Comscore Inc (SCOR) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 comScore, Incorporated earnings conference call.

My name is Stacy, and I'll be your conference moderator for today.

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

We will conduct a question-and-answer session towards the end of the conference.

(Operator Instructions)

As a reminder, this conference call is being recorded for replay purposes.

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

Ken Tarpey, CFO.

Please proceed.

Thank you, Stacy.

Good afternoon, and welcome to comScore's earnings call for the first quarter of 2011.

Again, I'm Ken Tarpey, CFO of comScore.

And 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 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 opportunities, including new customers and markets for comScore; 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; expectations regarding international expansion; expectations regarding comScore's intellectual property rights; assumptions regarding tax rates and net operating loss carry forwards; and forecasts of future financial performance for the second quarter, and the full year 2011, 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, 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 on our Investor Relations website, a reconciliation of non-GAAP financial measures discussed during today's call to the most directly comparable GAAP financial measure.

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

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

Okay.

Thank you, Ken, and thank you all for joining our earnings conference call for the first quarter of 2011.

2011 is off to a good start, with revenue and adjusted EBITDA that exceeded our expectations.

Revenue in the first quarter was $53 million, up 47% from a year ago.

Adjusted EBITDA grew by 46% to $9.9 million, and deferred revenue grew by 42%, reaching a record level of $73.3 million.

Free cash flow set a new quarterly record of $13.5 million, and we added 55 net new customers in the quarter, and our total customer count is now over 1,800 customers.

International revenue grew by 97% from a year ago.

We continue to enjoy healthy renewal rates, and revenue growth was strong among existing as well as new customers.

Our acquisitions integration is going well, and we are very pleased with that progress.

These factors, along with the visibility afforded by our recurring subscription business model, gives us the confidence to increase revenue expectations, for the full year of 201,1 to a growth rate within a range of 35% to 37%.

These trends reflect consistently increasing demand for our services, and the payoffs from our strategy of expanding our addressable market for digital business analytics, ranging from audience and web analytics, to advertising analytics and mobile analytics.

We believe we are still in the early stages of reaping the benefits from this expansion, and we will continue to heavily invest in product integration, software development, and sales support to capitalize on the growth opportunities they represent.

We have been hiring aggressively to support these initiatives.

These financial results were complemented by a number of business highlights that reinforce our long-term optimism.

These highlights include the launch of our first web analytics product in the US, Digital Analytix; strong progress in the mobile space; continued international expansion, including European product rollouts; and finally, accreditation of our products by industry standards body in multiple countries.

In March 2011, we released Digital Analytix, a first-of-its-kind web analytics tool that comScore is uniquely able to bring to market by leveraging our proprietary systems and databases.

The new software uses the power of our Atomix technology to analyze and aggregate at atomic-level data in order to address business questions at the very granular level, with ad hoc queries and segmentation on the fly, supporting actionable and real-time decision-making, and reducing the cost of implementation and ownership.

Digital Analytix, for the first time in the history of the software category, allows any website to understand the demographic profile of their users through data provided on demand by comScore as part of the software service.

We have received a gratifying response from the marketplace, with thousands of users across both the US and Europe participating in webinars and other early-stage launch events.

Not only is this the best response we have ever seen from a new product introduction, we are also excited to report that this positive reception has already produced a very healthy active pipeline with several US contracts in legal review.

Needless to say, we're very pleased by this early momentum.

It confirms that the unique value proposition that Digital Analytix is bringing to the market is resonating and is tapping into unmet needs.

We continue to make progress on our mobile offerings.

We are seeing positive response from major carriers across the globe to new services integrating the Xplore networks analytics software suite, which we acquired from Nexius last year, with core comScore media and market measurement and analytics applications.

One major carrier in the US has signed on for a substantial pilot, and we have active proposals with several other carriers, both domestically and internationally.

I do, however, want to note that the sales cycle on these type of products in the telecom industry is typically longer than for our other products.

Two weeks ago, we released data on iPad users for the first time.

We also announced the Media Metrix Total Universe report, which provides comprehensive audience measurement analysis of the traffic coming to a website from all types of devices, including computers, mobile phones, pads, and tablets.

