Comscore Inc (SCOR) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2009 comScore, Inc.

Earnings Conference Call.

My name is Josh, and I will be your audio coordinator for today.

(Operator Instructions) I would now like to turn the presentation over to our host for today's conference, the Chief Financial Officer, Ken Tarpey.

You may proceed.

Thank you.

Good afternoon, and welcome to comScore's earning call for the third quarter of 2009.

This is Ken Tarpey, CFO of comScore.

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

Before we begin the call, 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 the Securities Act of 1933 and the Securities Act of 1934, regarding future events or performance of the Company that involve risks and uncertainties, including, without limitation, the expected strength of comScore's business, expectations as to the growth and composition of comScore's customer base and renewal rates, expectations regarding the impact and benefit of new lines of business and products, such as Media Metrix 360, expectations regarding comScore's acquisition of Certifica, assumptions regarding tax rates and net operating loss carry-forwards, expectations regarding cost control measures, and forecasts of future financial performance for the fourth quarter and the full year 2009, including related growth rates and assumptions.

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 identified 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 this call, comScore's Form 10-Q for the period ending March 31, 2009, and comScore's Form 10-K for the period ending December 31, 2008.

We caution you not to place undue 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.

In addition, we may also reference certain non-GAAP financial measures in the course of our presentation.

You will find in our press release and in our investor relations website -- hello -- a reconciliation of non-GAAP financial measures discussed during today's call to the most directly comparable GAAP financial measures.

The link to our investor relations website is ir.comscore.com, and our results are posted under Press Releases.

With this, I'll now turn the call over to Magid.

Thank you, Ken, and thank you all for joining us.

Revenue in the third quarter of 2009 was $31.9 million, up 4% from a year ago, and up 2% from the second quarter.

Our third quarter revenue was slightly below our expected range, and I will discuss this in more detail in a moment.

However, with careful execution, adjusted EBITDA of $7.4 million was within our expected range yielding an adjusted EBITDA margin of 23.2%.

GAAP pre-tax income was $2.8 million, also within our expected range, and up 50% from a year ago.

GAAP net income per share was $0.03 a share, and non-GAAP net income was $0.18 per share.

Looking at the revenue picture in more detail, we normally have a number of (inaudible) relative to our forecast that usually offset each other towards the end of the quarter.

In the third quarter, a combination of smaller, nonmaterial factors were at play including a handful of projects for customers opted to delay some service deliveries, the effect of a more back-ended weighted quarter than we usually see, foreign currency translation, and routine accounting adjustments that had a combined impact on revenue over $500,000 in the third quarter.

Breaking revenue down, subscription revenues in Q3 were $27.2 million, up 6% from a year ago, and project revenue of $4.7 million, down 5% from a year ago.

On a sequential basis, subscription revenue was up 1%, and project revenue was up 5% from the second quarter.

While the incremental revenue growth was modest and reflects continued weakness in the advertising market in Q3, we believe that the stronger relative project performance may indicate that customers are starting to free up budgets on a case-by-case or project-by-project basis.

For example, in the third quarter we again saw a strong performance from our ad effectiveness measurement services, which continued to gain traction.

With the ad market showing some sign of improvement, customers remain especially focused on maximizing the return they are getting from their investment in online advertising.

We have also seen order patterns improving for both new and existing customers, and we continue to expect the growth in sales contracts in the second half of 2009 to exceed what we saw in the first half.

Among existing customers we saw improvement in our ability to upsell in the third quarter, particularly in September, and subscription renewal rates continued to be very strong.

We anticipate that these healthy renewals and upsell trends among our existing customers will continue in Q4.

We also saw improving trends with new customers as reflected in the sequential increases in both gross and net new customer ads in the third quarter.

In Q3 we had 112 gross customer additions, up from 100 in Q2, and 21 net customer additions, up from 14 in Q2.

We are very pleased with the growing adoption of Media Metrix 360 among our clients.

