Comscore Inc (SCOR) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 comScore Incorporated earnings conference call.

My name is Anne and I will be your coordinator for today's call.

(Operator Instructions).

As a reminder, this conference is being recorded.

At this time all participants are in listen-only mode.

We will be facilitating a question and answer session following the presentation.

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

Ken Tarpey, Chief Financial Officer.

Please proceed, sir.

Okay, thank you, Anne.

Good afternoon and welcome to comScore's earnings call for the fourth quarter of 2009.

Again, this is Ken Tarpey, CFO of comScore, and on the phone with me is Magid Abraham, our President, CEO and co-founder.

Before we begin, please allow me to read the following disclaimer regarding our use of forward looking information and non-GAAP financial measures.

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 and Exchange 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, the expectations as to the growth and composition of comScore's customer base and renewal rates, expectations regarding the impact and benefits of particular lines of business and products, expectations regarding comScore's acquisition of ARSgroup, assumptions regarding tax rates and net operating loss carry-forwards, and forecasts of future financial performance for the first quarter and full year 2010, 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 September 30, 2009 and comScore's Form 10-K for the period ended December 31, 2008.

We caution you not to place undue reliance on any forward looking statements included in these presentations that 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 reference certain non-GAAP financial measures in the course of our presentation.

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

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

With that, I will now turn the call over to Magid.

Thank you, Ken.

And thank you all for joining us for our earnings conference call for the fourth quarter of 2009.

Revenue in the fourth quarter of 2009 was $33.8 million, up 7% from a year ago and 6% sequentially.

Q4 revenues were within our expected range, as was adjusted EBITDA of $8.6 million, which yielded an adjusted EBITDA margin of 25.4%, the highest level in two years.

GAAP pretax income was $3.1 million, also within our expected range and up 182% compared to a year ago.

GAAP net income per share was $0.05 and non-GAAP net income was $0.21 per share.

We are pleased with these results, but they do not fully reflect the magnitude of the pick-up in business that we saw in Q4, especially toward the end of the quarter.

From our view we see two factors at play driving the strength.

First, customer budgets have loosened up in an environment where most of them appear to be more optimistic about the macro environment.

Second, we have seen a direct impact from increased levels of interest and demand in our differentiated Media Metrix 360 unified measurement solution as well as marketing product solutions in various industry verticals.

This heightened demand is reflected in our net customer additions for the quarter of 57 new customers, which represent a significant rebound from the levels of net customer adds in the previous four quarters which have averaged 20 new adds per customer, and represents the highest level since the second quarter of 2008.

Based on the strength of our sales pipeline, we anticipate that this higher activity level and growing demand are likely to continue in 2010, and as a result we are anticipating acceleration in bookings and revenue in 2010.

Looking at fourth quarter revenue in more detail, total revenue was up 6% from the third quarter, comScore's strongest sequential revenue increase in over a year.

Subscription revenue in Q4 was $29.2 million, up 10% from a year ago and 7% sequentially.

Project revenue was $4.6 million, down 8% from a year ago and 2% sequentially; however, new project bookings were up substantially, both sequentially and compared to a year ago, with revenue to follow in future periods.

We continue to see strong adoption of our Media Metrix 360, our unified measurement solution combining panel and server metrics.

Today 80% of the top 50 properties and 78% of the top 100 US media properties are either already participating or are committed to participate in Media Metrix 360.

Internationally, the corresponding metrics for the top 50 media properties are 88% in Canada and 60% in the United Kingdom.

This month, we will be releasing Media Metrix 360 estimates for the first time in other regions of the world, and we expect adoption to continue throughout 2010.

In addition, Media Metrix 360 is driving upsells with new and existing customers.

We have seen some customers double their spending after converting to the service.

I would like to share with you some statistics about the scale of Media Metrix 360.

During the month of December 2009, we collected usage data from over 3.2 billion distinct, anonymous cookies worldwide, of which 1.5 billion cookies are in the US alone.

This translates to measurement from over 93% of US internet users.

We now have over 30 countries where our measurement reach exceeds 75% of the population.