April data for the US and the UK will be released this month, with additional markets being added during the coming months.

This enhancement, which is critical to understanding all the traffic to a website, is another comScore first.

It is made possible by our UDM tagging methodology, which means the vast majority of the largest publishers already have mechanisms in place to leverage this data.

The first quarter was also successful in terms of our ongoing international expansion.

Growth is being bolstered by our recent acquisitions, as well as a continued focus on the internationalization of our core products.

For example, we introduced our AdEffx Campaign Essentials product in several major countries in Europe and rolled out Video Metrix into India, New Zealand, and Turkey, continuing to execute on our strategy to bring high value add products to new markets.

We are seeing strong market reaction to these new offerings, and with a physical presence in 23 countries and international revenues accounting for 24% of the total Company revenues, we are witnessing the increased materialization of comScore's global potential.

For the first time in comScore's history, the majority of visitors to our website came from outside the US, an indication of our growing global awareness.

We are working with a number of industry standards bodies on accreditation, and we're pleased to report that our comScore Direct product, which provides filtered census data for publishers and is a cornerstone of our UDM methodology, has received accreditation by the MRC, or Media Ratings Council.

In Brazil, comScore data has been accredited for digital measurement by the CENP, which is Brazil's regulatory body for the advertising industry.

In addition, comScore was officially selected by the interactive advertising bureaus in Mexico and Chile as their official data source.

We continue to pursue additional accreditation and endorsement, both domestically and abroad.

In summary,, we remain very optimistic about the myriad of growth opportunities for comScore.

We are highly focused on executing our strategy to broaden our addressable market and deliver compelling, on-demand digital business analytics.

We believe this will reinforce the advantages of our subscription-based model, and high predictable revenue stream.

Now I will turn the call over to Ken for a more detailed financial discussion.

Thank you, Magid.

GAAP revenue in the first quarter was $53 million, up 47% year-over-year.

Looking at non-GAAP revenue, which adds back the impact of purchase accounting on acquired deferred revenue, it was at $54.3 million in the first quarter.

Within total revenue, GAAP subscription revenue in the first quarter was a quarterly record of $44.8 million, up 45% year-over-year and 5% sequentially.

Subscription revenue represented 85% of total revenue, and this high subscription component helps drive our overall visibility.

Project revenue was $8.2 million, and it was up 58% from the first quarter of 2010 and consistent with the fourth quarter of 2010.

Renewal rates in the first quarter were consistent with our historical rate of 90%-plus on a same contract hours basis and continued to help drive the visibility of our subscription-focused revenue model.

GAAP revenue from existing customers was up 39% year-over-year in the first quarter to $45 million, and represented 85% of total revenue.

Revenue from new customers made up the balance of our revenue.

And again, we added 55 net new customers in the quarter, with our customer count now at 1,807.

We continue to focus on international expansion, which is driving an increase in international revenue.

In the first quarter, revenue from outside the US was $12.4 million, up 97%, and represented almost 24% of total revenue, compared to 17% a year ago, as we continue to focus on global opportunities.

Total deferred revenue, which includes current deferred revenue of $71.6 million, and long-term deferred revenue of $1.7 million, was $73.3 million.

Total deferred revenue increased 42% from a year ago, which helps drive visibility on future subscription revenue.

We also saw our first ever client contract with a term of six years.

Our top 10 customers represented 27% of revenue in the first quarter.

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

Turning over to expenses now in the first quarter, gross margins were 68% in the first quarter, slightly down from Q4, and gross margins were 71% in the same quarter last year.

Gross margins in the near term are impacted by the effects of our recent acquisitions.

Our GAAP net pre-tax loss was $2.5 million in the quarter, as compared to our fourth-quarter GAAP pre-tax loss of $1.5 million, with a Q1 loss smaller than the low end of our guidance range.

GAAP pre-tax income in the first quarter of 2010 was $1.3 million, with a decrease in pre-tax income primarily attributable to added costs from the acquired companies, such as higher intangible amortization costs of $1.5 million, higher stock-based compensation expenses of $2.9 million, and the impact of purchase accounting on acquired deferred revenue of $1.3 million.