Since the launch of Media Metrix 360 in June of 2009, we have made significant progress and we are delighted to tell you that we now have 74% of the top 50 US media properties committed to the service.

We also entered into a significant partnership with Omniture that enables Omniture to easily implement comScore tags through Omniture's existing tagging platform, eliminating the need for site administrators to have to do any significant work.

We are now tracking over 900 million cookies in the US, and 1.8 billion cookies on a worldwide basis.

It goes without saying that this enormous database of Internet usage enables a multitude of new applications and revenue streams which we will announce in due course.

We believe the introduction of Media Metrix 360 played an important hand in helping us attract new customers during the third quarter.

While some of these customers joined with an introductory offer for a six-month period of limited access, we believe they are very likely to upgrade to a full Media Metrix subscription and additional services at a significant increase in revenue.

The strategic opportunities enabled by Media Metrix 360 make it critical that we focus our resources and invest behind those opportunities.

We have named Greg Dale, our former CTO, as chief operating officer, to help us integrate all of our technology, operations, product and analytical resources.

Greg joined comScore at inception as vice president of product management, and subsequently as the Company's chief technology officer.

Greg's appointment will help us streamline the deployment of our resources to focus on major product initiatives.

We have initiated a search for a world class chief technology officer, looking to bring additional expertise in derivative applications of Media Metrix 360, particularly as Media Metrix 360 opens the door for real or near real time reporting in an office.

We have also bolstered our ad effectiveness staff with Anne Hunter, previously vice president of Strategic Insights at Platform A, and Daryl McNutt, previously vice president of client services at Specific Media.

We expect Anne and Daryl to bring their valuable expertise and help accelerate the growth of our ad effectiveness business.

To help us fund the investments behind Media Metrix 360, and to better focus our efforts on high growth opportunities while maintaining healthy margins, we are realigning some personnel resources within the organization.

This resource shift will result in an overall reduction in the size of our workforce of about 8%, although we will be making selective new hires at the same time in strategically important areas of expertise.

Our goal in taking these actions is to continue investing in our strategic opportunities while achieving our target-adjusted EBITDA margins for the year.

In September we announced that comScore, the GSMA, and the top five UK mobile operators have reached a formal agreement to launch a GSMA mobile Media Metrix service in the UK following the results of a feasibility study announced at the Mobile World Congress earlier this year.

We expect initial data to be available in the fourth quarter of 2009, with a full commercial launch early in 2010.

We believe these services from the UK operators will create a unique mobile media measurement tool that will help us drive the growth of mobile media to the benefit of consumers, mobile service developers, and the broader media industry.

In the third quarter, 15% of our revenue was from outside the US, consistent with recent quarters.

And international expansion continues to be a growth driver for comScore.

To that end, today we announced the acquisition of Certifica, an Internet audience measurement and analysis leaders in the Latin American market.

As a nine-year-old company based in Santiago, Chile, Certifica has a strong presence in almost every market in Latin America, especially in Mexico, Central and South America.

As such, as believe the local presence and additional infrastructure from this acquisition bolsters comScore's effort in the Latin American market.

Additionally, the sites measured by Certifica will be included on comScore Media Metrix 360 hybrid measurement solution beginning in early 2010.

Helping our Latin American efforts will be Certifica's CEO, Alejandro Fosk.

We are pleased to have Alejandro and the entire Certifica team join comScore.

In summary, although top line results for the third quarter were slightly below our expected range, we are seeing signs from our customer base that the worst of the recession may be behind us.

These signs are manifested in improved order trends for comScore services, and we expect this momentum to continue into the fourth quarter.

We are especially pleased that we were able to deliver excellent margin performance in the quarter.

We believe that we have laid the foundation for future growth not only due to an improving ad market, but also because of our product investment and expanded international footprint.

Now, let me turn the call back to Ken for a more detailed financial discussion.

Thank you, Magid.

Revenue in the third quarter was $31.9 million, up 4% year-over-year and 2% sequentially.

With the advertising market continuing to be under pressure in the third quarter, certain projects experienced slippage as customers delayed campaigns, combined with some foreign currency weakness.

