Comscore Inc (SCOR) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Third Quarter 2010 comScore Incorporated Earnings Conference Call.

My name is Regina and I will be your operator for today.

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

Later, we will conduct a question and answer session.

(Operator Instructions).

As a reminder, today's event is being recorded.

I would now like to turn the conference over to your host for today, Mr.

Ken Tarpey, Chief Financial Officer.

You may proceed, sir.

Thank you very much.

Good afternoon and welcome to comScore's earning call for the third quarter of 2010.

This again is Ken Tarpey, CFO of comScore.

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

Before we begin, 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 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, Nexius and Nedstat, expectations regarding new market opportunities for comScore, assumptions regarding tax rates and net operating loss carry forwards, and forecasts for future financial performance for the fourth quarter and full year of 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 the 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 31st, 2009, and Form 10-Q for the period ending June 30, 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 make reference to 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.

In addition, we have posted some slides to supplement our prepared remarks in the investor relations section of our website under Events & Presentations.

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

Okay, thank you, Ken.

And thank you all for joining us in our earnings conference call for the third quarter of 2010.

I thought it would facilitate the discussion if we included a few slides that go along with my comments, particularly when it comes to reviewing the evolution of our business into a multi-pronged digital business analytics company.

We view this is a culmination of the transformation we began in 2009, with Unified Digital Measurement, followed by the acquisitions we have made in the last year which open up large business segments closely linked to our historical core business and enable us to better leverage the opportunities created by globalization, census measurement, and the rapid growth in the mobile internet.

First let me start with the quarter.

We are pleased to report another strong quarter in Q3 with accelerated business momentum.

During this quarter, our products and services continue to gain strong acceptance with our customers.

We have expanded internationally and we have completed two significant acquisitions, Nexius on July 1st and Nedstat on September 1st, 2010.

Q3 revenue was $45.7 million, up 43% from last year.

And that's not including a purchase accounting impact on acquired deferred revenue from Nexius and Nedstat.

Including that impact, revenue for Q3 would have been $47.5 million, which is up 49% from a year ago.

Adjusted EBITDA was a healthy $10.4 million in the third quarter, up 41% from the third quarter of 2009, and free cash flow was $5.9 million, bringing our year-to-date free cash flow to $26 million.

In the third quarter, strength across the board contributed to robust new customer activity as well as renewals in cross-selling to existing customers.

Our Media Metrix 360 and its Unified Digital Measurement model continue to resonate with new and current customers alike, as a de facto standard for digital audience measurement.

As a trusted source of high quality actionable data about digital audiences, customers are recognizing significant benefits from the granularity and enhanced data accuracy enabled by our Unified Measurement methodology.

As a result, our Media Metrix franchise continues to be a significant growth driver to our business.

We have added a strong 58 net new customers in the quarter, not including Nedstat customers, which added 203 addition customers for a total customer count of 1,682 customers.

On top of the momentum in our base business, the acquisitions we have completed over the last several quarters are both contributing to growth and increasing cross-selling opportunities.

We are working quickly to integrate these companies into comScore and to develop additional technology to realize the synergies and new opportunities created by these business combinations.

The integration efforts are going well and are ahead of schedule.

While we see a near term negative purchase accounting impact on GAAP profitability, as we cannot recognize some deferred revenue from these acquired companies, this impact will diminish over time.

We believe that our combined organization can achieve the kind of historical profitability levels that we have achieved in the past, in addition to the strategic synergies I will address in a moment.

Lastly, I would like to point out that during the third quarter, we have made significant progress on another one of our growth drivers -- international expansion.

International business represented almost 20% of revenues in the third quarter and that is poised to continue to grow.

We have established a local presence in Spain and Australia for selling audience measurement services.

We've added country-specific measurement capabilities in Poland and Peru.

We also began the roll out of our Video Metrix product in six new countries, including China, Japan, Malaysia and Singapore.

And we have introduced our MobiLens mobile measurement product in Japan.

Through our Nexius acquisition, we now have major wireless carrier relationships in Egypt, Algeria, Pakistan, and Bangladesh.

Through our Nedstat acquisition, and in partnership with GfK Group, one of the largest market research firms in the world, we are now providing internet behavioral data to STIR, an organization representing the online media industry in The Netherlands.

And we are working with them on expanding the service and developing a new generation of comprehensive audience measurement services in 2011.

In addition, we are providing industry-wide measurement of online video in Sweden to MMS, an industry organization representing Swedish broadcasters.

