Comscore Inc (SCOR) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 comScore, Incorporated Earnings conference call.

My name is Francine and I am 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).

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

Ken Tarpey, Chief Financial Officer.

Sir, you may proceed.

Thank you, Francine.

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

Again, I'm Ken Tarpey, Chief Financial Officer of comScore.

And on the phone with me today is Magid Abraham, our President, CEO, and co-Founder.

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

During the course of today's call, as well as during any question-and-answer periods that may follow, representatives of the Company may make forward-looking statements within the meaning of Security 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 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, including AdXpose, expectations regarding comScore's intellectual property rights, expectations regarding certain litigation matters, assumptions regarding tax rates and net operating loss carry-forwards, and forecasts of future financial performance for the third 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, comScore's Form 10-K for the period ending December 31, 2010, and comScore's Form 10-Q for the period ending March 31, 2011.

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 web site 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 web site is ir.comscore.com and our results are posted under Press Releases.

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

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

We are pleased with our solid financial performance in the second quarter that resulted in revenue and adjusted EBITDA above our previously-announced guidance.

Revenue of $58.1 million in the second quarter was up 38% from a year ago while adjusted EBITDA grew by 23% to $11.1 million.

We added 53 net new customers in the quarter.

Deferred revenue was $73.1 million, growing at 41%.

Our core product lines performed extremely well in the quarter.

We are especially pleased with the continued momentum of our flagship Media Metrix 360 product line and our AdEffx suite of campaign measurement products.

Our Nexius Xplore products also had a strong performance in the quarter, contributing to revenue growth as more wireless carriers recognized the value that Xplore can bring to their networks and subscriber base.

Our next-generation web analytics product, Digital Analytix, is developing good traction in the market.

Since our last call, Digital Analytix has been adopted in the US by customers including Bloomberg, Hertz, and the Associated Press, and in Europe by the BBC and OTTO, one of Europe's largest online retailers.

In addition to our product successes, we are excited about a number of recent developments that we believe highlight our expanded product line and long-term growth opportunities.

We took a leap forward in cross-media measurement with the launch of the Device Essentials, the only solution of its kind to provide an all-encompassing view of digital traffic coming from all web-enabled devices and offering detail into device characteristics, connection type, and geography.

Device Essentials utilizes comScore's Unified Digital Measurement system, which captures media web traffic coming from more than 1 million domains tagging with comScore around the world.

Second, our advertising effectiveness products continue to outpace our overall growth.

We recently introduced our Smart Lift Attribution Model or SLAM that lets customers correctly attribute the branding impact of campaigns by publisher and by creative rather than using erroneous methods based on last exposure or last click.

ComScore is the first to offer such a comprehensive model that we expect to be of interest to our whole client base, particularly agencies and advertisers.

We also introduced Social Essentials, the industry's first social measurement product to provide a deep understanding into a brand's social interaction with consumers on Facebook.

With 93% of all social media advertising on Facebook, Social Essentials fills an important need for customers by measuring both paid and unpaid brand exposures and providing insight into the demographics, brand engagement, search, and interest of users.

While advertisers know how many Facebook fans they have who will see their posts from their brand on Facebook, Social Essentials helps them evaluate the true reach of their brand not only through their fans, but also through the friends of their fans, which in many cases can be a multiple of the number of fans alone.

We have worked cooperatively with Facebook on Social Essentials and jointly authored a whitepaper published with the product launch, including case studies from three major Facebook advertisers -- Starbucks, Microsoft Bing, and Southwest Airlines.

We believe Social Essentials fills and important part of the picture for marketers online and adds a unique capability to comScore's products in advertising measurement.

Today I am excited to announce the acquisition of AdXpose, an emerging leader in ad campaign verification and optimization.

AdXpose's SaaS technology provides advertisers and publishers with greater transparency and confidence in their digital advertising campaigns.

For example, AdXpose evaluates in real-time the page where an ad is being delivered and blocks its delivery if the surrounding content is deemed inappropriate according to rules set by the advertiser.

This helps advertisers protect the integrity of their brand by advertising only within acceptable environments.

