|
potential litigation involving Cision;
|
|
·
|
our ability to retain and attract qualified employees and key personnel;
|
|
·
|
our ability to maintain, protect and enhance our brand and intellectual property;
|
|
·
|
general economic conditions; and
|
|
·
|
the result of future financing efforts.
|
All forward-looking statements attributable
to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. In addition,
all forward-looking statements speak only as of the date of this report. We undertake no obligations to update or publicly revise
any forward-looking statements, whether as a result of new information, future events or otherwise other than as required under
the federal securities laws. Undue reliance should not be placed on these forward-looking statements.
Item 2. – Management’s Discussion and Analysis
of Financial Condition and Results of Operations
This item should be read with our condensed
consolidated financial statements and related notes included in Part I, Item 1
-
“Financial Statements.” This
item also contains forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially
from those forward-looking statements. This discussion contains forward-looking statements about our business, operations, and
industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations and intentions.
Throughout this section, unless otherwise noted “we”, “us” and the “Company” refer to Cision
Ltd. and its consolidated subsidiaries. Refer to “Forward-Looking Statements” for additional information. Certain amounts
in this section may not foot due to rounding.
Overview
We are a leading global provider of PR
software, media distribution, media intelligence and related professional services, according to Burton-Taylor International Consulting
LLC, as measured by total revenue. Public relations and communications professionals use our products and services to help manage,
execute, and measure their strategic public relations and communications programs. Similar to Bloomberg for finance professionals,
LinkedIn for HR professionals, and Salesforce for sales professionals, we are an industry standard SaaS solution for PR and marketing
professionals and are deeply embedded in industry workflow.
We deliver a sophisticated, easy-to-use
platform for communicators to reach relevant media influencers and craft compelling campaigns that impact customer behavior. With
rich monitoring and analytics, Cision Communications Cloud (“C3”), a cloud-based platform that integrates each of our
point solutions into a single unified interface, arms brands with the insights they need to link their earned media to strategic
business objectives, while aligning it with owned and paid channels. This platform enables companies and brands to build consistent,
meaningful and enduring relationships with influencers and buyers in order to amplify their marketplace influence. We have more
than 50,000 customers and an expansive global reach, spanning most major international markets around the globe including
Canada, China, India, EMEA, and Latin America. Our total international sales across all countries accounted for 40% of our 2018
revenue.
We provide our comprehensive solution principally
through subscription contracts which are generally one year or longer, with different tiers of pricing depending on the level of
functionality and customer support required. Our SaaS delivery model provides a stable recurring revenue base. In 2018, we generated
$730.4 million of revenue, approximately 85% of which was generated by customers purchasing services on a subscription or recurring
basis. We consider services recurrent if customers routinely purchase these services from us pursuant to negotiated “rate
card” or similar arrangements, even if we do not have subscription agreements with them. In 2018, our top 25 customers accounted
for approximately 6.8% of our revenue.
We have undergone a strategic transformation
since GTCR’s initial investment in 2014, evolving into a PR and marketing software leader through a series of complementary
acquisitions. The acquisitions of Cision and Vocus, Inc. (“Vocus”) in 2014 and their subsequent merger established
the foundation of the core media database, monitoring and analysis business. Over the twelve months following this initial merger,
we acquired Discovery Group Holdings Ltd. (“Gorkana”) to expand our global footprint and also completed acquisitions
of Visible, Inc. (“Visible”) and Viralheat, Inc. (“Viralheat”) to enhance our social media functionality.
The subsequent acquisition of PRN Group (“PR Newswire”) in 2016 added the depth and breadth of a global distribution
network and making us, we believe, to be the only vendor with a comprehensive global solution for PR professionals. Following these
acquisitions, in October 2016, we introduced our C3 platform. In the first quarter of 2017, we acquired Bulletin Intelligence,
LLC, Bulletin News Network, LLC and Bulletin News Investment, LLC (collectively, “Bulletin Intelligence”) to expand
our capability to provide expert-curated executive briefings for the Executive Office of the President and corporate C-Suite executives.
In the second quarter of 2017, we acquired L’Argus de la Presse (“Argus”), a Paris-based provider of media monitoring
services to expand our media monitoring solutions and enhance our access to French media content. We acquired CEDROM-SNi Inc. (“CEDROM”)
in December 2017 and PRIME Research Group (“Prime”) in January 2018 in order to further expand upon our media measurement
and analysis services and improve our digital media monitoring solutions. We acquired Falcon.io (“Falcon”) in January
2019 to improve our social media monitoring and engagement capabilities. We also acquired TrendKite, Inc. (“TrendKite”)
in January 2019 to enhance our influencer database and improve our media monitoring and analytics capabilities. After a detailed
review of Cision’s long-term business strategy and as a result of our desire to focus on C3, we sold our email marketing
business, iContact, in January 2019.
Acquisitions and Divestitures
We made two acquisitions and divested one
asset during the three months ended March 31, 2019.
Acquisition of Falcon.io
On January 3, 2019, we completed our acquisition of Falcon. The purchase price was approximately €102.4 million ($117.8 million)
and consisted of approximately €52.6 million ($60.5 million) in cash consideration, the issuance of approximately 5.1 million
ordinary shares valued at €49.8 million ($57.3 million), and up to €5.2 million ($6.0 million) of deferred payments due
within 12 months in cash of €2.4 million ($2.8 million) and ordinary shares of €2.8 million ($3.2 million). The cash
portion of the consideration was funded with a combination of cash on hand and borrowings under our Revolving Credit Facility.
We drew approximately $40.0 million of dollar borrowings under our Revolving Credit Facility in connection with the closing of
the Falcon acquisition, all of which was repaid during the quarter ended March 31, 2019.
Acquisition of TrendKite.
On
January 23, 2019, we completed our acquisition of TrendKite. The purchase price was approximately $219.0 million, consisting of
approximately $94.1 million in cash and approximately 10.3 million ordinary shares valued at $124.9 million. The acquisition of
TrendKite will enhance the ability of our customer base to demonstrate and measure the business impact of their earned media communications.
Divestiture of iContact.
On
January 22, 2019, we sold our email marketing business, iContact, to a strategic buyer. The sale of iContact resulted from a detailed
review of our long-term business strategy and desire to focus on C3. We divested iContact for approximately $49.3 million of cash
consideration, with up to an additional $4.0 million in cash based upon meeting certain business performance measures over the
next 12 months.
The results of operations of these acquired
businesses and divestures have been included in our financial statements since the applicable acquisition date or through the divestiture
date.
