Comscore Inc (SCOR) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Q2 2010 comScore Incorporated Earnings Conference Call.

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

We will conduct a question and answer session toward the end of this conference call.

(Operator Instructions).

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

Ken Tarpey, Chief Financial Officer.

Please proceed sir.

Thank you.

Good morning and welcome to comScore's earning call for the second quarter of 2010.

Again, I'm Ken Tarpey, 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 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 in the meaning of the Securities Act of 1933 and the Securities 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, 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 acquisitions, including those of Certifica, ARSgroup and Nexius, assumptions regarding tax rates and net operating loss carry forwards, and forecasts of future financial performance for the third quarter and the 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 and comScore's Form 10-K for the period ending December 31, 2009, and Form 10-Q for the period ending March 31, 2010.

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, 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 this done, I will now turn the call over to Magid.

Well, thank you, Ken and thank you all for joining our earnings conference call for the second quarter of 2010.

The headline for this quarter is unquestionably exceptional top line growth with a sequential improvement in margin.

We saw our business accelerate in virtually every product area and geography, leading us to deliver 34% top line growth, well in excess of our prior expectations of 25% to 28% year-over-year, and sequential growth of 16%.

In addition, we see growth accelerating for the rest of the year to approximately 40% in the third quarter and 32% for the full year.

GAAP pre-tax income was $1.8 million in the quarter, compared to $2.6 million in the second quarter of 2009.

The Q2 results were impacted by $2.2 million in combined acquisition related expenses and increased stock-based compensation, compared to one year ago.

In addition, we generated $9 million in EBITDA, compared to our prior guidance range of $8.1 million to $8.5 million.

EBITDA margin improved to 21.4% from the 18.8% that we reported in the first quarter.

This robust performance was driven by a strong pipeline, increased traction for Media Metrix 360, continued momentum of ad effectiveness products including ARS, record organic customer additions, high retention rates, and increased value of renewals.

We believe that our prior investments in new products are paying off and they are beginning to translate into higher revenue growth.

Let me add more color on these results.

Media Metrix 360 continues to generate strong demand as it becomes a de facto standard for digital audience measurement and a trusted tool for delivering high quality data that reconciles with publisher internal data, delivers more [granularity] and actionable information.

Customers are finding that Media Metrix 360 provides them with distinct competitive advantages, and as a result, we believe that Media Metrix 360 will continue to be a key growth driver for comScore for some time.

Investments we have made to develop our AdEffx capabilities are also showing positive results.

The introduction of our innovative Smart Control methodology earlier in Q2, improves the accuracy and reliability of the measurement of branding metrics.

We have also increased access and usage of third party offline sales data from WPP's [Cantar] division and from IRI in consumer package goods, as well as from pharmacy benefit providers in pharma.

All of which contributed to strong growth and tightened our relationships with the entire online media eco-system, ranging from publishers to agencies and to marketers.

At the same time, our recent acquisitions have been successfully integrated and are already making important contributions toward our growth with existing customers, new customers, new products and new territories.

Our Certifica [team] in Latin America has significantly boosted our position as the leader in that rapidly expanded region and is now responsible for selling all of comScore's products.

Meanwhile, we have integrated our CPG vertical within ARS and our combined efforts are gaining more traction with CPG customers.

The customer previews of planned new projects leveraging comScore and ARS assets have been very well received and we expect to formally announce them during the second half of this year.

We believe this new product portfolio expands our addressable market by over $600 million by providing innovative tools for marketers, publishers, and traditional media companies alike.

Our recently announced acquisition of Nexius gives us the opportunity to deliver strategic solutions to the trillion dollar wireless industry, helping carriers improve their network performance and allocate network capital spending more effectively.

The combination of Nexius and comScore assets will also help carriers understand their competitive position, measure and take actions to improve the quality of their customer relationships, and facilitate access and integration of strategic and propriety data sets.

While we expect Nexius will add to comScore's 2010 revenue from its existing business, we believe this acquisition also has the potential to significantly increase the size of our addressable market and to strengthen our strategic position in the field of mobile measurement and analytics.

The strong revenue performance we have seen in the first two quarters in 2010, combined with increased levels of visibility provided by our predominantly subscription-based revenue model and high renewal rates, give us the confidence to again raise our revenue guidance for 2010.

We are forecasting third quarter revenue growth of approximately 40% over the third quarter of 2010.

And we are raising expectations for the full year 2010 revenue growth from our prior range of 24% to 28%, up to a range of 31% to 33%.

I should note that the Nexius acquisition makes up approximately 2 percentage points of this increase, with the remainder coming from stronger organic growth expectations and increased backlog at the end of the first half of the year.

While we continue to make investments in new products and technologies to deepen our penetrations in existing markets, widen our reach, we still expect to achieve EBITDA margin in 2010 that is consistent with our 2009 performance.