We have also finalized the process for a streamlined conversion of interested Nedstat clients through UDM measurement.

What I would like to do now is to share with you the thinking behind the initiatives we have undertaken in the last year and a half or so and where they are taking comScore.

As you know, prior to August 2009, our products were based primarily on information derived from a global [opt-in] panel of approximately 2 million persons where we have a very rich data set combining individual demographics with comprehensive usage statistics ranging from site visits to search, video, advertising exposures, and various types of online transactions.

This allows us to offer a powerful set of media planning and market analysis solutions which are very widely used in buying and selling advertising, assessing competitive activity, and evaluating the results of advertising and marketing investments.

In 2009, based on industry demand, we developed our UDM, or Unified Digital Measurement methodology, which leverages person level data from our panel, and census level data from participating websites who place tags on every page of their sites.

These tags communicate with comScore every time a page is visited.

The census measurement is obviously very accurate in measuring 100% of usage quantities, such as page views and visits, but suffers from the shortcomings of cookies for measuring unique visitors.

With cookie deletion and multiple devices and browsers used by a single individual, cookie-based measurement was not accepted externally by ad agencies and advertisers for media planning purposes because of inflated audience counts and the lack of demographic and other variables used in targeted planning.

UDM is a sophisticated solution that provides the best of both worlds -- the full accuracy of usage measurement from census and a very accurate unique person count combining both census and panel data.

This was quickly recognized by the marketplace and we have been very successful in converting existing customers and gaining a lot of new clients because of the unique advantages of UDM measurement.

It also made it easier for us to expand internationally and improve reporting on smaller markets and smaller sites.

Clients also quickly realized that the page tags they are sending us are very similar to what they use for web analytics.

And soon began asking about comScore tools to analyze the very deep information we have on all users of their sites.

In fact, many clients have historically been frustrated with the differences between internal analytics reports and external audience measurements reports.

The opportunity to provide full consistency in metrics was very attractive.

At the same time, clients wanted to take advantage of the rich demographic and other segment information they get from comScore and not from current internal reporting.

So we evolved a vision of an integrated user analytics solution with two components -- audience analytics for media planning and external reference, and site analytics for forensic analysis of site audiences.

The two components are highly synergistic and very powerful when combined together.

This led us to the acquisitions of Certifica in 2009 and Nedstat in September 2010.

These acquisitions allowed us to kill two birds with one stone -- expand our client base and local presence in new countries and leverage their site analytics technology as a foundation of a unique set of user analytic solutions.

We also saw the emerging needs for sophisticated advertising analytics.

We are successful in our advertising effectiveness product suite in the US to provide advertisers with measurement of campaign results.

However, the online industry had never had a discipline of testing ad creatives for branding campaigns like they do in TV.

We acquired ARS in February 2010, which offered many advantages.

One -- a proprietary persuasion score metric that correlates well with sales, which is what advertisers are clamoring for.

Two -- a methodology for evaluating cross-media campaigns, including TV, print, online and mobile.

Three -- a comprehensive campaign creative pre-testing solution.

And four -- a set of world class marketers that we can cross-sell and grow.

Finally, with mobile emerging as a key mode of internet access, and with wireless carriers being at the foundation of the ecosystem, we have a vital interest in developing strong strategic relationships with carriers.

These relationships open the door to a variety of measurement options we can offer the industry in cooperation with the carriers.

We acquired Nexius in July 2010 with these objectives in mind.

Nexius offers analytical solutions at a very granular level of user and network interaction to solve problems such as customer service, capacity planning, network configuration, and network performance reporting.

We are augmenting these capabilities with marketing-oriented analytics to manage churn, segment customers on the basis of usage, particularly data and internet usage, forecast demand by customer segment, and provide information to promote mobile advertising.

These multi-million dollar solutions are relevant for virtually any carrier in most countries.

The end result is a suite of products that power a broad analytic spectrum of digital business applications, whether based on mobile or on the PC.

The resulting [three] market segments combine to an addressable market of approximately $2.7 billion, which is more than triple our traditional addressable market.

In addition, there is a slice of revenue that will be generated from adding TV data to provide [three speed] measurement capabilities for all digital activity.

We are particularly excited about this transformation.

Our growth opportunities substantially expand in size and in time as our current revenues in 2010 represent less than 7% of our addressable market.

As we integrate our offerings, I believe we will have a powerful product portfolio with significant competitive advantages.

We also secure multiple sources of diversified revenue.

