Company Quick10K Filing
Quick10K
Cision
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$11.61 148 $1,720
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
8-K 2019-02-28 Earnings, Exhibits
8-K 2019-01-25 Officers
8-K 2019-01-25 Officers
8-K 2019-01-23 Earnings, Sale of Shares, Regulation FD, Exhibits
8-K 2019-01-23 Earnings, Sale of Shares, Regulation FD, Exhibits
8-K 2019-01-11 Enter Agreement, Off-BS Arrangement, Officers, Exhibits
8-K 2018-12-28 Off-BS Arrangement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-10-30 Officers, Exhibits
8-K 2018-09-12 Sale of Shares, Other Events, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-07-30 Officers
8-K 2018-06-26 Shareholder Vote
8-K 2018-06-14 Other Events, Exhibits
8-K 2018-05-18 Enter Agreement, Shareholder Rights, Shareholder Vote, Other Events, Exhibits
8-K 2018-05-14 Other Events, Exhibits
8-K 2018-04-17 Other Events, Exhibits
8-K 2018-03-20 Other Events, Exhibits
8-K 2018-03-08 Earnings, Exhibits
8-K 2018-01-29 Earnings, Exhibits
8-K 2018-01-08 Enter Agreement, Other Events, Exhibits
TOL Toll Brothers 5,570
WNC Wabash National 823
NEWM New Media Investment Group 610
DERM Dermira 569
AKTS Akoustis Technologies 240
ISTR Investar Holding 240
PTIX Protagenic 0
KNWN Know Labs 0
WCVC West Coast Ventures Group 0
OVAS Ovascience 0
CISN 2019-03-31
Part I. - Financial Information
Item 1. - Financial Statements
Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
Item 4. - Controls and Procedures
Part II. - Other Information
Item 1. - Legal Proceedings
Item 1A. - Risk Factors
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. - Defaults Upon Senior Securities
Item 4. - Mine Safety Disclosures
Item 5. - Other Information
Item 6. - Exhibits
EX-31.1 tv520447_ex31-1.htm
EX-31.2 tv520447_ex31-2.htm
EX-32.1 tv520447_ex32-1.htm
EX-32.2 tv520447_ex32-2.htm

Cision Earnings 2019-03-31

CISN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv520447_10q.htm FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

  x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

OR

 

  ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to

 

Commission File Number: 001-38140

 

Cision Ltd.

(Exact name of registrant as specified in its charter)

 

Cayman Islands   N/A

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

130 East Randolph Street, 7th Floor

Chicago, Illinois 60601

(Address of principal executive offices)

(Zip code)

 

(866) 639-5087

(Registrant’s telephone number, including area code)

 

Not Applicable.

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x   Accelerated filer o   Non-accelerated filer ¨   Smaller reporting company ¨
            Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

Securities registered pursuant to Section 12(d) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered

Ordinary shares, par value $0.0001 per share

CISN New York Stock Exchange

  

The number of ordinary shares, par value $0.0001 per share, of the registrant outstanding at May 6, 2019 was 148,351,227.

 

 

 

 

  

CISION LTD. AND ITS SUBSIDIARIES

 

INDEX

 

PART I. – FINANCIAL INFORMATION 3
   
Item 1. – Financial Statements 3
   
Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
   
Item 3. – Quantitative and Qualitative Disclosures About Market Risk 33
   
Item 4. – Controls and Procedures 33
   
PART II. – OTHER INFORMATION 35
   
Item 1. – Legal Proceedings 35
   
Item 1A. – Risk Factors 35
   
Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds 35
   
Item 3. – Defaults Upon Senior Securities 35
   
Item 4. – Mine Safety Disclosures 35
   
Item 5. – Other Information 35
   
Item 6. – Exhibits 35
   
SIGNATURES 36

 

2 

 

 

PART I. – FINANCIAL INFORMATION

 

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.

 

3 

 

 

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.

 

4 

 

  

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.

 

5 

 

  

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.

 

6 

 

 

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.

 

7 

 

 

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.

 

8 

 

 

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.

 

9 

 

 

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.    

  

10 

 

 

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.

 

11 

 

 

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 

  

12 

 

 

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 )

  

13 

 

 

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.

 

14 

 

 

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.

 

15 

 

 

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 

 

16 

 

 

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.

 

17 

 

 

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.

  

18 

 

 

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.

 

19 

 

 

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  

 

20 

 

 

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.

 

21 

 

 

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.

 

22 

 

 

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.

 

23 

 

 

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.

 

24 

 

 

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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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Item 3. – Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to market risks in the ordinary course of our business. These risks include interest rate risk and foreign exchange risk.

 

Interest Rate Risk

 

Our 2017 First Lien Credit Facility bears interest at variable rates based on LIBOR plus a fixed margin. As of March 31, 2019, we had $1,320.5 million in outstanding borrowings under our 2017 First Lien Credit Facility. Through June 30, 2019, at LIBOR and EURIBOR rates below 3.5% and 0.5%, respectively, 100.0% of our outstanding borrowings bear interest at variable rates. Outstanding borrowings under our 2017 First Lien Credit Facility are subject to a 1% LIBOR floor. As of March 31, 2019, the 3-month LIBOR rate and 3-month EURIBOR rate were approximately 2.6% and 0.0%, respectively. A hypothetical 1% increase in the interest rate on our indebtedness as of March 31, 2019 would increase our cash interest expense by approximately $13.2 million per annum.

 

Foreign Exchange Risk

 

The reporting currency for all periods presented is the U.S. dollar. The functional currency for our foreign operating subsidiaries is the local currency, including the British Pound, the Euro, the Swedish Krona and the Canadian Dollar. These currencies all weakened significantly against the U.S. dollar. Approximately 40% of our 2018 revenues were 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. The resulting translation adjustments are included in accumulated other comprehensive income (loss), a separate component of stockholders’ equity.

  

Item 4. – Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2019. Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2019 because of a material weakness in our internal control over financial reporting relating to the design and maintenance of information technology general controls for certain information systems relevant to the preparation of financial statements.

   

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Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. – OTHER INFORMATION

 

Item 1. – Legal Proceedings

 

From time to time, we are subject to various litigation incidental to our business and to governmental investigations related to our products and services. We are not currently party to any legal proceedings or investigations that would reasonably be expected to have a material adverse effect on our business or financial condition. See “Risk Factors — We are the subject of continuing litigation and governmental inquiries.” in our Annual Report on Form 10-K filed with the SEC on March 1, 2019.

  

Item 1A. – Risk Factors

 

At March 31, 2019, there have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K filed with the SEC on March 1, 2019, which is accessible on the SEC’s website at www.sec.gov.

 

Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. – Defaults Upon Senior Securities

 

None.

 

Item 4. – Mine Safety Disclosures

 

Not applicable.

 

Item 5. – Other Information

 

None.

 

Item 6. – Exhibits

  

Exhibit   Description
31.1*   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*   XBRL Instance Document.
101.SCH*   XBRL Taxonomy Extension Schema Document.
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*   XBRL Taxonomy Extension Definitions Linkbase Document.
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document.

 

* Filed herewith.

 

** Certification has been furnished, is not deemed filed and is not to be incorporated by reference into any of the registrant’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  CISION LTD.
     
Dated: May 10, 2019 By: /s/ Jack Pearlstein
  Name: Jack Pearlstein
  Title: Chief Financial Officer
     
  By: /s/  Steve Solomon
  Name: Steve Solomon
  Title: Chief Accounting Officer

 

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