In addition, AdXpose measures whether an ad served was visible to a user while browsing the placement web page and for how long.

This helps marketers quantify which ads among those counted by ad servers were never seen by the user and therefore have no beneficial impact.

Combined with our Campaign Essentials product, AdXpose puts us in a position to offer a true currency that can form the basis for how advertisers value and pay for digital advertising.

While traditional media has used gross ratings points or GRPs as a useful surrogate to media weight, we have learned from our experience in reporting gross GRPs on over 5,000 online campaigns in the last five years that these gross eGRP metrics are of limited usefulness in digital campaigns with no accounting for fraudulent impressions, blocked impressions, impressions never seen by users, or massive exposure frequency delivered to oversaturated users.

We are introducing a new metric, VGRP or validated GRP, which validates ad impressions for conformity to advertiser specifications.

We believe VGRPs will play an essential role for advertisers seeking transparency and accountability for their investments since they are based on validated ad impressions, not delivered gross impressions, which is what the traditional GRP metrics are based on.

While AdXpose is not a large acquisition and its near-term financial impact is not expected to be material to revenue in 2011, we view it as a highly strategic component within our Ad Effectiveness suite, which enables comScore to be a one-stop shop for ad execution analytics, delivering potentially game-changing value to advertisers, agencies, and ultimately the entire ecosystem.

Lastly, I am pleased to announce that comScore will hold an investor day in New York City on September 7 to provide our investors with a deeper understanding of this new array of products that we have assembled in the last year.

Words simply can not do justice to these new capabilities and their potential and the proverbial picture is worth 1,000 words.

Details will be forthcoming.

With that, I will now turn it over to Ken for a more detailed financial picture and guidance for the rest of the year.

Thank you, Magid.

GAAP revenue in the second quarter was $58.1 million, up 38% year over year.

Within total revenue, subscription revenue in the second quarter was a quarterly record of $49.5 million, up 36% year over year and 11% sequentially.

Subscription revenue represented 85% of total revenue and a significant component helps drive our overall revenue visibility.

Project revenue was $8.6 million, up 56% from the second quarter of 2010 and slightly up from the first quarter of 2011.

Our subscription renewal rates in the second quarter were consistent with our historical range of 90%-plus on a same-contract-dollars basis and continue to help drive the visibility in our revenue model.

GAAP revenue from existing customers was up 29% year over year in the second quarter to $49.1 million and represented 85% of total revenues.

New customers make up the balance of the revenue.

We added 53 net new customers in the second quarter with our customer count now standing at 1,860.

Our focus on international expansion is driving an increase in international revenue.

In the second quarter, revenue from outside of the United States was $14.7 million, up 126% year over year and now represents 25% of our total revenue compared to 15% of our total revenue a year ago as we continue to expand our global opportunities.

Total deferred revenue, which includes current deferred revenue of $71.8 million and long-term deferred revenue of $1.3 million was $73.1 million.

This total deferred revenue largely made up of cash paid for subscription licenses or subscriptions that will be recognized over future periods, helps drive again our future subscription revenue.

Our top ten customers represented 29% of revenue in the second quarter.

And we, again, had one 10%-plus customer in the quarter.

Now turning to expenses, in the second quarter gross margins were 67%, down slightly from the first quarter.

And gross margins were 71% in the same quarter last year.

As we mentioned before, gross margins in the near term are impacted by the effects of our 2010 acquisitions.

GAAP pretax loss was $6.2 million in the second quarter as compared to our first quarter GAAP pretax loss of $2.5 million.

GAAP pretax income in the second quarter of 2010 was $1.8 million with a decrease in GAAP pretax income on a year-over-year basis primarily attributable to added cost of litigation of about $5.2 million in the second quarter of 2011, which are in line with our expectations, costs from acquired companies such as higher intangible amortization costs of $2.4 million, higher stock-based compensation expenses, and the impact of purchase accounting on acquired deferred revenue of $300,000.

Our effective GAAP income tax rate in the second quarter was 33% compared to a tax benefit in the first quarter.

This was due to a reversal of the Company's tax provision, which changed from a $2 million benefit in the first quarter to an expense of $2 million in the second quarter.

