Comscore Inc (SCOR) 2009 Q1 法說會逐字稿

Good day and welcome to the first quarter 2009 comScore, Incorporated earnings conference call.

(Operator Instructions)

I will now turn the call over to your host for today, Mr.

Ken Tarpey, Chief Financial Officer.

You may begin, sir.

Thank you.

And good afternoon and welcome to comScore's earning call for the first quarter of 2009.

I am Ken Tarpey, the Chief Financial Officer of comScore.

On the phone 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 during any question-and-answer periods that may follow, representatives of the company may make forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934 regarding future events or financial performance of a company that involve risks and uncertainties, including, without limitation, the expected strength of comScore's business, expectations regarding the growth of its customer base and customer renewal rates, expectations regarding new markets, expectations regarding cost control measures, expectations regarding investment in new products and technologies, assumptions related to the state of the economy and the global market environment, assumptions and expectations with respect to tax rates and net operating loss carry-forwards, and forecasts of future financial performance, including related growth rates and assumptions for the second quarter and full year 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 Securities and Exchange Commission.

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 10-K for the period ended December 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 undo reliance on any forward-looking statements included in these presentations, which 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.

Thank you, Ken, and welcome aboard.

And thanks for those of you who dialed on our Webcast and joining us for our first quarter 2009 earnings conference call.

As we announced last week, Ken Tarpey has joined us as CFO to succeed John Green, who is taking on new responsibilities at comScore as Executive Vice President and head of Human Capital.

We are very excited to have Ken join us on this call and at comScore.

Ken's extensive experience with a number of quality public and private companies, perhaps best exemplified by his CFO of the Year Award from the Northern Virginia Technology Council, in addition to his depth and breadth of knowledge will be an asset for comScore as we move forward, and I hope you will enjoy working with us.

Turning to our first quarter results, we are pleased to have met or exceeded our financial expectations for the quarter, particularly with the continuing soft economy as a backdrop.

Revenue in the quarter was at the upper end of our guidance range at $30.6 million, which was up 16% from the first quarter of 2008.

With continued diligent cost management, comScore delivered bottom line results that were above our expectations.

GAAP net income was $277,000 or $0.01 a share compared to a guidance of $0.01 to $0.01.

The Q1 2009 results were impacted by higher than expected effective tax rate of over 80%.

Adjusted net income was $4.2 million or $0.14 per share compared to a guidance of $0.09 to $0.10 per share, and adjusted EBITDA came in at $5.4 million, well above the guidance of $3.8 million to $4.3 million, and yielded an adjusted EBITDA margin of 18%.

Within revenue, subscription revenue was $26.5 million or 87% of total revenue.

Subscription revenue was up 23% from the first quarter of 2008.

While price pressure has incrementally increased and up-selling has been more moderate as the economic environment continues to squeeze budgets, we continued to deliver stronger renewal rates in the first quarter that remain above the 90% on a dollar basis.

Project revenue of $4.1 million was down 16% from the first quarter of 2008, with anticipated softness because of pressure on our customers' budgets.

Looking at revenue in a little bit more detail, international business represented 15% of the revenue in the first quarter, up from Q4 of 2008.

We believe this international growth reflects the untapped potential of new geographies of Latin America, Europe and Asia that we continue to pursue.

From an industry perspective, the telecom, verticals, pharma, insurance, CPG were all strong for us in the first quarter.

We are optimistic that some of the ad effectiveness worked that we are doing with the leading CPG and pharma companies, maybe a leading indicator of recovery in the use of online advertising for planning purposes.

Looking at business trends we saw in the quarter, our customers are tightening their spending and are looking for ways to cut costs, while remaining productive.

We believe comScore solutions continue to help customers achieve those goals.

Our deal pipeline remains active, with over 110 gross customer adds in the first quarter, consistent with our recent experience.

As we saw in the second half of 2008, and we expect to continue to see in 2009, attrition of our small customers remains higher than historical levels and than attrition among larger customers.

