Comscore Inc (SCOR) 2008 Q4 法說會逐字稿

Good afternoon, and welcome to comScore earnings conference call.

(Operator Instructions).

I would now like to turn the call over to Mr.

John Green, Chief Financial Officer.

Please proceed.

Thank you.

Good afternoon, and welcome to comScore's earnings call for our fourth quarter and full year 2008.

This is John Green, Chief Financial Officer of comScore.

On the call with me today is Magid Abraham, comScore's President, CEO and Co-Founder.

Before we begin, please allow me to read the following statement to inform you of certain Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

During the course of today's call, as well as any question and answer periods to follow, representatives of the Company may make forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21-E of the Securities Exchange Act of 1934 regarding future events or financial performance of the Company that involve risks and uncertainties including, without limitation, the expected strengths of comScore's business, customer growth and client demand for comScore's products, the future quality of client relationships and resulting renewal rates, expectations regarding new products and markets including extended web measurement, ad effectiveness and mobile media markets and forecasts of future financial performance including related growth rates and assumptions for the first quarter and the full year of 2009.

Such statements are only predictions based on management's current expectations.

Actual events or results could differ materially from those predictions due to a number of risks and uncertainties, including those enumerated in the documents comScore files from time to time with the SEC.

Those documents specifically include, but are not limited to, comScore's Form 8-K filed earlier today, relating to the subject matter of this earnings call, comScore's Form 10-K for the year ended December 31st, 2007 and comScore's Form 10-Q for the quarter ended September 30th, 2008.

These filings may contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

We caution you not to place undue reliance on any forward-looking statements included in these presentations.

We speak only as of today.

We do not undertake any obligation to publicly update any forward-looking statements to reflect new information after today's call or to reflect the occurrence of unanticipated events.

I will now turn the call over to Magid.

Magid?

Thank you, John.

And thank you for joining us on our fourth quarter call today.

We are pleased to have met our profitability objectives for Q4 and for the year as well as posting a record revenue performance, particularly in light of the challenging economic environment we all face.

Revenue growth in the fourth quarter and for the full year benefited from deeper relationships with existing customers, a broadening of our customer base, from geographical expansion and the value added provided to our customers from our growing product line.

Fourth quarter 2008 revenue of $31.6 million was up 25% year-over-year and 3% sequentially.

While a solid performance, it was slightly below our guidance due to a number of reasons.

Number one, lighter project business as discretionary budgets tightened even more than we typically see in Q4.

Number two, the impact of the stronger US dollars, reduced our reported international revenue.

Number three, the budget cutbacks on the buy side of Wall Street have dampened our ability to replace revenues from the renewal of the Citadel contract on a non-exclusive basis which was worth $850,000 for the quarter or over 3 percentage points in growth.

Number four, slower international growth, particularly in the UK.

Number five, customer churn, more customer churn, that has a 2% to 3% point impact in growth.

Importantly, however, subscription revenue which is the key to the strong visibility of our business model grew 32% in the fourth quarter, to $26.6 million and represented 84% of total revenue.

We also maintain -- we maintained our historical renewal rate at over 90%.

It's important to note that renewals among our medium and large-sized customers were at even higher rates.

If we exclude the $850,000 net impact of our formerly exclusive deal with Citadel, revenue growth would have been 29% in the fourth quarter and subscription revenue would have grown by 37.5%.

We provide this comparison because it represents an indication of how our ongoing business is going.

And this is clearly strong performance by any measure.

On the profitability side, strong execution and strict cost controls in the fourth quarter helped non-GAAP earnings and adjusted EBITDA to be in line with our expectations.

Specifically, GAAP EPS was $0.67, well above our guidance range, due to one-time tax benefit, primarily resulting from the reversal of the Company's deferred tax asset valuation allowance as John will describe later.

Also, non-GAAP EPS was $0.18 per share, at the upper end of our guidance range, and adjusted EBITDA was in the middle of our guidance range at $6.5 million.

For the full year 2008, revenue was $117.4 million, up 35% from 2007.

We earned $0.83 per share on a GAAP basis and $0.73 per share on a non-GAAP basis.

Adjusted EBITDA was $25.7 million, up 43% year-over-year.

There were many significant accomplishments in 2008, all of which bolstered comScore's leadership position in the provision of digital marketing intelligence.

For example, we introduced a number of new products including extended web reporting, which allows publishers and advertisers to track distributed web content across third party sites, such as video, music, gaming, widgets, social media.

We also grew Video Metrix, our industry leading video tracking service and we acquired the leading provider of mobile measurement and metrix.

Additionally, in 2008 we gained traction with our ad effectiveness suite of products, Brand Metrix, Ad Metrix and Campaign Metrix.

These tools help advertisers and publishers verify the impact of their ad campaigns.

In the current economic environment, ad agencies and publishers increasingly need to demonstrate to their clients the ROI from their expenditures on online advertising.

comScore's ad effectiveness products help them do just that.

Similarly, online portals use comScore's ad effectiveness products to measure the effectiveness of ads running on their properties, allowing them to demonstrate value to their advertiser clients.

We believe the momentum in these ad effectiveness products will continue in 2009, particularly in view of the current economic climate, as all advertisers look to maximize their financial return from their marketing expenditures.

And finally, we expanded geographically in Europe and in Latin America with a particular focus on Brazil.

From a customer perspective, we saw positive momentum in the fourth quarter with both existing and new clients.

In the fourth quarter, we added 112 gross new clients which is in line with historical trends as customers continue to recognize the value that our solutions provide.