This shift in tax provision is a result of additional losses, which we now expect on a full-year basis.

Looking forward, our year-to-date GAAP tax rate is a benefit rate of 2% and the tax benefit of current losses is minimized by valuation allowances.

Our year-to-date cash tax rate is 15% and is impacted as mentioned before by our profitability in certain international jurisdictions like Canada and some South American countries and certain states where we do not have net loss carry-forwards available.

Currently for the year we project an annual GAAP tax benefit rate of approximately 5% and an annual cash tax rate of 15%.

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

The GAAP net loss was $8.2 million or $0.26 per basic and diluted share in the second quarter of 2011 based on a basic and diluted share count of 31.8 million shares.

Non-GAAP net income for the second quarter of 2011 was $5.4 million or $0.16 per diluted share and excludes litigation costs, stock-based compensation, amortization of intangibles, acquisitions-related expenses, and the adjustment for purchase accounting impact on acquired deferred revenue.

This amount compares with a non-GAAP net income of $6.4 million or $0.20 per share in the second quarter of 2010.

With our varying tax rates, we still 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 compensation 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 $11.1 million in the second quarter compared to $9 million in the second quarter of 2010, an increase of 23% with an adjusted EBITDA margin of 19%, comparable to a year-ago figure of 21%.

Our consolidated EBITDA margin is impacted by our recent acquisitions.

Adjusted EBITDA margins continue to improve, though, in our base comScore business.

Excluding the impact of acquisitions, our first half adjusted EBITDA margin was 21.6%, an increase from the 20.2% in the first half of 2010.

Cash flow from operations for the second quarter of 2011 was $4.6 million.

Our capital expenditures were $2.6 million in the quarter.

This resulted in a net quarter free cash flow of approximately $1.9 million.

As of June 30, 2011, cash, cash equivalents, and short-term investments totaled $42.5 million.

Our receivables of $53.3 million increased from the $34.9 million a year ago because of the rapid growth of our business.

Our DSOs of 75 days are consistent with the first quarter of this year.

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

During the second half, we anticipate our project revenues to soften compared to recent trends.

Some considerations looking forward is one primary contributor is a delay in recruiting our previously-announced 25,000 household three-screen panel with our partner AT&T due to extensive legal reviews with appropriately high caution due to AT&T's pending T-Mobile acquisition.

The good news is that those reviews have been completed.

Recruiting has commenced.

But we anticipate we will be delayed in reaching our full sample target until the fourth quarter of this year, which will naturally delay initial sales we had forecasted in Q3 and Q4, mostly impacting anticipated project revenue.

We also believe the acquisitions have also affected the timing that -- of a handful of sizable comScore transactions.

In addition, project revenue will be negatively affected by reduced activity of a handful of customers in the TV copy testing area.

Lastly, while we have not seen a material macroeconomic impact on our business year to date, we are being more cautious concerning discretionary budgets in the near term in light of recently-published macroeconomic data and downward revisions to GDP growth in the prior period.

On the cost side, we also anticipate that the integration of AdXpose will have a negative impact on our full-year adjusted EBITDA.

For the third quarter of 2011, we anticipate revenues in the range of $58.2 million to $58.8 million, which represents an expected increase of 27% to 29% over the third quarter of 2010.

We anticipate third quarter GAAP loss before income taxes of $8.3 million to $8.9 million.

As in the second quarter, third quarter GAAP loss before taxes will be impacted by a number of noncash items.

These include approximately $2.9 million in amortization of intangibles and $6 million in stock-based compensation.

We also project third quarter GAAP results to include approximately $1.2 million in acquisition and restructuring costs and litigation expenses of approximately $4.1 million based on the accelerated trial schedule.

We anticipated adjusted EBITDA for the third quarter of 2011 to be in the range of $8.8 million to $9.4 million, which represents an adjusted EBITDA margin of 16% at the midpoint of our revenue and adjusted EBITDA guidance.

Our estimated fully-diluted share count for the third quarter is 33.6 million shares.

A reconciliation of GAAP net income before income taxes to adjusted EBITDA guidance for the third quarter and the full year is included in the tables to our earnings press release.

