Comscore Inc (SCOR) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2013 comScore, Inc.

earnings conference call.

My name is Farida and I'll be your operator for today.

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

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

(Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Mr. Ken Tarpey, CFO.

Please proceed, sir.

Thank you very much.

Good morning, everyone, and welcome to comScore's earnings call for the second quarter of 2013.

Again, I'm Ken Tarpey, CFO of comScore and with me today is Magid Abraham, our CEO and Co-Founder; Serge Matta, our President; and Cameron Meierhoefer, our Chief Operating Officer.

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 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 the relative quality of comScore's products, assumptions regarding tax rates and net operating loss carry forwards, and forecasts of future financial performance for the third quarter and full-year 2013 including related growth rates, exchange 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, 2012, and our quarterly reports on Form 10-Q.

We caution you not to place undue reliance on any forward-looking statements included in these presentations, which speak only as of today.

We do not undertake any obligation to publicly update any forward-looking statements to reflect new information after today's call or to reflect the occurrence of unanticipated events.

In addition, we may also reference certain non-GAAP financial measures in the course of our presentation.

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

The link to our Investor Relations website is ir.comscore.com and our results are posted under press releases.

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

Thank you, Ken, and thank you for joining us today.

Let me first cover an overview of the quarter, Serge will then discuss key operational highlights driving our business.

After Serge, Ken will provide more details on our financial performance before we take your questions.

We also have a presentation posted on the Investor Relations website under Events and Presentations that accompany our comments today and might be helpful for you to follow along with us.

On slide five.

Our strong second quarter results serve as a confirmation of our strategy, market position, and the value that we deliver for our customers.

The results also represent continued progress on comScore's key priorities for 2013, which I will reiterate for you.

Number one is to maintain our measurement leadership, especially in mobile and multi-platform.

Number two is to continue our campaign measurement progress and rollout globally.

Three, to capitalize on Digital Analytix momentum both in the US and globally.

Four, continued focus on execution particularly driving organic growth, improved margin, and increasing free cash flow.

And finally, a continued focus on returning capital to investors as appropriate.

Turning to slide number six.

As you can see, our continued momentum was evident in the second quarter.

We reported record quarterly revenues of $69.9 million, which is up 21% versus pro forma results in Q2 2012.

Our record revenues were driven by growing momentum and validated Campaign Essentials or vCE in Digital Analytix and multi-platform products along with continued strength in our Audience Analytics business.

Our momentum in campaign measurement has never been stronger and we are also pleased with the marketplace momentum of our Digital Enterprise Analytix software.

We delivered adjusted EBITDA of $14 million, which represents 20% adjusted EBITDA margin, and record quarterly free cash flow of $17.8 million.

In slide seven, you see that we have continued the momentum in bookings of contract value for the trailing 12-month period ending in June 30.

CV grew 16% over the prior 12-month period.

This is consistent with our performance in the first quarter.

In slide eight, I'm happy to say that we continue to see strong momentum in our new products as we successfully address the growing market demand for reapplying value added data analytics to meet our client needs.

At our Q4 2012 earnings call, you may recall that we discussed the growing contribution of our new products to our contract value and ultimately to revenue.

We had set a target of percentage contribution to CV of 28% to 30% from those new products.

I'm happy to say that we have achieved that milestone in Q2 with new products contributing 30% of first half CV.

This excellent performance helped us achieve better than expected results in Q1 and Q2.

In slide nine, comScore's momentum is also reflected in our increasing share of voice in the US, which is a reflection of media mentions.

Year-over-year, our share of voice has increased nearly 9 points.

In the first half of 2013, there were over 40,000 comScore mentions on an average of approximately one mention every six minutes in the United States.

Last month we appointed Serge Matta as management of the Company.

Serge is an exceptional leader and strategic thinker both inside and across the industry.

He combines excellent product visions, great client relationships, and proven execution skills and I look forward to working with him to realize comScore's exciting opportunities.

Serge was an early and key contributor when he first joined comScore and his contributions to both our business and our people have grown ever since.