This is despite the fact that we are already -- that we are only in the early stages of international deployment.

These statistics are important for two reasons.

First, they highlight the breadth of the population reached by our measurement beacons.

Second, they illustrate the magnitude of cookie inflation and the necessity of having a person-based panel to translate audience size from cookies to people.

The US internet population was 206 million users in December.

The 1.5 billion US cookies translate to roughly 7.5 unique cookies per person.

In other words, if we were measuring the entire internet using only server data, the average person would be counted 7.5 times.

In addition, the magnitude of double counting varies by site.

We use the comScore panel in part to convert the server side estimates from cookies to people.

We could not do it accurately without the panel and the highly sophisticated deduplication methodology that we use.

As part of the Media Metrix 360 in production we offered a low cost option, comScore Direct, which provides website owners with easy, cost-effective access to comScore's timely audience measurement in order to accurately reflect the value of the website's audience.

Customers who tag with comScore extend their exposure in the market, enabling them to be evaluated by media planners, advertisers, investors and others who use comScore data to form critical business decisions.

During the quarter we had 15 customers sign up through comScore Direct for a total contract value of $75,000, which is clearly not a meaningful contribution to the fourth quarter.

What is meaningful is we have already had follow-on sales at a number of Direct customers, and that these upgrades to full subscriptions are valued at approximately 12 times the value of their Direct contract.

We believe the Direct program provides important access to smaller customers and trial for non-customers and can create opportunities for larger relationships in the long term.

Among existing customers, our subscription renewal rates exceeded 90% and that continues to be very strong.

We anticipate that these healthy renewals and upsell trends among existing customers will continue in Q1.

To support our growing momentum, we recently appointed Eric Bosco as our Chief Product Officer.

In this newly created role, Eric will oversee global product management of comScore's products and services.

Eric joins us from Advertising.com, where he held a number of roles directly applicable to his new position at comScore, including Senior VP of Global Products and US Operations, and, prior to Advertising.com, as VP of Communications and Community Products at AOL, including AOLMail and AOL Instant Messenger.

We have also added Chris Nicotra as Chief Technology Officer, filling the CTO role that Greg Dale had before his promotion to Chief Operating Officer.

Chris was previously CTO at Advertising.com and Senior VP of Engineering at AOL.

He was responsible for the AOL ad serving system, including the ad.com ad servers for AOL's custom media planning platform and for the integration of various technologies from acquisitions such as TACODA, Quigo and AdTech.

He also worked in a number of start-ups in a variety of technology and architectural roles.

Eric and Chris are significant additions to comScore's management team, adding deep expertise within the on-line advertising ecosystem and highly scalable real-time systems.

We believe they will play an essential role in developing the next generation of services that comScore can deliver to help the on-line industry.

Last week we announced in the UK the launch of the GSMA Mobile Media Metrix product, taking mobile internet usage data from all five UK mobile operators.

The service will provide direct anonymous measurement of 16 million UK mobile users.

This level of measurement, available for the first time, provides comprehensive insight into mobile media consumption and empowers brands and agencies to plan effective and focused mobile campaigns.

In the fourth quarter, 17% of our revenue was from outside the US, up from 15% in the third quarter.

We have quickly integrated our Certifica subsidiary, giving us access to this rapidly expanding region, and expanding our physical presence in six countries.

We are in the process of implementing Media Metrix 360 in Latin America, expanding our international footprint.

Separately, we have announced today the acquisition of ARSgroup.

ARSgroup is a leading technology-driven market research firm whose services deliver measurement of advertising persuasion for TV and multi-channel ad campaigns.

ARS's persuasion scores have proven highly predictive of sales in a variety of industries.

In addition, ARS provides clients with actionable information they need to improve creative and strategic messaging for specific audiences.

We are excited about leveraging ARS's proprietary IP to build innovative solutions in the on-line measurement space and to provide cross-media measurement of advertising effectiveness.

ARS has a roster of marquee customers in the CPG, retail and pharmaceutical industries.