During the fourth quarter, we experienced higher churn with smaller customers, many of whom were affected by the difficult economic environment.

This brought our net new customer additions to 30 in the quarter.

Our total customer count stood at 1166 at year-end.

Importantly, renewals among large and medium sized customers remained on track enabling us to retain our renewal rates at levels in excess of 90%.

We are pleased to see our mix of new and existing business remain stable in this environment.

As both types of customers continue to recognize the value of our industry-leading tools for measuring the size of Internet audiences and their behavior.

Looking ahead to 2009, we recognize that global economic conditions are likely to remain challenging and uncertain.

On the one hand, we expect the economy to dampen our growth somewhat.

For example, we expect to see, in our customer's discretionary spending, which will impact our project revenue.

And the sluggish economy is likely to cause customers to slow their investments in newer, less proven markets such as monetizing mobile audiences.

Our smallest customers are likely to continue exhibiting higher levels of churn and our strong position in the UK could work against us as that economy suffers.

On the other hand, the long-term drivers of our growth remain unabated.

For example, the number of websites continue to grow rapidly, despite the environment.

Further, we are encouraged by our ability to continue to expand our existing customer relationships and to attract new customers to our industry-leading products.

The success we have had in growing our ad effectiveness products has made comScore an important partner as client's ad budgets come under increased scrutiny.

We are delighted to report that we recently signed Viacom as the hundredth customer for Video Metrix, our industry leading video tracking service.

In addition, our progress in the telecom space now puts AT&T and Verizon among our top ten customers for the first time as ranked by sales volume and we expect the telecom sector to be an increasingly meaningful contributor in 2009.

We continue to benefit from the high visibility with our primarily subscription-based business model [inaudible] and we believe that perhaps the most significant factor driving our long-term growth is the improved return on their marketing investment at our publisher, advertiser and ad agencies customers realize from the use of our services.

Our leading market position is confirmed by Independent Surveys, which show that we are the preferred supplier of audience measurement services for over 50% of US companies.

A market share level that's double that of our nearest competitor.

In the second half of 2008, we implemented cost containment measures that enabled us to exceed our original EBITDA guidance for the year.

We are committed to running a very profitable business and will continue to monitor the market closely, taking appropriate actions should macro conditions warrant.

In summary, we're pleased with comScore's performance in the fourth quarter and full year 2008.

We believe our business is better positioned than most to weather the current economic downturn and we remain committed to increasing profitability and cash flow which will bolster our already strong balance sheet.

Our ability to demonstrate value to our customers and create compelling new products, provides us with a confidence in our ability to maintain our high renewal rates and attract new customers in a broadening set of industries.

Perhaps most importantly, we are confident about our long-term growth, based on our leading market position, significant barriers to entry and compelling market opportunities.

Now, let me turn the call over to John for more specific comments on our financial results and our outlook for 2009.

Thank you, Magid.

Revenue in the fourth quarter was $31.6 million, up 25% year-over-year and 3% sequentially.

Within total revenues, subscription revenue in the fourth quarter was $26.6 million, up 32% year-over-year and represented 84% of total revenue.

This large and growing base of revenue provides comScore with visibility into future revenue and the ability to manage our expense and investment profile to deliver targeted levels of profitability.

Project revenue was $5 million [applied] year-over-year and sequentially, reflecting the impact of our client's tighter year-end budgets in reaction to the economic slowdown.

Looking at the revenue breakdown between new and existing customers, as Magid indicated, the trends have been consistent.

Revenue from existing customers was up 25% year-over-year in the fourth quarter, to $27.3 million and represented 86% of total revenue, consistent with recent periods.

Revenue from new customers was up 23% from last year at $4.3 million in the fourth quarter.

We also continue to expand geographically with 15% of our revenue in the fourth quarter from outside the US.

Turning to our bottom line results, GAAP net income for the fourth quarter of 2008 was $21.8 million, an increase of 60% over year-ago and $0.67 per share, based on a diluted share count of 30.3 million shares.

Included in our GAAP net income was an income tax benefit of $20.4 million resulting from the reversal of the Company's valuation allowance against US deferred tax assets from the Company's historical NOL, as well as the charge of $1.4 million for impairment of the value of certain auction rate securities held by the Company.

Excluding the impact of the tax benefit and the impairment charge, GAAP net income would have been $1.4 million, or $0.05 per share at the high end of the fourth quarter 2008 guidance.

On a non-GAAP basis, adjusted EBITDA was $6.5 million in the fourth quarter, in line with a year ago and was within the expected range.

The adjusted EBITDA margin was 21% for the fourth quarter and excluding the impact from the M Metrix acquisition, was approximately 23% for base comp scores.

Non-GAAP adjusted net income for the fourth quarter 2008 was $5.5 million, or $0.18 per share.

We are pleased that all of our profitability Metrix were within expected ranges in the fourth quarter, as a result of the strong revenue growth and cost containment measures that we implemented last year.

For the full year revenue -- was $117.4 million, up 35% from 2007.

And well above our original guidance for the year, with 14% of 2008 revenue from outside the US, up from 12% in 2007.

For the full year,p GAAP net income was $25.1 million, or $0.83 per share, an increase of 30% compared to the $19.3 million or $0.88 per share in 2007.

Adjusted EBITDA was $25.7 million, up 43% compared to 2007.

And the adjusted EBITDA margin was 22% for the full year of 2008, up from 21% 2007.