In summary, we are very enthusiastic about our results for the second quarter and our outlook for the rest of the year.

We believe our success reflects our ability to help customers maximize their online potential with our broader and more effective solutions.

And now, let me turn the call over to Ken for a more detailed financial discussion.

Thank you, Magid.

Revenue in the second quarter was $42 million, up 34% year-over-year and 16% sequentially above our guided range.

The second quarter saw a full quarter's impact from the ARSgroup acquisition, but no impact from our Nexius acquisition which closed in the July 1st.

Within total revenue, subscription revenue in the second quarter was a record $36.5 million, up 36% year-over-year and 18% sequentially.

Subscription revenue represented 87% of total revenue consistent with recent quarters.

Project revenue was $5.5 million, again a record for comScore, and was up 22% from the second quarter of 2009 and up 6% sequentially.

Renewal rates in the second quarter of 2010 were above our historical threshold of 90%.

Revenue from existing customers was up 36% year-over-year in the second quarter to $38.1 million and represented 91% of total revenues.

Revenue from new customers increased 15% and made up the balance of the revenue.

We added 72 net new customers in the second quarter.

Our strategic focus on international expansion resulted in a strong year-over-year revenue growth of 44% to $6.5 million from outside the US, compared to 32% in the past.

Despite the stronger growth international, the concentration of ARS business in the US has slightly lowered the percentage of revenues we derive from outside the US.

Deferred revenue grew 27% year-over-year to a record of $51.7 million, reflecting our strong business activity in the quarter.

Our top ten customers represented 33% of revenue in the second quarter, increasing from historical levels due to several major advertisers added to our top ten customers through our ARS acquisition.

We, again, had one 10% plus customer in the quarter.

Turning to expenses in the second quarter, gross margins were 70.5% compared to 69.1% a year ago.

Our total expenses of $40.2 million in the second quarter included the full impact of our ARSgroup acquisition which closed in the latter stages of the first quarter.

GAAP pre-tax income was $1.8 million in the quarter, compared to $2.6 million in the second quarter of 2009 and within our guidance range.

With the decrease resulting from acquisition costs and higher stock-based compensation expenses, resulting from an executive equity grant we put in place in the second quarter that is conditional on comScore's stock price, averaging at least $30.00 for 30 consecutive days before May 4th, 2012.

Our effective GAAP income tax rate in the second quarter was 54%, while our second quarter cash tax rate was 40%.

So our year-to-date cash tax rate was 32%.

Our Q2 cash tax rate was higher than Q1 due to additional filing jurisdictions in the US from our acquisitions combined with increased 2010 profitability year-to-date in Mexico, Canada and Chile.

Given our net operating loss carry forward balance of $58 million, primarily concentrated in the US and UK, we expect our cash tax rate will be in the 26% to 32% range for 2010 and our effective GAAP income tax rate to be in the 58% to 62% range.

GAAP net income was $825,000, or $0.03 per diluted share in the second quarter of 2010, based on a diluted share count total of 31.7 million shares.

In the second quarter, stock-based compensation expense was $3.5 million and amortization on acquired intangibles was $658,000, including ARS amortization since the acquisition.

Non-GAAP net income for the second quarter of 2010, which excludes stock-based compensation, amortization of intangibles and acquisition related expenses, was $6.4 million, up 24% from a year ago or $0.20 per diluted share.

With our fluctuating tax rates, we also believe that adjusted EBITDA is a useful measure for investors to use to evaluate our operating performance.

Adjusted EBITDA takes non-GAAP net income and adjusts it to exclude the cash tax provision, depreciation and net interest income.

On this basis, adjusted EBITDA was $9 million in the second quarter, up 29%, compared to $7 million a year ago and resulted in adjusted EBITDA margin of 21.4%.

Cash flow from operations for the second quarter was a healthy $5.9 million, driven primarily by our strong bookings activity.

Our capital expenditures were $935,000 in the quarter, and consistent with past practices, we also funded approximately $1.9 million of infrastructure expansion with capital leases.

Free cash flow was $5 million Q2, combined with the $13 million of free cash flow in the first quarter, free cash flow for the first half of the year was a record $18 million, representing an increase of 139%, compared to the first half of 2009.

As of June 30, 2010, cash, cash equivalents and short term investments totaled approximately $86 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.

The carrying value for these investments is unchanged from December 31st, 2009.

Receivables increased year-over-year because of the growth of our business, but at $34.9 million decreased sequentially with DSOs of 69 days within our typical ranges.

In the current economic conditions, we have seen a tempering of small customers' payment problems which reduced reserve requirements and helped with customer retention.

Now turning to our guidance for the third quarter of 2010 and the full year, we are pleased to see the beginning of 2010 play out even better than we anticipated when we started the year.