All of these benefits provide comScore with strong growth prospects, enhanced strategic position, and a greater ability to deliver substantial value to our customers, our industry and our shareholders.

So in summary, we are pleased with our continuing business momentum and execution.

We are excited about the business transformation that our recent acquisitions and the introduction of UDM have enabled, as well as our largely expanded geographic presence.

Now, I'll turn the call over to Ken for a more detailed financial discussion.

Thank you, Magid.

GAAP revenue in the third quarter was $45.7 million, up 43% year-over-year, and was at the mid point of our previously announced guidance range, including the impact of our Nedstat acquisition at the beginning of September.

Third quarter results also include a full quarter with Nexius Products Groups as part of comScore.

Given the purchase accounting impact on deferred revenue from recent acquisitions, we believe investors may also find it useful to evaluate non-GAAP revenue, which adds back the impact of purchase accounting on acquired deferred revenue.

On this basis, revenue was $47.5 million in the third quarter.

Within total revenue, GAAP subscription revenue in the third quarter was a record $38.4 million, up 41% year-over-year and 5% sequentially.

Subscription revenue represented 84% of total revenue.

Project revenue was $7.3 million, also a record for comScore and was up 55% from the third quarter of 2009, and up 34% sequentially.

Renewal rates in the third quarter were above our historical threshold of 90+%.

GAAP revenue from existing customers was up 40% year-over-year in the third quarter to $40.1 million, and represented 88% of total revenues.

Revenue from new customers increased 70% year-over-year and made up for the balance of the revenue.

We added 58 new customers in the third quarter, plus the 203 customers from the Nedstat acquisition, so customer count now totals 1,682.

Our strategic focus on international expansion resulted in strong year-over-year international revenue growth of 82% to $8.9 million from outside the US.

International revenue is 19% of the quarterly revenue.

Contributing to this growth was our organic growth, our Certifica acquisition, and the impacts of our Nexius and Nedstat acquisitions.

Deferred revenue grew 43% year-over-year to a record $59.2 million, reflecting our strong business activity in the quarter and the impact of the two acquisitions in the quarter.

Our Top 10 customers represented 27% of revenue in the third quarter.

We again had one customer who was 10% of revenue.

Turning to expenses in the third quarter, gross margins were 70%, compared to 70.4% a year ago, which is comparable with prior quarters.

Our total expenses of $48.9 million in the third quarter, included the full impact of our ARSgroup acquisition, as well as the full impact of our Nexius acquisition, which closed on July 1st.

We only saw a partial impact on expenses from Nedstat since that acquisition closed on September 1st.

Please note that the GAAP operating expenses included acquisition related costs of $2.5 million which are recorded in G&A expenses.

G&A pre-tax loss was $3.3 million in the quarter, compared to a GAAP pre-tax income of $2.8 million in the third quarter of 2009, with the decrease resulting from the added cost from acquired companies, acquisition related costs of $2.5 million in the quarter, higher intangible amortization costs of $1.4 million, higher stock-based compensation expenses which totaled $5.8 million, and the impact of purchase accounting on the acquired deferred revenue which had an impact of $1.8 million in the quarter.

Stock-based compensation expenses in the third quarter include $1.4 million related to the previously disclosed Q2 market based equity grants that vest only if comScore's share price exceeds $30.00, as well as $600,000 related to acquisition related stock grants.

Our effective GAAP income tax rate in the third quarter was a 36% tax benefit rate, while our third quarter cash rate was a 4% tax benefit rate.

Our year-to-date cash tax rate was high, as compared to our pre-tax income, as a result of our profitability in certain international jurisdictions, such as Canada, Mexico and Brazil, [where] we do not have NOLs available.

We continue to hold net operating loss carry forwards with a balance of approximately $65 million, primarily in the US and UK.

For the fourth quarter, our expectation is that the GAAP tax rate benefit will be comparable to Q3 and our cash tax rate will be in the 10% to 12% range.

GAAP net loss was $2.1 million, or $0.07 per basic and diluted share in the third quarter of 2010, based on a basic and diluted share count of 31.2 million shares.

Turning now to non-GAAP net income for the third quarter of 2010, which excludes stock-based compensation, amortization of intangibles, acquisition related expenses, and the previously mentioned adjustment for purchase accounting impact on acquired deferred revenue, that non-GAAP net income for the quarter was $8.2 million, or $0.26 per share, a record level for comScore.