Non-GAAP adjusted net income was $22.1 million, or $0.73 per share, an increase of 36% compared to the $16.3 million or $0.71 per share in 2007.

Cash flow from operations for the fourth quarter of 2008 was $4 million.

For the full year 2008, cash flow from operations was $32.3 million, up 52% from 2007.

Free cash flow in the fourth quarter was $3.4 million.

Excluding the impact of the MMetrix acquisition and transition related costs, free cash flow for base comScore was $5.6 million in the fourth quarter.

For the full year 2008, free cash flow was $18 million, including CapEx of $6.5 million, most of which is related to IT infrastructure investments to support our global growth.

Free cash flow for the full year 2008, excluding the impact of the MMetrix acquisition was $24 million, in line with our original full year 2008 forecast.

As of December 31st, 2008, cash, cash equivalents and short-term investments totaled $71.5 million and we held $3.5 million in long-term investments.

As I noted earlier, we recorded a $1.4 million impairment charge related to auction rate securities in the fourth quarter and this is reflected in our change in the long-term investments.

Most significant, we continued to strengthen our already strong balance sheet with sizable cash balance, invested conservatively, combined with strong free cash flow and minimal debt.

Turning to our guidance for the first quarter in 2009.

The impact of the economic downturn became more widespread in the second half of 2008 and we currently expect the market environment to remain challenging in 2009 as well.

That said, we continue to experience strong demand for our products and we're benefiting from our subscription base recurring revenue business model.

There are several factors that we believe will enable comScore to deliver relatively solid top line growth in 2009.

Specifically, we anticipate maintaining high renewal rates, increased penetration of existing customers, further international expansion and increased benefits from our strong portfolio of ad effectiveness products.

Additionally, we will continue to manage expenses closely and are prepared to make adjustments as necessary, based on the direction of the economy in 2009.

With that as background, for 2009 we estimate that revenue will grow approximately 15% over full year 2008.

For the first quarter of 2009, we're forecasting revenue in the range of $30.3 million to $30.8 million.

Relative forecast in GAAP EPS of $0.01 to $0.02 per share based on an estimated diluted share count of 30.6 million shares.

Adjusted EBITDA for the first quarter of 2009 is expected to be $3.8 million to $4.3 million, representing adjusted EBITDA margin of 13% to 14%, at the midpoint of our revenue guidance.

We anticipate non-GAAP adjusted net income for the first quarter of 2009 of $2.6 million to $3.1 million or $0.09 to $0.10 per share.

Reconciliation of GAAP net income to non-GAAP adjusted net income and adjusted EBITDA guidance for the first quarter of 2009 is included in a table accompanying our press release.

Magid?

Thank you, John.

As we noted in the 8-K filing made earlier this afternoon, John will be assuming a new strategic role at comScore as Executive Vice President and head of our Human Resource -- Human Capital Department.

John has been a tremendous help in getting the Company to be public-ready, leading us through a successful IPO and our debut as a public Company.

As we navigate these tough economic conditions, we recognize that our leadership position and growth trajectory allow us to strengthen our people capital by attracting top notch talent on the labor market.

John will also help us maximize the effectiveness of our organization.

John's prior operating experience at [inaudible] and Marriott, as well as his contribution within the management team at comScore, prepare him well for this role.

John will remain CFO while we conduct an executive search and will help support financial reporting activities and other issues as necessary after a CFO is identified.

I'm excited that John will continue to help guide comScore's growth and market leadership in this new role.

Let me have John say a few words about his new role.

Thanks, Magid.

I'm very excited about this new opportunity to contribute to the next stage of our Company's growth.

I believe that human capital is a very critical asset for a Company, particularly in a high performance Company like comScore.

And always, I look forward to partnering with Magid and the rest of our management team on maximizing our organizational effectiveness and staffing strategy.

With that said, now we're happy to take questions that you might have regarding the materials we covered during this call.

(Operator Instructions).

And our first question will come from the line of Youssef Squali with Jefferies & Co.

Please proceed.

Thank you very much, I'm Youssef Squali.

Hi, John, hi Magid.

Couple questions.

First to you Magid.

If I look at your net adds they've been kind of on a net basis, they've been coming down.

I wonder if you can help us try to figure out how much of that is really kind of economy-driven and how much of it may be potentially the beginning of market saturation for the product?

I know this is not something that's been out for a long time, but in kind of markets like this, one just kind of wonders.

And then John, your ARPU by our math was down about 4% year-on-year.

How do you reconcile that and the fact that I think you said most of the churn came from smaller customers, so if you're a smaller customer, arguably you have a lower ARPU and so if you lose arguably all of that, all of them, your ARPU should maintain itself or even go up so you're losing smaller customers, yet at the same time seeing ARPU decline.

Can you kind of try to reconcile that for us?

Sure.

As far as the market saturation, as we mentioned, we have gained 112 customers, new customers, on a gross add basis.

And that's pretty consistent with what we have seen historically.

So, as far as demand from you new customers for the product, the market potential is still there.

I can tell you without equivocation that the losses that we are seeing among some of the smaller customers are definitely driven by the economy.

All the evidence that I get from talking to our commercial people, basically say that people have -- some companies are really in trouble and they just had to prioritize their spending, particularly when they are having funding difficulties and to a large degree -- and that's also something that we have seen in the mobile space as well.

In the mobile space, you've had a lot of companies that have raised money with the expectation that mobile advertising will take off.

Some of the -- some of that expectation was I guess either too early or the economy has snuffed it out.

So, as a result we do see also some of the smaller, newer mobile companies are suffering some of the same trends.