For more information regarding these transactions,
see Note 3 to our condensed consolidated financial statements included elsewhere in this report.
Sources of Revenues
We account for revenue contracts with customers
by applying the requirements of ASC 606, Revenue Form Contracts With Customers (“ASC 606”).
We derive our revenue from access to our
cloud-based technology platform and related media management and analysis services sold on a subscription basis. We also derive
revenues from news distribution services on both a subscription basis and separately from non-subscription arrangements. The news
releases are distributed to thousands of distribution points on the Internet, which are then indexed by major search engines and
also directly to journalists and other key constituents. In 2018, approximately 85% of our revenue was generated by customers purchasing
services on a subscription or recurring basis. We consider services recurring if customers routinely purchase these services from
us pursuant to a negotiated “rate card” or similar arrangements, even if we do not have subscription agreements with
them.
The subscription services include access
to our cloud-based software platform, hosting services, content and content updates and customer support. Our subscription agreements
are typically one year in length and are typically non-cancelable with customers having the right to terminate their agreements
only if we materially breach our obligations under the agreement. Software subscription agreements for our platform do not provide
customers the right to take possession of the software at any time. We do not charge customers an upfront fee for use of the technology.
Implementation activities are insignificant and not subject to a separate fee. In certain cases, we charge annual membership fees
which are recognized over the one-year membership period.
Cost of Revenue and Operating Expenses
Cost of Revenue.
Cost
of revenue consists primarily of compensation for training, editorial and support personnel, hosting and network infrastructure
costs, royalty and license fees for content, press release distribution costs, third-party contractor fees, equipment and software
maintenance costs, amortization of our proprietary database and purchased technology, amortization of capitalized software development
costs and depreciation associated with computer equipment and software.
Sales and Marketing Expenses.
Our sales and marketing expenses consist primarily of compensation for our sales and marketing personnel, related travel
costs, sales commissions and incentives, marketing programs, promotional events, webinars, and other brand building expenses.
Research and Development.
Our
research and development expenses consist primarily of compensation for our software application development personnel and fees
to third-party software development firms. Capitalized software development costs are amortized using the straight-line method
over the useful life of the software, which is generally two years. All other research and developmental costs are expensed as
incurred.
General and Administrative Expenses.
Our general and administrative expenses consist primarily of compensation and related expenses for general corporate
functions such as executive, legal, finance, human resources, and administrative personnel, as well as costs for external legal,
accounting and other professional services, acquisition and other related expenses, third-party payment processing and credit card
fees, facilities rent and other corporate expenses.
Depreciation and Amortization.
Depreciation includes depreciation of property, equipment and software. Assets acquired under capital leases and leasehold
improvements are amortized. Amortization of assets acquired under capital leases is included in depreciation and amortization expense.
When assets are retired or otherwise disposed of, the asset and related accumulated depreciation are eliminated from the accounts
and resulting gain or loss is recorded in the results of operations. Amortization of intangible assets consist primarily of the
amortization of intangibles related to trade name, brand and customer relationships acquired through our acquisitions.
Factors Impacting our Results
Acquisitions and Dispositions
In connection with any acquisition, we
are required to recognize any assets acquired and liabilities assumed measured at fair value as of that date. With respect to determining
fair value, the excess of the purchase price over these allocations will be assigned to goodwill, which is not amortized for accounting
purposes but is subject to testing for impairment, at least annually, and whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. The allocation of the purchase price of any assets acquired
in an acquisition will result in increases in amortization expense relating to acquired intangible assets, because we will record
the fair value of the acquired intangible assets. We amortize the intangible assets over their estimated useful lives.
Impact of Foreign Exchange Rates
We report in U.S. dollars, and the functional
currency of our foreign operating subsidiaries is the local currency, including the British Pound, the Euro, the Swedish Krona
and the Canadian Dollar. Many of these currencies have weakened significantly against the U.S. dollar since the end of 2014. For
the fiscal year ended December 31, 2018, approximately 40% of our revenues are generated in non-U.S. dollar-denominated currencies.
The financial statements of these subsidiaries are translated into U.S. dollars using exchange rates in effect at each balance
sheet date for assets and liabilities and average exchange rates during the period for revenues and expenses. To the extent we
experience significant currency fluctuations, our results of operations may be impacted.
Retention of, and Expansion within,
our Existing Customer Base
Growth of our customer base is important
to our continued revenue growth. With our recent acquisition history, we have the opportunity to expand our customer base and to
use our new platforms for cross-selling opportunities. Our ability to execute on cross-selling strategies and successfully integrate
our acquisitions will have an impact on our results.
Price Competition Could Affect our
Business
We face intense price competition in all
areas of our business. We have in the past lowered prices, and may need to do so in the future to attempt to gain or maintain market
share. Additionally, we have also been, and may once again be, required to adjust pricing to respond to actions by competitors,
which could adversely impact operating results.
Investment Shift by PR Professionals
from “Paid” to “Earned” Media
As the needs of PR and communications professionals
have evolved, we are increasingly distributing non-press release content over our network, including multimedia, infographics,
white papers and other forms of brand-created content. Companies are progressively more focused on earned media, and we are well-positioned
to take advantage of this structural shift in the market. Our results will be affected as the mix of content distributed over our
network evolves and PR and communications professionals focus additional spend on earned media.
Increasing Budgets for PR Departments
The switch to social channels as a company’s
preferred method to interface with clients and customers has fueled the demand for PR and communications skills and solutions worldwide.
PR budgets are increasing as businesses lower paid marketing budgets and leverage the shift towards earned media by actively monitoring
and engaging in conversations about their products and services online. To the extent this trend continues, our results of operations
will be impacted by this evolution in spending practice.
Market Adoption of Cloud-Based Knowledge
Software
We are focused on expanding market awareness
of our cloud-based PR solutions. Although we have seen companies adopt our solutions, we expect further growth to coincide with
the rapid increase of online content and influencers and new digital media channels. In response to this trend, we have transitioned
from traditional print monitoring services to cloud-based solutions capable of managing the entire lifecycle of a PR campaign.
To the extent this trend continues, we expect our revenues to experience growth.
Key Performance Measures
The measures of revenue and Adjusted EBITDA
are the measures currently utilized by management to assess performance, and we disclose these measures to investors to assist
them in providing a meaningful understanding of our performance. We are in the process of an operational, technological and financial
integration effort for all recently combined businesses. One of our current objectives is to identify the most relevant key performance
indicators to stakeholders for the fully integrated business. The determination as to when we will be able to identify these performance
measures will be dependent on our ability to migrate customers from legacy platforms onto the C3 platform. When such integration
and implementation is complete and such measures are available and utilized by management, these measures will be included in future
disclosures to investors.