With our varying tax rates, we also believe that adjusted EBITDA is a powerful 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, intangible amortization costs, stock-based compensation expense, acquisition related expenses, net interest income, and the impact of purchase accounting on acquired deferred revenue.

On this basis, adjusted EBITDA was $10.4 million in the third quarter and adjusted EBITDA margin was 23%, comparable as a percentage of revenue compared to EBITDA from a year ago of $7.4 million.

While EBITDA margins of acquired companies are not in our historical range, we believe that as we leverage common resources, execute on cross-selling opportunities and the impact of purchase accounting on deferred revenue wanes, those entity's adjusted EBITDA margins should be consistent with comScore's historical levels.

Cash flow from operations for the third quarter was $4.2 million.

Our capital expenditures were $730,000 in the quarter.

And consistent with past quarters, we also funded $1.6 million of infrastructure expansion with capital leases.

And we had $2.5 million of acquisition related costs in the third quarter.

Factoring for all these, results in a healthy adjusted free cash flow of $5.9 million in Q3 and year-to-date adjusted free cash flow of $26 million.

As of September 30, 2010, cash, cash equivalents and short term investments, total $36.2 million.

In addition, we held $2.6 million in [auction] rate securities, with maturities over 12 months that are classified as part of long term investments, with the carrying value from these investments decreasing approximately $200,000 from June 30, 2010, based on our updated independent valuation.

Receivables of $37.2 million increased year-over-year and sequentially because of the growth of our business, and with [DSOs] of 71 days or within our typical ranges.

Now let me turn our attention to our guidance for the fourth quarter and the full year of 2010.

Customer interest in comScore's products and services continues to be very healthy, resulting in strong overall business levels.

At the same time, the recent acquisitions add further momentum to the fourth quarter of 2010.

Accordingly, we are increasing our expectations for full year GAAP revenue growth in 2010 to a range of $174 million to $175 million.

While we are pleased with the incremental contributions we are seeing from recent acquisitions, it's important to point out that our base products continue to be a significant element of our growth.

We expect adjusted EBITDA for 2010 to be in a range of approximately $37.2 million to $37.8 million.

For the fourth quarter of 2010, we anticipate GAAP revenues in the range of $50.2 million to $51 million, which represents an increase of 49% to 51% over Q4 2009.

Including the impact of recent acquisitions and the associated purchase accounting impact, we anticipate fourth quarter GAAP loss before income taxes in a range of $800,000 to $1.1 million.

Let me point out factors that we expect to have an impact on our GAAP results in the fourth quarter.

First, we expect to incur approximately $1.9 million in amortization of intangible assets.

Second, we expect to incur approximately $5 million in stock-based compensation expense, which includes an impact from our Q2 market-based option awards.

And third, we expect to incur approximately $600,000 of acquisition costs relating to the recently completed acquisitions.

We anticipate adjusted EBITDA for the fourth quarter of 2010 to be in a range of $11 million to $11.6 million, which represents an adjusted EBITDA margin of 22% at the mid point of our revenue and adjusted EBITDA guidance.

Our estimated fully diluted share count for the fourth quarter is 32 million shares.

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

In summary, we're are pleased to have delivered a solid performance in the third quarter and remain optimistic about the balance of 2010 as well as our longer term prospects.

Operator, with that, we can now open up the lines for questions.

(Operator Instructions).

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

Thank you.

Thanks for taking the questions.

I just have a question on the margin side.

It looks like margins for the fourth quarter are down versus what I was expecting.

So, just wondering if you could talk to that and if it's related to the acquisition type of impact.

And then also just talk about kind of margin expansion potential in 2011 and going forward.

I think you talk about 27% to 32% EBITDA margins at some point.

So if you can just touch on that, that'd be great.

Thank you.

Hey, John, it's Ken.

How are you doing?

Hey, Ken.

From the standpoint of the impact of the acquisitions, yes, in the near term we have the integration activities we're doing and seeing the benefits of that cross-selling and growing those businesses.

And that will take some time.

And in terms of synergy opportunities, we are working those as a collective team and you'll see that kind of work its way through as we go forward through 2010 and go forward into the future period.

As Magid outlined to everybody, there are also some very exciting investment to make to bring forward these new class and new generation of products and services to our customers.

So, we do still have that longer term target of the 27% to 32% in terms of EBITDA, and that's something we'll be working to over the longer term, which as we previously discussed is a multiple year period.

Alright, great.

Thank you.

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

Thank you very much.

A couple questions, one for Ken and one for Magid.