Serge joined comScore over 12 years ago as a Product Manager and progressed through the ranks ultimately leading comScore's global sales organization.

During his tenure, he has held a variety of key roles and has been pivotal in driving comScore's global success.

He previously oversaw the custom media solutions group, headed the Company's telecommunications and financial services practices, and played a key role in driving strategic acquisitions and deep critical customer relationships.

As we constantly evolve to meet the multi-platform measurement and analytics needs of our clients; Serge's in-depth knowledge, vision, and strong client partnerships will all be critical elements to comScore's continued growth and innovation.

And with that, I'd like to turn the call over to Serge.

Thanks, Magid, and good morning, everyone.

I'm very pleased to be in my new role as President of comScore and look forward to continue building on the strong momentum that is driving our business forward across our key audience, advertising and digital analytic segments.

On slide ten, our multi-platform products are rapidly gaining broad market acceptance and momentum, particularly within our core Audience Analytics business.

The adoption of Media Metrix multi-platform, or commonly used as MMX MP, continues to grow.

Since the beta launch back in October of 2012, 175 customers have signed up for Media Metrix MP in the US with more than 50 customers subscribing during the second quarter.

We are also seeing increasing upsell activity where existing customers are adding MMX MP to existing subscriptions.

Over half of the new MP subscriptions, subscribers also bought Mobile Metrix and/or Video Metrix during the quarter as well.

Moving on to slide 11.

comScore's advertising analytics offerings are unmatched in the industry.

Our validated Campaign Essentials products or vCE is leading the way providing real-time cloud-based on-demand monitoring and optimization of digital advertising campaigns.

We continued to secure key customer wins, including agencies like Starcom MediaVest and Zenith Optimedia, leading advertisers like P&G and Kraft, and publishers such as Microsoft Advertising.

In our most recent vCE announcement, Microsoft Advertising has selected vCE to optimize their high quality digital display advertising inventory and to help advertisers better understand how their campaigns are working.

vCE will be implemented across several Microsoft Advertising services providing important metrics on digital ad viewability, audience verification, and brand safety to help improve campaign performance.

Perhaps the best measurement of vCE traction lies in the fact that 22 of the Top 25 largest global advertisers representing 89% of global ad dollars are vCE clients.

This includes all of the Top 10 CPG advertisers.

On slide 12, you can see the market momentum of vCE as we continue to outpace the competition.

Internationally, vCE is delivering 4.6 times the impressions of our closest competitor and in the US, we garner 2.3 times the impressions.

We are gratified that these ratios are even better than similar ratios in the first quarter.

Finally on slide 13, we also continue to gain momentum across Digital Enterprise Analytics.

Worldwide bookings for Digital Enterprise Analytics grew 29% on a trailing 12-month basis as of the end of the second quarter.

During the quarter, comScore launched Digital Analytix multi-platform, the next generation of Digital Enterprise Analytics.

Building on Digital Analytix, a proven technology used by leading corporations to better understand the digital customers' behavior.

This new offering applies comScore's multi-platform expertise to help businesses gain a deeper understanding of user behavior across platforms.

Now I'll turn the call over to our CFO, Ken Tarpey, for review of our financial results.

Thank you, Serge.

Good morning again, everyone.

Let's take a look at our performance for the second quarter of 2013 in more detail starting with revenues.

As Magid said, revenues for the second quarter was a record of $69.9 million, up 21% versus pro forma results in the same quarter last year.

Subscription revenue in the second quarter was $59.5 million, up 20% versus pro forma results in Q2 2012.

Subscription revenue and project revenue represented 85% and 15% of total revenue respectively.

GAAP revenue from existing customers was up 20% year-over-year in the second quarter to $62.5 million and represented 89% of total revenues.

Our renewal rate with existing customers remained above 90% on a constant dollar basis, we added 44 net new customers in the second quarter.

Our customer count now stands at 2,250.

We continued to increase our international revenues.