So, our revenue was slightly below our expected range.

Within total revenue, subscription revenue in the 3 quarter was $27.2 million, up 6% year-over-year, and 1% sequentially.

Subscription revenue represented 85% of total revenue, consistent with recent quarters.

Project revenue was $4.7 million, up 5% from Q2.

Renewals in the third quarter continued to be very strong, especially among our largest customers, though our overall third quarter subscription renewal rate on a dollar basis was just below our historical range of 90% or higher due to continued attrition from small customers.

Revenue from existing customers was up 11% year-over-year in the third quarter to $28.6 million, and represented 90% of total revenues.

Revenue from new customers was $3.3 million in the third quarter, consistent with the prior quarter.

We are seeing positive signs at both new and existing customers with respect to project revenue and subscriptions, and continue to anticipate increased orders in the fourth quarter.

Our ad effectiveness services have been a positive driver of project revenue growth, and our Media Metrix 360 launch has helped stabilize the slowdown in new customer revenue growth.

At the same time, continued upselling drove a continued sequential increase in revenue from existing customers.

International business represented 15% of our revenue in the third quarter, consistent with recent quarters.

Our top 10 customers represented 28% of revenue in the third quarter, which was also consistent with past quarters.

We have one 10% in the quarter.

Turning to the expenses in the third quarter, gross margins were 70.4%, compared to 69.1% in the second quarter, and 69.3% a year ago.

Our total operating expenses were up 1% year-over-year, and 2% sequentially as we incrementally invest in strategic initiatives to help drive our long-term growth.

Pre-tax GAAP income was $2.8 million in the quarter, up 55% versus a year ago, and at the top end of our prior guidance range of $2.3 million to $2.8 million.

Our effective tax rate in the third quarter was 66%, while our third quarter cash tax rate was only 4%.

This difference arises primarily from the treatment of stock compensation charges under FAS 123(R).

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

With the continued restricted stock shares vesting in Q3 at a fair value below the value at the time of grant resulting in effective tax rate for GAAP, that is well above our cash tax rate.

This book tax stock compensation difference will continue to occur in 2009.

We can't predict the stock compensation effect because of future stock price impacts.

GAAP net income was $900,000, or $0.03 per share in the third quarter of 2009, based on a diluted share count of 31.2 million shares.

In the third quarter stock-based compensation was $2.6 million, and amortization on acquired intangibles was $385,000.

Non-GAAP net income for the third quarter 2009, which excludes stock-based compensation and amortization of intangibles was $5.7 million, or $0.18 per share.

On the same non-GAAP basis, adjusted EBITDA was $7.4 million in the third quarter compared to $7.2 million in a year ago, and in the upper end of our prior guidance range.

Adjusted EBITDA margin was 23.2%, up from the 22.4% in the second quarter, and consistent with 23.3% we reported a year ago.

We were able to maintain strong operating margins even with the lower than expected revenue.

Turning to cash flow.

Our cash flow from operations in the third quarter was $6.5 million.

Our capital expenditures were $700,000 in the quarter, which resulted in a free cash flow of $5.9 million.

As of September 30, 2009, cash, cash equivalents, and short-term investments totaled $84 million.

In addition, we hold $2.9 million in cash investments with maturities over 12 months that are classified as part of long-term investments, all of which are option rate securities whose value is unchanged from the end of last quarter.

Receivables were down slightly both year-over-year and sequentially to $26.8 million, which translates to a DSO of 70 days, a decrease from a year ago and the prior quarter.

Deferred revenue was $41.4 million in total, an increase of $700,000 from Q2, as Q3 renewals had a higher level of advance billings than our recent experience.

Turning now to our guidance for the fourth quarter of 2009.

We now expect our revenue growth for 2009 to be slightly lower than our prior expectation, primarily a result of the slower than expected resurgence of the online advertising market.

Our human resource reduction and realignment towards higher growth potential products, however, is expected to reduce our cost structure in the near term, enabling us to maintain our prior EBITDA expectations for the year.