Ken, can you just break out for us what the organic growth was versus the reported growth and if you can also maybe break out the organic growth for the deferred revenue, so deferred revenues were [up] big.

I think in your prepared remarks you said some of it was due to just the strength of the business, which I'm assuming is obviously organic, the other is through acquisitions.

So if you can just give us some clarity on those two points, that would be great.

And then, Magid, as you transition to business from being a pure web measurement to more measurement/analytics, your position in web measurement is obviously very, very strong and has improved with time.

On the analytics side, the competitive landscape is obviously quite different.

You have guys at the very low end that give their service for free, like the Google.

At the high end you have [Omniture] and others who are doing a pretty good job.

What gives you the confidence that you will be kind of successful as you bring some of those capabilities from overseas back to the US?

The US typically is kind of a more difficult market to compete.

And I was just wondering maybe if you can identify one or two differentiating factors that in your asset tool set now that you can be more competitive with.

Thanks.

Okay, let me answer actually both questions.

On organic growth, as you know we integrate these companies that we get pretty fast and stop differentiating between existing products and sort of acquired products.

But to give you a qualitative picture, some of our products that were classic comScore that we can still basically identify separately.

I think that the [street] was looking at various points at organic growth in the high teens, in the mid-teens to high teens.

And we're seeing that the business is accelerating well beyond that.

And we're also seeing sales activity actually running ahead of accrued revenue.

So, we're very pleased with quote unquote organic performance of the business.

As far as the question on the transition from web measurement to web analytics, this is obviously something that we have considered for a long time.

And we have heard, the thing that was very encouraging to us was clients really asking for it.

Clients basically saying, I'm frustrated that I have a lot of different numbers.

So just the mere fact of providing a unified set of numbers is important.

But also, when you talk to clients, they will tell you that, when you're looking at your classic web analytics reports, and you're looking let's say at a bunch of users that took a particular path or came to an entry point, you've no idea who they are.

You have a bunch of cookies basically and you have no idea what demographics they are, what segments they belong in, etcetera, etcetera.

So, what they have asked for is can you provide us with the richness of demographic reporting that we like as part of your web measurements?

And so, we have, as we got deeper into UDM and were collecting this data on a huge number of websites, we felt that we have the elements of the solution in place.

And Nedstat in particular is viewed by many of the industry analysts as a world class technology for web analytics dissection, on the fly analysis and reporting.

And as we did some beta testing, if you like, with customers, we got some very, very encouraging feedback about how they would react to a combined offering of what I'm calling user analytics.

So, I think that the combination of combined unified set of metrics, the availability of rich profiling information and demographic information, which nobody has offered before.

And as we evolve into developing a set of applications where publishers can maximize their CPMs and can increase the [marketization] of their websites, are all things that we think will take web analytics to the next generation.

Where in the last 10 years or 15 years I would say, the basic functionality has been adding more features to a core application.

And now we're taking it to the next level by adding a totally different blend of information and the ability to really allow people to make money based on the analytics they can get from us.

Okay, that's helpful.

Thank you.

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

And Mr.

May, your line is open.

Thank you.

Couple of quick questions.

I apologize if you've addressed these already.

One is maybe to focus in on the US market, one that where you've been at it a little longer.

Can you give us a sense of the traction you're getting in terms of upselling, cross-selling, kind of the recent trend in the penetration of new products into existing customers?

And then more of a housekeeping question, again, I don't know if you've already addressed this, but the contribution from some of the recent acquisitions in the quarter from Nedstat and Nexius, I guess.

Thanks.

Okay, so as far as cross-selling and upselling, we are very, very pleased with that performance.

I think a lot of that is really what's driving our performance, particularly among existing customers.

There are a lot of applications, particularly in the advertising effectiveness space, which are growing and becoming more prevalent among our publisher clients, our agency clients, as well as in a variety of vertical markets.

And we mentioned in the press release that the strength in our business was pretty much across the board.

Virtually every industry posted some really strong increases.

So, we're very happy with the performance of our core products.

As far as the new acquisitions, the Nexius and the Nedstat acquisitions, I think that the performance is understated by the amount of deferred revenue that basically these companies were evaluated on a stand alone basis.

They will get X.

Because a lot of that revenue gets taken away and put into purchase price, they will get X minus $1.8 million.

So, I think we gave people at the beginning of Q3 a range of what they can expect from Nexius and Nedstat when we raise our guidance.