This resulted in net customer additions of 15 in the first quarter, below what we have seen in recent quarters.

But as I noted earlier, our overall renewal rate remains above 90% due to the ongoing activity at medium and large customers.

We ended the first quarter with 1,181 customers.

Strong customer adds in the first quarter were an indication of continued healthy new business activity, despite the challenging funding environment for newer companies.

Revenue from existing customers made up 88% of total revenues, slightly higher than the 84% to 86% range that we saw in 2008.

This relatively stable mix reflects the consistency with which we have been able to add new customers on a quarterly basis, as well as higher retention rates that we have seen among medium and large size customers.

Overall, our top 10 customers in the first quarter produced 30% of our revenue, which is consistent with the past two quarters.

We had one customer that made up more than 10% of revenue, which is also consistent with the prior four quarters.

Our ability to continue to drive historical levels of renewal and new customer activity in this economy is especially significant in light of the current macroeconomic conditions.

We believe our subscription revenue model, with healthy gross customer additions and existing customer renewal rates demonstrate that customers continue to derive significant value from their investment in comScore technology and services, and the value we provide to customers in weak, as well as strong economies strengthens our optimism about comScore's future.

From the product perspective, our step-up efforts with ad effectiveness showed traction and those efforts are continuing.

Turning to operations, we were particularly effective in managing costs in the first quarter, continuing our heightened attentiveness to expenses that started in the second half of 2008.

This attentiveness drove better than anticipated profitability metrics in the first quarter.

Our careful cost management will continue in this environment, but we remain committed to investing on our long-term growth at the same time.

To that end, we will be reallocating some of our expenses so we can make significant investments in new product development while still driving healthy adjusted EBITDA margins for the year.

While it is early to announce new products, our new developments represent an important evolution and progression of our flagship Media Metrix products.

We have taken a number of cost reduction steps that by themselves generated positive impact of $9.8 million on EBITDA in 2009, which helps us target our investments to key strategic priorities.

With our strong visibility for future revenue, we will continue to manage our overall business to our profit goal.

We affirm our commitment to achieving 2009 EBITDA margins of 20% to 23%, all while making the critical investments for the long term.

In summary, we achieved year-over-year revenue growth, operating in a recession-impacted market.

We recognize the realities of a weak economy that has virtually every company looking for ways to reduce costs.

This is particularly true for advertisers and for publishers.

It has resulted in more attrition among our smaller customers, a somewhat longer sales cycle, and a modest increase in pricing pressure.

However, the weak economy is also an opportunity for comScore, as our technology helps our customers monitor, track, and measure their online investments so that they can achieve the highest possible ROI and maximize their online spend.

Because of this, our renewal rates have stayed within historical ranges of about 90% and we continue to penetrate new geographies and attract new customers.

On top of that, we expect to continue to deliver new technologies to help our customers further maximize their online investment.

We will continue to manage to the bottom line, while investing in our future, so that when the upturn comes, we are in an even more powerful position to capture opportunities as an even stronger Internet audience measurement leader.

Now, let me turn the call back to Ken for specific comments on our financial performance and our outlook for the rest of 2009.

Thank you, Magid.

And thank you for the great opportunity here at Score.

Revenue in the first quarter was $30.6 million, up 16% year-over-year and down 3% sequentially.

Within total revenue, subscription revenue in the first quarter was $26.5 million and level sequentially.

Subscription revenue represented 87% of total revenue.

Project revenue was $4.1 million and, as expected, was down year-over-year and sequentially, reflecting tighter overall project budgets at clients.

With renewals consistent at above 90%, we saw year-over-year growth both from new and existing customers.

Revenue from existing customers was up 21% year-over-year in the first quarter to $26.8 million and, again, represented 88% of total revenue, slightly higher than our experience during 2008.

Revenue from new customers was $3.8 million in the first quarter, down 12% from last year, a similar decrease percentage from Q4 of 2008.

Our international business, where we had considerable untapped opportunity, was healthy, with international business representing 15% of our revenue in the first quarter.