Our guidance for the fourth quarter includes the revenue and expense impact of the Certifica acquisition we announced today, both of which we expect to be immaterial for 2009.

With that backdrop for the fourth quarter of 2009, we anticipate revenues in the range of $32.75 million to $34.65 million.

On a full year basis, this translates to revenue growth of 8% to 10%.

We are anticipating fourth quarter GAAP net income before income taxes of $2.1 million to $3.2 million, and we anticipate an adjusted EBITDA for the fourth quarter of 2009 to be in the range of $8 million to $9.1 million, which represents an adjusted EBITDA margin of 25% at the midpoint of our revenue and adjusted EBITDA guidance.

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

Now, with that, Operator, we can open the lines to take questions, please.

(Operator Instructions) And our first question comes from the line of Youssef Squali, Jefferies & Company.

Youssef, you may proceed.

Hi.

Good afternoon.

This is Sandeep Swadia for Youssef.

Thanks for taking my questions.

Just a couple.

So, we saw that ARPU was down 2% year-over-year, so we're just wondering what were the key drivers that pressured it?

Was it loss of bigger accounts, bigger discounts from you guys, or just customers renewing on lower terms?

And the I have a follow-up.

Okay.

You need to remember that the higher value Citadel contract was in the period a year ago.

They exited our revenue stream in August 2008.

When you exclude that,, the ARPU is flat.

The other factor that is not causing a decline, but nevertheless it's a factor, is that Media Metrix 360 has been really successful for us, and we have booked 18 new customers that signed in through what we call our comScore Direct program.

It's an introductory offer with a limited type of access for six months.

And when people do that, they pay a subscription rate of $5,000, which is well below the average.

The expectation obviously is that they will upgrade when they see the numbers and they are comfortable with how the hybrid methodology is working on their site.

They can upgrade to a full Media Metrix subscription.

So, this class of new customers started with a lower than average subscription rate, which we fully expect to pick up as the initial evaluation period ends.

And so, just quickly, the 112 gross ads include these customers as well?

Correct.

Okay.

And then in terms of the 8% reduction in the workforce, what areas do you think it will affect most?

Is there sort of a plan that you're thinking about in terms of how to shift the cost structure?

Well, we have really looked in all areas of the Company to make sure that all of the resources that we have are leveraged to the best way possible.

I don't think that there is any particular area that has been singled out, but along with the reduction, there is a refocusing of some of the resources that we have so we can put them behind the most strategic product initiatives.

So, this is not just a revenue reduction -- sorry, expense reduction effort; it is really taking advantage of what we think the opportunities are in terms of some of the product initiatives that we are working on.

Okay, thanks.

And our next question comes from the line of Heath Terry from FBD Capital Markets East.

You may proceed.

Great.

Thank you.

Magid, I was wondering if you could give us an idea of what percentage or proportion of your customer base has renewed in the last kind of three quarters or so, or since we really started to see the downturn in the behavior -- or in the change in subscriber behavior?

Ken, do we have --

This is Ken, Heath.

I would say we are probably in the neighborhood through the end of September of about low 60% in terms of the base, and then we have the rest of it coming in in this quarter.

This is a good quarter for us from a renewals perspective.

So, we got those [full] majority done.

Let me just make sure we're answering the correct question.

Are you saying what is -- does this answer your question?

Yeah.

I mean, I believe so, assuming that number is the right one.

I guess what I'm trying to get at is assuming we all entered this -- or your customer base in most corporations entered a bit of a new reality this time last year.

What percentage of your customers have kind of been through a renewal cycle since then?

And so I think Ken essentially answered it with that idea that we've hit 60% of that already and we should see the remainder of it by the end of the year.

Am I thinking about that the right way?

Yeah, I think it's probably a little bit higher than 60%, somewhere between 60% and 65%.

Okay.

So, we've got basically one more quarter of renewals that where the subscriber hasn't necessarily been, or hasn't had a chance to kind of set their expectations, or set their service level relative to this new environment we're in.