Results of Operations
This section includes a summary of our
historical results of operations, followed by detailed comparisons of our results for the three months ended March 31, 2019 and
2018. We have derived this data from our unaudited condensed consolidated financial statements included elsewhere in this report.
The following table shows certain income
statement data in thousands of dollars and percentages for the periods indicated:
|
|
Three Months Ended
March 31, 2019
|
|
|
Three Months Ended
March 31, 2018
|
|
Revenue
|
|
$
|
185,804
|
|
|
|
100.0
|
%
|
|
$
|
179,293
|
|
|
|
100.0
|
%
|
Cost of revenue
|
|
|
66,053
|
|
|
|
35.5
|
%
|
|
|
64,278
|
|
|
|
35.9
|
%
|
Gross profit
|
|
|
119,751
|
|
|
|
64.5
|
%
|
|
|
115,015
|
|
|
|
64.1
|
%
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
33,233
|
|
|
|
17.9
|
%
|
|
|
29,708
|
|
|
|
16.6
|
%
|
Research and development
|
|
|
8,543
|
|
|
|
4.6
|
%
|
|
|
6,700
|
|
|
|
3.7
|
%
|
General and administrative
|
|
|
51,965
|
|
|
|
28.0
|
%
|
|
|
46,222
|
|
|
|
25.8
|
%
|
Amortization of intangible assets
|
|
|
18,811
|
|
|
|
10.1
|
%
|
|
|
20,250
|
|
|
|
11.3
|
%
|
Total operating costs and expenses
|
|
|
112,552
|
|
|
|
60.6
|
%
|
|
|
102,880
|
|
|
|
57.4
|
%
|
Operating income
|
|
|
7,199
|
|
|
|
3.9
|
%
|
|
|
12,135
|
|
|
|
6.8
|
%
|
Non operating income (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gains (losses)
|
|
|
3,082
|
|
|
|
1.7
|
%
|
|
|
(7,883
|
)
|
|
|
(4.4
|
)%
|
Interest and other income, net
|
|
|
317
|
|
|
|
0.2
|
%
|
|
|
(256
|
)
|
|
|
(0.1
|
)%
|
Gain on sale of business
|
|
|
28,144
|
|
|
|
15.1
|
%
|
|
|
-
|
|
|
|
-
|
%
|
Interest expense
|
|
|
(19,273
|
)
|
|
|
(10.4
|
)%
|
|
|
(19,688
|
)
|
|
|
(11.0
|
)%
|
Loss on extinguishment of debt
|
|
|
(355
|
)
|
|
|
(0.2
|
)%
|
|
|
(2,432
|
)
|
|
|
(1.4
|
)%
|
Total non operating income (loss)
|
|
|
11,915
|
|
|
|
6.4
|
%
|
|
|
(30,259
|
)
|
|
|
(16.9
|
)%
|
Income (loss) before income taxes
|
|
|
19,114
|
|
|
|
10.3
|
%
|
|
|
(18,124
|
)
|
|
|
(10.1
|
)%
|
Provision for (benefit from) income taxes
|
|
|
7,480
|
|
|
|
4.0
|
%
|
|
|
(17,682
|
)
|
|
|
(9.9
|
)%
|
Net income (loss)
|
|
$
|
11,634
|
|
|
|
6.3
|
%
|
|
$
|
(442
|
)
|
|
|
(0.2
|
)%
|
Net Income (Loss) to Adjusted EBITDA Reconciliation
We define Adjusted EBITDA as net income
(loss), determined in accordance with U.S. GAAP, for the period presented, before depreciation and amortization, interest expense
and loss on extinguishment of debt, and income taxes, further adjusted to exclude the following items: (a) acquisition related
costs and expenses; (b) stock-based compensation; (c) deferred revenue reduction from purchase accounting; (d) gains or losses
related to divested businesses or assets groups; (e) sponsor fees and expenses; and (f) unrealized (gain) or loss on foreign currency
translation.
We believe Adjusted EBITDA, when considered
along with other performance measures, is a useful measure as it reflects certain drivers of the business, such as sales growth
and operating costs. We believe Adjusted EBITDA can be useful in providing an understanding of the underlying operating results
and trends and an enhanced overall understanding of our financial performance and prospects for the future. While Adjusted EBITDA
is not a recognized measure under U.S. GAAP, management uses this financial measure to evaluate and forecast business performance.
Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income
as it does not take into account certain requirements, such as capital expenditures and related depreciation, principal and interest
payments, and tax payments. Adjusted EBITDA is not a presentation made in accordance with U.S. GAAP, and our use of the term Adjusted
EBITDA may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the
method of calculation and differences due to items subject to interpretation.
The presentation of U.S. non-GAAP financial
information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and
presented in accordance with U.S. GAAP. Investors should read this discussion and analysis of our financial condition and results
of operations together with the condensed consolidated financial statements and the related notes thereto also included within.
The following table outlines the reconciliation from net income
(loss) to Adjusted EBITDA for the periods indicated:
(in thousands)
|
|
Three Months
Ended
March 31, 2019
|
|
|
Three Months
Ended
March 31, 2018
|
|
Net income (loss)
|
|
$
|
11,634
|
|
|
$
|
(442
|
)
|
Depreciation and amortization
|
|
|
31,021
|
|
|
|
33,277
|
|
Interest expense and loss on extinguishment of debt
|
|
|
19,628
|
|
|
|
22,120
|
|
Income tax
|
|
|
7,480
|
|
|
|
(17,682
|
)
|
Acquisition and offering related costs
|
|
|
19,336
|
|
|
|
10,887
|
|
Stock-based compensation
|
|
|
2,081
|
|
|
|
1,341
|
|
Deferred revenue reduction from purchase accounting
|
|
|
3,081
|
|
|
|
869
|
|
Gain on sale of business
|
|
|
(28,144
|
)
|
|
|
-
|
|
Unrealized translation loss
|
|
|
(3,008
|
)
|
|
|
7,864
|
|
Adjusted EBITDA
|
|
$
|
63,109
|
|
|
$
|
58,234
|
|
Three Months Ended March 31, 2019 Compared to the Three
Months Ended March 31, 2018
Revenue
Revenue increased $6.5 million, or 3.6%,
from $179.3 million for the three months ended March 31, 2018 to $185.8 million for the three months ended March 31, 2019. The
change in the U.S. dollar versus other foreign currencies in 2019 compared to 2018 decreased revenue by approximately $4.8 million
for the three months ended March 31, 2019. After adjusting for the change in the U.S. dollar versus other foreign currencies,
the increase in revenue was primarily driven by our acquisitions of Prime, Falcon and TrendKite, and growth in our Americas and
APAC operations, offset by our divestiture of iContact on January 22, 2019, and declines in our EMEA operations. Revenue from
our acquisitions of Prime, Falcon and TrendKite was $21.8 million for the three months ended March 31, 2019 versus $9.3 million
for the three months ended March 31, 2018. Revenue from our APAC operations, excluding our acquisitions of Prime, Falcon and TrendKite,
increased $0.8 million for the three months ended March 31, 2019, due to net growth in subscription and transaction revenues.