Our effective GAAP income tax rate in the first quarter was an 87% tax benefit rate, while our first quarter cash tax benefit rate was 39%.

Our cash tax rate is impacted by our profitability in certain international jurisdictions, like Canada, South America, and some US states, where we do not have NOLs available.

We continue to hold significant net operating loss carry forwards in the US, certain US states, and international subsidiaries, principally, the Netherlands and the UK.

GAAP net loss was $300,000 or $0.01 per basic and diluted share in the first quarter of 2011, based on a basic and diluted share count of 31.7 million shares.

Non-GAAP net income for the first quarter of 2011 was $7.7 million, or $0.24 per diluted share and excludes stock-based compensation, amortization of intangibles, acquisition-related expenses, litigation costs, and previously mentioned adjustment for the purchase accounting impact on accrued deferred revenue.

This compares with a non-GAAP net income of $5 million, or $0.16 per share in the first quarter of 2010.

With our varying 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, intangible amortization costs, stock-based composition expense, acquisition-related expenses, litigation costs, net interest income, and the impact of purchase accounting on acquired deferred revenue.

On this basis, adjusted EBITDA was $9.9 million in the first quarter, compared to $6.8 million in the first quarter of 2010, an increase of 45%, with an adjusted EBITDA margin of 19%, comparable to a year ago's figure, also of 19%.

Cash flow from operations for the first quarter of 2011 was $15.1 million.

Our capital expenditures are $1.6 million in the quarter.

This resulted in first quarter free cash flow of $13.5 million.

As of March 31, 2011, cash, cash equivalents, and short-term investments totaled $41.1 million.

In addition, we held $2.9 million in auction rate securities with maturities over 12 months that are classified as part of long-term investments.

Receivables of $47.6 million increased from $32.8 million a year ago, because of our rapid business growth.

DSO were 75 days in the first quarter, which was our typical ranges, and down from 89 days in Q4.

Turning now to our guidance for the second quarter of 2011 and the full year, customer interest in comScore's products and services continues to be very healthy, with interest in both core and integrated acquired technologies.

With deferred revenue at record levels, we continue to enjoy high visibility towards current quarter subscription revenue.

For the second quarter of 2010, we anticipate GAAP revenues in the range of $57.2 million to 8 -- $58 million, which represents an expected increase of 36% to 38% over the second quarter of 2010.

We anticipate second quarter GAAP loss before income taxes of $5.6 million to $6.4 million.

As in the first quarter, second quarter GAAP loss before taxes will be impacted by a number of non-cash items.

These include approximately $2 million in amortization intangibles, $5.4 million in stock-based composition expense, and $300,000 on the impact of purchase accounting on acquired deferred revenue.

We also project second quarter GAAP results to include approximately $300,000 acquisition and restructuring costs, and litigation expenses of approximately $5.1 million, assuming an accelerated trial schedule, and note that our anticipated GAAP loss before income taxes would be significantly smaller if not for the litigation expenses.

We anticipate adjusted EBITDA for the second quarter of 2011 to be in the range of $10 million to $10.8 million, which represents an adjusted EBITDA margin of 18%, at the midpoint of our revenue and adjusted EBITDA guidance.

Our estimated fully-diluted share count for second quarter is $32.6 million.

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

We continue to be optimistic on a full-year basis and are increasing our prior expectations for GAAP revenue growth to the range of 35% to 37% over 2010.

We anticipate GAAP loss before income taxes for the full year to be between a loss of $3.2 million and $5.8 million.

Full-year GAAP income and loss before taxes will be impacted by a number of non-cash items.

These include approximately $7.9 million in amortization of intangibles, $21.6 million in stock-based compensation expense, and $1.6 million from the impact of purchase accounting on acquired deferred revenue.

GAAP expenses also include an estimated $1.2 million in costs relating to acquisitions and restructuring, and about $10.3 million in litigation costs.

Without these litigation costs, GAAP earnings before income taxes would be solidly positive earnings.

We also anticipate adjusted EBITDA improvements through the year, and anticipated adjusted EBITDA on a full-year basis is in the range of $50.5 million to $53.1 million.