That's correct.

Okay, great.

Thank you.

And our next question comes from the line of Meggan Friedman William Blair.

Meggan, you may proceed.

Hi.

A few questions on Media Metrix 360.

First, a clarification.

Are the 18 new customers with the lower rate in that 74% of the top 50 US media properties?

No, primarily not.

Okay.

And how many of the Media Metrix 360 customers are new to working with comScore at all?

Well, we sort of break it into two camps -- the ones that just came in on a self-service basis for this introductory option of comScore Direct.

That was 15.

And then we've isolated within our pipeline 18 customers where we think Media Metrix 360 was a major factor in their sign up.

Some of these are totally new customers, some of them may have been customers a couple of years ago, and Media Metrix 360 pushed them over the edge.

Okay, great.

Thanks.

And then can you provide any color on how the partnership with Omniture has been progressing?

Well, the client reaction has been really great.

I think that we have been through a [beta] program with a handful of customers that was a technical implementation that we needed to work on to synchronize with Akamai, who is actually handling the collection of our beacon calls, to make sure that we delivering the strongest speed of resolution on those calls that is possible to Akamai.

That was done this week, and so we will starting expecting the impact of Omniture to help in the Media Metrix 360 signups starting this week.

So, I would say -- so, the bottom line is that it has gotten great client reaction.

We have a number of clients interested.

The synchronization, I would say, between Omniture and Akamai needed to happen before they actually started implementing it, and we're excited that that's behind us now and they can start implementing from now forward.

Okay, great.

And then in terms of the adoption of Media Metrix 360, is there a difference in terms of the interest in adoption between domestic and international clients?

Well, Media Metrix 360 has really been rolled out in the US and Canada.

We had some early adopters in the UK, but Canada and the UK were -- the data has been released publicly in September.

Prior to September the clients were participating, were viewing their data on a private basis; whereas, in the US we released it a month earlier.

So, I would say in terms of the adoptions, US and Canada probably are on par, and then Europe will be following, with the UK first.

Okay, great.

And then just one last housekeeping question.

Did you provide a severance number for the 8%?

This is Ken.

If you look at the -- we did not specifically, but if you look at the reconciliation, Meggan, there is a line item there that is a combination of acquisition costs as well as restructuring costs.

Okay, great.

Thank you.

You're welcome.

And our next question comes from the line of Jeetil Patel from Deutsche Bank Securities.

Jeetil, you may proceed.

Great, thanks.

A couple of questions.

I guess first question on the restructuring.

I guess, Magid, why now in terms of restructuring?

It seems like if you're seeing such good promise and momentum in the Media Metrix 360, I guess why go through the process of reducing the headcount a bit here as opposed to the beginning of the year, where there is a lot of uncertainty?

Second question, as you look at the kind of Media Metrix customer base, are we to assume that it will be about a six-month lag, or are you seeing sign-ups even earlier than that in terms of going from initial tagging to actually becoming a full-fledged customer subscriber to the service offering?

Just can you talk about whether you're seeing a faster implementation and kind of sales cycle there or not?

And then I have a quick follow-up.

Sure.

As far as why now, when we are looking at the promises that we are making in terms of margin delivery, we have made a commitment to investors that we will invest behind our new product initiatives and we will deliver our margin.

When we got lower revenue growth, it became really imperative for us to make sure that if we want to continue investing, we either had to break the promise of delivering our margin or reduce our investment in new products, and we didn't want to do either.

So, we chose to tighten our belts.

But rest assured that the way we have done it is really not going to impact, number one, our ability to generate revenue or, number two, our ability to deliver these products.

And the reason is that any time you sort of have a hard look at how you are utilizing your resources, you actually come up with a number of smarter ways of doing things that at the end of the day may put you ahead of the game, just because you shined a spotlight on it.

So, this is now the right time.

We think Media Metrix 360 is a big success, and we don't want to have anything that would be standing in our way of fully backing it.