Three of ARS's customers are expected to become top 10 comScore customers.

ARS has won numerous awards, including the Ogilvy Award from the Advertising Research Foundation for the research work on Wal-Mart's Earth Month campaign.

We intend to leverage comScore's global infrastructure to expand ARS's presence internationally and grow its business with global brands.

We expect ARS to fuel incremental growth for comScore in 2010 and beyond.

In summary, we are excited about the strong progress and business recovery we have seen in the fourth quarter.

We have seen this increased momentum carry forward so far into 2010.

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

Ken?

Thank you, Magid.

Revenue in the fourth quarter was $33.8 million, up 7% year over year and 6% sequentially.

Within total revenue, subscription revenue in the fourth quarter was $29.2 million, up 10% year over year and 7% sequentially.

Subscription revenue represents 86% of total revenue, consistent with recent quarters.

Project revenue was $4.6 million, down 8% from fourth quarter of 2008.

Renewal rates in the fourth quarter were within our historical range of 90-plus-%.

Revenue from existing customers was up 10% year over year in the fourth quarter to $30.1 million and represented 89% of total revenues.

Revenue from new customers was $3.7 million for the fourth quarter.

At a count of 57, net new customer additions in the fourth quarter were the highest ever since Q2 of 2008 and will have a more meaningful impact on revenue starting in Q1 due to the ratable nature of our subscription business model.

We are also seeing positive signs at both new and existing customers with respect to project revenue based on fourth quarter order trends.

International revenue represented 17% in the fourth quarter.

Our top 10 customers represented 28% in the fourth quarter, which was consistent with the past few quarters, and we had one customer who was more than 10% in the quarter.

Turning to expenses in the fourth quarter, gross margins were 71.8% compared to 70.4% in the third quarter and 67.5% a year ago.

Our total operating expenses of $30.8 million were affected by $1.2 million worth of expenses associated with the acquisition of Certifica and the October reduction in force that was previously announced.

We anticipate continued acquisition-related expenses of this magnitude throughout 2010.

Other income and expense in the fourth quarter included $50,000 in interest income.

We also recorded an $89,000 gain in the sale of auction-rate securities, more than offsetting a $79,000 loss due to foreign exchange effects.

GAAP pretax income was $3.1 million in the quarter, up 182% versus a year ago, and within our guidance range of $2.1 million to $3.2 million.

Our effective tax rate in the fourth quarter was 49%, while our fourth quarter cash tax rate was 19%.

Our cash tax rate was higher from prior quarters because of higher state and Canadian taxes.

GAAP net income was $1.6 million or $0.05 per diluted share in the fourth quarter of 2009 based on a diluted share count of 31.2 million shares.

In the fourth quarter, stock-based compensation expense was $2.5 million, and amortization of acquired intangibles was $425,000.

Non-GAAP net income for the fourth quarter 2009, which excludes stock-based compensation and amortization of intangibles, was $6.5 million or $0.21 per diluted share.

On the same Non-GAAP basis, adjusted EBITDA was $8.6 million in the fourth quarter, compared to $6.5 million a year ago and $7.4 million last quarter.

Adjusted EBITDA margin was 25%, up from 23% in the third quarter and 21% we reported a year ago.

Cash flow from operations for the fourth quarter of 2009 was $6.6 million.

Our capital expenditures were $1.6 million in the quarter, which resulted in a free cash flow of $5 million for the fourth quarter.

As of December 31, 2009, cash, cash equivalents, and short-term investments totaled approximately $88 million.

In addition, we held $2.8 million in auction-rate securities with maturities over 12 months that are classified as part of long-term investments.

Receivables were up year over year and sequentially at $34.9 million, with DSO of 84 days within our typical ranges.

Deferred revenue of $48.1 million increased $6.8 million from the third quarter, reflecting strong order patterns we experienced during the quarter and is at the highest level in the company's history.

For the full year, revenue was $127.7 million, up 9% from 2008.

GAAP net income was $4 million or $0.13 per share.

Adjusted EBITDA was $28.5 million, up 11% compared to 2008.