But overall, I really don't see a market saturation at all.

I think we still have the international market pretty much wide open and that alone represents a huge opportunity for us.

And then, Youssef, as it relates to ARPU, by our estimation, the ARPU was sequentially flat with the third quarter and up versus the second quarter.

It is impacted by, again, these 112 gross customers coming on board that at a lower average rate, but still is going to fuel future growth.

That plus the international growth year-on-year where we have our price points, are slightly lower than in the US, also serves to maybe keep the ARPU static.

Remember that Citadel was in the Q4 of last year.

If you exclude Citadel, our ARPU went up.

I see.

Okay.

The 4% negative that's actually year-on-year number, it's not a sequential number.

So, but the Citadel comment actually helps.

And then lastly, if I may, your Q1 guidance implies flat to slightly down revenue at the midpoint.

Is that because of the project revenues component?

What -- what are you baking for project revenues in Q1?

Well, we're looking at project revenue declining, so that's part of it.

We also are looking at several hundred thousand dollar impact in the dollar.

Those are the two key drivers.

And then I think you would have some extrapolation of the prior trends.

When you lose -- in essence we went down from a net 50 customer add to a net 30 customer add.

Those are small customers, but in aggregate they contribute 2 or 3 percentage points in growth and that is something that will be with us for 2009.

Got it.

Thanks a lot.

And our next question will come from the line of Jason Helfstein with Oppenheimer.

Please proceed.

Hi, thank you.

Can you guys hear me?

Sure.

Go ahead Jason.

Thanks.

You never know with the mute button.

So, three questions, one just has to do with how do we think about mobile.

Are any mobile revenues in project or is it all in subscription?

It's -- it's all in subscriptions, but we -- as we are -- the vast majority is in subscription now, but not 100%.

Okay, so if we look at the -- if you look at the quarter, right, you said existing customer growth revenues were up 25% year-over-year, so does that include any mobile revenues?

And if you backed out mobile, what would that percentage have been?

The existing year-on-year, that includes mobile, obviously for the fourth quarter of '08, but not compared to the fourth quarter of '07.

Right.

So can you back that out?

Because obviously the core growth was lower because that's helping the number.

I'm just -- so we can get a clean pro forma for the existing customer growth.

Again, that's something that as you're aware, we don't break out kind of mobile revenues separately.

Right.

Okay.

So -- and then let's -- I guess we'll talk then about expenses.

So, I mean if I compare this fourth quarter and then just thinking about your margin guidance, it assumes -- it looks like $2.5 million of incremental expenses versus first quarter '08 or about $1.8 million of incremental expenses versus fourth quarter.

And I'm just looking at the delta and the margin and whatnot and obviously seasonality has something to do with it, but clearly there's higher level of investment spending in the first quarter.

Can you identify what the buckets are?

Versus fourth quarter?

Sure.

Traditionally, in the first quarter, we have some financial funkiness to the accounting of vacations, where we overaccrue for vacation at the beginning of the year, we underaccrue at the end of the year, straight line allocation of vacations.

So, you have that and then you have the impact of payroll taxes.

Together, that's probably at least half the increase that you're talking about.

I think that there is also a run rate impact, so our run rate at the end of Q4 is higher than the run rate at the beginning of Q4.

And that contributes to some of the increase in revenue.

We have things that we're spending on things like the MRC audit is more expensive this year.

We are investing in building our mobile panel.

So, those are sort of small incremental expenses that in total it would add up but there isn't really any big item that you can point to.

And again, the seasonality is sort of driven by the accounting, by the accounting pattern of taxes and vacations drive a lot of the increase.

And so the first quarter guidance, that's not really -- you guys have talked about potentially investing internationally, opening more office, that kind of thing.

So, just to be clear, that -- you're not planning on spending additional money internationally in the first quarter.

That doesn't have a material impact.

Again, we continue to expand internationally, but not at a significant incremental cost.

Okay.

Just lastly, John, what was currency in the quarter?

Well, currency in terms of impacting revenue versus our guidance was about $250,000.

Okay.

Thank you.

And our next question will come from the line of William Morrison with Thinkequity.

Please proceed.

Yes, hi, a couple questions.

One, I was hoping -- it looks like your first quarter revenue guidance is kind of consistent with what you're expecting for the year.

So, I'm wondering if you're expecting kind of flattish growth or like 15% across the quarters or should we expect a deceleration 2Q and 3Q followed by an acceleration in 4Q or just what your assumptions are there and anything you can give us in terms of your assumptions, how many customer, net customer adds are driving that 15% growth, ARPU, et cetera.

And then I've got a follow-up.

Sure.

I think -- I hate to go back to Citadel all the time, but Citadel was not in Q4 and was only in half of Q3 this year and contributed to the deceleration of growth rates this year.

I think if you look at 2009, that's going to be the opposite impact.

So, as we move forward, the comparison to a year ago will become easier in Q3 and Q4.

And, you are correct that the guidance we're providing for the first quarter is relatively in line with what we provide for the year and that's part of the reason why that's going to be -- we think that's going to be sort of flattish without the kind of sequential decline that you saw in 2008, partially driven by the Citadel contract.

Okay.

That's helpful.

And how many customers are you expecting to add?

You used to give kind of guidance of roughly 50 net adds a quarter.

That's obviously shifted down.

I'm just wondering what you're expecting for the year.

I don't -- we sort of -- the way we build our forecast, really don't build it on the basis of number of customers.

We build it industry by industry and bottom's up.