Revenue from our Americas operations, excluding our acquisitions of Prime, Falcon and TrendKite, and the divestiture of iContact
increased $4.2 million for the three months ended March 31, 2019, due primarily to net growth in subscription and transaction
revenues. Revenue from our EMEA operations, excluding our acquisitions of Prime, Falcon and TrendKite, decreased $4.6 million
for the three months ended March 31, 2019, due primarily to subscription and transaction revenue declines as a result of lost
customers and lower customer spend from retained customers that were greater than customers won and increased spend from retained
customers in the UK and France. Revenue from iContact was $7.7 million for the three months ended March 31, 2018 and $1.4 million
for the three months ended March 31, 2019. For the three months ended March 31, 2019, the change in the U.S. dollar versus other
foreign currencies, principally the Euro, the British Pound, and the Canadian Dollar, decreased our EMEA revenue by approximately
$3.7 million, decreased our Americas revenue by approximately $0.8 million, and decreased our APAC revenue by approximately $0.3
million.
Cost of Revenue
Cost of revenue increased $1.8 million,
or 2.8%, from $64.3 million for the three months ended March 31, 2018 to $66.1 million for the three months ended March 31, 2019.
The change in the U.S. dollar versus other foreign currencies in 2019 compared to 2018 decreased our cost of revenue by approximately
$2.0 million for the three months ended March 31, 2019. After adjusting for the change in the U.S. dollar versus other foreign
currencies, the increase in cost of revenue was primarily driven by our acquisitions of Prime, Falcon and TrendKite, increases
in content and distribution costs, and an increase in professional fees and outside services, offset by our divestiture of iContact,
a decrease in depreciation and amortization expenses, and a decrease in employee compensation and related costs. Cost of revenue
from Prime, Falcon and TrendKite was $11.9 million for the three months ended March 31, 2019 versus $7.2 million for the three
months ended March 31, 2018. Content and distribution costs, excluding our acquisitions of Prime, Falcon and TrendKite and the
divestiture of iContact, increased by $2.2 million in the three months ended March 31, 2019 versus the prior year period. Professional
fees and outside services costs, excluding our acquisitions of Prime, Falcon and TrendKite and the divestiture of iContact, increased
by $0.2 million in the three months ended March 31, 2019 versus the prior year period. iContact cost of revenue was $2.6 million
in the three months ended March 31, 2018 and $0.9 million for the three months ended March 31, 2019. Employee compensation and
related costs, excluding our acquisitions of Prime, Falcon and TrendKite and the divestiture of iContact, decreased $3.0 million
in the three months ended March 31, 2019 versus the prior year period. Depreciation and amortization expense, excluding our acquisitions
of Prime, Falcon and TrendKite and the divestiture of iContact, decreased by $0.9 million in the three months ended March 31, 2019
versus the prior year period.
Sales and Marketing
Sales and marketing expenses increased
$3.5 million, or 11.9%, from $29.7 million for the three months ended March 31, 2018 to $33.2 million for the three months ended
March 31, 2019. The change in the U.S. dollar versus other foreign currencies in 2019 compared to 2018 decreased our sales and
marketing expenses by approximately $0.7 million for the three months ended March 31, 2019. After adjusting for the change in the
U.S. dollar versus other foreign currencies, the increase in sales and marketing expenses was primarily driven by our acquisitions
of Prime, Falcon and TrendKite, and an increase in sales and marketing compensation expense, offset by reduced marketing program
expenditures, reduced professional services fees, the divestiture of iContact and an increase in the value of the U.S. dollar versus
a number of foreign currencies, principally the Euro, the British Pound, and the Canadian Dollar. Sales and marketing expenses
from Prime, Falcon and TrendKite was $6.1 million for the three months ended March 31, 2019 versus $0.2 million for the three months
ended March 31, 2018. Sales and marketing compensation and related costs, excluding our acquisitions of Prime, Falcon and TrendKite
and the divestiture of iContact, increased $0.2 million in the three months ended March 31, 2019 versus the prior year period.
Marketing program expenditures, excluding our acquisitions of Prime, Falcon and TrendKite and the divestiture of iContact, declined
by approximately $0.5 million in the three months ended March 31, 2019 versus the prior year period. Professional fees, excluding
our acquisitions of Prime, Falcon and TrendKite and the divestiture of iContact, decreased by $0.5 million in the three months
ended March 31, 2019 versus the prior year period. Sales and marketing expenses from iContact were $1.3 million for the three months
ended March 31, 2018, and $0.4 million for the three months ended March 31, 2019.
Research and Development
Research and development expenses increased
$1.8 million, or 27.5%, from $6.7 million for the three months ended March 31, 2018 to $8.5 million for the three months ended
March 31, 2019. This increase was primarily driven by our acquisitions of Prime, Falcon and TrendKite, and an increase in professional
fees, offset by lower compensation and related costs, lower depreciations expense, and the divestiture of iContact. Research and
development expenses from Prime, Falcon and TrendKite were $2.7 million for the three months ended March 31, 2019 versus $0.3 million
for the three months ended March 31, 2018. Professional fees, excluding our acquisitions of Prime, Falcon and TrendKite and the
divestiture of iContact, increased by $0.1 million in the three months ended March 31, 2019 versus the prior year period. Compensation
and related costs, excluding our acquisitions of Prime, Falcon and TrendKite and the divestiture of iContact, decreased $0.2 million
in the three months ended March 31, 2019 versus the prior year period. Depreciation expense, excluding our acquisitions of Prime,
Falcon and TrendKite and the divestiture of iContact, decreased by $0.4 million in the in the three months ended March 31, 2019
versus the prior year period. The change in the U.S. dollar versus other foreign currencies in 2019 compared to 2018 had a nominal
impact on our research and development expenses for the three months ended March 31, 2019.