Turning to the gross margins, they were 67.2% in the first quarter, down from 73.4% a year ago, but very consistent with the 67.5% from last quarter.

Our total operating expenses were up 21% year-over-year, but increased only 3% sequentially.

During Q1 2009, the company implemented a comprehensive cost containment program that, again, as Magid mentioned, is expected to generate close to $10 million in 2009 EBITDA savings.

Our effective tax rate in the first quarter was 80.9%, considerably higher than anticipated, while our cash tax rate was a negative 5%.

The difference arises from the treatment of stock compensation charges under statement FAS-123R.

For GAAP accounting, we use fair value at the time of the stock grant, whereas for cash tax, we use a fair value at the time of vesting.

With considerable restricted stock shares vesting in Q1 2009 at a fair value below the value at the time of the grants, this resulted in an effective tax rate for GAAP that is well above our cash tax rate.

This book tax stock compensation difference will continue to occur throughout 2009 based on our current stock price.

We cannot predict the stock compensation effect because of future stock price impacts.

This makes our effective tax rate for Q2 and the year difficult to predict, but we would expect our cash tax rate to be similarly smaller because of our historical net operating losses.

GAAP net income was $277,000 or $0.01 per share in the first quarter of 2009 based on a diluted share count of 30.5 million shares.

We would expect Q2 fully diluted share count to be approximately 30.8 million.

In the first quarter, stock-based compensation expense was $2.3 million and amortization on acquired intangibles was $320,000.

Non-GAAP net income for the first quarter of 2009, which excludes stock-based compensation and amortization of intangibles, was $4.2 million or $0.14 per share.

On the same non-GAAP basis, adjusted EBITDA was $5.4 million in the first quarter compared to $5.6 million a year ago and was well above our expected range, largely due to the diligent expense management.

Adjusted EBITDA margin was 18%, down from 21% a year ago, with a majority of that difference resulting from the impact of M:Metrics performance.

Cash flow from operations for the first quarter of 2009 was $2.2 million.

The free cash flow in the first quarter was a net outflow of $630,000, primarily because of capital expenditures of $2.9 million, an increase in receivables of $2 million, and a reduction in accrued expenses and payables of $3.1 million.

While receivables increased as customer payments occurred at a slower rate than prior quarters, there were no significant collection issues in the quarter and collection activity has increased in Q2 today.

As of March 31, 2009, cash, cash equivalents and short-term investments totaled $70.1 million and we held, also, $2.9 million in long-term investments, with no consequential change in the recorded value of the long-term investments since December 31, 2008.

Turning now to our guidance for the second quarter of 2009, it is clear that the economy continues to face headwinds and we also believe comScore is well positioned to help our customers make the most of their online investments in this environment.

Additionally, our primarily subscription-based revenue model provides a relatively high level of stability and visibility.

That said, reduced project revenues and revenues from net new customer adds may impact near-term revenue growth prospects.

Despite these forces, with strong renewals at existing customers and ongoing new customer activity, we expect revenue to grow in the low double digits in 2009.

As we mentioned earlier, we are watching our expenses carefully and are managing to a full year adjusted EBITDA for 2009 in line with our 2008 performance of 20% to 23%, depending on the quarter you're looking at.

For the second quarter of 2009, we anticipate revenues in the range of $30.8 million to $31.3 million.

We are anticipating second quarter GAAP net income before income taxes of $1 million to $1.4 million and we anticipated adjusted EBITDA for the second quarter of 2009 to be $5.5 million to $6.1 million, representing an adjusted EBITDA margin of 19% at the midpoint of our revenue guidance.

Our reconciliation of GAAP net income to non-GAAP net income and adjusted EBITDA guidance for the second quarter is included in tables accompanying our press release.

With that, Operator, we can now open the lines and take questions, please.

Thank you.

(Operator Instructions)

And our first question comes from the line of Youssef Squali with Jeffries & Company.

You may proceed.

Good afternoon.