So, if I had to basically say what do we expect, we probably should see something in line with what we saw in Q3 and Q4.

And again, would that be -- could that be a little bit different?

Yes, it could be a little bit different, but I don't think it really has a material impact on our estimate for Q1.

Okay.

And last question.

Can you give us some kind of a sense, given the margins are coming down in Q1, I know you mentioned a bunch of cuts that won't recur in 2Q and the rest of the year.

But, do you expect margins to be up or down?

Do you expect EBITDA to grow faster than 15%?

Less?

At a lower rate?

Well, we had an interesting debate earlier about whether to give you EBITDA guidance and our lawyers told us that the SEC doesn't really like that too much.

Let me just say this.

We do have operating leverage in our business and 15% growth is sufficient to have the operating leverage trickle to margins and other profitability Metrix.

Okay.

Thank you very much, Magid.

And our next question will come from the line of Mark May with Needham & Company.

Please proceed.

Hi, this is Carl [Qualmen] for Mark May.

Thanks for taking my question.

I was wondering if you could just talk about some of the things that you can do to control costs.

I understand there's a big fixed cost portion to your business.

What are some of the things that you can do?

And also, maybe you could talk about how the UK did do in the quarter and what kind of drag it presented during the quarter.

Thanks.

Sure.

Well, first of all, let me talk about what we have done in terms of our cost control.

We have done a number of things.

Number one is, we have eliminated or reduced significantly a lot of discretionary spending.

So, we have come down on travel costs.

We've eliminated our sales conference.

We have clamped down on compensation increases, bonus increases, et cetera.

Or bonus compensation overall.

We are limiting headcount increases to essential investments and clearly those are increases that we can roll back if we have to.

We have deferred a number of what I would call sort of marginal projects or products and marginal activities.

In fact, we are taking a hit of about $700,000 or $800,000 for the year by eliminating products that we think are non-strategic and the intent here is to focus our efforts on the core products and not detract a lot from -- not detract a lot from the effort there, particularly if we have -- if we have to have limited resources pursuing those.

Longer term, we will -- if the economic -- we feel we have taken a lot of prudent cost control measures.

If we think that -- if we see that the economy deteriorates, clearly compensation expense is our largest expense and it is something that we will take a look at if it comes down to that.

But, we clearly -- our philosophy going into this is that unlike a lot of companies that are basically slashing and burning to be able to get through this, we are -- we want to emerge from this stronger than the rest of the pack and as the economy picks up, we want to be able to strengthen our momentum, both in terms of products, in terms of quality of people, in terms of readiness to expand into different markets.

So, from that standpoint, we haven't really run for cover in terms of doing layoffs or things like that, but, we have been very conservative in terms of our investment decisions.

And then your second question about performance in the UK and the rest of Europe, is that, again, we have the market leading position in the UK.

Our business in the fourth quarter in the UK was strong, but it was clearly affected by the worsening economy there as well as the weaker Pound.

We are continuing to expand our product portfolio there, with ad effectiveness products similar to what we're doing in the US, as well as both from opening up very small offices in Germany and France, as well as selling elsewhere in Europe from our London base, is that we're very encouraged again about the prospects for Europe in '09.

Just to give you a qualification, international revenue accounted for 15% of revenue in Q3 and only 14% of revenue in Q4.

So normally, we would have counted on international revenue to give us an incremental juice in our growth and in Q4, I think to a large degree because of the strength of the dollar but also because of downturn in the European economy, that extra growth did not materialize.

And just one more follow-up.

In terms of the strange accounting stuff that you guys have in the first quarter, can you put a number on that?

You know, how much of those costs are going to be recurring and how much are not?

They sum up to zero for the year.

So, maybe John can explain them.

I can't understand them.

For the first quarter, if you look at first quarter versus the fourth quarter, and the way that we have to account for vacation may have an increase of about $400,000 to $500,000 and then in terms of FICA, probably a slightly larger amount than that and then as Magid said, for the vacation, it equalizes over a full-year basis and then payroll taxes, you know how that works.

But, that certainly serves to historically, as well, depress our margins in the first quarter, versus the rest of the year.

So, the theory is that we basically take on the full liability of unexpected -- of, sorry, unspent vacation, essentially assuming -- using the assumption that basically every employee will quit tomorrow.

And as the year goes on and those vacations are spent, we actually reverse some of that vacation provision, so what you see in our accounting statements is a net -- rather to a straight line allocation, a bulge in our vacation expense at the beginning of the year and then a reversal of that, in fact, a negative variance of that for the second half of the year.

And it's a very common practice, comScore is not alone in how we handle that.

Thanks.

And if I could have just one more question.

I was wondering if you could give an update on how the ramp-up in the buy side of Wall Street, those revenues are coming along, how those are turning, what are your expectations and where do you expect to be by the end of '09?

Well, the answer is that there is no ramp-up.

Is it basically zero?

We get an occasional one or two contracts.

But clearly, the demand that we felt was there in the first half of the year that was built into our assumption in terms of how we were going to replace and grow the revenues that were trading off for the Citadel exclusivity, as the markets turned, a lot of those budgets pretty much evaporated.

And looking into 2009, our assumption is that there will be a very minimal pickup there, if any.

Now, I'm not going to forecast the market, but as the market recovers sooner and some of these budgets come back then we might have a little bit [inaudible].

Thanks a lot.

And our next question will come from the line of Megan [Freitman] with William Blair & Company.

Please proceed.

Hi, good afternoon.

Hi, Megan.