General and Administrative
General and administrative expenses increased
$5.7 million, or 12.4%, from $46.2 million for the three months ended March 31, 2018 to $52.0 million for the three months ended
March 31, 2019. The change in the U.S. dollar versus other foreign currencies, principally the Euro, the British Pound, and the
Canadian Dollar, in 2019 compared to 2018 decreased our general and administrative expenses by approximately $1.5 million for the
three months ended March 31, 2019. After adjusting for the change in the U.S. dollar versus other foreign currencies, the increase
in general and administrative expenses was primarily driven by our acquisitions of Prime, Falcon and TrendKite, and an increase
in acquisition related costs, offset by a decrease compensation related costs, a decrease in bad debt expense, a decrease in rent
and related costs, a decrease in professional fees, and reduced depreciation expense. General and administrative expenses from
Prime, Falcon and TrendKite were $8.2 million for the three months ended March 31, 2019 versus $1.1 million for the three months
ended March 31, 2018. Our acquisition related expenses increased by $4.6 million during the three months ended March 31, 2019 versus
the prior year period. Compensation related expenses decreased by $1.7 million during the three months ended March 31, 2019 versus
the prior year period, bad debt expense decreased by $1.3 million during the three months ended March 31, 2019 versus the prior
year period, and rent and related expenses decreased $0.5 million during the three months ended March 31, 2019 versus the prior
year period. Depreciation expense decreased by $0.2 million during the three months ended March 31, 2019 versus the prior year
period, and professional services fees decreased $0.9 million during the three months ended March 31, 2019 versus the prior year
period.
Foreign Exchange Gains (Losses)
We recognized a $3.1 million foreign exchange
gain for the three months ended March 31, 2019 and a $7.9 million foreign exchange loss for the three months ended March 31, 2018
due to fluctuations in foreign exchange rates that impacted the carrying value of certain intercompany notes and our 2017 First
Lien Euro Term Credit Facility.
Gain on Sale of Business
We recognized a gain on the disposal of our iContact business of $28.1 million during the three months
ended March 31, 2019.
Interest Expense
Interest expense decreased $0.4 million,
or 2.1%, from $19.7 million for the three months ended March 31, 2018 to $19.3 million for the three months ended March 31, 2019.
This decrease was primarily due to lower interest rates on our debt resulting from the debt repricing transactions of our 2017
First Lien Credit Facility on February 8, 2018 and October 22, 2018 that lowered interest rates, that were partially offset by
an increase in LIBOR rates, and the write-off of approximately $0.4 million of deferred financing costs that was the result of
our entering into an incremental facility amendment (the “January 2019 Incremental Amendment”) to the credit agreement
on January 11, 2019. The January 2019 Incremental Amendment provided for an incremental $75.0 million dollar-denominated term loan
facility (the “Incremental Facility”). The terms of the January 2019 Incremental Facility are substantially identical
to the terms of other term loan borrowings under the 2017 First Lien Credit Facility. During the three months ended March 31, 2019,
we did not make any voluntary prepayments under our 2017 First Lien Credit Facility.
Loss on Extinguishment of Debt
We had a loss on extinguishment of
debt of $0.4 million and $2.4 million for the three months ended March 31, 2019 and 2018, respectively.
Provision For (Benefit From) Income
Taxes
For the three months ended March 31, 2019,
we recorded a provision for income taxes of $7.5 million versus a benefit from income taxes of $17.7 million for the three months
ended March 31, 2018. The provision for income taxes for the three months ended March 31, 2019 is a result of using the annual
effective tax rate methodology. The annual effective tax rate was impacted by excluding subsidiaries with pre-tax losses for which
no tax benefit can be recognized in the calculation of the estimated annual effective tax rate, unfavorable permanent differences
and a decrease to the valuation allowance in the United States. The United States permanent differences are primarily related to
the gain on the sale of the iContact assets related to Goodwill, nondeductible transaction costs, nondeductible public company
costs, nondeductible equity compensation and income from the Canadian subsidiaries that is taxable in the United States as a result
of the Tax Cuts and Jobs Act of 2017. The United Kingdom permanent differences are primarily related to nondeductible interest
expense.
The benefit from income taxes for the three
months ended March 31, 2018 resulted from a pre-tax loss and the impact of pre-tax losses for which no tax benefit can recognized,
the impact of permanent differences and the increase in the valuation allowance expected to be necessary at the end of the year
for certain disallowed interest.
Other Comprehensive Income (Loss)
Other comprehensive income decreased $0.2
million for the three months ended March 31, 2019 to $6.9 million, from a comprehensive income of $7.1 million for the three months
ended March 31, 2018. This decrease was primarily the result of foreign currency translation gains that resulted from significant
depreciation of the US dollar versus the British Pound that impacted the carrying value of intangibles and goodwill in our UK subsidiaries.
Liquidity and Capital Resources
Overview
We fund our business primarily with cash
generated from operations and from borrowings under our 2017 First Lien Credit Facility. We use cash to satisfy our contractual
obligations and to fund other non-contractual business needs.
Based on the terms of our credit facilities
and our current operations and expectations for continued growth, we believe that cash generated from operating activities, together
with available borrowings under our 2017 First Lien Credit Facility, will be adequate to meet our current and expected operating,
capital investment, acquisition financing and debt service obligations for the next twelve months, although no assurance can be
given in this regard.
We believe that our existing cash on hand
and cash flow from operations will be sufficient to fund our currently anticipated working capital, capital expenditure, and debt
service requirements, for at least the next twelve months. While we have a history of a negative working capital position, as calculated
by subtracting current liabilities from current assets, substantially all of this negative balance is created by deferred revenue,
which does not represent a liability that will be settled in cash. As of March 31, 2019, excluding both cash balances and deferred
revenue, our current assets exceed our current liabilities by $9.8 million.
The dollar and Euro tranches of our 2017
First Lien Credit Facility require quarterly principal repayments in the amount of $2.8 million and €0.6 million per quarter,
respectively, which are insignificant compared to the cash we expect to generate from operations. The 2017 First Lien Credit Facility
does not mature until 2023, and therefore is not considered to impact our liquidity needs over the next several years. We have
been in compliance with all of our applicable credit facility covenants through March 31, 2019.
Our cash flow from operations in all
periods to date has been adversely impacted by the cash costs incurred to execute the strategic business combinations we have
made, which include acquisition fees and expenses and integration costs required to achieve synergies. Acquisition-related
costs and expenses for historical periods are reflected in the Net Income (Loss) to Adjusted EBITDA Reconciliation included
elsewhere in this report. While the execution of these strategic business combinations use short-term operating cash, they
generate significant long-term cost reductions, revenue synergies and substantial incremental operating cash flow, once fully
integrated. We believe that this incremental cash flow will be substantial and will enable us to fund cash interest
payments.