With that as a backdrop, we're increasing our expectations for full year revenue growth in 2010 to the range of 31% to 33%, up from our guidance issued at the end of Q1 for revenue growth.

Our guidance includes the impact of our Nexius acquisition, which we expect to contribute approximately $4 million in 2010.

We are also reiterating our expectations that our adjusted EBITDA in 2010 will be at approximately the same level as we saw in 2009, including the impact of Nexius.

For the third quarter of 2010, we anticipate revenues in the range of $44.3 million to $45.1 million, which represents an increase of 39% to 41% over Q3 of 2009.

We anticipate third quarter GAAP income before income taxes of $1.1 million to $1.4 million.

Please let me point out the factors we expect to have an impact on these GAAP results.

First, we expect to incur about $1.1 million in amortization of intangibles, including an estimated $500,000 per quarter related to our Nexius acquisition commencing in the third quarter of this year.

Also, we expect to incur approximately $1.4 million in incremental stock-based compensation expenses from our recent market-based option awards and we will incur that $1.4 million in Q3 and in Q4 of 2010.

Starting next year, it will be $1.1 million in the first quarter of 2011 and then $0.5 million per quarter for the rest of 2011.

These option awards were put in place in the second quarter and they [vest upon] satisfying the key requirement of comScore's stock price averages of at least $30.00 for 30 consecutive days before May 4th, 2012.

We anticipate EBITDA for the third quarter of 2010 to be in the range of $9.6 million to $10.0 million, which represents an adjusted EBITDA margin of 22% at the midpoint of our revenue guidance and adjusted EBITDA guidance.

Our estimated fully diluted share count for the third quarter is 31.8 million shares.

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

In summary, we delivered a solid performance in second quarter and remain optimistic for the balance of 2010.

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

Thank you.

(Operator Instructions).

Your first question comes from the line of Youssef Squali with Jefferies.

Please proceed.

Thanks.

Hi, guys.

This is actually Naved Khan for Youssef.

Congratulations on a good quarter.

Thank you.

One question about AdEffx, I think you guys mentioned in your commentary that you saw good traction for this product.

Do you think that over time this can actually be, this can actually sell as much as Media Metrix 360?

And then I have a follow up.

Well, we haven't sized it, but our view of the market right now is that in the last few years the focus on measurement has been almost entirely on the front end of the advertising buying process, which is the planning side of advertising.

And we see that evolving more and more to the back end, meaning it's not just enough to plan a campaign, it's more important to evaluate whether the campaign delivered on the campaign objectives, whether it is the right audience, whether it is the right size of the audience and the right distribution of frequency in a sense that you're not over-saturating certain people and you're not just hitting a few people with too few impressions.

And then finally, did the campaign accomplish the objective of the advertiser, whether it is increasing sales, improving branding metrics, generating more transactions, pushing people down the purchase funnel?

And I think that that's really going to be, the industry is starting to realize this is the key to expanding and growing the online advertising factor, especially in terms of gaining share relative to the total media budget.

So, that's why it is something that we are highly excited about.

And that's where we think the focus of measurements in the industry will be.

It is an area that represents an upside opportunity for us, not just in the United States which is where it has been focused, but also outside the United States where the problems are exactly the same.

Okay, great.

And then, Magid, I think you talked about leveraging the ARS propriety offering to launch small product in the back half of this year.

Can you talk about the timing of those and then if you're reflecting any contribution from those in your guidance for this year?

Well, a couple of products are in a beta stage with some [fair weather] customers.

And once we are happy with the results and we fine tune them, we fine tune the products based on customer feedback, we will be ready to make an announcement.

So, I expect an announcement would come in some time in the fourth quarter and then there will be a very modest contribution in the fourth quarter, but it's primarily going to build a pipeline going into 2011.

Okay, great.

And then lastly, can you give out the number of gross additions in the second quarter?

Ken, do you have that?

Yes, I do.

Gross additions were 161.

Thanks.

You're welcome.

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

Please proceed.

Thanks, thanks for taking the questions.

Firstly, just wondering if you could talk about what drove the sub [growth] and how much you think subs can grow or how we should model it maybe going forward on a quarterly basis?

And then I have a couple of follow ups.

Well, I think that certainly Media Metrix 360 has generated a lot of demand.

And we have to credit this for the majority of the [growth].

We also think that our expansion in Latin America and in Asia have added an incremental number of customers that is larger than last year.

Finally, I would say the economy is improving.

The number of companies who are in trouble that were defecting because of lack of funding, those have been rationalized.

And so as a result, our sales efforts, not only are they being more effective, but the attrition that we are seeing is lower, which is also translated in a higher retention of renewal rate.

That's great.

Just two follow ups.

How much did ARS add to second quarter revenue?

And just your thoughts on M&A, if you're looking at further acquisitions in the back half of the year?