Thanks for taking my questions.

I guess just a couple.

In terms of your net adds for the quarter, can you speak to the churn trend you're seeing there and, in particular, what are the top reasons customers are leaving?

Is it only pricing when they do leave?

Where are they going?

And historically, I think you've talked about smaller customers accounting for only about 6% of total revenues, if I remember correctly.

Where does that stand right now?

How many customers are part of that small business?

And secondarily, in terms of your guidance, what's baked in there in terms of net adds for the year?

Thank you.

Thanks, Youssef.

In terms of the small customer churn, it really comes from a variety of different places, primarily companies that are in tough shape as far as monetization is concerned or having funding difficulties or are in the mobile space.

There is really no change in the mix of competitive losses.

We still rarely lose to competition and we think we still gain a lot more than we lose.

It's just, I think, a much tougher -- Q1 was a much tougher environment than Q4 and people are a lot more cautious in re-upping subscriptions when they are in a total survival mode.

That said, as far as the guidance for the rest of the year, we are anticipating that we will continue seeing this level of net customer adds.

[Inaudible] customers, I would say, probably until the end of the year, where we will start seeing some pickups, because clearly some of the customers that we have, that class of customers will have a thorough shakedown.

Now, the percentage of revenue that came from new customers stood at about 6%.

We have actually not calculated it right now, but I doubt that it has changed a whole lot.

Maybe it's 4% to 5%.

And you should also keep in mind that we do continue to add smaller customers.

So it's not like we are losing all the smaller customers and the only customers that we are keeping are large customers.

Okay.

And if I may add just one last question.

On the margin, can you speak to what -- can you just walk us -- how do you get from the 18% EBITDA margin to the 22%-23% EBITDA margin?

So if you go from 18%, let's be optimistic and use the 23%, maybe you can just help us understand where that improvement is.

Is it basically throughout the whole P&L?

Is it mostly in cost and if so -- just give us some more clarity on that, if you would.

Well, there are two reasons for it.

Number one, from a cost standpoint, we had thought, after our earnings call in Q4, that the payroll taxes as a percent of salaries dropped from 20% in Q1 to about 14% in Q4.

So there is a delta during the year that just comes from a differential of roughly 3% of total cost.

That is really coming from payroll taxes.

In addition, as we experience revenue growth, some of that revenue growth would drop to the bottom line.

And then, finally, we are not looking at additional headcount growth.

Our headcount was down at the Q1 relative to Q4 and will be managed pretty tightly going forward.

Okay, that's helpful.

Thank you very much.

Our next question comes from the line of Heath Terry with FBR.

You may proceed.

Great, thank you.

A couple of questions.

One, you mentioned use of the churn in the mobile space.

Can you give us a sense of when you expect to hit kind of a run rate in terms of M:Metrics subscribers as we go through this, obviously, kind of outsized level of churn within that specific vertical?

Then, also, could you give us an update on the MRC certification process?

On the M:Metrics customer base, I think that once we get over a year of full cycle in terms of the customer base, we should start seeing some stabilization in that.

So I would expect in Q3 to start reaching a stable level and building from that level up.

As far as the MRC audit, it continues to progress really nicely.

I think there's actually on the MRC Website an update in terms of where the MRC thinks we are.

But we are making diligent progress.

It's unlikely that the audit will be finished this year just because of the extensive nature of the audit, as we had mentioned before.

So this is really not new news.

But we continue making progress.

And as you're making progress through this, are you seeing any kind of major changes or even minor changes to the way that you're either measuring or reporting the structure of the panel that you're using that you can talk about?

Not really.

We're constantly making tweaks to the way we measure to improve it and learn from our experience in the marketplace.

The MRC audit, I would say, is one source of those tweaks, but by no means a major source of those tweaks.

Okay, great.

Thanks, Magid.

Our next question comes from the line of Jeetil Patel with Deutsche Bank.

You may proceed.

Great, thank you.

A couple of questions.

Can you talk about the -- you talked about pharmaceutical and CPG early on.