For the full year of 2011, we are anticipating revenue growth in the range of 32% to 34% over 2010 or revenue in the range of $231.1 million to $234.7 million.

We anticipate GAAP loss before income taxes for the full year to be in a range of a loss of $18.3 million to a loss of $20.1 million.

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

These include approximately $10.8 million in amortization of intangibles, $23.2 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 $2.1 million in costs related to acquisitions and restructuring and approximately $12 million related to litigation costs.

We anticipate adjusted EBITDA on a full-year basis in the range of $43.6 million to $45.4 million.

As our business continues to scale, we intend to balance investments in what we believe are considerable growth opportunities with appropriate cost management as it remains our intent to grow margins on a long-term basis toward our target adjusted EBITDA margin range of 28% to 32%.

In summary, we're pleased with our second quarter results that reflect overall business momentum.

While events largely beyond our control have moderated our top-line growth expectations for 2011, we continue to target over 32% growth driven by organic growth well over 20%, which is further enhanced by acquisitions over the past several quarters.

We are excited to see new products gain traction, demonstrating the power of our expanded market opportunity and reinforcing our confidence in our ability to scale our top- and bottom-line performance over time.

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

Thank you, sir.

(Operator Instructions).

Our first question comes from the line of Jeetil Patel.

Great, thanks.

A couple of questions.

First of all, I guess when you -- I know you referred to the VGRP.

Can you talk about maybe what the feedback has been from agencies or marketers or I guess how does this fit in also with respect to some of the initiatives and concepts that have been talked about by the IAB or ANA or AAAA?

And second, what do you think is the learning curve in terms of getting a lot of your customers up to speed on VGRP or the broader community as you look ahead?

And then second, as it relates to the guidance in the second half, it looks like about a $5 million delta relative to where I think most expectations were prior.

And I guess maybe can you break it down a bit between subscription revenue and project revenues and maybe what can get recouped as you kind of roll into early 2012?

Thank you.

Okay, Jeetil, let me answer the question about -- the first part of the question about VGRP.

So there is this initiative that is championed by the IAB on one hand and the AAAA, which is the American Association of Advertising Agencies, and the ANA, which is the American National Advertisers Association.

Those organizations have gotten together and are sponsoring an industry study and recommendation to basically say let's fix the measurement of online advertising.

And they have published some initial principles based on some of the early findings that they have had.

And some of these principles are -- play right into the VGRP measurement that we just announced.

So, for instance, they are well aware that advertisers are paying for exposures that may not be at all visible to the users.

They could be below the fold deep enough that the user will never scroll down and see those ads.

And naturally the two constituencies that are very interested in that, the agencies and the advertisers, really want to know what percent of the buy that they have is actually never seen by their users.

And ultimately I think the industry will evolve to a payment system where it's no longer the impression count delivered by the ad servers, which can have a lot of stuff that is never seen by the user.

There has also been an increase in fraud that is going on and people really want to validate it.

Advertisers are demanding that the environment, particularly if they are buying from ad exchanges, the environment where their ads show up is safe for their brands.

And so that's really one of the principles that they're asking for.

Another principle is that they want to move the measurement to the people-based measurement rather than what you typically get today when you run an advertising campaign based on ad server reports, which is number of cookies exposed and a frequency based on average frequency per cookie.

They want those metrics to be people-based and they want people descriptors of the demographics and the profiles of those users.

They want metrics that measure behavior and interactivity.

And they do want measures that resonate with traditional media.

However, it's very clear to us that -- and this was illustrated when we have talked to the principals involved in this -- it's very clear that the old metric of GRPs that are basically taking the number of impressions as counted by an ad server and normalizing it by number of households, that's something that may work well in TV, but it is really an obsolete metric in the online world.

It is literally a misleading metric and somebody could be getting 100 GRPs and -- which could be 3 times more effective than somebody else that is getting another 100 GRPs just because of how the ads were delivered, whether they were visible, and whether they -- how concentrated the delivery is.

So that's the genesis of the VGRP.

And we think that the economics are such that it's inevitable that this is going to be the metric that will value advertising.