Thank you.

Hi, John, this is Ken.

In terms of acquisitions, as we've discussed before, that's a part of our growth strategy.

That's not factored into the revenue guidance we've given, other than the acquisitions we've already done.

We continue to look at, as we know, geographic expansion to get the kind of successes we had in Latin America, as well as looking at key technologies to augment the whole solution play which Magid had spoken to.

So, we'll continue to look at that, but we have nothing to talk about at this point.

As it relates to ARS, ARS and Certifica are really integrated into our business right now.

They are, as Magid had mentioned, our CPG business has been combined with ARS.

So we really look at this now as a go forward proposition in terms of one business.

Thank you very much.

You're welcome.

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

Please proceed.

Hi, good morning, and congratulations on a great quarter.

Thank you.

Thank you.

Just a couple of questions.

The first is on the level of net new additions.

Should we be thinking about this as a sustainable level for the near term, for the longer term, with a new larger product offering?

And then can you provide a little more color on [adaption] for customers that signed up under the free program for smaller sites?

Okay, in terms of net new addition, it's always tricky to forecast the third quarter because of the summertime and its impact on the sales cycle, particularly in some of the international areas where vacation times in the summer tend to be longer.

We believe, you have seen now three consecutive quarters where the number of new net adds has grown, in fact the 72 net adds that we have had in this quarter are a record.

We have had, in Q2 2008, we have reported 156 net new adds, but 97 of them were unique and Metrix customers.

So if we look at what was really added by the core comScore business, it was 59 net customers.

So, this is by far the best quarter in terms of adding new customers.

So, I think that Q3 being in the 50s is probably reasonable.

Usually we do a better job in Q4, but I think that a lot of our new products and our push towards more international expansion would help us next year.

And we would look forward to start increasing that number, certainly maintaining that number and hopefully increasing it.

We are looking at some of these products, as we said, significantly expanding our addressable market.

Some of the expansion is reflected in clients that have very large ASP, so it doesn't necessarily affect the customer count as much as revenue.

But there will be other products that will actually expand the number of customers that we can address by at least a 100% increase.

Now, obviously, we will ramp up towards trying to penetrate those customers.

Okay, great, thank you.

That's very helpful.

And then if you could talk about project revenue, the $5.5 million, is that a good run rate?

Or do we think that it will accelerate from there?

Should we expect to see some seasonality from geographic variations?

Can you provide more color on that?

Yeah sure.

Hi, Meggan, this is Ken.

Yes, as you say, there always is some seasonality.

We do obviously see project revenue continuing to grow.

But again, with projects converting to subscriptions and the work we do with some of our customers, what you saw in this past quarter of strong project revenue continuing to grow, but not quite at the growth rate of the subscriptions overall, we think is a reasonable trend.

Okay, great.

Thanks.

And then from an international standpoint, you've talked about Certifica and the progress you've made in Latin America and Asia.

Can you provide a timeline for, and forgive me if I missed this, but a timeline for expansion in Europe?

I would say that we are pursuing a few opportunities in Europe, in terms of bidding on industry RFPs on a country by country basis.

So there are a couple of countries in Eastern Europe as well as in Western Europe where we are pursuing that.

We have actually opened up an office in Spain and we hired a top-notch executive to manage that office, essentially to put a strong presence on the ground.

And that is going to put us in contention to compete for a joint industry committee bid in a market that has traditionally been almost a monopoly for Nielsen.

So those are some of the short term expansion opportunities.

As we have talked before, it is our objective to leverage acquisitions whenever we can, to expand our footprint.

We have nothing to announce at this point, but if there are opportunities that materialize, we would look at that as a vehicle for accelerating that expansion.

Great, thank you very much.

You're welcome.

Your next question comes from the line of Jeetil Patel, with Deutsche Bank Securities.

Please proceed.

Hey, guys.

A couple questions.

One, on the 72 net adds, can you give us a flavor of what types of customers you've got signed up?

Was it agencies?

Was it publishers?

Just a rough sense of where these [guys] are coming from?

And are these customers maybe that are attracted to 360 and the products in general that [they] may not have access to?

Just wanted to get a sense of what the flavor of that customer base is.

And then second, on the ARS integration and the process thus far, is the bigger opportunity to go after ARS's CPG customers, in terms of cross-selling products or is it the opportunity to maybe go after perhaps some of the agencies that service the CPG market for the traditional side?

I really don't have a break down for you in terms of publishers versus agencies, but the vast amount of client growth has come from Media Metrix 360.

And in other areas where we have seen consistently strong growth in the enterprise market where there have been some modest growth in terms of number of customers, we have done a really good job in terms of cross-selling within those customers.

One of the things about the net new add statistics is that we actually count them on the basis of corporate logos.

So, it has to be a unique corporate logo.