Can you talk about the dynamics you're seeing by vertical, maybe beyond financial services, anything unique or any notable weakness beyond financial services?

Well, we have to -- as you know, our business is divided into different segments so we have sort of Internet media and then we have Fortune 500 companies and then we have agencies.

So, it's fair to say that budgets are tight across the board and the approval processes are lengthier.

Among advertisers, as you can expect, the budgets are especially tight in financial services and in retail.

But not so much in CPG and pharma or in telecom.

Those seem to be relatively immune to the pressure.

In general, we see that advertisers are more cautious in spending money online until they see proof-of-performance, which in general helps us.

But, it makes some of our ad performance or rather valuation revenue sort of more project-driven rather than a commitment, sort of a packaged commitment driven, just because people are feeling their way into how much spending they're going to do and how much they can commit to.

As far as publishers are concerned, many publishers are clearly affected by the downturn in advertising and are very careful about spending.

The budgets are especially tight among some of the smallest clients.

Now, that said, we have been able to increase our revenue and generate some significant upsells across all three segments.

So the trends I'm talking about are sort of overall trends, but we are successful in many, many clients and still getting a larger portion of their budgets or larger budgets, period.

Okay.

Thank you.

And just a couple of follow-ups then on that.

So, would you say that new customers are more heavily skewed toward project revenue than usual?

Or could you maybe put that into some historical context, if the mix there is shifting at all?

No, I wouldn't say that the mix is shifting.

I think that one of the things that really works in our favor is some of our audience measurement products are must-haves.

So, if you are a viable company and you are really -- you want to be a serious player in this space, you really need to have our products and therefore, sort of our base Media Metrix business continues going strong.

In fact, it's probably the case that -- it's probably the case that projects as a way of starting the relationship is typically something that we see with advertisers, that's not a predominant portion of new client relationships.

And so that's true even now?

That is true even now.

The one thing that I would say is that the ad effectiveness products, they can come in in two flavors.

One flavor would be a commitment for the entire year for so many campaigns that people want to evaluate or they could come in as here's a campaign, let's evaluate it and three months later there's another campaign, let's evaluate it.

So those -- the way we account for projects versus subscriptions, those types of evaluations will get accounted for as projects, but our aim is to make them recurring part of the way people look at spending money online.

Okay.

And then you mentioned that the selling process, that the approvals are taking longer.

Are you finding yourselves in more competitive situations, would you say?

No, not really.

Our competitive situation is relatively unchanged.

We always grill our people on what do you see out there in terms of competition and I just got an e-mail today from one of our commercial leaders that made me smile so I'm going to give you a quote from it.

Oh, good.

She said, speaking from just wrapping up I Media, we were all over every presenter's slide and our competitors were nowhere.

We are in a great position, just a (inaudible).

So, I couldn't have said it better myself.

Great.

Thank you for that.

And then last question would be if you can give us any update on the percentage of revenue that's under a multi-year contract.

That's 30%.

30%?

And just in terms of historical context, that's a percentage of revenue, right?

That's percentage of the subscription revenue that's under multi-year agreement; that's correct.

And what does that look like kind of including and excluding Citadel, historically?

So, last quarter the gross number was 32%, but if you exclude Citadel it was 30%, so it's really flat through the third quarter, when you take out the effect of Citadel.

Okay.

Great.

Thank you.

Our next question will come from the line of John Blackledge with Credit Suisse.

Please proceed.

Thanks.

I have a couple of questions.

First on the guidance, it looks like it's 5% top line growth off the pro forma number in the first quarter, so I'm wondering the 15% top line growth, is that off reported '08 revenue or '08 revenue with MMetrix?

And the follow-up on that is where you see -- the year is kind of expecting some acceleration throughout the course of the year and I know you mentioned Citadel.

Easy comp.

Just wondering what else is there.

So that's one question.

And then the other, a couple other questions are 1166 subs at the end of the year, how many were web 2.0 mobile customers?

And then I have one or two after that.

Thanks.

15% is off the reported revenue, the $117.4 million, which includes MMetrix.

Okay.

And then the 1166 customers, how many are web 2.0, mobile, smaller ARPU 25,000 and less?

They're probably -- I don't think that we have done a count, but there's probably a couple hundred of those but when we have done the math in terms of the total contribution to revenue, it's about 5% or 6%.

5% or 6% of revenues and of the customer count?

They're probably at least 20% of the customer count.

The financial services, historically you've said it's about 10% of total revenue.

Just given consolidation, given difficulty for financial services firms, where does that number go in 2009?

How much pressure is on your financial services clients across big banks, sell side, buy side, insurance, et cetera?

Well, again, just remember that was 10% in total for financial services, about over half of that amount were credit card companies, insurance companies, and in fact the business has remained very strong so it's that other 40% of the 10% that's for the commercial banks and then the buy side.

It is a spectrum.

Insurance is the strongest and we haven't really seen.

We continue to see good growth there, followed by credit card, followed by commercial banks and the worst is basically revenue from Wall Street, which you all know about.

Okay.

And just lastly, I know you mentioned the ad effectiveness products brand added Campaign Metrix.

You made good inroads, I guess in 2008 and you're looking to expand that business in '09.

I'm just wondering whose picking up -- who has the budgets to -- if they have the core Media Metrix product, who has the budgets to pick up those ad effectiveness products and is there grows year-over-year for those three products, '09 versus '08?

Thank you for all the questions.

Sure.

This is actually an area that we are new to, but there is a -- quite a strong practice that two companies in this space have done really well.