The adjusted EBITDA margin was 22%, consistent with a 22% level we recorded for the full year in 2008.

And Non-GAAP net income was $21.6 million or $0.70 per share.

Now turning to our guidance for the first quarter of 2010 and all of 2010, we believe that strengthening order patterns that we saw at the end of 2009 continue into 2010.

In the first quarter of 2010, we anticipate revenues in the range of $34.2 million to $36.0 million.

This includes a modest contribution from ARSgroup acquisition, which was an all-cash deal of under $20 million, which we expect to close later in the first quarter of 2010.

We are anticipating first quarter GAAP income before income taxes of $300,000 to $900,000, and we anticipated an adjusted EBITDA for the first quarter of 2010 to be in the range of $5.8 million to $6.6 million, which represents an adjusted EBITDA margin of 18%, at the mid-point of our revenue and adjusted EBITDA guidance.

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

For the full year 2010, we anticipate full year revenue growth in the range of 21% to 25%, inclusive of the ARSgroup acquisition.

While we will not break out revenue from ARSgroup separately, you should note that our organic growth excluding ARS is expected to be above current consensus estimates and that we expect ARS to fuel incremental growth in 2010.

On a full year basis, we anticipate adjusted EBITDA margin to be at similar levels to what we anticipated in 2009.

Overall we are pleased to see strengthening demand from an improving economy and our ability to provide the market with the right products at the right time.

With that, operator, we can now open the lines to take questions, please.

Okay.

(Operator Instructions).

Our first question comes from the line of Megan Freeman with William Blair.

Please proceed.

Hi.

Wanted to get a little more detail on the 57 net new additions.

How many are signed up for 360, and how many are new to working with comScore?

About 15 new customers were signed up as part of comScore Direct.

The others are all new to comScore, obviously.

They come from all kinds of industries.

Some of them are 360 and some of them are for other products.

Okay.

And of the three groups that we have talked about in the past that are expected to benefit from 360, internationally, I know you are in the process of rolling that out, the sites that are accessed from work and then the smaller or nichier sites, can you talk about the composition of the new adoptees in that framework?

Well, I think that the biggest influx that we have seen has been in the area of social media and in the area of news and financial sites -- those having the characteristics of either being used significantly from work or having audiences that are less likely to be represented in a mainstream panel.

Okay.

Great.

Thanks.

I will get back in the queue, and congratulations on a strong quarter.

Thank you.

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

Please proceed.

Thanks.

Thanks for taking the question.

Just wondering what your expectations are for customer net adds in 2010; and if you can just talk about the pricing environment on your renewals in the fourth quarter and expectations for pricing in 2010?

Thanks.

Well, we don't really make a forecast about customer net adds.

We certainly have seen a significant pick-up in sales activity and new customers being added and high retention among our existing customers.

We expect some of those trends to continue, and we certainly expect that to be higher than the average that we have observed throughout 2009 with the exception of the fourth quarter.

As far as pricing, we have noted some pricing power among our customer base, particularly among the Media Metrix 360 customers.

As we have discussed before, we intend to justify price increases with Media Metrix 360 customers based on the added cost of Media Metrix 360 that we upgraded people to at no cost.

But at renewal time, we feel it is the right time to get a little bit of compensation for the extra cost increase.

Thanks.

Just one follow-up.

So what was -- so the consensus 2010 revenue growth number, you said you expect on an organic basis to grow above that.

What was that number?

Was that a midteen number?

Thank you.

I think the number was like 13%, 14%, and we expect on a standalone basis to be above that.

That's great.

Thank you.

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

Please proceed.

Hi.

Thanks for taking my questions.

Just wanted to reconcile your first quarter guidance.

Just taking the mid-point, it does suggest that EBITDA margin in the high teens.

Is that again due to the seasonality of some of the expenses in the first quarter along the lines of what we saw last year?

James, this is Ken.

Yes, yes it is, as well as the company, as we see the growth coming, we will be making selective incremental investments in some of the key areas that are important to us, in some of the verticals, and also across media.