For the three months ended March 31, 2019,
net cash provided by operating activities was $28.9 million, after deducting the cash costs incurred to execute the strategic business
combinations and the divestiture that we made during the three months ended March 31, 2019. For the three months ended March 31,
2019, net cash used in investing activities was $116.0 million. For the three months ended March 31, 2019, net cash provided by
financing activities was $65.4 million, which included the proceeds received from our January 2019 Incremental Amendment.
For these reasons, we believe that our
existing cash on hand and cash flow from operations will be sufficient to fund our currently anticipated working capital, capital
expenditure, and debt service requirements.
We do not currently expect to declare dividends
in the foreseeable future. The declaration of dividends will be subject to our actual future earnings and capital requirements
and to the discretion of our board of directors. Our board of directors may take into account such matters as general business
conditions, our financial results, capital requirements, contractual, legal and regulatory restrictions and such other factors
as our board of directors may deem relevant.
Our ability to pay cash dividends on our
ordinary shares will be subject to our continued compliance with the terms of our Credit Facilities. Under our 2017 First Lien
Credit Facility, our subsidiaries have restrictions on making cash dividends to us, subject to certain exceptions, including that
our subsidiaries are permitted to declare and pay cash dividends:
|
·
|
in any amount, so long as the total net leverage ratio under our 2017 First Lien Credit Facility would not exceed 3.75 to 1.00 after making such payment;
|
|
·
|
in an amount per annum not greater than 6.0% of (i) the market capitalization of our common stock (based on the average closing price of our shares during the 30 trading days preceding the declaration of such payment) plus (ii) the $305.2 million in proceeds we received in the Merger;
|
|
·
|
in an amount that does not exceed the sum of (i) $20.0 million, plus (ii) 50% of consolidated net income of our subsidiaries from January 1, 2016 to the end of the most recent quarter plus (iii) certain other amounts set forth in the definition of “Available Amount” in our 2017 First Lien Credit Facility (provided that we may only include the amounts of consolidated net income described in clause (ii) if our total net leverage ratio would not exceed 5.00 to 1.00 after making such payments; and
|
|
·
|
in an amount that does not exceed the total net proceeds we receive from any public or private offerings of our common stock or similar equity interests.
|
As of March 31, 2019, we had $82.9 million
of cash and cash equivalents on hand, and we had aggregate unused availability of $98.6 million under our 2017 Revolving Credit
Facility. Borrowings under this facility bear interest at a variable rate and are a significant source of our liquidity. Our liquidity
needs, including our funding of acquisition activities, causes the aggregate amount of outstanding borrowings under our 2017 Revolving
Credit Facility to fluctuate. Accordingly, the amount of borrowing capacity available to us can fluctuate depending on operating
cash flows, debt service requirements and acquisition and investment activity.
Our future financial and operating performance,
ability to service or refinance our debt and ability to comply with covenants and restrictions contained in our credit agreements
governing our credit facilities will be subject to future economic conditions and to financial, business and other factors, many
of which are beyond our control and will be substantially dependent on the global economy, demand for our products and solutions
and our ability to successfully implement our business strategies.
As of March 31, 2019, $43.7 million of
cash and cash equivalents were held outside of the United States (inclusive of the controlled foreign corporations owned by the
U.S.). We have not provided for income taxes on $66.5 million of undistributed earnings of our foreign subsidiaries, other than
certain Canadian subsidiaries, as the earnings are considered permanently reinvested. Notwithstanding this, since the enactment
of U.S. tax reform legislation, we have recorded a $6.2 million transition tax and a $3.5 million tax on GILTI income related
to our Canadian subsidiaries. This amount includes an estimated $2.8 million of Canadian withholding taxes on the future repatriation
of cash from Canada to the United States. The United States does not currently have accumulated earnings and profits and the majority
of the other foreign jurisdictions can distribute their earnings to us without significant additional taxation. Accordingly, we
have determined that any deferred tax liability associated with a distribution of the undistributed earnings would be immaterial.
Debt Obligations
The following describes the components
of our debt obligations as of March 31, 2019. For more information regarding these transactions, see Note 6 to our condensed consolidated
financial statements included elsewhere in this report.
2017 First Lien Credit Facility
On August 4, 2017, we entered into the
2017 First Lien Credit Facility with Deutsche Bank AG, New York Branch, as administrative agent and collateral agent, and a syndicate
of commercial lenders from time to time party thereto. The 2017 First Lien Credit Facility provided for a tranche of refinancing
term loans which refinanced the term loans under our 2016 First Lien Credit Agreement in full and provided for additional term
loans of $131.2 million. The 2017 First Lien Credit Facility, on the date of effectiveness, consisted of: (i) a revolving loan
facility, which permits borrowings and letters of credit of up to $75.0 million, of which, up to $25.0 million may be used or issued
as standby and trade letters of credit; (ii) a $960.0 million Dollar-denominated term credit facility (the “2017 First Lien
Dollar Term Credit Facility”) and (iii) a €250.0 million Euro-denominated term credit facility (the “2017 First
Lien Euro Term Credit Facility”). We used the proceeds from the 2017 First Lien Term Credit Facility to repay all amounts
then outstanding under our 2016 First Lien Credit Facility, all amounts outstanding under our 2016 Second Lien Credit Facility,
pay all related fees and expenses, and retained remaining cash for general corporate purposes. We terminated the agreement governing
the 2016 Second Lien Credit Facility in connection with effecting the 2017 First Lien Credit Facility.
On December 14, 2017, we entered into an
incremental facility amendment to the 2017 First Lien Credit Facility (the “December 2017 Incremental Amendment”).
The December 2017 Incremental Amendment provided for an incremental $75.0 million dollar-denominated term loan facility. The proceeds
from the December 2017 Incremental Amendment were used to fund the Prime acquisition.
On February 8, 2018, we repriced our $1,417
million First Lien Credit Facility (the “February 2018 Repricing”). The repriced first lien credit agreement consisted
of a $75.0 million revolving loan facility and a $1,342 million term loan facility. The term loan facility consisted of $1,032
million of U.S. dollar borrowings and €249 million of Euro borrowings. The term loans and revolving borrowings were repriced
at an interest rate of LIBOR plus 3.25% for dollar borrowings and EURIBOR plus 3.50% for Euro borrowings. We incurred approximately
$2.0 million in financing costs in connection with the February 2018 Repricing of the 2017 First Lien Credit Facility of which
$0.1 million are being amortized using the effective interest method. As a result of this transaction, we recorded a loss on extinguishment
of $2.4 million.