Just for everybody's benefit, we, at the time of the Nedstat acquisition, for the month of September, we thought Nedstat, net of the haircut would be about $1 million of incremental revenue for September.

And that's about where it came in.

And EBITDA-wise, about what we had expected at that point too.

And that will continue to recover and do better as we work through this purchase accounting impact and get renewals done with our customers.

On the Nexius side, when we spoke about that acquisition earlier in the quarter, we were on a rounded basis, thought it might contribute about $2 million.

It was a little bit lower than that due to the purchase accounting impacts.

The strength of the business is there, the customer relationships are strong, so we'll just worked that through.

And they will rebound and do fine.

Just kind of curious about the priorities at Nedstat.

Is it a priority to launch Nedstat related products in the US near term?

Thanks.

Yeah, absolutely.

We see a lot of demand among our existing customers.

And we are hard at work adding some of these capabilities that I described that would allow a customer to take any report that they have on any section or any subset of their users and be able to look at demographics and other profile information which would be something that's totally unique.

This is something that I think would allow us to enter the marketplace with a very, very powerful product, particularly for our existing clients.

And as you know, the revenue that we could achieve with some of these clients is higher than the revenue that we currently achieve with them from the web measurement alone.

So, we're very excited about that.

That is actually, I would say, our number one priority for that product line.

But it is also something, the product is already in six different languages.

And is pretty much, I think with the exception of the Asian languages, is pretty much ready to roll across the world.

It's right now developed in Europe, but we plan on spreading it in Latin America and in all the countries where the languages are currently supported.

Thanks, Magid.

Thanks, Ken.

You're welcome.

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

Thanks.

A few pretty easy ones if you have the data.

Do you guys have an organic growth rate for international?

So, for the quarter, the obviously reported growth rate was 80%, and acquisitions added to that.

So it would just be helpful if you had an organic growth rate for international.

Are you willing to comment what the mobile growth rate was in the third quarter?

And then lastly, what do you think the peak gross margins can be for the business?

I think just going back to John's question in the beginning, I think in some of your long term forecasts you talk about operating leverage.

But obviously when you buy something, you take it one step back to make two steps forward.

Where do you think ultimately kind of gross margins can go as you leverage the investments and the data with more clients?

Thanks.

Hey, Jason, this is Ken.

Let me start on the gross margin one first.

I think as we've talked previously, and we continue to see longer term, that our current gross margin at the 70% mark has additional opportunity.

If you think of, as an example, purchase data, that other companies that we have acquired may have done and the advantage that you can get from our panel, of cost savings from that perspective.

More importantly, obviously, and there's other cost-based savings, but I think the greater one obviously is in the cross-selling and the additional revenue opportunities that come as these products are brought together.

So when we've talked about longer term, bringing the EBITDA up, we have indicated that the gross margin, we think, has several more points into it in terms of lift.

Over time, it could be 73%, 74% maybe even 75% as we realize that particularly the market penetration opportunities that we see with these acquisitions.

Okay.

From the standpoint of the international revenue, obviously the contribution for Nedstat, and Nedstat's say international business, the million dollars that I mentioned, is part of the international revenue for the quarter.

Beyond that, we've had very significant organic growth as 360 and the related products have done well.

So the organic business has done very well for us internationally, and Certifica, in particular, in South America has really taken on a great leadership position with the integrated products.

And then mobile.

Just any kind of commentary on like what mobile grew in the quarter?

Well, I think with Nexius, mobile certainly grew pretty, I really don't have the numbers off the top of my head.

But it grew pretty significantly.

I think as far as the traditional mobile measurement business it was flatish to slightly growing.

And I think that there is a lot more opportunity for that business to grow once we have access to a deeper set of information than what we currently have.

So just maybe a follow up to that.

You guys did put out another beacon for the server side to allow apps to be measured more correctly on Smart Phones.

Can you talk about what kind of adoption you're seeing of that so far?

Well, the current, any website that's participating in UDM currently will soon be getting their entire usage on a mobile device measure.

And then we're rolling out progressively different types of measurements for various types of apps.

So, if you are talking about somebody that has a website and is being visited from a mobile device, pretty much the existing platform covers that.

Okay, thanks.

The next question today comes from the line of Sandeep Aggarwal with Caris and Company.

Thanks for taking my questions.

One question I have is about, in the past display advertising was much more fragmented and now with Google, Facebook, etcetera, it seems like it's maybe become a little bit more concentrated.