One is called Dynamic Logic which is part of WCP and the other one is called Internet Express.

Those companies have done quite a sizable business in that and I think Brand Metrix in particular is a product offering that goes into that space in terms of measuring the branding effectiveness, as opposed to just the transactional effectiveness upon advertising which we're unique in doing, but it does that with a twist, which is that we are able to offer some Metrix that clients are very interested in, that are not derived from surveys.

And, so that's basically the business that is starting to accelerate for us and there is plenty of room for us to go without that entire expanding.

In fact, it is likely that even if that total pie shrinks, our business will continue to grow strongly, just because we are focused on it.

Our first year -- our first year was to basically get the marketplace familiar with the product.

It is a good product.

We have some significant advantages and I think that that momentum and the market awareness and acceptance will only help us grow our share and grow our business overall.

Thank you.

And our next question will come from the line of Jeetil Patel with Deutsche Bank.

Please proceed.

Thanks.

Hey, guys.

Couple questions.

I guess as you look at your revenues that you have visibility on for 2009, can you just remind us what percentage of your business is already contracted for this year, I guess maybe as a percentage of, maybe, I don't know, I guess the 15% growth that you're talking about and then second, I guess is the visibility as you look at on a multi-year basis, let's say 2010 increasing relative to years past, given, I guess your ability to sell some of the new marketing products out there?

Jeetil, if we take a look at our full year '09 revenue projections based on the backlog that we had at the end of '08 and then continuing this 90% of renewal rate off of our subscription revenue, we have visibility in about 72% of our full year revenue guidance and that's in line with where we were a year ago starting out 2008.

So that backlog is strong.

And then as you look at the following year, is that visibility increased relative to maybe what you thought in years past as you've been able to cross-sell some of the new products?

Certainly, again, with the continued strong subscription revenue growth as well as multi-year agreements of over 30%, that visibility longer term has definitely strengthened.

That plus -- just want to remind you that because of the strong multi-year revenue growth of which we have pricing in there, that also enables us to get some real pricing year-on-year, even in these types of environments.

Okay.

And I guess can you just talk about the UK obviously some -- seems like the most challenged market out there, but I guess what is the response, kind of reaction or kind of how have agencies and publishers been responding in that particular market on some of your newer products and just growing the contract size that you have, relative to broadly non-UK markets, say in Europe?

Well, typically our European product roll-out sort of lag our roll-out in the US.

And there is probably a 6 to 12 month lag between when a product is available here versus availability in Europe.

So, to give you an example, we -- this year we started providing Video Metrix in Europe, whereas last year that wasn't available.

But, we're just starting to make Brand Metrics available in Europe.

And so that momentum that we saw in the US is not something that was available as an upsell tool for our people in the UK.

That will be an extra growth generator.

Same thing with Ad Metrix.

It does require some set-ups in terms of classification of advertisers, classification of brands, that are part of the report and so typically we get it started in the US and then once we perfect it, we move it forward.

So up until this point, it's probably fair to say that it is really they've been selling the core base audience measurement products.

They have more of an opportunity this year to sell custom projects, ad effectiveness related projects or products.

Thank you.

And our next question will come from the line of Sandeep Aggarwal with Collins Stewart.

Please proceed.

Thanks for taking my question.

One question on the project business.

Did you have a broad base of weakness or is there any particular client who did not come through in terms of project side weakness?

And if you can maybe compare and contrast project business trends for US versus international?

I don't think we can trace it back to any single client.

It's just basically the sum total of parts of different industries where you would normally see higher Q4 spending and this year we actually saw project spending down relative to Q4 of a year ago.

And relatively flat or slightly down relative to Q3, I don't know exactly what the numbers were.

Slightly down.

Slightly down.

So, there isn't really any particular -- wasn't really any particular client that we can trace it to.

Sorry, what was the other part of your question?

Just project -- project business trends US versus international.

The project revenue is solely in the US, just a little bit of project revenue outside.

Just last question, out of these 112 new gross new customers you added roughly what percentage of these total new gross additions were the small and medium businesses?

Or maybe the one which accounts for $25,000 or less for annual contract size?

It's pretty widespread, actually, under [inaudible] deep, in terms of the 112.

It's pretty widespread in terms of the size of the customer.

We continue to penetrate quite a few large and mid-sized bust customers as well.

Because, I think last quarter you mentioned that customers who paid you for $25,000 or less annually accounted for 4% of your revenue and I think if you are using perhaps the same definition I think Magid you mentioned that now they account for 5% to 6%, so I'm just trying to see where is the disconnect.

Actually, there is no disconnect.

I may have misquoted the number, but it is in the low single digit range.

It's at 4%.

Okay.

Thank you.

And our next question will come from the line of Heath Terry with FBR.

Please proceed.

Great.

Thank you.

I was wondering if you could just give us a sense.

You mentioned the higher costs due to the audit related to the MRC certification.

Can you give us an idea of how long you think those costs will continue and when you should have some resolution to that audit?

And then is that expense purely the result of complying with the request for information and such for the audit or are there changes that they're asking you to make that are driving those expenses as well?

It's primarily the fees for the personnel that does the auditing.

Some of the changes that they're asking for, in terms of procedural changes, have very minimal impact on costs.

Now, as far as how long the audit's going to take, we have five phases of the audit.

We finished two.

We're in the middle of the third one.

So, probably we're in it for probably another 12 months.

Okay.

The fees are overall in line with what we had estimated when we started the process.

Okay.