So as an example, if you take AT&T, and let's say our relationship with AT&T was very strong on the AT&T wire line or broadband business.

And then all of a sudden we make a breakthrough and we are selling to AT&T Wireless.

From a sales standpoint, from a decision making standpoint, that's really a totally different company, but they're both owned by AT&T and that doesn't get counted as a new customer for us, but that typically adds quite a bit of revenue.

So, I would say in terms of the revenue increase, there is quite a bit of revenue that has been added among existing customers, some of it is horizontal expansion within those customers, which you could argue are new businesses.

But in terms of net logos added, the majority of them came from Media Metrix 360.

Does that answer the question, Jeetil?

Your next question comes from the line of Mark May with Needham and Company.

Please proceed.

Thank you.

Well, maybe I'll ask a question just because I think your AT&T example is an interesting one.

Is there any way that you can, as a result of the way that you account for that, give us a sense of what the trend has been in the average contracts per customer?

I think you have something like 30 or more products, right?

And you continue to introduce new ones.

Do you have a sense of what that metric is today and how that's trended over the last year or so?

And then I had one follow up, please.

Well, I guess when we look at our ARPU in Q2 compared to Q1 or compared to history, our ARPU was [29.4 thousand] in the quarter, which represented a sequential increase of 10% and a year-over-year growth of 12%.

That gives you an idea of --

Great, great, okay.

Thank you.

That makes sense.

You can look at it that way.

And that's a component of both new products to the client as well as pricing.

Are you able to recognize now with a firmer economy any sort of pricing leverage at renegotiation, renewal?

One of the things that we have started hearing from clients is that they don't really like to hear about price increases and how much it is and all of that.

So, I would prefer at this point to start talking about increases and upsells within existing customers because a customer can look at that and say, I'm paying more, but I'm getting more.

Sure.

So, from that standpoint, the 36% increase in revenue among the existing customers sort of speaks for itself and gives you an idea of our, I would say, substantial success in adding new products and upgrading customers to a much broader bundle of services that they are buying.

I also think that one of the things that's really helping is that the average contract value from an AdEffx client is about, over $100,000.

And a lot of these AdEffx clients are really existing clients.

So that will result in a substantial increase in the contract value among the existing clients.

So what you're saying, some of the newer products that you've introduced that are gaining traction are of much higher value to the client and you're seeing that lift.

Okay, that makes sense.

My last question was, your comment earlier about the trend towards campaign optimization versus campaign planning.

I'm wondering, a segment of the optimization market is geared more towards real time optimization, at least a segment of it is, probably more so than what your current product offering is.

So I'm wondering, do you have any plans to be able to address the real time optimization market over time?

If you look at the advertising buying process, there is a planning phase.

And a planning phase either defines the audience or the placement where the advertising goes.

And then there is an implementation phase.

And in that implementation phase you serve the ads and within that serving of the ads you have the opportunity to optimize real time.

And that's a crowded market, there are lot of people that are competing within that and providing value added services.

At the end of the day, optimized or not, the advertiser is going to say, well, okay, I bought this fancy schmancy method of optimization, did it actually deliver?

And in a lot of cases, the optimization is really done on the basis of maximizing the price that the publisher will get rather than maximizing the value that the advertiser will get.

So, that even raises the need to say at the end, did it work or did it not work?

If I bought [auto] intenders or current shoppers, did they actually get current shoppers?

And how much of the stuff that I got was actually current shoppers?

So, I think that these kind of real time optimizations increase the uncertainty over what you're actually getting.

And the verification and the evaluation on the other end still creates an opportunity for a neutral third party with sophisticated evaluation methodology to be able to render a verdict on how that campaign delivered overall and whether the optimization played a role in it, both in terms of delivering the audience it was promised as well as in terms of delivering on the business objectives of the campaign.

Great, that's very helpful.

Nice job on your third quarter in a row.

You guys have done a great job coming out of the downturn.

Thank you very much.

Your next question comes from the line of Jason Helfstein with Oppenheimer & Company.

Please proceed.

Thanks.

A few questions.

So there's a lot of focus by marketers, largely because they're trying to figure out what to do in areas such as leveraging social networks, social gaming, Smart Phone apps, and micro-blogging which is kind of like Twitter.

So, can you talk about how you guys are leveraging that, how you're going to leverage that to sell additional products or to upsell what you were talking about, where the incremental revenue per client can come from?

And then, were mobile revenues up sequentially in the quarter?

And then lastly, if all the option [vested] at that $30.00 price you guys talked about, how many additional shares would that be?

Thanks.

Let me answer the question about the evaluation of social network advertising and mobile advertising.

Those are clearly growth opportunities for us.

And as the inventory that's coming from social networks is, actually exceeds all the [quarters] combined right now.

So clearly there is an opportunity that we see in terms of evaluating that.

