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Cision faces margin pressure on both sides, compounding slow Brandwatch integration
Michal Skypala
•4 min read
Cision’s fourth quarter earnings show that margins are being squeezed on both sides as wages rise and competitors cut their pricing — all while the company attempts to digest a large acquisition from last year.
The US-headquartered public relations and media software firm reported adjusted EBITDA of $77m for Q4 21, an 18.3% year-over-year decline, sources told 9fin.
That came even as revenue grew 4.7% over the same period, to $240.5m. Cision was acquired by Platinum Equity in January 2020, in a deal valued at $2.7bn.
“It is one of my racier names at the moment,” said a buysider familiar with the company. “The operational volatility combined with wage inflation makes it quite lumpy.”
The company’s decision to move its earnings call from Wednesday (6 April) to Tuesday didn’t exactly help matters. Some lenders said this last-minute scheduling change led them to miss their opportunity to grill management on what was clearly a tough quarter.
Cision is still in the process of integrating Brandwatch, which it acquired in 2021. At the same time, it is paying higher wages thanks to a highly competitive labour market, and facing intense competition from competitors that are offering clients better pricing.
The biggest of Cision’s four business segments is distribution — a stable division that buysiders said prompted little concern.
Having grown during the pandemic as clients issued more press releases, sales continue to grow thanks to emerging corporate PR trends such as ESG. Revenue rose 7.6% year-over-year in Q4 21, to $380.4m.
By contrast, Cision’s comms suite and software division gave up ground over the same period. Revenue for that segment fell 2% year-over-year, to $258.9m.
Revenue breakdown
Adjusted Income Statement Trends
Sources said these numbers suggested Cision’s comms and software business was “not growing in line with the market” and potentially losing customers to competitors.
Meanwhile, rising research and development costs reflect pressure to offer higher wages to engineers in a competitive job market, sources said.
During its lender call, Cision executives said they were focused on employee retention and talent acquisition. One reaction has been to offer a hybrid office and work-from-home programme called “Cision Flex”.
In the EMEA region, sales growth was driven by the distribution and social divisions, while APAC sales were driving mainly by distribution and insights.
The company’s overall growth figures for the quarter also benefited from a weaker US dollar, which helped to somewhat mitigate softness in Cision’s home market.
Brandwatch integration
As for Cision’s social media division, the main question there is how the Brandwatch integration will play out.
When reporting the deal’s $450m price tag last June, TechCrunch said the tie-up had the potential to create a “PR, media and social listening giant”. But synergies are taking time to materialize, and investments are constraining margins, sources said.
“When they acquired Brandwatch, its EBITDA was negative so it requires huge investments to make it a comprehensive product and that is still dragging down the margin,” said the first source.
Acquisitions are obscuring a clear view of Cision’s margin, sources said. One source provided their own estimate, which was not reassuring: it suggested the company’s overall EBITDA margin was around 30%, down from 40% a year ago.
Q4 Improvement Update on Cision Core and Brandwatch
Cision may be playing the long game with Brandwatch, but lenders are a becoming impatient about delivery — especially given recent management changes. Abel Clark stepped down as CEO after two years this February, and was replaced by interim CEO Brandon Crawley. The search for a new CEO is still underway.
Both sources said they saw Platinum as having a more “hands-off approach’. But the first source added that now was the time for the sponsor to step up “to create value”.
“Integration is slowly improving and has big potential to bring double-digit growth, but I still see low-single digits and a lot to be done,” the source said.
Even if Brandwatch is successfully integrated, Cision still faces intense competition in social media. The first source noted Norwegian-listed peer Meltwater as a particularly aggressive competitor.
M&A and leverage
Like many Platinum buyouts, Cision had punchy leverage from the start. On top of that, the ink had barely dried on its LBO debt when it issued a PIK toggle to fund a dividend, reducing the sponsor’s equity check.
“I don’t think leverage is awful, although it is quite elevated, especially if you use less adjusted EBITDA,” said the first source. “But probably now they are seeing difficulty in managing it.”
Current debt stack and leverage
Leverage reached its peak in 2021 when the company issued a USD TLB add-on. Sources expect it to remain around its current level of 5.8x (senior secured, net of cash) as Cision pursues more bolt-on acquisitions.
Cision boasts strong free cash flow conversion, in the mid-80% region, but cash was still down in Q4 21 to $107.7m from $153.4m a year earlier. This was due to debt service and continued acquisitions.
The company bought Streem and Paladin in the first quarter of this year, although it also sold its non-core government relations business at an “attractive multiple“ in Q4 2021, said the management team.