And this gives us some head room to be able to do it without having to worry about fulfilling our promise to investors.

Your second question about the lag in implementation, we have actually seen the implementation schedule accelerate.

So, at the beginning it was kind of slow and now we see a few customers that really want to do it right away.

And we have established a period of 60 days of essentially quality monitoring, to make sure the implementation is correct.

In cases where we are -- we can be assured that the implementation is correct, that we audit the implementation and we see that all the relevant pages are beaconed and they're not over-beaconed, meaning people aren't putting two beacons on the same page.

Once we are assuring ourselves that that's happening, we will turn public access on, which in a lot of cases clients really want to have as soon as possible.

So, we are seeing, if anything, acceleration of the implementation.

And then in terms of once it's implemented, I guess sign up to a full customer.

I mean, how long is that taking?

Is that still a six-month trial period?

Are you seeing signups before that into kind of full customers?

And then just question, as you look at the fourth quarter, it seems like your business generally lags, I guess at the ad cycle or kind of the upturn in advertising spend.

As we look at the fourth quarter and the sequential improvement more or less at the midpoint, do you think that will come largely in the subscription line or the project line in terms of the sequential uptick?

So, the first question is, is there a -- how are the customers that signed up as part of the six-month program, are they -- sorry?

Converting.

Converting.

And the answer is that we see a bunch of those in the pipeline in Q4, which is well before their six-month anniversary.

So, we think a few of them will actually sign up earlier.

On the other hand, we also saw a few customers that just didn't bother with the sign-up through comScore Direct and went directly to a full subscription.

Was there another part -- oh, the sequential --

(Inaudible) subscription.

You know, I think that we are bullish on the subscription.

I think it's going to come from both, but we are, in particular, bullish on the subscriptions.

As we mentioned both in the press release and in the comment, that we have seen an uptick since September, and renewals and new client activity primarily in the subscription area.

And we're keeping our fingers crossed that that will be maintained for the rest of the quarter, and we will actually get a stronger pickup in subscriptions.

But the other thing, though, is that you're absolutely correct, that there is some latency between when we get a client and when it actually flows through our revenue.

So, if we get $100,000 worth of sales, unlike let's say a media company, where $100,000 order is pretty much current period revenue, our $100,000 order is only on average in a quarter one-eighth of it will flow into revenue.

So, it will take us probably on average six months for that pickup to be fully reflected in our recognized revenue line.

And our next question comes from the line of William Morrison from ThinkEquity.

William, you may proceed.

Good afternoon.

This is actually [Raul Colbreth] on the line for Bill.

I just wanted to quickly.

I just wanted to quickly ask if you could give us any parameters on the rough size of Certifica.

If not a dollar amount, then number of offices or headcount in rough terms?

And then also you mentioned ad effectiveness products a few times on the call and the potential to moving to a real-time model for ad effectiveness measurement.

Just wondering how far off do you think that could be and how the business or revenue model for real time for ad effectiveness might be different?

I'm assuming most ad effectiveness is now maybe on a project basis or some on a subscription basis.

I'm wondering if you can become leveraged in any way to percentage of spend or performance improvement, or anything of that nature?

Thank you very much.

Can you answer the --

Yes, this is Ken.

I'll take the Certifica one.

Certifica, which is headquartered in Santiago, Chile, is about 28 employees, who will be joining the Company.

And they have offices in half a dozen key locations in Latin and South America.

Okay.

As far as the ad effectiveness business and real-time reporting, we expect that to be implemented in late Q1, early Q2.

And the important thing about it is that it allows customers to adjust campaigns midstream.

So, if you are getting data on a particular campaign and you don't like the way it's going, you can adjust it, versus now having to have the reporting latency and not really being able to act on it in real time.

So, I think it is the ability to offer a course correction is something that we hope will become important enough that we will get added to a campaign by much more frequently and be sold less on a project-by-project, and more on either a full client or a full agency basis.

Okay, thank you.

And our next question comes from the line of Sandeep Agarwal from Collins Stewart.

Sandeep, you may proceed.