Nobody wants to pay for advertising that's never seen.

Nobody wants to pay for advertising outside of the country where it was specified.

Nobody wants to pay for advertising on a porn site.

Nobody wants to pay for advertising that was generated by a Botnet, et cetera, et cetera.

So that's what the old definition of GRP did not filter.

That's what validated GRP will do.

Now we have just announced VGRP.

And part of the building block has been the AdXpose acquisition.

So we are going on a communication campaign with the different industry constituents.

But we know from informal meetings with clients we have had before that this is something that the industry is waiting for and has been really asking for.

Now as far as the adjustment in the revenue guidance and the split between projects and subscription, we believe the acquisition that Ken referenced in his call has some significant impact on subscription revenue [this could have] at the end of the year and it's just simply we think that those are transactions that are delayed until this particular acquisition is finalized one way or the other.

So we don't really expect that to be -- we have a good level of confidence that kind of revenue will be there sometime in 2012.

About the portion of the delta, which is driven by projects, I would characterize it as somewhere around $3 million roughly speaking.

And about half of that is driven by these copy testing campaigns where we see a couple of advertisers reducing the number of campaigns they're testing.

And the acquisition was AdXpose that you're referencing, right?

The -- well, no, there is -- the acquisition of AdXpose, but what Ken mentioned is that the T-Mobile acquisition proposed by AT&T has obviously, you know, had a significant impact.

One of the impacts has been the delay in the three-screen panel.

But the other impact is that as when these kinds of acquisitions are in play, a lot of plans are frozen or put on hold until things are resolved one way or the other.

Got it.

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

Thank you.

Thanks for the -- for taking the question.

A couple of things -- one just wondering if you can give us an update on the litigation, two if you can talk about Social Essentials' potential operating impact as we head into 2012, customer uptake, et cetera.

And then I guess in the back half of the year based on the guidance, the margin impact is bigger from a delta perspective than we had anticipated, so if you can -- Ken, maybe if you can provide us with a little bit more detail on margin compression in the back half of the year?

Thank you.

Okay.

Okay, fine.

Sure.

Thanks John.

Yes, as it relates to the litigation, we are -- we're in the discovery phase of the case.

And the proceedings are moving along consistent with other lawsuits, patent lawsuits in the Eastern District of Virginia.

There's also a mediation effort currently being supervised by a magistrate judge in Alexandria.

And beyond that, it's a litigation matter.

We really can't make any other comment at this point in time.

As it relates to the margin question, John, as we look into the back half of the year, as you saw with our guidance in the third quarter, we have the near-term impact on margins because of what we see as some softening in our project revenue business, a little bit on the subscription side, and somewhat the impact of the acquisition of AdXpose as well as we get on with integrating their technology with our capabilities.

Okay.

And Magid, if you can just talk about Social Essentials, you know, maybe provide a little bit more detail, expectations as we head into 2012 in terms of client uptake, et cetera?

Well, the genesis of Social Essentials is that every marketer we talk to want to know about "their earned media." And their earned media is the free media that they get by having people discuss their brand and reference their brand and Tweet it, et cetera, et cetera.

So what Social Essentials does is basically measures the reach of those social activity and to the extent to which these kind of referrals are viral.

And we see a lot of interest from advertisers into that.

In fact, kind of optimizing their social efforts is in some cases more important in the minds of people than optimizing just their online spending.

We just introduced the product.

We have seen a really positive reaction.

I think that I would expect it to be a very nice contributor to revenue in 2012.

It is going to be, you know, there is going to be a decision that we would have to make on how we sell it, whether it is a standalone product or whether it is a combination within the AdEffx suite.

But we think either way it is a very powerful product, unique in the marketplace, and it is something that both the social media sites like Facebook, as well as the marketers and the agencies are really asking for.

That's great.

Thank you very much.

Our next question comes from the line of Youssef Squali from Jefferies & Company.

Hi.

Thanks.

This is Kip Paulson for Youssef.

A couple of questions.

One, is Campaign Essentials seeing any weakness ahead of Nielsen's ad effectiveness tool Online Campaign Ratings?