With considerable market opportunity opening up as we broaden our product portfolio and geographic reach, we plan to invest revenue upsides to bolster our market leadership and position, while at the same time increasing profitability.

In summary, we are pleased that 2011 is off to a good start, and remain very optimistic as our core customer base widens, and as new products enable us to target an even broader market opportunity.

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

Thank you.

(Operator Instructions).

Heath Terry with Canaccord.

Great.

Thanks.

You know, Magid, I was wondering if maybe you could talk just a little bit about the competitive environment, particularly in some of the newer areas that you're going in.

Obviously, within audience measurement, things are pretty well defined.

But as you move into effectiveness, who do you see as being the most relevant competitors for you, and I guess, where do you see the -- what do you see the competitive environment looking like, relative to what we see in measurement?

Sure.

I assume with effectiveness, you mean advertising effectiveness?

Exactly.

Okay.

You're right, the competitive set is a little bit different.

We have, in the US, 2 companies beyond Nielsen that compete in this space, and those are Dynamic Logic and InsightExpress.

We have been making significant progress in the market.

In fact, AdEffx is one of the products that grew organically by more than 50% in the quarter.

So we're very pleased with that progress.

We also are beginning to provide real-time campaign monitoring and reporting.

There is a product that we call Campaign Essentials that is being very well received.

It does have 1 or 2 smaller competitors, but that product is slated to actually get some substantial functionality that would be really unique and would have quite a bit of an impact on the market.

So we're very excited about that, and our view is that this is one of our richest opportunities to expand, not only here in the US, but even more importantly, overseas.

Great.

Thank you.

Jeetil Patel with Deutsche Bank.

Thanks.

Two questions.

One, on Digital Analytix, can you talk about maybe what the overall target in terms of the total number of customers of the 1,800, that this will be a perfect -- kind of opportunity set against, and I guess, when do expect revenues to ramp in that Digital Analytix tool?

And then second, if we look at the overall kind of expense side of the equation, can you talk about what kind of build outs are you planning for the balance of this year that we should be thinking about, as opposed to kind of seeing the margin expansion in the business from some of the acquisitions you made over the last year?

Sure.

So as far as the 1,800 customers that we currently have, I would say some of them have some sort of web analytics offering, either through Certifica or through Netstat.

So I would say about 1,500 customers represent new opportunities for us, and among those, I would say we probably will see 600, 700 that will open up as opportunities for us over the next 12 months, where we have a chance to compete against an incumbent.

We have also had inquiries, actually, from customers that would be totally new to comScore, so I don't expect that to be the majority of the prospects by any means, but it is interesting that we are getting some of those.

Now, as far as -- it's too early to provide a forecast in terms of what Digital Analytix will represent, but in the long term, we think that its revenue potential is at least as high as our core audience measurement business.

Now, as far as the expense build up, as you know, our guidance essentially assumes a margin increase of 3 percentage points in the second half proactive what we did in the first half.

And we will be able to accomplish that, despite some of the investments that we will be making.

I would say we probably are going to be investing at least a couple of million dollars more than we planned on at the beginning of the year.

Does that answer your question, Jeetil?

Youssef Squali with Jefferies & Company.

Yes.

Thank you very much.

Two -- a couple questions, please.

Magid, as a follow-up to that, can you actually speak about areas of investment, and are you -- are these the types of investment that should accelerate growth in 2012?

And my other question is around subscriber adds.

Can you speak to subscribers as to this quarter, I guess, if we look at -- at least by our math, looks like you added about 60 customers the same period last year, and this year, you've added 50 with the new acquisitions.

Maybe just kind of help us kind of get our head around that, and what's baked into your guidance for the year?

Thanks.

Sure.

All right.

So what are the areas of investment?

There are a number of areas that we are investing in simultaneously.

One is, we're aggressively building the functionality of Digital Analytix, and we are building a sales force, not a parallel sales force, but a sales support function to enable the comScore sales channel to be able to talk to our customers and being able to close business.

So that's one area, but we are also investing in engineering resources.

One of the investment areas is that we will be transitioning from the certificate code base in Latin America to Digital Analytix, and there is also some expenses and investment related there.