Similarly, there is an opportunity to evaluate what's going on on mobile devices.

A lot of the technologies that we have developed, in particular the Smart Control methodology that we introduced in the second quarter, are particularly appropriate for this.

So, we obviously plan on adding it.

We also are going to be offering a social media listening product that we just signed an agreement on in early third quarter and we will give an update on and more detail, hopefully at the end of the third quarter once we see some of what the initial client traction is for that.

Now, Ken, do you want to answer the second part?

Yes, the second question was on mobile revenue, and yes mobile revenue is up.

And in just one second I'll give you the share count.

Share count is 1,044,000 shares.

Thank you.

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

Please proceed.

I was wondering if you could start just, is there an organic growth rate?

I know you talked about the business as being integrated at this point, but is there an organic growth rate for the quarter that you can give us with all the acquisitions that have been made?

And then can you also give us an update on where you are in the [beaking] process?

How much of an impact it's having on, or you feel like it's having on the accuracy of the results that you're producing?

And given the issues that we've seen with search reporting and the latest glitch with Yahoo, how much of R&D spending is on improving the existing Media Metrix product versus the new offerings that you're developing?

Well, as far as data quality is concerned, our data quality has substantially improved and a lot of the, we gave statistics of 80 of the top 100 media companies in the US.

I think that, and then there are clearly a lot more customers below that.

The accuracy of the information we feel is substantially better.

We feel that the questions from clients about discrepancies that they feel exist have gone way down.

With respect to the Yahoo issue and the search issue, first of all the Yahoo issue was just simply a processing glitch rather than anything wrong with the data or the sample or the methodology.

And in essence, when you are processing billions of numbers, inevitably there are a handful of data errors that come in every month that are really processing oversights.

And we are very transparent on what those errors are.

We post them on the website in something called the client notification center which is sort of release notes.

And whenever a client is running a table or a report that has a number that we think, that is part of those release notes, there is a flag that refers the client to that.

So, in the case of Yahoo, there was a 2% to 3% understatement.

What's interesting about the case is that the Yahoo system sort of goes through, there are two different paths in the production system.

One of them actually passed QA and there was no problem with it.

The other one, which is basically reported in the syndicated report, there was the assumption that it passed QA in one system, no need to look at this in the other system or they didn't have time to look at in the other system.

And it just, that [thing] slipped.

And we posted it on the client notification center as usual.

Yahoo felt that they needed to provide the corrected data with a broader visibility.

Obviously, we really don't have a problem with that.

And we are very pleased by the quotes from their CEO reaffirming the confidence in our data.

I think it is, even in their case, the number of, they are more highly satisfied with the new data that we're producing.

Let me go back to the search issue.

The search issue is not a quality issue at all.

The search issue came about from a very black and white definition that we established years go about what constitutes a search query.

And we did that so that we take ourselves out of the game of having to exercise judgment in terms of what is a valid search query and what's not a valid search query.

And the reason is that, as you can imagine, people can come and make a lot of arguments about well, you shouldn't be classifying this as a search query or not.

So, recently what happened is that Microsoft and Yahoo started using search as part of some elements of the user experience.

And they implemented the search queries that they are delivering to consumers in a way that met the literal definition of a valid query, but obviously many people felt that these are new types of queries that are kind of different from what their classic perception is of a normal search query.

So, as you know, in order to be transparent in that, we have isolated the contribution of those kinds of queries in the total.

And some people took that and backed it out and came back to something that's consistent to what they were looking at in the past.

Now that we are starting a new quarter, we have announced the introduction of what we are calling explicit searches, which are searches where the primary intent of the user is to conduct a search or refine a search query.

And explicit searches essentially mirror the common understanding of core search that everybody is used to.

We will still count the [contextual] searches recently introduced, but not within the explicit search metric.

So the market now has full transparency in terms of being able to look at the classic explicit search where the user is explicitly intending to run a search query versus a broader implementation of search where it is intended to improve the user experience and improve the contextual information that people are getting on subjects that they're looking at.

So, bottom line is that we, these couple of glitches, I really don't look at it as a data quality issue at all.

It was, the search data was absolutely correct.

It was basically a change in the way the market implemented it.

We responded to it.

We couldn't change the rules in the middle of the quarter because people really want to be able to look at an entire quarter, but nevertheless, we were actually transparent in terms of breaking out what these new types of searches contributing and people were perfectly able to go back and look at like for like kind of trends.

So, it really wasn't a quality issue.

And what we are doing is just enriching the deliverables so that people can look at additional metrics and make [up] their own mind about which metric they're going to use.

As far as the regular Media Metrix data, we feel that has a substantial improvement in accuracy.

And there will always be glitches here and there, but overall, the trend is quite a bit on the upside.

I was just asking on the organic growth question again.

Okay, I think you also asked about, this is Ken.