I think that product is scheduled to launch this month.

And secondly, what was the organic growth for Advertising Effectiveness and Mobile in the quarter?

Thanks.

Sure.

No, we have not really seen any impact from Nielsen's Online Campaign Rating.

And we have written a blog about it, which I would invite people to take a look at.

From our standpoint, Online Campaign Rating is really recycled news.

It's Nielsen publishing GRP on online campaigns, which is something that we have done over five years ago.

The only PR twist to it was their cooperation with Facebook.

The cooperation with Facebook is not exclusive.

Facebook collaborates with us on a number of things that are very important to them.

And I should say that one of the things that is important to realize that -- is important to realize is that when marketers are looking for demographics for a campaign, they're looking for demographics beyond age and gender, which are the only demographics that you can get from a social network.

They are looking for demographics like income, like household size, like presence or absence of children, et cetera, et cetera.

Those kinds of demographics are still coming from the panel.

And that's where we have a significant advantage.

So from our standpoint, I think that if you just abstract from the PR and the spin, it's a product that's copying what we did five years ago and in fact we are moving beyond it.

We think it's an obsolete product because the gross GRP metric, is basically what is being introduced here is not a metric that is relevant to the industry as it is evolving anymore and not at all consistent with what I discussed earlier in terms of what these initiatives are asking for.

Okay.

And then the organic growth from Ad Effectiveness and Mobile?

The organic growth from Ad Effectiveness --

Magid, do you mind if I take that?

The way I would turn that is what was the growth rate year-over-year as compared to our overall growth rate in those two areas, and those areas are ones that are growing at a much stronger rate even than our overall growth rate.

So when you look at both Ad Effectiveness and Mobile in terms of the activities, the core Mobile activities we're doing in Ad Effectiveness, their growth rate year over year in terms of the closed business, et cetera, is more than 25% over our overall growth rate.

So it's accelerating and doing very well.

Okay, great.

And then finally is the integration still going according to plan?

I think you said you expected to be wrapped up with that by the end of the year.

Thanks.

Yes, I think integration is going according to plan.

There are some things about integration such as achieving VSOE status and things like that, which we were able to accomplish in the United States and Europe, but not in the Middle East, which is where part of Nexius's business is.

But those are really more accounting issues than integration issues.

The integration is going really well.

Great.

Thank you.

Our next question comes from the line of Jason Helfstein from Oppenheimer Funds.

Yes, hi, this is Michael Weiss in for Jason.

Just had a couple of questions.

First if you could explain again what's driving the lower full-year revenue guidance?

Also how much of the reduction in full-year EBITDA guidance is due to cost from the announced acquisition versus investment in existing businesses?

And finally, if you could also discuss where the investments are being deployed between sales and R&D and G&A?

Thanks.

Okay, this is Ken.

Let me start again.

In terms of the revision to our guidance, there are several factors that go into play.

One, as we talked about, the AT&T T-Mobile acquisition and the revolving legal reviews around that have slowed down the implementation of our cross-media business, so that had an impact on our project revenue, particularly in the second half of the year.

It's not lost business, but pushed forward.

Secondly, from the standpoint of other business with AT&T, some of that's also moved forward, subscription business, because of the -- just the slowdown in what they're able to do with their pending acquisition.

The copy testing business has slowed somewhat in terms of some business that we had originally seen earlier in the year compared to what we anticipate in the second half of the year.

And then an additional factor is just looking at economic conditions and how we look forward from a project revenue standpoint.

We see it a bit tempered compared to what it was in the first half of the year.

All in, as we discussed, it's about a $5 million revenue impact on the year.

As it relates to integration cost and the rest of it, we obviously have additional integration activities with our exciting new acquisition, AdXpose, which we had not previously had on the plate, so that's a new factor.

I think secondly in terms of the newer acquisitions, particularly with their global nature, we continue to make investments, so as we're seeing exciting activity and need for investment in Europe and in South America and the Far East.

Thanks.

And could you speak to the last part?

I'm not sure if you addressed (multiple speakers).

Sure, regarding where are the investments?