The second area of investment is in the mobile area.

In the mobile area, we do have some integrated products that we are bringing to market, and as I said, we are very pleased with some of the reception that we have had.

And I would say that those kinds of products have the potential of being the highest ticket items that we've ever sold, and -- after your initial pilot with these customers.

So we're very excited about that, and our investments there have to do with product development, in addition to building sales resources overseas, headcount in Latin America, in Europe, as well as in Asia.

And then we have -- we are investing in the AdEffx product suite, as I said.

That is one of the highest growth areas, and we're adding a lot of functionality to it, so we're very excited about it, and we believe we will be able to announce in the second half.

All of these opportunities will drive growth towards some revenue growth that will start contributing at the end of the year, but with really meaningful contribution in 2012.

So we're looking at this as investment to take what we have, make it a lot stronger, and have the sales report and the marketing support behind it to be able to leverage it to the max.

Your question related to a number of customer adds.

We added 55 customers in the quarter.

We -- one of the things that's happening this quarter is that, as you know, we have offered people the option of getting into comScore Direct for free for a very, very limited access to our data, so we've had 11 customers that were -- which are usually very early stage start-ups -- that have opted for the reduced version, and so they count -- they count as losses.

So if you add 11 to 55, that would be 66 customers.

As far as new acquisitions, adding business to us, there is virtually -- in the telecom space, we do business with everybody, at least in the United States and in Europe, because most of these guys buy already some kind of measurement services from us, so the number, if you were to look at our mobile analytics services, why those would stand to add substantial revenue.

They're not going to meaningfully add to the customer count, I would say, unless we start branching into Asia, where we're not as well penetrated there.

So I think net-net, we think that the number of new customer count, while it's still healthy, is really -- is going to be less of a driver of our growth, compared to taking these acquired services and technologies and have a shot at really expanding the usage among our existing customers.

And we could take a wireless carrier from buying mobile ends for $100,000, and they buy some other services that we have the potential of selling them, they could be in the tens of millions.

So from that standpoint, I'm far less worried about adding a customer count than having that revenue potential increase materialize.

Okay.

So that means it makes sense for us to start looking at the business more from a -- or at the growth, increasingly, from an ARPU increase standpoint while maintaining the 50 to 60 net adds as a good base to work off of?

Yes.

There might be situations that will bring us bursts of new customer adds, and in those situations would be pretty clearly announced and defined, but beyond that, we look at our major growth opportunity as being -- really taking a customer and doubling, tripling, quadrupling the potential of what we can do with them.

Okay.

That's great.

Thank you very much.

Mark May with Needham.

Mr.

May, your line is open.

Okay.

Sorry about that.

Thanks for taking my questions.

The first one was for Ken.

I was wondering if you could give us a general sense of what the implied pro forma growth is for your 2011 guidance?

I know you've done a handful of acquisitions during 2010.

And then the other question is, how should we view, the rest of the year?

Is it more around integration and new product introduction, or are you still actively looking at strategic acquisitions?

And then I had one follow-up question.

So, sorry, what was the first part?

The first part, in terms of growth rate, Mark, as we've chatted in the past, when we look at the business and we've integrated these products in, we look at this as a whole, unified business.

As we've talked about in the past, our organic growth rate of our business continues to be very strong as well, but we really do look at things from an overall, integrated standpoint of our growth rate on a go-forward basis.

As to Magid's point, there's a lot of strong upsell opportunities that we have with our current customers who may be a customer of one product today and other products in the future.

Maybe ask another question.

As we start to look more and more out to 2012, do you think it's reasonable to assume at least a 20% revenue growth rate for the Company?

We feel very confident about the Company's business and its growth probabilities.

Obviously, in terms of the strong guidance we've given for 2011 and, as you know, that's still -- we're in early May right now, so I don't think we're really going to get into quantifying 2012 at this point in time.

But we are confident in our business posture.

Okay.

And I think you had a question about the second half of the year, whether it would be integration in new products or acquisitions?

It would certainly be integration of new products and launching new products.

But we also are constantly considering opportunities to expand our business or to complement our product set, and while we don't really have anything to announce right now, we have a couple of areas that we're interested in that, we might be able to executive something on in the second half.