And similarly, there are dozens of internet ad networks, but on a mobile side there are two dominating, [AdMob] and [iAd].

So with that said, my question is are these trends limiting the growth opportunities for comScore for some of the newer growth opportunities, or actually they present a newer growth opportunity?

And then I have a follow up.

Well, remember there are two sides to the advertising element.

One side is the advertiser who wants to really understand how the advertising is working for them.

And those people still need a third party to be able to give them that measurement, obviously because there's a conflict of interest.

And while there is increased concentration in terms of the sales of display advertising, there are still a lot of companies that still have something to sell and they need our services to [buy] them.

And again, the advertising agencies are not going to use a one-off solution from somebody to do it.

They need to be able to plan across multiple sources of ad impressions.

And Magid, in terms of there are still, in the industry conferences, we sometimes see more and more measurement companies coming up, start up type of companies.

But on the other hand, comScore is building more comprehensive solutions, whether it is (inaudible) focus, [black phone] focus, and different products within internet.

So I guess my point is, how's your pitch, when you're pitching for a new account, how's your pitch versus a competitor and are these acquisitions helping you to convert new prospects into clients sooner?

Generally speaking, I really can't think of anybody that's offering something for pay and sells a free service, that really is winning against us in any substantial way.

So you have people that go and say, alright, I want to measure your phone apps.

And then they give you the service for free.

Well, okay, you're going to get [some options], but that particular point solution is really not going to solve the problem of the marketplace, which is not just measuring phone apps on 5,000 applications.

They want to be able to measure the entire system.

So the advantage that we still have is, and it really works well in our favor, is the fact that we measure everything.

And that's a need that everybody has.

Point solutions are just, they may have an advantage in terms of a feature here or a feature there.

But at the end of the day, if you're an advertiser or an advertising agency and you have to take every single point solution that's available to you, you'd probably have to learn dozens and dozens and dozens of solutions to be able to do what you can do with one solution provided by comScore.

Thank you.

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

Good afternoon.

Just wondering if you could provide a quick comment, I may have missed it, I apologize if I did, on the uptick in project revenue during the quarter.

Just wondering what the main factor was there and if that was at least partly from acquisitions.

I have a follow up, too.

Okay, this is Ken.

I can talk about that one first.

The first part is we've seen continued growth, as you know in the business overall, and project revenue is continued in that.

Our ARSgroup acquisition from earlier this year, depending on some of the work that they're doing, particularly with new customers, may have more of a project nature at certain points in time versus subscription.

And they had some new customer project initiatives in the third quarter in multiple hundreds of thousands of dollars, which can, helped also with the lift from that standpoint.

And then to a lesser extent in terms of the presentation, the purchase accounting impact on deferred revenue had an impact on our subscription revenue line.

It doesn't impact our project revenue.

So it just shifts things a little bit.

So instead of project revenue being about 14% of the business, it was 16% of the business this past quarter.

Might be something similar to that or 15% in the fourth quarter and then we'll kind of see it kind of work its way back to its steady state as we head into next year.

Great.

Then my follow up, just wondering if you could provide some additional commentary on some of the process of productizing UDM through the analytic suite.

Do you have to go back and ask for additional permissions from the sites that you've [fix hold] via 360?

And sort of what goes into, or how much work, or even how long does it take to build the new analytic suite around UDM?

We are working on, as we said in the press release, streamlined solutions for making the conversion work very easily, leveraging a variety of things.

Leveraging what the customer may currently have and leveraging our dictionary, our URL dictionary, which has substantial classification across all websites.

So, the answer to your question is that for a very normal, I guess, kind of web analytics, the transition would be relatively easy.

If you are talking about dissecting your site in lots of different ways and passing a lot of parameters and interaction [between] the content management system, then that will be a little bit more involved.

But one of the things that we really like about Nedstat is that the implementation of Nedstat from an architectural standpoint is substantially easier and is able to grab information about elements of the site without a lot of work by the client.

And just one last thing.

You've built a pretty substantially, in terms of time with UDM, in terms of time to market.

Would you consider pursuing the analytics project via partnership with an analytics vendor?

Do you think that would be feasible for a competing audience measurement and analytics company to team up on this?

Or just wondering your perspective on that.

Well, you know this is a world of [coopetition].

So in some cases it makes sense for us to partner.

In some cases, if we already have the data and the client is basically very interested in leveraging the data that we're already collecting, it's just simply more economical to offer an integrated solution.