Well, you'll see some of the investment area obviously as it relates to it and then the return as we grow the revenue on the gross margin line, which we've mentioned in prior calls that we anticipated the gross margins would be somewhat down, but then as we go through the year that we'd start to see those expand somewhat.

The other areas are sales and service for sure, particularly with the global expansion.

That's a continued area for investment.

R&D in terms of (technical difficulty) AdXpose integration activities that we will undertake and the continued integration of our more recent acquisitions, Nexius and Nedstat.

All right, thank you very much.

You're welcome.

Our next question comes from the line of Robert Coolbrith from ThinkEquity.

Hi.

Good afternoon.

Not to try to ask the same question over and over again, but can you give us a little more perspective on the incremental margin on the lost or delayed revenue and how that focus versus some of the R&D work that you're doing with AdXpose and also just right now how you're feeling about the long-term margin targets and the timing on those that you have out there.

And then I might have one quick follow-up on AdXpose.

Okay.

This is Ken.

Let me kind of give -- elaborate on things.

I did refer to the target margin having changed from our expectation over time.

It's really kind of three-plus years in terms of getting to that high twenties as we go forward.

Clearly with the guidance we've given, those margins will start to improve as we go through the fourth quarter and head into next year as we work through the various integrations and returns that we see that are out there as it relates to that.

But it is -- as we've always said before, it's longer term.

There's a lot of opportunities and needs to expand our product capabilities.

Now we mentioned during the comment section that like-for-like excluding acquisition, the base comScore business, our margin the first half this year out of last year is up by 1.5 margin points.

So this is something that I think we are experiencing in our base business.

And just having these additional acquisitions, getting them to, getting them all of the resources that are needed, getting all of the integration and the training, investing in the additional R&D, investing in additional marketing to be able to get them in some cases from a limited brand recognition to the recognition that they can get under some marketing with comScore are all of the things that we wanted to invest in this year.

Now in terms of the -- so take for example the integration with AdXpose.

One of the first things that we're going to be doing with the integration with AdXpose is taking our Campaign Essentials product and then merge it with AdXpose so that a customer will have one single scorecard that pertains to everything that they want to know about an advertising campaign.

So that's going to be taking some incremental -- some significant incremental headcounts for a period of time to achieve that integration.

Now we will have some shortcuts to do it in the short term, but it needs to be done right as well.

We will also put some money behind it.

In general, our incremental margin per dollar is in the 50% to 60% range, so the revenue shortfall accounts for that.

And the rest is really investments driven by R&D, marketing, and sales activity.

Great.

And if I could just ask a quick question on AdXpose and the functionality, I know that some of your competitors have tried to leverage their sort of flash ad-wrapper if you want to call it that to maybe put -- or leverage some of that data from it and use that for -- as a basis of a campaign planning tool as well to measure engagement or time of view and metrics like that across different sites.

Could you also leverage this for the campaign planning tools that you've been working on or just any commentary on sort of extensions or what else you could do with it?

Thanks.

Sure.

First of all, on that particular aspect alone, we believe that between us and AdXpose -- we have been doing a lot of R&D on this, so between us and AdXpose, we'll have the broadest possible coverage of advertising deployment situations and browsers, et cetera.

So we feel really good about the strength of the technology.

From a business standpoint, we believe the market is -- does not want point solutions to address individual things.

So if you think about an individual campaign, an advertising agency could get an ad server report, could get somebody that will do their (inaudible), somebody that would measure their visibility, could get somebody that will measure their people reach and frequency, and could get somebody else that is going to measure their brand lift or their sales ROI.

And if you really think about that, that's the really dizzying array of solutions and data that people need to deal with.

I think the strength of what we offer is that we can offer all of these things in one shot.

One tag that you put on your campaign will actually enable all of these different capabilities and you will get the results on one dashboard.

One of the things that you will get listening to all the different advertising agencies is the removal of the execution friction that really happens with online advertising.

This is definitely one of those areas.

And it is something that I think will represent really a significant asset because we have now assembled everything that you need to know about a campaign and nobody else has that.

Great.

Thank you.

And we have a question from the line of Mark Zgutowicz from Piper Jaffray.

Thank you.

Hi.