Okay.

Great.

And maybe last is more of a request than anything else.

You've had a lot of exciting new product announcements over the past year or 2.

And I wondered if there's any way going forward on future calls or maybe even have an ability to do this today, is to give us a sense of the revenue contribution from some of the newer products that you've introduced into the market or have made substantial upgrades to in the past year or 2?

Be very helpful.

Thanks.

Sure.

Jason Helfstein with Oppenheimer.

Thanks.

Hopefully, just a few quick ones.

So, Magid, can you comment -- which customer segments grew the fastest in the quarter, as kind of client verticals?

Second question, if you've got an update on the average number of products sold per customer?

And then thirdly, do you have a -- if you think about UDM with respect to the total number of customers, what percent of customers today are running UDM?

Thanks.

Meaning they have the server-side begin.

Thanks.

Okay.

So in terms of the segments that have grown significantly in the quarter, that's trending towards actually, pretty much across the board.

The area that I would note where telecom, financial services, Internet media, and audience measurement, we -- the CPG, international made a very nice contribution.

And as I mentioned, that effectiveness continues to be very strong.

Now, as far as a number of products, it's actually not a metric that we tend to focus on a lot, because we tend to look at bundles rather than options, which sometimes you hear customers saying, well, you're confusing me with all these products that you have.

Give me a package that makes sense.

Nevertheless, we do have right now about 26 product or option families, and our average customer is doing 2.1, and that's up from a year ago of 1.9.

And then the third question, on if you know what percent of your customers are running UDM on their server side.

And then just a follow up on your first answer.

Are you surprised you're not seeing more demand from the retail or E-commerce vertical?

Well, we're seeing substantial demand from the large retailers, and we are seeing some of the medium-size retailers are interested in some of the ROI analyses that we do.

On the -- as far as the UDM stuff, I know that 90% of the top 100 media publishers in the US are using us, and I think the number is like 80% of the top 100 properties worldwide are also participating.

In terms of -- I'm not sure I have the stats in terms of total number of customers, but I think if you waited by -- if you waited by volume, which has been always our strategies, not necessarily to go to the long tail, but to target -- influential customer base that we have, we are clearly continuing to make progress and to -- we have gotten the vast majority of them.

Thank you.

Meggan Friedman with William Blair.

Hi.

Thanks for taking my questions.

Just a couple.

The first is, as a follow-up on the expense and investment questions, is there any change to your longer-term profitability expectations?

You talked last quarter about 2- to 3- to 4-year profitability expectation getting to the low end of that 28% to 32% margin target, and if so, what would be the drivers of a changed outlook?

Hi, Meggan, this is Ken.

No, we haven't changed that.

If we had a feeling or a change on that, we would certainly let people know.

And I think again, that kind of time frame works, particularly when you have a SaaS model like we do in terms of the ratable nature of the revenue recognition and the build over time of increased bookings and how that manifests itself into the P&L profitability.

But no, we have not changed our view on that.

The level you're going to come from, I think we're starting to see that leverage on the comScore stand-alone business.

The leverage is going to come from some of these acquisitions that we've made, which at their early stage, with the investment that we are making, that we are making both in terms of product and in terms of market support, many of them are actually a drag on margin right now.

But, like typical software offerings, once you get to a critical threshold, which we think we'll get by the end of the year, these products tend to have very high margins, and the contribution to margin will really accelerate our overall margin growth.

Great.

Thank you.

And then one other question --

And by the way, I just want to point out that if you look at our guidance for the year, we are saying that we are doing investment, but our implied margin at the midpoint is not that much lower than we had anticipated, so stuff like this is a huge detour in what our operating is.

No.

Just wanted to double check.

Thank you.

And then, on the social side, you partnered with Radian 6 last year, which is now being acquired.

Can you talk about your thoughts on social media monitoring and analytics?

How are you thinking your presence in social?

Is this a priority, and how are you thinking about the build or buy decision?

Well, yes.

It is a priority, and we will be making an introduction of a new offering in the next quarter or so.

And that new offering will be different from the kind of services that the likes of Radian 6 offer, which tend to be scanning the web for mentions.