On October 22, 2018, we repriced our $1,417
million 2017 First Lien Credit Facility (the “October 2018 Repricing”). The repriced first lien credit agreement consisted
of a $75.0 million revolving loan facility and a $1,342 million term loan facility. The term loan facility consisted of $1,032
million of U.S. dollar borrowings and €249 million of Euro borrowings. The term loans and revolving borrowings were repriced
at an interest rate of LIBOR plus 2.75% for dollar borrowings and EURIBOR plus 3.00% for Euro borrowings. We incurred approximately
$2.3 million in financing costs in connection with the October 2018 Repricing of the 2017 First Lien Credit Facility of which $0.3
million are being amortized using the effective interest method. As a result of this transaction, we recorded a loss on extinguishment
of $7.0 million.
On December 28, 2018, we entered into an
incremental facility amendment (the “December 2018 Incremental Amendment”) to the credit agreement. As a result of
the December 2018 Incremental Amendment, available borrowings under the revolving credit facility increased from $75.0 million
to $100.0 million.
On January 11, 2019, we entered into the
January 2019 Incremental Amendment to the credit agreement. The January 2019 Incremental Amendment provides for an incremental
$75.0 million dollar-denominated term loan facility.
On April 30, 2018, June 29, 2018 and September
28, 2018 we made voluntary prepayments of $30.0 million, $10.0 million and $10.0 million, respectively. As March 31, 2019, we had
no outstanding borrowings and $1.4 million of outstanding letters of credit under our 2017 Revolving Credit Facility and $1,320.5
million outstanding under the 2017 First Lien Term Credit Facility.
From time to time, we may incur incremental
revolving facilities and incremental term loan facilities under the 2017 First Lien Credit Facility in amounts not to exceed $100.0
million plus additional amounts subject to compliance with certain leverage ratios as set forth in the 2017 First Lien Credit Facility
and certain other amounts.
Interest is charged on U.S. dollar borrowings
under our 2017 First Lien Credit Facility, at our option, at a rate based on (1) the adjusted LIBOR (a rate equal to the London
interbank offered rate adjusted for statutory reserves) or (2) the alternate base rate (a rate that is highest of the (i) Deutsche
Bank AG, New York Branch’s prime lending rate, (ii) the overnight federal funds rate plus 50 basis points or (iii) the one-month
adjusted LIBOR plus 1%), in each case, plus an applicable margin. Following the October 2018 Repricing, the margin applicable to
U.S. dollar borrowings under our 2017 First Lien Dollar Term Credit Facility was 1.75% at the alternate base rate and was 2.75%
at the adjusted LIBOR rate.
Interest is charged on Euro borrowings
under our 2017 First Lien Credit Facility at a rate based on the adjusted EURIBOR (a rate equal to the Euro interbank offered rate
adjusted for statutory reserves), plus an applicable margin. Following the October 2018 Repricing, the margin applicable to EURO
borrowings under the 2017 First Lien Euro Term Credit Facility was 3.00%. Borrowings under the Revolving Credit Facility bear interest
at an interest rate of LIBOR plus 2.75% for dollar borrowings and EURIBOR plus 3.00% for Euro borrowings. The Revolving Credit
Facility matures on June 16, 2023.
Revolving borrowings in Canadian dollars
bear interest at the adjusted Canadian dollar banker’s acceptance rate plus an applicable margin. Following the October 2018
Repricing, the margin applicable to loans under the 2017 Revolving Credit Facility bearing interest at the alternate base rate,
the adjusted LIBOR, and the adjusted Euro interbank offered rate bear interest at rates of 2.25%, 3.25%, and 3.50%, respectively.
As of March 31, 2019, the applicable interest rate under the 2017 First Lien Dollar Term Credit Facility and the 2017 First Lien
Euro Term Credit Facility was 5.35% and 3.00%, respectively.
We are obligated to make quarterly
principal payments under the 2017 First Lien Dollar Term Credit Facility of $2.8 million (which amount may be reduced by the application
of voluntary and mandatory prepayments pursuant to the terms of the 2017 First Lien Credit Facility), with the remaining balance
due June 16, 2023. We are obligated to make quarterly principal payments under the 2017 First Lien Euro Term Credit Facility of
€0.6 million (which amount may be reduced by the application of voluntary and mandatory prepayments pursuant to the terms
of the 2017 First Lien Credit Facility), with the remaining balance due June 16, 2023. The maturity date of the 2017 Revolving
Credit Facility is June 16, 2023.
We may also be required to make certain
mandatory prepayments of the 2017 First Lien Term Credit Facility out of excess cash flow and upon the receipt of proceeds of asset
sales and certain insurance proceeds (in each case, subject to certain minimum dollar thresholds and rights to reinvest the proceeds
as set forth in the 2017 First Lien Credit Facility). For the fiscal year ended December 31, 2017, no mandatory prepayments were
due pursuant to the terms of the 2017 First Lien Term Credit Facility. No mandatory prepayments were made for the fiscal year ended
December 31, 2018. No excess cash flow payments were required during the year ended December 31, 2018.
The obligations under the 2017 First Lien
Credit Facility are secured by substantially all of the assets of Canyon Companies S.à.r.l. and each of its subsidiaries
organized in the United States (or any state thereof), the United Kingdom, the Netherlands, Luxembourg, and Ireland, subject to
certain exceptions.