I just was hoping you could provide a little more color on the AT&T delay and if you could maybe just quantify the impact on Q3 and your full-year revision.

And then secondly just the timing on that delay -- did that happen early or late in the quarter?

What I would say is that the -- we signed the AT&T deal in the fourth quarter of last year.

The expectation was that recruiting was going to begin early this year.

Naturally given the T-Mobile circumstances, there is a tremendous amount of review that has to go through anything that is being done by AT&T in the short term and frankly every day, [it could be] today or tomorrow or this week in terms of when things will be done.

Fortunately we're through it, but it's probably delayed us by about five months in terms of where we hope we will be relative to where we are right now.

Now we are -- we have over 10,000 households where we can do some of this measurement, so it's not -- we do have a solution, but it's not at the objective levels that we have of 25,000 households that we said when we announced the product.

So as far as what the impact is concerned for the year, we think we were counting somewhere in the range of $2 million in revenue, more in sales obviously, but somewhere around $2 million in revenue.

Most of that we think will be delayed given the delay in recruiting.

And at the same time, there is really, I mean, our prospects as far as the offering and the kind of data that we provide and integration with our other products.

That's all still impact, but it is just a matter of timing.

Okay, that's helpful.

And then separately I was just hoping you could quantify the magnitude of Ad Effectiveness and analytics sales on your full-year revenue revision.

No effect.

No effect?

No effect.

So you're -- when you talk about extended sales cycles, you're referring to what specifically?

I'm referring to -- partly -- I'm referring partly to the cross-media stuff and some of the subscription products that were in the pipeline that are going to be extended unfortunately because of the delays due to this acquisition.

I mean, we literally right now do not, we are not anticipating in our core business any delays or lengthening sales cycles beyond what we just talked about.

Okay.

What's the current headcount that you are carrying now for analytics?

I think you had talked about maybe getting to a dozen or so in the US.

Sorry, what do you mean by headcount?

Just the sales headcount that's selling the analytics product in the US.

I think you were looking to ramp that up this year.

I was just curious where you are in terms of the numbers on the sales side, number of heads.

I think between sales, service, and marketing, we are around ten, but in terms of direct salespeople, that's still ramping up.

It's now 10 or 12.

Okay.

And then just specifically on discussions that you're having with the incumbent players on the analytics side, I know you had I think last quarter talked about 600, 700 of your existing customers as opportunities to sell the analytics into and those were obviously, are currently, you know, own incumbent provider.

I'm just curious how those conversations are going with that sort of 500 to 600 number.

I'm just curious of what kind of progress you're seeing there in terms of discussions and the opportunity to displace those incumbent players.

Well, the -- first of all, not all of these come due at the same time, so we need to keep that in mind.

But that said, we do have a really healthy pipeline and we -- we're very happy with it.

The reaction to the product is great.

The key difference I would say that we see between this product and what we're normally used to is that we -- sometimes you need to do proof of concepts, which are I guess standard things in the software industry.

When we are selling a Media Metrix subscription, the proof of concept is here is your [IDC] data for two days and there it is.

So that extends the -- that makes the sales cycle longer than it normally is for our other products.

But that's -- it's just the nature of the industry.

Okay.

So that -- I guess just the last question on that point then, so when you're -- in terms of what you've factored into your guidance, there's no sort of pipeline conversion reduction that you're expecting for analytics or Ad Effectiveness relative to your -- obviously your current -- your previous expectations?

No.

Okay.

That's helpful.

Thanks very much.

Thank you.

Ladies and gentlemen, that concludes our Q&A portion.

I would now like to turn the conference back over to Magid Abraham

Okay.

So I would like to thank everyone participating in -- on the call today.

We're excited to see the continued momentum in our core products whose growth is further enhanced by new products, technologies, and companies that we can offer through a combination of acquisitions and organic development.

Our leadership and innovation has and continues to bolster our market leadership and our prospects for future growth and profitability.

As I said, we are planning on the investor day in New York on September 7.

We look forward to speaking with you then.

And thank you very much for attending the call.

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

This concludes the presentation.

You may now disconnect and enjoy the rest of your day.