And in our particular case, we are looking at not only what dimensions are, but how big is the audience that was exposed to them?

And that will eventually turn into ROI on social media investments.

We still have the partnership deal with Radian 6.

And we will, as far as having that basic software capability of spidering social sites, this is something that we will be looking at a build versus buy versus partner decision.

But for the time being, we think it we have it covered with our deal with Radian 6.

Okay.

Great.

And then just one housekeeping question.

What percentage of contract or multi-year -- you mentioned that 6-year contract -- is that a priority in terms of increasing, and what you think that can increase to?

Well, it is a priority.

In the US, right now, we are making a big push on assigning -- sorry, 3-year contracts or more.

Sometimes you have companies that have policies that they don't really sign more than 1-year contracts, but we are starting to see some success in terms of doing that.

Now, due to, again, the ratability of our revenue, those kind of successes will take a while to meaningfully start moving the needle on revenue.

But in the quarter, 34% of the revenue was coming from multi-year contracts.

Great.

Thank you.

Robert Coolbrith with Thinkequity.

Good afternoon.

A question first on Digital Analytix.

Following up on a prior question about the size of the opportunity relative to your existing customer base, Netstat and now Digital Analytix, are they -- sort of traditionally been most successful in any particular verticals, and how does that match up against comScore's existing customer set?

And then I have one follow-up.

Well, Netstat was very, very strong in -- for publishers and media owners.

They have -- they're a very strong offering -- one of the nice things about the product is that it integrates web, video, and mobile all under 1 system, whereas in other places, you have to go to -- buy different models and the numbers -- or the reports are not necessary well-integrated.

So they have had a lot of success in their home base with media publishers, et cetera.

They've also had a lot of success with retailers.

So those are kind of the 2 sweet spots.

As we are looking at the customer base in the US, we're starting to see interest from -- certainly the publisher client base, which is numerically a big portion of our client base.

We're seeing a lot of interest there, but we are seeing also interest from retailers and financial institutions.

Great.

And so, actually, I'll ask two more questions.

So the -- can you maybe describe the reaction to the new features among the current Netstat customer base, the integration of the third-party demographic data that's been filtered by comScore?

Well, this is a feature that is starting in the US and then will be rolled out in the UK and in the Netherlands.

To some extent, it is dependent on the availability of third-party demographic data, and as you know, in some European countries, there are restrictions on data collection of this nature.

So having vendors that allow you to -- allow us to append this kind of demographic data to millions of visitors can vary from one country to the other.

In general, everybody has been very excited about it, and in the US, I would say in at least 50% of the situations, people basically credit this functionality as the reason why they're looking seriously or they are choosing Digital Analytix.

Great.

And one quick one on the litigation expense.

I know you said for the Q2 numbers that, that sort of contemplates an accelerated timeline.

The full-year number, does that sort of contemplate that the litigation would be completed by the end of the year?

Thank you very much.

Expectations are -- the expectations are that the litigation should be done -- as you know, this is in the eastern district of Virginia, so that's the rocket docket.

And the expectation is that, barring any unforeseen circumstances, the litigation should be done.

We have 2 lawsuits, 1 that we filed against Nielsen, and one they filed against us, and we are filing counterclaims.

So this is the cost of prosecuting both litigations, and the expectation is that it will get done by the end of the year.

Great.

Thank you very much.

Sandeep Aggarwal with Caris Company.

Thanks for taking my questions.

Actually, I have a couple of them.

One is, Magid, can you talk about the analytics products' margin potential?

I think you mentioned that, new potential-wise, it can be as the core offerings of comScore, but what about the margin profile?

Can we say that at scale, analytics can be as profitable as your core offerings, less or more?

And then second, on the international expansion, what are your plans for building panels and the local capabilities (inaudible) by your joint venture?

And then I have one follow-up.

Sure.

I think that we, in terms of kind of marginal -- margin contribution, the analytics product should have very similar characteristics to our core product, maybe not quite as profitable as our base audience measurement product, but should be at least as profitable from a marginal contribution standpoint as the blended rate for the rest of our products.

As far as international expansion and building panels, as you know -- we've had international panels since day one, and probably more than 50% of our panel now is in foreign countries.