I'm curious.

What do you think, if you look at kind of the sector opportunities in those two verticals, what do you think the percentage of penetration is of the marketers in that category?

And, second, I think you talked about reallocation of expenses in the business as you look ahead.

Can you talk about -- is that coming from sales and marketing, going to R&D?

It seems like it would fit in light of your product development comments.

And then I have a quick follow-up.

Sure.

Well, as far as pharmaceuticals and CPG, I think we are still in the very early stages of work that we are doing with CPG companies.

I can think of two very large CPG companies with whom we are doing a lot of work, but even that work is still in its early stages.

We have seen a number of other large companies starting to dabble into this and as I mentioned in my comments, that may be an optimistic sign that some of these large enterprises are beginning to take this seriously, and one of the first steps in them taking it seriously or one of the signs of them taking it seriously is working with comScore on measuring its effectiveness.

So we are excited about that for a couple of reasons.

Number one is that the work within the existing customers that we've had is growing.

We are adding some large customers.

So our penetration in the industry will increase.

And then, finally, to the extent that it is a leading indicator of recovery in advertising, then that's good for the industry overall.

As far as reallocation of expenses, we have done some reallocations from a variety of different places.

Some of it is driven by elimination of bonuses and tightening various kinds of compensation expenses.

Some of it is driven by identifying pockets that have low return on investment for us in terms of headcount.

We have seen our sales headcount drop a little bit and we have seen an overall headcount drop a little bit.

We are also being very rigorous in terms of performance management of our people and one excellent way of reallocating expenses is to make sure that the lower performance people are people that are tracked very carefully and work out of the company when their performance would warrant that.

As far as where the investment is going, it is going in new product development.

And we have some major initiatives that we're not going to be talking about on this call, but we are very, very excited about, and I would say stay tuned for when -- when the meal is fully baked, it should be something very exciting for comScore and for the industry.

Just broadly speaking, but you talked about, at the end of the year, kind of an uptick expected.

But I'm just curious.

It seems like your business has responded rather late in terms of cycle, in terms of how your customers responded by reducing cross-selling, cutting pricing a bit or putting pressure on pricing.

Why would you expect an uptick by year end if you're kind of lagging indicator relative to the overall media spend out there online?

I'm just curious why you think it would be this year, not early next year.

I think that early in Q1, we saw a very, very, very tough environment out there.

People just did not know on what ground they're standing, and we're starting to see a little bit more rationality in terms of people are more confident about their plans and their spending.

So we already see some signs of improvement.

Clearly, the economy has gotten a lot worse in Q1 than it was in Q4.

At some point during the year, we would hope that, particularly in the late end of the second half, we will see some improvement in the market that will help us.

But we also have a little bit of seasonality in our business in the sense that Q4 is traditionally a strong quarter for us in terms of working with clients on their strategic issues for the following year, and we have a stronger level of client interactions, which gives us an opportunity to up-sell more.

And while the comments about up-selling and about price pressure are certainly there, I would not read them as they're across the board.

We still have a number of clients where we are successfully up-selling and raising prices and just adding more compelling solutions to what they're buying from us.

Thank you.

Our next question comes from the line of Sandeep Aggarwal with Collins Stewart.

You may proceed.

Thank you.

This is Sandeep Aggarwal.

So, Magid, in terms of guidance, I guess last quarter you mentioned full year 12-line outlook of roughly 12% to 15%.

Now, you're saying 10% to 12%.

In Q1, you came still well exceed of your guidance and you are seeing some signs of improvement.

So I'm just trying to understand what triggered this for you to basically bring down this outlook.

Is it higher than expected attrition or are you adding new customers with maybe a materially lower average subscription size?

Well, the biggest impact that we have seen in Q1 is project revenue, which was at $4.1 million, and we have to go back two years to see a project revenue level that low.

And so in being cautious, we are projecting a continued softness in the project revenue for the year, which is roughly about $3 million, and that's the primary difference.

