SCOR Update

This is my post on Value Investor’s Club this morning updating SCOR. Let me say this has been one of the worst investments I have ever made. From here I still believe there is value and it can be salvaged.

SCOR reported ugly Q1 numbers last night and took down revenue and EBITDA guidance.  The company's mgmt is awful at communicating with the few investors they have.

1) The CEO was very bullish in early June reiterating the second half strength they saw at Gabelli conference.  This led to investors being caught completely off guard by the big revenue miss.  

2) Speaking to him this morning he explained the delta to me.  First he said they walked away from a no margin contract that was $1-2M per qtr in business.  Nowhere was this communicated.  Second, ORCL shut down their MOat Advertising Business.  CEO told me this cost nearly $1M in business in their growth business (CCR/Proximic).  Third they expected to go live on Trade Desk's platform in June and that got pushed to July 8th. That cost them about $500K in business.  Lastly the custom solutions which is really lumpy turned in a big down qtr but over time that business will surprise the other way.  

3) EBITDA  - the Oracle business was 100% margin given fixed costs.  The custom business has 30% EBITDA margins.  Those two things cost them $2M in EBITDA along with another bit due to Trade Desk timing issue.  This explains the EBITDA miss.  

Incredibly in the Press Release none of this was communicated.  If you look over the 2021-23 period the company has more or less had $375M in revenues with improving EBITDA margins.  All of a sudden this year we are looking at $350-$360M.  If mgmt had communicated $6M of the decline is deciding to walk away from zero margin business that number drops.  If they had told us the Oracle shutdown will likely cost $2M this year until they can recover those clients on their own.  All of a sudden we are looking at revenue close to the $370M again.  

Meanwhile, in th epast 3 years the company has used $120M in generated EBITDA and spent $80M in upgrading their software and tech stack to build the shift to the digital business.  They have funded this investment while clients like Paramount, Warner, et al have cut spending by 50% or more as their businesses transition. Despite these headwinds the business has managed to more or less stay flat while competing with a number of private start ups that are now retrenching.  

This had been one of the most painful investments of my career but the value in this business has not been impaired.  It has been obfuscated by poor mgmt communication which I, along with others are trying to remedy and the continuing difficulty in dealing with one of their pfd holders, Charter Comm. 

Charter has a data licensing agreement with the company where they are paid $20M for their set top box data while the value of that data based on what is paid to other MSOs is probably $12M.  They obviously have no incentive to renegiate that deal until now.  The company needs breathing room and pfd holders to take some pain for everyone to prosper.  if they believe in the value, taking a hari cut can yield much higher returns over the long term.. I believe Charter continues to resist this reality but perhaps after today they will see there is blood in the water.

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