Understood.

And as far as the project revenue is concerned, you guys sound pretty confident on that front.

How sharp of a recovery do you think we can expect on that line?

Thank you.

Well, we can only talk about what happened in the fourth quarter where we have seen double-digit percentage increases relative to -- sequential relative to a year ago.

You know, it is always difficult in the fourth quarter to assess whether that strength is due to year-end effects, where there are budgets that are left over, versus things that we would normally anticipate.

But suffice it to say that compared to the fourth quarter a year ago we are significantly stronger.

I guess I would be more optimistic that the project levels throughout 2010 will be at a new level that's higher than we have had before, and hopefully we will be able to see the increased sales we saw in Q4 translate into book revenue in the first quarter.

Thank you.

And our next question comes from the line of Youssef Squali with Jefferies and Company.

Please proceed.

Thank you very much.

Two questions, please.

I guess starting with the top-line guidance -- can you just help us a little bit understand the size of the ARSgroup acquisition?

I'm trying to figure out what is organic growth, what is acquired growth?

You gave us how much you paid for it, but I'm not sure if you can maybe just help us with revenues and margins.

And then as related to margins, for the year, not for the first quarter, but for the year it looks like your margin is -- or at least your margin guidance is still in line with what it was in 2009.

We'd have expected that on a 22%, 23% top-line growth we would see some leverage.

Historically you have talked about a 25% to 30% EBITDA margin.

Why aren't we getting there in 2010?

Is that because the ARS acquisition carries with it substantially lower margins?

Thank you.

Okay.

As far as the top line is concerned, we did mention that we expect our organic revenue growth to be above consensus, which was in the 13% to 14%.

So that gives you an idea that as far as the growth that we are reporting, had we not made the ARS acquisition, we would have given guidance above consensus.

We are not going to disclose the revenue level for ARS.

One of the things that you always worry about in an acquisition is to what extent the transition really affects revenues from existing clients.

So at this point it is really important to be cautious about how the combined revenue would look and not have to worry about splitting it up.

As far as the margin is concerned, you are right.

ARS on a standalone basis has inherently lower margins.

But we do expect that combined with some of the synergies of using comScore's panel to fuel some of the research that they do, that we will bring them up to the level of comScore's margin.

Going forward, why is the margin not going above the 22%, 23% level?

I think that we still see the ramp-up costs of Media Metrix 360.

You know, we are clearly bearing the brunt of the ramp-up costs, and we still have a lot of revenue upside to come from it.

And so as a result, those kind of investments, and other investments we are making in some really exciting new products, we felt that the right balance is to be able to deliver the same level of margin as last year and continue to be able to make the investments that we need to make.

At the same time, I think you're right that our model has leverage.

And to the extent that we are able to pick up increased revenue throughout the year, then we expect that to expand the margin.

Okay.

And then just so going back to what you just said.

So the 25% to 30% long-term EBITDA margin you still stand by, just yes or no?

And then second on the international, we have seen nice acceleration in growth.

I think there was about a 27% year on year growth.

We haven't seen that in quite some time.

Was that all organic?

Are we at a tipping point where international should start accounting for an increase in percentage of overall revenues going forward?

Well, some of that is due to the Certifica acquisition.

But we are seeing a pick-up -- that was pretty modest because the Certifica acquisition really happened -- or closed at the end of November.

But we are seeing a pick-up in international growth and we certainly hope that with the Certifica acquisition we are going to get a good ramp-up of growth in Latin America.

Our expansion in Asia is going well.

And I think that as the economy improves we will see expansion in revenue in Europe and Canada.

Okay, thanks, Magid, and congrats.

Thank you.

Our next question comes from the line of Matt Chesler with Deutsche Bank.

Please proceed.

Good evening, it is Matt Chesler for Jeetil Patel.

The first question I have got for you concerns your commentary about the pick-up late in the fourth quarter, the strong demand trends that you were seeing.

Can you give us some insight into what types of customer verticals you are seeing that in, and whether or not that was broadly dispersed across your customer base by size, or whether it was isolated to small customers catching up or large customers?