I think that the continued attrition was something that we had baked in.

Generally speaking, it's just a more conservative outlook, in particular, driven by lower discretionary spending.

And just if I may ask one more question.

On the new customer additions, can you give us some sense of what kind of customers are these in terms of size or maybe in terms of are they particularly going for one particular product?

And, also, what is the average subscription size for these customers versus the prior years?

Well, a lot of these customers are international customers.

We have been helped by Southeast Asia and Latin America have contributed a number of customers this quarter.

So that's helpful.

Partly because of that and partly because of the tough environment out there, the average contract value of a starting customer is lower than it used to be.

This is something that we have always expected, that as we expand internationally into countries that have a smaller advertising market and, therefore, what the local players can afford is smaller than what they can afford in the US or in Europe, that we will see a smaller ASP, and we're starting to see that.

We think that there is also some pressure on ASP just from the tough economic environment and the number of product options that people buy when they get started.

Thank you very much.

Our next question comes from the line of Jason Helfstein with Oppenheimer.

You may proceed.

Thanks.

So my question just relates around the predictability of the business, because I think that's stumping people, and I think we're all kind of a bit frustrated with it.

So just going back to this, so existing customer growth in the quarter was strong, up 20%, and you're saying that's going to be consistent.

And if I look at the mix, and I assume it was the same in the second quarter of '08, that means that new customer revenue could be down 40% to 50%.

So, I guess, am I thinking about that right?

And then how much of the mobile plays into the reduced outlook?

And then are you putting mobile in a new customer or the existing customer?

Thanks.

Well, Jason, I'm not sure that I would agree that a range of three percentage points in terms of revenue in this environment, that that signals a lack of predictability.

What we just told you is that projects were at $4.1 million compared to $5 million in the fourth quarter, and we have always -- you and every investor, I think, would look at the projects as being more discretionary and less predictable, and that's no secret in our business.

There is nothing about the predictability of the rest of the business that has been affected here.

The fact of the matter is that we have been able to hit the revenue number in Q1 and the fact that we are reducing -- the fact that we are looking at a three percentage point, on average, lower revenue for the year on the weakness of project revenue, I'm not sure I would be willing to concede that that's lower predictability in the revenue model.

Can you comment on just my calculation for new customer revenue falloff?

Maybe you need to share with me how the calculation went, because I'm not sure I follow it.

We can do it offline.

Just to comment on mobile, though.

Are you guys -- is mobile in new customer revenue or existing customer?

Mobile, if the customer was an existing customer as of Q1 or as of -- if mobile had an existing relationship with comScore or M:Metrics at any given point, that's an existing customer.

Thank you.

Our next question comes from the line of Meggan Friedman with William Blair & Company.

You may proceed.

Thanks for taking my questions.

Could you maybe provide a little more color on how gross client additions and client losses phased over the quarter?

And can you maybe give us any color on April?

I think that things have progressively improved in the quarter and we see a little bit of an improving trend as time goes on.

That's probably about the most I can say at this point.

Okay, fair enough.

And then could you maybe provide an update, as well, on the competitive landscape, specifically on the pricing pressure piece?

Is that coming from competitors or primarily from the macroeconomic environment?

Primarily from the macroeconomic environment.

It is really driven by somebody that has a dictate of you need to -- you're spending this much, you need to cut your budget by 20%, how are you going to figure it out, and it's not really a situation where we are locked into a bidding war against somebody and we lose because of lower prices.

Okay.

And then in terms of the competitive landscape overall, are you seeing new entrants?

Are you seeing existing competitors under more pressure?

We think we continue to grow share.

It's impossible to know, for some of the free players, what their usage is since there's no revenue to measure them by.

But I have yet to hear a single client lost where the client said, "I am not using comScore because I'm going to be using a free service provider."

And as we mentioned before, there are an occasional loss or two to Nielsen.

That dynamic has not changed and we win more than we lose.

Okay.

And then just a couple more housekeeping type questions.