Thanks for taking my question.

Magid, just to follow-up on the prior Certifica question.

Can you share with us the trailing 12 months revenue from Certifica?

I notice in your guidance it is not material, but still should we assume it is under $0.25 million for Q4 contribution?

And anything you can mention about, is it (inaudible) acquisition, and then I have a follow-up.

This is Ken.

Again, as you know, we've signed a definitive agreement.

The closing will be coming subsequently, so the accounting impact, given the accounting rules, will be very small this quarter.

It is a profitable company and will be accretive to our operation as we go forward.

So, to your question, Sandeep, it's very minor in terms of the fourth quarter impact in 2009.

We don't look at it as -- Certifica is not important for us for the revenue it brings, per se, it's current revenue.

But for the fact that it brings us a presence in six Latin American offices, whereas now we have -- we're servicing it from New York.

They have excellent local relations particularly with the local IRBs.

And as we did our due diligence, we were really happy with the level of customer support for them and for this particular union, if you like, including the IRB really encouraging us to do it.

So, the name of the game here is to be able to build on that infrastructure and client base to accelerate our penetration of Latin America in markets where, left to our own devices, it would take us a long time to go and open up an office in some of these local countries.

And then, Magid, one question, just a big picture.

If you look at your maybe top 1,000 or maybe top 5,000 attainable or addressable customers in US, can you tell us what is your penetration currently and maybe the similar metric for the non-US locations?

Well, I mean, if you say top 5,000, then in the US we probably have about 800 websites, so you can do the math.

I mean, it really depends on where do you draw the line in terms of what the addressable market is in the US versus overseas.

In general, overseas we have a much, much lower penetration than we have in the US.

At the same time, I think Media Metrix 360 gives us a much better shot at measuring niche sites and business-to-business sites than we have had before.

And I think that is going to really significantly increase our penetration.

The same thing happens internationally.

If you are talking about, let's say, measuring a website in Sweden and that website has a 3% reach or 5% reach, it becomes a lot easier to measure that with a hybrid method rather than with just a pure panel method.

So, our addressable market expands quite a bit as we go internationally, particularly outside of the major countries.

And just last question.

On that ES average, basically average price you are able to get from the new customers, how does that compare with the customers who are renewing their contracts?

Let's see.

I think it's comparable.

I'm trying to see if we can dig up a number on that.

I have here ARPU from a new client, and that's defined as a client that is new in the last 12 months, 10.6 in Q3 of '09 compared to 9.4 in Q2 of '09.

So, there is a modest uptick in that.

Thank you.

And our next question comes from the line of John Blackledge from Credit Suisse.

John, you may proceed.

Thanks for taking my question.

So, a question on the customer side.

Of the gross and net ads in the third quarter, how many were the Score Direct customers?

And then how long is the Score Direct program going to be offered to customers?

And for net ads in the fourth quarter from what you've seen to date, are they going to be kind of at or below or above third quarter levels?

Thanks.

As I mentioned, there were 18 to date.

We need to actually isolate how many were in Q3.

But it's probably somewhere -- in Q3 it's probably somewhere around 10 to 12 customers, and they were included as part of the gross ads.

The 15 full service signups were actually in Q3 due to Media Metrix 360.

As far as Q4, it's too early to tell, but I am seeing more customers that are going to go through the normal full service route than to go through Direct.

And the reason is that a customer would go through Direct if they are sort of uncertain about how the data is doing to turn out.

But we are now providing enough data in each category where we have enough clients that have already participated and they can see the impact on the projections.

And, as a result, they have a lot more confidence in signing up for a full subscription.

So, that, I think, is true in the US and Canada.

As far as signups of Direct internationally, there is going to be, I think, a lot of potential for that.

As far as long will we keep Direct going, I think right now we will evaluate the availability of that at the end of the first quarter of next year.

But certainly between now and then it's a good source of starting clients for us.

Thank you.

And our next question comes from the line of Jason Helfstein of Oppenheimer.

Jason, you may proceed.