Well, you know, what was really gratifying in the quarter is that we saw strength across the board.

So we saw increases in spending from branded publishers, so I will characterize those as being more medium size customers to larger customers.

We have seen increases in spending among agencies as they adopt more of the products that we have to offer.

But we also saw a significant growth among enterprise customers in the telecom, financial, CPG, pharma, and retail verticals.

Okay.

The next one just is a headcount question.

Can you give us the FTEs that you ended the year at?

Yes, this is Ken.

We were at the end of the year in terms of the business, comScore at about 570 pre-Certifica.

And when you added in Certifica we were not quite 600.

Okay.

Great.

And just finally, thanks for the insights on revenue and margin profile on the ARSgroup.

It would also be helpful, can you just give us a sense on the growth profile that this business has been enjoying?

And as well as are you contemplating any synergies through here, and who is going to -- is existing management going to stay on board?

Yes, we expect the existing management of ARS to stay on board.

We have a lot of respect for the management team that they have had and the excellent, solid products that they have, as well as the really solid relationships that they have established with their clients.

Some of their clients unfortunately have rules about not disclosing their names, but we are very, very happy to add them as substantial clients to our client roster.

Now, I think that from a product standpoint, there are a lot of synergies.

We are able now to be able to provide answers to customers on both TV and on-line campaigns.

We are able to -- we will be able to further differentiate our on-line ad effectiveness products by adding some of the metrics that ARS has pioneered.

Another area of synergy is that ARS has been primarily a US company, and the growth has been limited by their lack of presence internationally.

And obviously with the infrastructure that we are building in a lot of the key markets, Latin America, Europe and Asia, it will make them more able to handle the business of global brands, whereas in a lot of cases before if a brand wanted to have consistent measurement across the world, ARS may not have been able to handle that due to the limited geographic footprint.

Okay.

And finally, was this business a faster grower than yours over the last year or a slower grower?

We expect that next year it will be about the same growth rate.

This year, again, it is going to be dependent on how the transition goes.

So I am not going to be able to hazard a guess on that.

I also think that the synergies might actually propel the growth to be better than -- you know, I'm not sure which side of the house will account for it, but that increase in growth could be significant.

Thank you.

And our next question comes from the line of Robert Haley with Gabelli.

Please proceed.

Rob Haley, your line is open.

Please proceed.

Hello.

Thanks for the question.

Just following up on your international business.

Still a small percentage of your total business there.

You talked about growth opportunities in Europe and Asia.

I am wondering if you could zoom in on specific regions you are going to target in 2010?

Well, I think that there is a lot of room left for growth in Europe so clearly that's an area of focus.

Latin America is an emerging region.

We had a lot of success last year, but I think we have scratched the surface.

And in Asia Pacific I think if you look at the region outside of China and Japan, there are a lot of opportunities there.

You know, there is some of -- we do -- we have revenue in some of these regions that we generate from our US multinational clients, and those are accounted for as US revenue because we classify the revenue based on where the client originates.

So international is a bigger contributor to our revenue than the 17% that we talk about.

But we still think that fundamentally about 85% of the eyeballs on the internet and growing are outside the US, and that represents a significant growth opportunity for us.

Do you think about that growth in terms of targeting specific countries or a general region more broadly?

Well, in individual -- in different regions you have to think about it in terms of the development of the on-line advertising market.

There are clearly regions where the size of the market supports a limited number of sites in which case the potential is lower.

So it is important to prioritize based on the size of the advertising market.

Now, that being said, you take a country like Brazil for instance where the internet advertising is still less than 4% of the overall advertising budget, it has the potential to be a lot larger.

It is growing really fast.

So some of these countries you invest in not just based on what exists today, but on the potential size of the market once the adoption increases to its full potential.

And then if I were to think about your business in two broad buckets, Media Metrix and then marketing solutions, how do you think about the growth rates of those two broad buckets in 2010?

I think we are actually looking at it as pretty even growth.

Okay, thanks very much.

Thank you.

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

Please proceed.