The reallocation of expenses, is that already underway in Q1 or is that coming in Q2 and then the rest of the year?

Some of it has been underway at the beginning of Q1.

So we already started it in Q4.

Some of it will kick in Q2 and will be going towards the end of the year.

There's nothing that's really speculative, though, about these cost reductions and these are cost reductions that you're not going to see restricting charge or severance cost or whatever that we're going to come and say, "We are adjusting those by" -- this is really net savings for the company from the combination of all these initiatives.

Okay, thanks.

That's helpful.

And then, finally, can you provide any -- can you quantify, rather, the impact of currency in the quarter?

We got negatively affected by $150,000, which was lower than the $250,000 we saw in Q4.

Is that vis-a-vis your guidance or vis-a-vis last year?

That's vis-a-vis last year.

Our guidance was probably in line in terms of what our assumptions were with Q4.

So we had a variance of maybe $100,000.

Great, thank you.

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

You may proceed.

Thanks for taking the questions.

A couple items.

I'm just wondering how much of the $10 million, roughly $10 in cost savings were realized in the first quarter and then how is it going to break out over the course of the year?

Secondly, project revenues, would you expect them to be down kind of similar, like mid teens, 20%-ish over the course of the year?

And then on the pricing side, for renewals, are you offering or are customers, clients getting kind of flat to down pricing and have customers who resigned, say, in the back half of 2008, have they come and tried to renegotiate given the macro trends right now?

Thanks.

Do you want to answer the first question?

Be happy to.

The question in terms of the cost savings, it's an annualized amount and it started in this quarter and you saw it reflected in terms of the favorability obviously in the EBITDA relative to where the company saw it from a guidance standpoint, and then that will continue to occur throughout the year as the company optimizes the operation, while making necessary investments.

Okay.

As far as the renewals, we see some renewal situations where -- it's very rare that, on an apple-to-apple basis, we would lower our price.

Our standard operating price is to ask for a price increase and, in many cases, we would still be able to get a price increase.

In situations where clients have a budget situation, we would work with the client on reducing the deliverables so that their overall level of commitment is lower, but what they are getting is lower, and that preserves for us the ability to come back and increase the size of the commitment once the recovery comes back.

I'm sorry.

There was a second question that you had and I missed that.

There was a question on the project revenue, down 16% in the first quarter.

Is that trend -- is that something we can expect throughout the course of the year, down mid teens on the project revenue side?

Our assumption is that it is going to be in the range of $4 million, on average, for the quarter.

Back to Jason's question, that's really the element that's sort of the most unpredictable in our business.

So there may be a quarter where it will jump up to closer to $5 million, but clearly we will see or at least we're assuming that we will have a 15% to 20% drop in the project, on average, for the year.

Okay.

Just one follow-up.

I'm just wondering how you guys define small, mid and large size customers.

Is it by RPU or some other metric?

And how are sales incentivized to get those clients, whether they be small, mid or large size?

Thanks.

We define them on the basis of RPU and there are different tiers, people below 25,000 or below 45,000.

In terms of any specific sales incentive, we historically have had a lot of success in bringing in a client and being able to, over the course of two or three years, double their revenue.

So as a result, a new client is valuable to us and we pay 8% commissions on a new sale, which is higher than what we normally pay for a renewal on existing customers.

Our next question comes from the line of William Morrison with Thinkequity.

You may proceed.

Good afternoon.

This is actually Rob on the call for Bill.

A couple quick questions, housekeeping.

The number of net subscribers during the quarter, was that roughly in line with the number of net gross customer additions?

Then number two, looking at the deferred revenue in your press release, I just want to make sure we have the right historical number.

It's showing 1Q '08 as $42.8 million.

We had that as the 4Q '08 number.

Then, lastly, you made a couple references to the ad effectiveness products.

I was just wondering if you could give us a little more detail on how that fits in with the existing product portfolio, the brand and campaign metrics products.

And I'm wondering, you're sort of actively converting early project customers to -- I mean, can this become a subscription -- driver of subscription revenue going forward?