You also asked about R&D split as well.

Right.

And the way we look at R&D is, the business we have with Media Metrix 360 is our technology platform, our product platform.

Having said that, we would say approximately two thirds of the work that people are working on is continued innovation and invention.

And then the balance is involved with continuing to bring forward the current products and enhance them.

Because as we've indicated, you can see in the numbers, 360 is a huge progression in terms of the overall product platform that the company has to provide to its customers.

Again, as I mentioned before, from the standpoint of the business, we've integrated these products because they're very synergistic in terms of solutions to the customers.

So we really don't look at it from a split basis.

Okay, great.

Thank you.

You're welcome.

Your next question comes from the line of Robert Coolbrith with ThinkEquity.

Please proceed.

Good morning.

I'd like to ask two questions.

First, just wondering how the relative growth in subscription versus project revenue in the quarter came in against your internal expectations?

And sort of a related question, the AdEffex suite, is that being sold as both a project and as a subscription service?

Or is there a point in which it goes from being a project to a subscription?

Is that the case also for some of the other maybe high growth areas within projects?

As they get larger they can become subscription products?

And then I have a follow up.

Thank you.

This is Ken.

Good morning.

From the standpoint of how things played out during the course of the quarter, the split between subscription and project as we looked at our pipeline, it was fairly consistent through the course of the quarter.

The difference you really have is once the paperwork is signed, as we know the subscription business from a revenue standpoint has that 12 months latency in it, whereas the project business is more dependent on the delivery timing in terms of when it becomes revenue.

Having said all that, it was fairly consistent throughout the course of the quarter.

Again, showing that our customers' budgets continue in a good position as they have been earlier in the year.

And I'm sorry, the second part of your question?

Just wondering about the AdEffx suite particularly --

Sure, sure.

Yes, the AdEffx is a subscription business we introduced in the fourth quarter of last year and it's really taken hold very well with our customers.

Either or it gives the customers flexibility, but we're definitely seeing a tremendous change or interest from the customers' standpoint to the subscription side of the business, which really helps them and helps us too from a playing standpoint and consistency of delivery and personnel.

But there is the beginning stages of introducing a client to AdEffx can be a project or a sequence of projects before it turns into annual commitment.

Also, actually two more questions.

Just wondering how the current year, pretty strong traction in terms of growth in revenue from existing customers, how that plays out relative to Q4 renewals and whether or not, are you likely to be able to drive as much upsell or cross-sell during that period given the fact that you're already growing revenue from existing customers pretty strongly?

Well, I think a lot of the renewals, a lot of the upsells from existing customers comes at renewal time.

Just because that's when the budgets are set.

So, given that we do have more renewals in the second half, we actually expect that the growth that would come with those renewals should still be pretty robust.

And I think that the biggest renewal that we have for the second half of the year is looking very good and there isn't really anything that we are looking at in terms of any big renewal that we are really concerned about.

Great.

And one final one, if I may, could you give us an update on either cross-media measurement or the Media Planner 2.0?

Are those currently in previews with clients or just what the reaction of those products has been.

Thank you.

Yeah, Media Planner 2.0 is still in development, but we do have some clients that are really advising and looking at sort of interim builds of the system.

We're very excited about it.

And we think that the, the big contribution of that product is that it brings in one place the entire power of the comScore product suites.

So, it is an invitation to actually buy services that comScore provides that are not now necessarily included in the planning process.

The other question was on --?

Cross-media measurement and how fully that's developed or deployed at this point.

So, cross-media measurement, we have a handful of clients where we're actually doing cross-media measurement involving TV data and internet data.

We also have a handful of clients where we are doing cross-measurement between mobile and PC.

We are working on, I think, some exciting developments that we will announce in due time.

It's really not appropriate for me to do it now, to announce it for competitive reasons.

But we are happy with where we are in terms of the capabilities that we're building.

Great, thank you for answering those questions and congratulations on the results.

Thank you.

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

Please proceed.

Good morning.

Just one quick one.

If you could just speak at a higher level as far as your clients ad budgets are concerned.

Is the growth that you see coming more of just an increase in ad budgets as the economy beings to improve or more of a mix shift from the offline to online?

Thanks.

Well, clearly display advertising has seen a rebound, so that clearly helps.

We see the international growth growing faster than the domestic growth, is also helpful.

I think the differential is like 44% compared to like 32%, so that helps.

I think that the comScore business, you're going to be seeing it shifting more and more towards enterprise customers.

And in fact, we have two or three of our top ten customers are new to the list and are enterprise customers.

And I think that when we are looking at the Nexius acquisition and the size of the relationships that that will create with carriers, that will also add customers with substantial relationships.

So, [net net] I think the mix of customers is going to change, which is a deliberate part on our side to be able to cater to marketers who have large budgets and who are more and more, I think, challenged or committed to figuring out how to leverage the online medium.