When we supplement our global recruiting program in any given country, it usually is for a specific purpose that's either necessitated by special language or cultural requirements or for -- maybe a new revenue stream that a specialized panel will deliver.

But generally speaking, we don't look at that kind of expansion as a reason for an acquisition.

It's just a matter of fine-tuning what we have currently existing.

And just one more question, please.

And that is on the --you've had a series of acquisitions in the last 1.5 years.

Where are you, relative to your internal target goals, in terms of integration, synergies, and cross-sell and upsell opportunities?

Maybe you can just make a comment on all of them, one by one, or maybe just in general.

Well, I think we're right on target.

There are some acquisitions where we're probably well ahead of target, but for the rest, I think we are well on target.

We're doing well, and I think the next 3 months or so is where we would start seeing the last phase of integration -- the last phase of integration begin, and expect everything to be behind us by the end of the year.

Thank you.

John Blackledge with Credit Suisse.

Thanks.

Just one question.

Just wondering if you can talk about the pricing environment for your annual contract renewals and multi-year renewals.

I think in the past, you've said that the multi-year renewals are a little bit lower pricing as you lock, obviously, the multi-year deal, but if you can just give us some insight on that, I'd appreciate it.

Thanks.

I would say the environment in terms of pricing has probably improved relative to last year.

And I would credit UDM with that, because the offering of the UDM service which we rolled out at the time without an up charge gives us a reason, given the actual value it delivers, to be able to renew at higher rates.

So I would say the environment has certainly improved in terms of doing that.

And when we do multi-year contracts, usually those contracts are involving not just a straight renewal of what people bought last year.

Usually, it's really a big vote of confidence in what comScore has to offer, and the corollary of that is that they are pleased that they're buying more products.

So usually, those kind of increases -- those kind of contracts end up increasing substantially in value, and even though the price escalation is lower than what you'd expect in 1-year contracts, usually what these customers are buying is substantially higher than your average 1-year contract customer.

That's great.

Thank you.

James Cakmak with Sidoti & Company.

Hi.

With respect to the emerging areas, can you provide some more detail as to the investments that you're making on the mobile side, what you expect or see that business becoming, and provide us an update on the AT&T partnerships and anything that you have on TV?

Thanks.

Sure.

On the mobile end, we have 2 areas of investment -- 1 related to adapting, or I guess integrating, the Xplore platform with some of the other comScore products.

So for instance, we are offering now the ability to layer on top of basic technical network data, web usage statistics that allow carriers to relate the overall bandwidth consumption and the overall customer experience with what is it that users are doing on the network.

So that's 1 area, in terms of developing some of these joint products.

The other area is really to start the sales process in geographies where Nexius traditionally had not played.

So, Europe is one, Latin America is one, Asia is one.

The traditional --the historical area for Nexius has been the US, and they have a couple of accounts in the Middle East.

As far as TV is concerned, we continue to work with AT&T on building that joint panel, but we are getting a lot of the TV data in-house, and we're using it to build the measurement systems and reporting systems that will be -- that would be a part of the product release that we'll end up offering to the market.

We have, by the way, also have had a couple of clients that-- a couple of marketers where we have done some substantial cross media advertising, ROI analyses, that have leveraged the integrated Internet data set from comScore and TV data from AT&T.

Okay.

Thank you.

And at this time, I'd like to turn the conference back to Magid Abraham, CEO, for closing remarks.

Okay.

Well, thank you all for participating in today's call.

We are pleased with our continuing business momentum and strong first quarter performance.

We believe our strategy of broadening our addressable market for digital business analytics ranging from audience web analytics, advertising analytics, mobile analytics, all of those areas are paying off, and we're still in the early stages of capitalizing on its expansion.

Our continued investments in product integration software development and sales support further strengthen our leadership position in helping our clients measure, analyze, and act on opportunities in the digital world.

We believe these investments will drive healthy top line growth and profitability over the long-term, and we look forward to speaking with you and updating you in the future on our progress.

Thank you very much.

We thank you for your participation in today's conference.

This does conclude your presentation.

You may now disconnect, and have a great day.