Thank you very much.

Let me answer the last question first and then I'll turn it over to Ken to answer the deferred revenue question.

The advertising effectiveness products, we are starting to see some customers commit to them to become a regular occurrence.

I'm not aware of a situation yet where we have classified that revenue as subscription revenue, but it will -- we will start seeing it in the future.

I would say in the next six months, we will start seeing some commitments that would be recurring enough and will give us that characterization.

Ken?

The deferred number in the chart is the Q4 number.

The year ago number was 36.8, or $37 million.

Great, thank you.

Our next question comes from the line of James Cakmak with Sidoti Company.

You may proceed.

Thank you.

You mentioned working with clients before and providing less deliverables to bring down their costs.

How much of that 90% renewal base would you say is renegotiated downward?

By how much would you say that they're bringing down their services as far as total price?

Is that like 5% or 10%?

And secondly, how much of the business is up for renewal in the second quarter?

Are there any multiyear contracts up?

I guess what I'm trying to get at is if we have the same visibility into 2010 as we did before, I believe you had said about 30%-35% visibility the prior quarter.

I also have a quick follow-up.

Thank you.

Okay.

The percent of revenue for multiyear contracts we had in Q1 was 32%, which inched up from 30% in Q4 of '08.

The seasonality of renewals has always been the most skewed toward the second half.

I believe the numbers were like 57% in the second half and then the remainder in the first half.

I think Q2 is usually stronger than Q1 as far as renewals.

When we talk about the 90% renewal number, the 90% renewal number is done on a sort of constant dollar basis.

Historically, when we do the renewal number and we apply sort of the new dollars to it, that renewal number has always been more than 100%.

It was certainly over 110%.

We have not really calculated that.

We can calculate it, but I don't really have it available right now to give to you.

In other words, we have always been on a -- if you take a set of customers, we lose some of them, we keep some of them, but when we look at the dollars that we get from the people that we keep, it has always been higher than the total dollars of the people that we had and the people we lost.

Okay.

And you had mentioned the investments that you're making.

Should we expect to see any spike in CapEx in the coming quarters or is that 2.8 million in the first quarter a good run rate for the year?

Thank you.

I think that that's actually a high run rate for the year.

We would be thinking about CapEx being in the $2 million range.

(Operator Instructions)

Our next question comes from the line of Mark May with Needham & Company.

You may proceed.

It's [Clark Wall] on behalf of Mark May here.

I was wondering if you could give some color on your ability to up-sell to your existing customers.

And has the average products per existing customer still be growing and if it still is, has that growth rate slowed or increased with the new products you've been putting out there?

And, also, if you could give some color on whether the project revenue declines have been more driven by customers just not doing projects or whether it's been an issue of average project size?

And, also, what were your weakest verticals during the quarter?

Thanks.

Okay.

In terms of projects, I think lower project revenue is from clients doing fewer projects.

The projects that we do are at the same or better prices.

So it's not really a question of pricing.

As far as which are the weaker verticals, I would say the weaker verticals are the media and publisher verticals, which are clearly the most affected by the tough advertising environment.

We, fortunately, don't have any exposure to auto and, as you know, we do have some exposure to Wall Street and to commercial banks and those are weak, but the exposure that we have to them in any given quarter is a couple of hundred thousand dollars.

So it's not really that significant.

And how about, I guess, average products per customer, existing customer, is that still growing?

We have stopped tracking that metric, but if I had to say just judgmentally, I would say that that's probably staying stable, while we are still able to up-sell quite nicely to a number of customers.

Some of the customers that are experiencing budget pressures, they are buying fewer items.

So net-net, I would think of that as probably stable for Q1 and for the rest of 2009.

Thank you.

It appears at this time there are no additional audio questions.

I will now turn the call back to management for closing remarks.

Well, thank you very much for the questions.

Ken and I will be available later to field more questions, and we look forward to speaking with you again.

This concludes today's presentation.

You may now disconnect.

Good day.