And this is certainly true on the traditional PC-based web, but also on the mobile-based web.

Did that answer all your questions?

Yes, that's great.

Thank you.

Your next question comes from the line of Sandeep Aggarwal with Caris & Company.

Please proceed.

Thanks for taking my questions.

First question is about the margins, how should we view longer term, where your margin can be and especially I'm interested if you can help us understand geographically when maybe some of your non-US margin can come closer to US and then in terms of new product launch, when would we see them running on optimal margin?

And then I have a couple of follow ups.

Hi, Sandeep, this is Ken.

From the standpoint of margin as we've talked about, obviously, for this year, and consistent with last year and I'm addressing now EBITDA margin, as you can see our gross margins have expanded over time.

But we also have reinvestment.

You can see it clearly in the R&D line for the new product work that we're doing and caring for our current products.

Longer term, as we've talked previously, we do see over a multiple year period, that the EBITDA margin expands.

I think in practice we've talked about getting up to a range of about 30% EBITDA over a multiple number of years as we continue to not only make those investments, but to your second point, get to the full geographic footprint and expansion to where we want to be.

Again, in our overall business, with international being 15%, we still have work to do in terms of leveraging in some of our geographies in terms of the sales and service component to get a good return.

We are obviously seeing that as part of what you see in terms of the better financial performance in geographies like Canada.

We're firmly established and a leader there.

And in countries like Chile where we're in a very good position as well.

So, that's a process of years in terms of getting there, but again, that plays into our view over the next several years of the EBITDA margins expanding from that standpoint.

A new country that we enter from scratch, will lose money for us in the first year to a year and a half, just because of the [fixed] investment and the ramp up that you have to do, etcetera, etcetera.

And that's why expanding the footprint through acquisitions will make sure that rather than starting from a loss, we are starting from whatever the margin of is of that company, and then adding to it with the operating leverage of the comScore data.

The other investment that we have made is, we are processing somewhere between 400 to 500 billion page views in a month.

Clearly, that costs money.

That's part of the Media Metrix roll out.

And I think that, I feel that we have not seen the full return on those additional expenses.

So as we start seeing the full return, we will see a bigger set of margins.

I think in terms of our strategic investments, clearly we have moved from processing [panel] data from 2 million users to processing data on virtually every user in the world.

And in that case, we need to scale better, not that we can't process the data right now, we can process it, but we have room to go in terms of processing it more efficiently.

And as we invest in those scaling efforts, we think that those will yield results in terms of improved margins.

And just one question on your guidance.

Well, it is more actually to do with [mini macro-trends] as well, but while your guidance came better than what we were expecting, I was wondering if you can highlight any strain or weakness you saw anytime during the June quarter?

And secondly, what percentage of your contracts are up for renewal in Q3 and Q4, or maybe then just answer the second half of (inaudible).

Sandeep, this is Ken.

I'll take the second question first.

Overall, in terms of the course of the year, first half, second half, little more than 40% in the first half, and a little less than 60% in the second half.

And our fourth quarter is our largest renewal quarter with about 35%.

Now, we do think we have visibility on some large contracts that will even out that distribution in the second half.

Some of the larger contracts that renew in the second half, we do have visibility on them in terms of their process in the purchasing department rather than a decision of whether they're going to close or not.

So I guess, I'll repeat what I said earlier which is that we really don't have, right now, any anxiety about any substantial renewal between now and the end of the year that may be in jeopardy.

Does that answer all your questions?

If you can maybe, many of the internet companies are reporting and their highlighting a patch of weakness they saw in Q2.

I was wondering, your quarter was very good.

Your guidance is very good.

But in spite of that, did you see any patch of weakness during the quarter?

Well, I think that publishers and agencies were particularly strong, but we also saw telecom, pharma, CPG, as being particularly strong.

We also saw some strength in terms of backlog from some other verticals like retail and technology that will translate into higher revenue in the third quarter and the fourth quarter.

So, [rather] to other quarters, one of the pleasant surprises in this quarter is how broad-based the growth that we have seen is.

Now clearly if the economy tanks to a huge degree, that could have an impact on us, but we are basing our assumptions on a little bit of slower growth, but certainly nothing like a flat economy or slipping into a crisis or a downturn.

Thank you very much.

You're welcome.

And this concludes the question and answer portion of today's conference call.

I will now turn the back over to Magid Abraham, Chief Executive Officer.

Thank you.

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

As you can tell, we are excited about our excellent second quarter performance and believe that 2010 is shaping up to be a strong year for comScore, setting the stage for continued growth ahead, as we continue to implement our growth strategy.

We look forward to speaking with you again in the future and answer additional questions.

Thank you.

Thank you for your participation in today's conference call.

This concludes the presentation.

You may now disconnect.

Good day.