Hey, thanks.

Can you just clarify, because obviously there are a lot of moving parts, right, impacting the subscriber numbers in the ARPU.

So, can you give us a sense maybe on the same product basis how pricing is year-over-year?

And then I've got two quick follow-ups.

I think pricing on a same product basis is probably flat for new contracts, and for multi-year contracts it's whatever is built into the contract.

So, you blend it together and you are getting a couple of percentage points.

As far as the blend of products that people are buying, we are starting to see that whereas the tendency at the beginning of the year was to try to manage budgets, budget pressure by, in some cases, taking off an option in the bundle that people are buying.

Now we are seeing sort of an opposite trend, and we hope it continues.

Okay.

And then, I mean, can you give us any color, I know it's still early as far as your having discussions with people who are renewing contracts next year, and I think fourth quarters are seasonally the busiest period for renewals.

Any color you can give us on if you're getting pricing increases on some of the clients you've renewed and what's the magnitude of those increases?

I really can't give you any color in general.

I think we have on some of the verticals, like telecom, we definitely see price increases.

On some of the audience measurement services, I think it's a mixed bag.

Okay.

And then just on Omniture, I mean, obviously with them being acquired by Adobe and Adobe is viewed to kind of integrate that into Flash and certain things that they want to do.

It's net good for you that you've got this partnership.

What does Omniture get out of it and what's their incentive to really kind of help you get the 360 product out there?

Well, I think if there are customers that sign up, new customers that sign up because of the Omniture deal, then they will get a revenue share on that, and vice-versa.

We have had a few situations the other way around.

So, it's good in both directions and I think they want to be ubiquitous.

We want to be ubiquitous and it helps us both do that.

Sure, well, they've got 5,000 clients.

It gives you a lot of head room to work towards.

Okay, thanks.

Thank you.

And our next question comes from the line of James Cakmak from Sidoti & Company.

James, you may proceed.

Hi.

Good afternoon.

Looking at the existing customer revenue, we did see somewhat of a deceleration in the third quarter from the prior quarter.

But I guess any color you can provide on how much of that as a function of pressure on the pricing side versus the cross in the upselling side?

And then, secondly, when I look at your fourth quarter revenue guidance, can you give us some color on kind of the projection on the project revenue side that you guys do pricing into that revenue guidance?

Thanks.

Sure.

This is Ken.

I think, again, in terms of the existing customers, as we've chatted about, when you work in there with them, it's the degree of upsell in a particular quarter in terms of the impact.

I think you also have, because of our model, the more cumulative impact as it rates through in terms of earlier quarter closures and renewed pricing in the economic conditions.

And, James, what was your second question?

On the guidance, the revenue guidance for the fourth quarter.

Yes.

Again, we saw some sequential growth with the project revenue.

As we indicated in our comments, we see more recovery there, along with recovery on the subscription side.

So, I think if you look at that same kind of sequential growth into the fourth quarter, that would probably be around the range.

Okay.

And as far as the workforce reduction, are any of that 8% coming from a sales capacity at all?

We have specifically designed it not to impact sales in any meaningful way.

You always have a couple of people here and there that you're not particularly happy with their performance.

But in general this has been very definitely focused on making sure that we don't really have an impact on our sales performance.

Okay, great.

Thank you very much.

At this time we are showing no further questions available.

Mr.

Abraham, you may proceed.

Okay.

Well, thank you for your participation in the call today.

We are encouraged that our business environment appears to be improving.

We are very, very happy with the results of our investment in building Media Metrix 360, and we look forward to excellent returns from that investment.

We are making solid strides in expanding comScore's presence into additional regions of the world and further strengthening our global presence.

Importantly, we've been able to tightly manage our business so as to maintain our profit margins.

Because of this, we are in excellent position as secular trends for Internet ad spending begin to reaccelerate, to help our customers refocus on strategic marketing spending and improve their long-term ROI, and by derivative helping comScore benefit.

So, thank you very much and we'll talk to you on the next call.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a great day.