It's just going to be more expensive this year versus last year?

Right, just more work.

Right.

And then do you have a sense of -- is there a tangible benefit that you're expecting to get once this is revolved and comScore is able to show MRC certification?

Well, I think there are two tangible benefits.

One is that clearly it's a barrier to entry.

It's something that takes a long time.

It's pretty costly.

So, it adds to barriers to entry in the industry.

And then second, it's sort of removes some of the noise that exists in the industry in a sense that, there is always some debate about service side numbers versus panel numbers and when a third party audit goes through, what's going on in terms of [inaudible] methodology and -- eventually they make whatever improvement they're going to make and at the end of the day, I don't think it's really going to make a big change in terms of what the estimates are.

It will help the noise die down a little bit.

The one thing that I do want to mention is that starting with Video Metrix, we have moved into a new methodology of audience measurement that we're calling person centric hybrid measurement and it's essentially a notion of using the panel data for what the panel data is best providing, which is demographic composition, usage rate, person level measurement, but then also leveraging the fact that on the server side, you have the ability, subject to certain conditions, to be able to count the tonnage of consumption pretty accurately.

So, for instance, you can measure page views if you are pretty careful about what page views -- what pages you're tagging and you remove non-user requested traffic, you can eventually count page views and the error on that can be virtually zero.

So, with Video Metrix, we are essentially combining a census measurement from tagging all the video streams that are out there and then panel measurement in terms of what we see, who the people are.

It is something that really works in our favor because it's requires having a large panel like we do.

And it is something that will also work pretty well internationally where some of the panel sample sizes are smaller and the addition of sensor spaced measurements can help make the numbers a lot more robust.

So, our first step in that is Video Metrix.

Our second step is we're experimenting in Canada, actually we are moving in Canada toward this.

We have about 30 publishers that have signed up, signed on to the program.

By the way, this is a purely voluntary program.

It's not dependent on everybody participating.

And we expect that the reporting base on hybrid measurement will start late in the second quarter.

And as we perfect and iron out some of the methodology wrinkles that are associated with this, we will look at expanding it wherever it makes sense to expand.

And I think that that's sort of -- the reason why I bring it up in the context of the MRC audit is that the whole notion of comparing server side versus panel side, this hybrid measurement, again, sort of makes it smooth because we will be able to use the server side as an element of the estimation.

Great.

Thank you.

And our next question will come from the line of James Carmark with Citadel & Company.

Please proceed.

Hi, good afternoon.

Specifically on the cost management side, can you talk a little bit about the sales and marketing line, how much of that is fixed salary versus variable marketing expense?

And given your name recognition as it keeps growing in the market, do you see pulling back there on the marketing spend in '09 and if so, by how much?

Well, first of all, within sales and marketing we have 126 quota carrying salespeople and we did add quite a few.

We added in fact, including MMetrix, well over 30 in 2008.

So, we're going to be benefiting from those people coming onboard and being productive in '09.

We do see pockets that given the strong growth potential that we are going to be judiciously adding a few more quota carrying people in '09.

On top of that, we have a great client service team that's also in that area.

The bulk of the expenses are compensation related there, based on what the overall momentum of the organic growth of the business is, plus the growth potential is that we are not considering pulling back in terms of our sales force.

On the marketing side, as you know, a lot of the marketing that we have in the business is from the very strong brand awareness that we have out there and the fact that in terms of press citations, comScore is mentioned well over on an annual basis, I think it's about 75,000 times.

So, that's very strong marketing for the overall brand.

But on top of that, we do have some selective direct marketing in the business that has been very effective for us and that we continue to plan on spending that prudently in '09.

That's one of the levers that we have in terms of costs is obviously some trade shows and things like that are things that we can scale back on and we have to some degree, but we can do more if we have to.

Okay.

And the top line guidance from first quarter, it is down sequentially.

I know you commented on the currency and just the macro issues.

But, are you seeing a slowdown in the -- I guess in the first quarter run rate for gross customer additions or can we expect something per historical trends of about 100 plus?

I think we will probably see slightly lower number of gross additions, just because-- just because you think that the -- some of the new customers out there may be having difficulties getting funded.

And because of the cautious expansion that we're adopting relative to international markets where we can get new revenues.

On the other hand, I may be surprised.

I was surprised actually that we did get 112 new customers in Q4 and -- but I think if I had to guess, I would say that that number will go down.

Okay.

And the gross adds that you had in the fourth quarter, the, I guess the geographic location of these customers, you mentioned the big push in Latin America, Brazil, Europe, as well.

Were these mostly domestic customers or lower ARPU internationals?

About -- it was about 65% in the US.

Okay.

And how much lower would you say is the ARPU on an international basis?

Are we talking 25% lower?

About 30% lower.

30%.

And.

Domestic to international?

Is that your question?

Yes.

Okay.

Yes.

And the release you mention deals with Verizon and AT&T now top 10 customers.

Are these in the neighborhood of 5% of revenue type customers?

No, not quite.

Not quite to that level.

So I guess the Microsoft is still the only one above that 10% threshold?

Right.

Okay, and lastly, on your GAAP guidance, non-GAAP guidance for first quarter, what cash tax rate were you assuming for that?

About 6%.

Okay.

Great.

Thanks a lot.

And at this time I show no more questions in queue.

I would like to turn the call back over to management for closing remarks.

Okay.

Well, I want to thank everybody for participating and asking good questions.

We, John and I, will be available the next couple days for answering additional questions that people might have.

Thank you, very much, and until the next earnings call.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.