The 2017 First Lien Credit Facility includes
a springing financial covenant applicable solely to the 2017 Revolving Credit Facility that is tested at such time that 35% or
more (excluding letters of credit that have been cash collateralized and letters of credit in an amount not to exceed $4.0 million)
of the aggregate commitments under the 2017 Revolving Credit Facility are drawn and outstanding. Such springing financial covenant
requires that, as of the last day of each fiscal quarter, the total net leverage ratio of Canyon Companies S.à.r.l. and
its restricted subsidiaries under the 2017 First Lien Credit Facility cannot exceed the applicable ratio set forth in the 2017
First Lien Credit Facility for such quarter (subject to certain rights to cure any failure to meet such ratio as set forth in the
2017 First Lien Credit Facility). The 2017 First Lien Credit Facility is also subject to certain customary affirmative covenants
and negative covenants. Under our 2017 First Lien Credit Facility, our subsidiaries have restrictions on making cash dividends
to us, subject to certain exceptions, including that our subsidiaries are permitted to declare and pay cash dividends:
|
·
|
in any amount, so long as the total net leverage ratio under our 2017 First Lien Credit Facility would not exceed 3.75 to 1.00 after making such payment;
|
|
·
|
in an amount per annum not greater than 6.0% of (i) the market capitalization of our common stock (based on the average closing price of our shares during the 30 trading days preceding the declaration of such payment) plus (ii) the $305.2 million in proceeds we received in our business combination with Capitol;
|
|
·
|
in an amount that does not exceed the sum of (i) $20.0 million, plus (ii) 50% of consolidated net income of our subsidiaries from January 1, 2016 to the end of the most recent quarter plus (iii) certain other amounts set forth in the definition of “Available Amount” in our 2017 First Lien Credit Facility (provided that we may only include the amounts of consolidated net income described in clause (ii) if our total net leverage ratio would not exceed 5.00 to 1.00 after making such payment); and
|
|
·
|
in an amount that does not exceed the total net proceeds we receive from any public or private offerings of our common stock or similar equity interests.
|
Our 2017 First Lien Credit Facility provides
that an event of default will occur upon specified change of control events. “Change in Control” is defined to include,
among other things, the acquisition of ownership, directly or indirectly, beneficially or of record, by any person or group, other
than certain permitted holders (directly or indirectly, including through one or more holding companies), of voting equity interests
representing 50% or more of the aggregate ordinary voting power represented by the issued and outstanding voting equity in Cision
Ltd.
Cash Flow Analysis
The following tables reflect the changes in cash flows for the
comparative periods presented.
|
|
Three Months Ended March 31,
|
|
|
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
Net Change
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
28,893
|
|
|
$
|
36,303
|
|
|
$
|
(7,410
|
)
|
Investing activities
|
|
|
(115,986
|
)
|
|
|
(71,485
|
)
|
|
|
(44,501
|
)
|
Financing activities
|
|
|
65,443
|
|
|
|
(6,366
|
)
|
|
|
71,809
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
394
|
|
|
|
742
|
|
|
|
(348
|
)
|
Net change in cash and cash equivalents
|
|
$
|
(21,256
|
)
|
|
$
|
(40,806
|
)
|
|
$
|
19,550
|
|
Cash Flow Provided By Operating Activities
Net cash flows from operating activities
consist of net income (loss) adjusted for non-cash items, such as: depreciation and amortization of property and equipment and
intangible assets, non-cash interest charges, deferred income taxes, unrealized currency translation losses, equity-based compensation,
and for changes in net working capital assets and liabilities. The impact of changes in deferred income taxes primarily relates
to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Generally, the most significant factor impacting changes in deferred income taxes relates to nondeductible
amortization expense associated with intangible assets.
Net cash provided by operating activities
was $28.9 million for the three months ended March 31, 2019. Net cash provided by operating activities for the three months ended
March 31, 2019 reflects operating profit of $11.6 million, adjusted for non-cash items and an $18.4 million increase in deferred
revenue due to the timing of invoicing to our subscription customers, a $2.8 million increase in prepaid expenses and other current
assets, a $6.2 million increase in accounts receivable, and a $2.7 million decrease in accounts payable, a $4.4 million decrease
in ROU assets, a $2.1 million decrease in operating lease liabilities, a $5.1 million increase in accrued compensation and benefits
due to severance costs during the period, and a $3.7 million increase in other liabilities.
Net cash provided by operating activities
for the three months ended March 31, 2018 was $36.3 million. Net cash provided by operating activities for the three months ended
March 31, 2018 reflects a $20.9 million increase in deferred revenue due to the timing of invoicing to our subscription customers,
a $6.8 million increase in accounts receivable due to the timing of customer invoicing, a $3.0 million increase in prepaid expenses
and other current assets primarily due to the timing of advance payments for business expenses, and a $3.3 million decrease in
other accrued expenses due to the timing of vendor invoices.
Cash Flow Used In Investing Activities
Net cash used in investing activities was
$116.0 million for the three months ended March 31, 2019, which reflects $148.5 million used for our acquisitions of Falcon and
TrendKite, net of cash acquired, and $44.9 million of net proceeds from our disposal of our email marketing assets, after funds
deposited in escrow and transaction expenses. Net cash used in investing activities in the three months ended March 31, 2019 also
reflects capitalized software development costs of $8.0 million and purchases of property and equipment of $4.4 million.
Net cash used in investing activities was
$71.5 million for the three months ended March 31, 2018 which reflects $62.7 million used for our acquisition of Prime, net of
cash acquired. Net cash used in investing activities in the three months ended March 31, 2018 also reflects capitalized software
development costs of $5.0 million and purchases of property and equipment of $3.7 million.
Cash Flow Provided By/(Used In) Financing
Activities
Net cash provided by financing activities
was $65.4 million for the three months ended March 31, 2019 which reflects $74.0 million of proceeds, net of expenses, from our
term credit facility, repayments on the credit facility of $3.5 million, $3.7 million in contingent consideration, $1.6 million
in deferred financing payments and $0.3 million of proceeds from the exercise of stock options.
Net cash used in financing activities was
$6.4 million for the three months ended March 31, 2018, which reflects $3.4 million in repayments of our term loan facility, $0.1
million in deferred financing payments, and contingent consideration payments of $2.9 million related to the Bulletin Intelligence
earnout agreement.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet transactions
or interests.
Summary of Critical Accounting Policies
Critical accounting policies are defined
as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results
under different assumptions and conditions. There were no significant changes to critical accounting policies and estimates from
those disclosed in
Critical Accounting Policies and Estimates
within
Cision’s Management’s Discussion and
Analysis of Financial Condition and Results of Operations
in our Annual Report on Form 10-K filed with the SEC on March 1,
2019.
Recent Accounting Pronouncements
ASU 2016-02, Leases (Topic 842). ASU 2016-02
requires lessees to recognize ROU assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing
arrangements. We adopted ASU 2016-02 effective for the three months ended March 31, 2019. See Note 2 to our Condensed Consolidated
Financial Statements for a discussion of recent accounting pronouncements.
Seasonality
We have experienced in the past, and expect
to continue to experience, seasonal fluctuations in our revenues as a result of press release cycles, primarily related to the
release of public company operating results and other corporate news events.
Effects of Inflation
While inflation may impact revenues and
cost of services, we believe the effects of inflation, if any, on the results of operations and financial condition have not been
significant. However, there can be no assurance that the results of operations and financial condition will not be materially impacted
by inflation in the future.