Hi.

One question and one follow-up.

So if we think that you are implying organic revenues ex-ARS up, I don't know, 15% for argument's sake, and deferred revenues grew in the quarter 12.5%, that would imply that you are assuming some type of acceleration based on what you saw toward the tail end of the fourth quarter.

Would that acceleration be more driven by additional customers or by pricing?

And then I have got a follow-up.

I think we will -- you know, historically we have always added -- new customers have represented 10% to 15% of our customer base -- sorry, of our revenue.

So there is always a component that is contributed by new customers.

But we also, as I mentioned earlier, we see our ability to increase prices and to upsell significantly affected.

We think that the improved economic conditions will help us not only upsell existing customers, but we have a lot of existing customers that during the downturn in 2009, in order to control their budgets, they have opted out of some services that we will see them pick up in 2010.

So as a result, you know, we think that the growth is going to come from across the board.

Okay.

And then Magid, in the context of this audience as opposed to kind of the web technorati, can you talk about -- for the 360 product, what are you asking customers to do as far as their website?

How much are you asking them to pay?

Just take it through the process.

A lot of us have read about the blogs and what's been said, but just -- you know, this is your platform.

What are you asking websites to do?

What are you asking them to pay?

Are you having pushback when you ask them to pay more, and kind of how do you see that product playing out with your customers?

Thanks.

Well, look , if you basically step back and look at the success we have had among the top 100 publishers or media properties, or top 50 or whatever metric you want to have, we have had extraordinary success with that -- getting 78% or 80% of those.

And, you know, we are still not done.

That's quite a bit of strong adoption.

What people have to do is put essentially a tag or a beacon on an individual page.

It is a piece of JavaScript, relatively simple in the case of measuring a website on PC.

It is a little bit more complicated when you are talking about measuring a mobile device.

Nevertheless, conceptually, if you have a website, on every page that counts as a page view, you insert that kind of tag.

And then when a user anywhere in the world accesses that page, it fires a request to a comScore server; and we get to record what cookie it was and what -- you know, the page view, and what page it was, et cetera.

In that sense it is very, very similar to the way web analytic systems operate.

So then what we do is we take the information that is server-driven like that, the beacon information, the cookie information, and then we take our existing panel information.

We merge them together in a way that recognizes two things.

Recognizes that the server methodology measures page views very accurately, assuming that you are tagging the right pages and you eliminate bot traffic and all that stuff, so there is some cleanup that you need to do.

So that element of the server data is considered very accurate.

The element that is problematic is unique cookies.

Unique cookies, as I mentioned in my comments, the average machine and the average browser in the US has about 7.5 cookies per month.

So there is huge inflation when you are looking at cookies routed to people.

And that's where our panel comes in.

Our panel allows us to look at individual users, how many cookies they have, and do the translation between the two.

That's the conceptually simple way of explaining

What are you asking customers to pay for this in addition to what they have historically been paying for the panel data?

So if you are an existing customer, there is no upcharge.

We are doing this as a significant upgrade to the service.

But as I mentioned earlier, at renewal time we will be asking for price increases that could go up to about 10% in terms of the value of the contract that's being renewed.

And then what if you have a site that doesn't want to pay you?

Will you still beacon their site?

So that was a subject of controversy about the blog that you saw, you are referring to.

If you strip out the unnecessary name calling, the heart of the controversy was that we charge a $5,000 set-up fee for a client or for a website to start beaconing.

Once we get through that, then they can continue to be measured with that method without any extra charge.

Now, $5, 000 to me and you doesn't sound like a lot of money.

Evidently it is a lot of money for a lot of people.

That's fine.

The question is why do we charge that $5,000?

The $5,000 does not go to cover -- does not go to cover the processing, the extra processing costs and the bandwidth cost, et cetera, et cetera.

It is just simply that, in order for us to measure somebody in our system, we need to make sure that what we are measuring is accurate.

I can tell you that a lot of our customers have raised the concern that if you go with a system, people can easily game the system.

So you could have one site putting on the beacon for another site and they exchange beacons.