The other thing is that clearly in terms of developing something that's vastly superior to what currently exists in the marketplace, we have a lot of leeway integrating what we have rather than trying to work with a third party.

That said, we're very open to working with people and there are some specialized solutions that we actually partner directly with as part of Nedstat.

Thank you.

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

Thank you for taking my call.

I'm calling for Jeetil Patel.

Just wanted to start out, continue on the discussion from the last caller.

Because it would seem to me for you guys to become a major player in cross-platform measurement that you're going to have to come at the market with a range of skill sets to provide a picture across multiple screens.

When you think about the path that you're going to choose between working with others and acquiring capabilities and developing them on your own, how do you think about what the right mix of that is going to be?

And I'm thinking to myself that earlier in the year you were involved in a partnership effort with Arbitron and I'm sure with the NBC Olympics which got a lot of, earned you some credibility in the marketplace.

And got a lot of press play.

Do you have any major initiatives ongoing right now similar to that one that you might be able to talk about here on this call?

We do and I can't talk about it on this call.

But I am optimistic that we will have some positive announcements to make.

Okay.

So related to the guidance that you've offered, I think 70, for the full year $174 million to $175 million of revenue and $11 million to $12 million of, roughly $11 million, $11.6 million of EBITDA.

Maybe it would be helpful, clearly your business is scaling up to pursue a much larger addressable market opportunity.

And you're becoming much bigger along the way.

What if you [pro-formaed] all the acquisitions that you've done this year back to January 1st, how much revenue do you think you would have for the full year and how much EBITDA would you have?

Just to give the sense of the scale of the business that you have as you grow off of that into next year?

I don't think we have done the exercise, but one thing that I've always sort of looked at as a way to gauge the business is to annualize the fourth quarter.

That's kind of, if you look at our historical relationship between the fourth quarter where we will have the full impact of all the acquisitions.

Now there is still a little bit of deferred revenue that is going into, that's not being recorded in GAAP revenue.

But if you were to basically look at the fourth quarter, we will be in the range of, annualized at $200 million to $206 million, something like that.

And so you layer on top of that, the growth for next year.

So if you assume mid-teens growth again, you're looking at kind of [$230 million] revenue for next year.

On the EBITDA side, would it be fair to annualize that as well?

Just really generally, just as a starting point for what --

I don't want to turn this into an exercise in guidance for 2011, but it's not a bad starting point.

It's not a bad starting point and we will, there are a number of things that we're working on that hopefully will impact things positively, that we'll be able to take into account when we give guidance for next year after Q4.

Okay.

Magid or Ken, can we just revisit your strategic priorities for deploying capital, specifically related to acquisitions for next year?

You've done some work internationally and mobile.

I think we have done a lot of acquisitions, so we are kind of now focused on, we are now focused on execution.

We think we have assembled all the key elements that we need.

That's not to say that, nothing is, or anything's out of the question.

But right now our focus is going to be we have lots of exciting opportunities we need to integrate and execute.

And if we find interesting acquisitions along the way or a need emerges for that, we're open for it.

Our cash position with our balance sheet is pretty nice.

And we would definitely have the freedom to do that.

But our priorities are to execute on this vision of digital business analytics.

And if you think about them, whether it is audience measurement or site analytics, we already have that.

Whether we're talking about advertising analytics, we already have that.

And on the mobile side, between what we've got and what we're building, we're in pretty good shape.

Thanks a lot.

I'll give it a rest.

Okay.

Your next question comes from the line of Jim Boyle with Gilford.

Good evening.

It's pretty late, I'll just ask you one quick one, please, big picture.

Is there a management goal in two to three years to bolster international revenue as a percentage of total revenue to a certain range?

And do you get there mainly by organic or do you need some more acquisitions to get to that range?

I would like to see international revenue, I'm going out on a -- this is not guidance, but I would like to see international revenue exceed 30% within that timeframe that you mentioned.

And I think we will get there with the portfolio of products that we currently have.

Okay, interesting.

Thank you.

Thank you, Jim.

Thank you.

This concludes the question and answer portion of the call.

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

Okay, thank you and thank you for participating in today's call.

I hope you can feel the excitement about our continuing business momentum and strong third quarter performance.

We are also enthusiastic about our business transformation and our broadened product portfolio and geographic reach.

We continue to be enthusiastic about 2010 and we believe that we have a lot of momentum as we move into the future.

We look forward to speaking with you again on the next call.

And thank you very much.

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

This concludes the presentation and you may now disconnect.

Have a wonderful day.