So as a result if you are not careful, you can basically count the audience of both sites and they both get credit for it, and they inflate it, and we all know that the pressure to show as high a number as possible.

So it is really important for us to make sure we have the safeguards and audit mechanisms in place.

And that is a burden of quality that is expected of comScore, and it is something that clients get very upset about if somebody gets by with gaming the system.

Now that said, free services do not come anywhere near the same scrutiny and don't bear the same audit burden.

So if we just wanted to have a self-serve system -- you go in, you beacon your site, no questions asked, someone starts reporting you, then we obviously can't do it for free.

Because we have to incur those extra costs to just make sure that things are set up properly and that's really the issue.

So --

I got it.

No, you hit my question, thank you.

(Operator Instructions).

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

Please proceed.

Thanks, I apologize in advance if this has already been asked.

But I was wondering if you could help on the timing of the ARS margins getting to comScore's, you know, average, I guess over the last year or so.

Is that going to happen by the end of next year?

Should we think longer term like 2011, 2012?

That's one question.

And then just a couple housekeeping questions.

Where are you going to classify the ARS revenue, in project or subscription?

What should we model for tax rate for 2010 and CapEx for 2010?

Thanks.

Hi, this is Ken.

I think in terms of tax rate, 50% is a good starting point right now.

In terms of capital additions for the coming year, it is going to be somewhat higher.

I would say from a starting point right now more in the neighborhood of about $8 million with some of the additional investments that we need to make with the expanding infrastructure and expanding opportunities worldwide.

In terms of the opportunities with the ARSgroup in terms of margin benefit, we will be working closely with them on that.

And we would expect during the second half of this year we will see an improvement on the margins and would see that and probably as we exit this year at comparable levels.

And then the classification, Ken?

Oh sure.

From the classification standpoint, a strong majority of the customers' revenues are obviously of a subscription or a repeat nature.

And so we would see them -- it may not be quite to the same level of where traditional comScore has been, but it will be somewhat similar from that standpoint, maybe 75, 70/30, something like that.

All right.

Thanks.

And our next question comes from the line of Heath Terry with FBR Capital Markets.

Please proceed.

Great.

You know, I was wondering if you could give us a little bit more of an update in terms of where you are right now with the MRC certification and what you see as being the time frame and the additional steps that you have got to take in order to lock that down.

Well, I think the best way is to go to the MRC website that basically publishes the status of the different audits.

You know, the audit is progressing, but it is progressing methodically at a very deliberate rate.

We have added one element to the audit due to Media Metrix 360, which is that we want to audit the beaconing process, and that is something that we don't expect to take as long as the rest of the audit because it is much simpler than the multifaceted component of auditing a panel system.

Great.

And do you have any sense beyond what is obviously on the MRC stuff that we have seen?

Do you have any sense as to what they are looking for beyond what they have put up on the site in terms of to start to close -- the process of closing this process out?

Well, there have been five phases.

The process was divided into five phases.

We have completed two phases.

We are into one or two additional phases and there is a schedule for the phases throughout the year.

There is a -- the MRC is doing a lot of audits, and to some extent they are a little bit hamstrung by the resources that are available to them.

So we are trying to expedite it as much as we can, but by its very nature it is a process that just takes longer than anybody would like.

Okay, great.

Thank you.

Ladies and gentlemen, due to there are no further questions in the queue, this concludes today's question and answer session.

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

Magid Abraham for closing remarks.

Okay, well I would like to take this opportunity to thank my fellow employees at comScore whose hard work and perseverance translated into record results for this quarter and strong momentum heading into 2010.

I also want to extend a warm welcome to the ARS employees as they join us into the comScore family and help us offer more compelling services to our customers.

Finally, thank you all for your participation in today's call.

We are very encouraged that our product and competitive strength, combined with improving secular trends, put comScore in an excellent position to deliver attractive long-term shareholder results.

Thank you again.

Ladies and gentlemen, we thank you for your participation in today's conference.

This concludes the presentation, and you may now disconnect.

Have a good day.