In the second quarter, revenue from outside the United States represented 29% of total revenue and increased 20% over 2012 driven by continued strength of our audience products particularly in Europe, Asia, and Latin America.

On a constant currency basis, our revenues would have been $200,000 higher with the British pound fluctuations being the primary reason.

Now let's turn to expenses and margins.

Our gross margin was 69%, up from 67% in the first quarter due to the higher revenue growth, continued cost optimization efforts, and the benefit from operating leverage driven by our scalable SaaS model.

GAAP pre-tax income was $918,000 in the second quarter as compared to a loss of $6.4 million in the same quarter last year.

The positive change in pre-tax income from 2012 is the result of margin leverage from our revenue growth and the impact of a $1.2 million gain from certain legal settlements this quarter.

Our stock compensation expense in Q2 was $7.1 million.

This increase reflects a periodic refresh of retention grants to certain members of the management team following a benchmarking analysis we conducted during the second quarter.

Our effective tax rate for the first half of the year was 325% while our cash tax rate was 74%.

We have recorded a larger year-to-date income tax expense for several reasons.

First, we have several loss generating entities in foreign countries where we are unable to recognize a current income tax benefit due to the uncertainty of future profits in those countries.

The second reason is the treatment of stock compensation charges under GAAP accounting.

For GAAP, we use the fair value at the time of the stock grant to determine the stock compensation and use those deductions accordingly for GAAP tax rate purposes.

Whereas for the cash tax rate, we use the fair value at the time of vesting.

This timing difference causes the GAAP effective rate to be well above our cash tax rate.

This book tax stock compensation difference will continue to occur throughout 2013.

We cannot predict the tax impact of stock compensation effect because it depends in part on future stock price.

This makes our quarterly effective tax rate during 2013 difficult to predict so we'd expect our cash tax rate to be similarly smaller because of our currently available net operating losses.

In the second quarter, GAAP net loss was $398,000 or a loss of $0.01 per basic share and diluted share based on a basic diluted share count of approximately 34.4 million shares.

Due to the GAAP net loss, the weighted average basic share count is used for both basic and fully diluted EPS calculations.

Non-GAAP net income for the second quarter of 2013 was $9.4 million or $0.26 per diluted share excluding stock-based compensation, amortization of intangibles, acquisition-related expenses, and other non-recurring items.

Since non-GAAP net income is positive, the accompanying EPS calculation is based on a Q2 fully diluted share count of 35.8 million shares.

We believe that adjusted EBITDA is a useful measure for investors to evaluate our operating performance.

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

On this basis, adjusted EBITDA was $14 million in the second quarter representing an adjusted EBITDA margin of 20%.

Now turning to our balance sheet.

We ended the quarter with cash and cash equivalents of $85.8 million, an increase of $12.1 million from March 31 and an increase of $24 million from December 31.

Our receivables of $61.1 million declined from $65.8 million a year ago as higher cash collections drove a decrease in our DSO sequentially.

Borrowings under revolving credit facility were $2 million at June 30 reflecting funds borrowed earlier this year to pay down certain short-term intercompany loans in order to minimize the potential impact of foreign exchange rate fluctuations.

We plan on repaying this remaining borrowing during Q3 with existing cash balances.

Our total deferred revenue was $81.1 million at 06/30.

Cash flow from operations for the second quarter of 2013 was $18.6 million.

Our second quarter capital expenditures were $800,000.

This resulted in a free cash flow for the second quarter of $17.8 million.

For the full-year, we expect our capital expenditures for the second half of 2013 will approximate between $4 million to $5 million primarily to fund expanded data center capacity and support our expanding DAx customer base in the US.

During the second quarter, we repurchased approximately 23,000 shares of comScore stock for total proceeds of about $500,000 under the authorization we announced in June.

Going forward, we will continue to execute on this authorization subject of course to appropriate price parameters on share repurchase.

In the second half of 2013, we'll remain focused on extending comScore's leadership position and continuing to drive improvements in revenue, profit, and adjusted EBITDA in 2013 and beyond.

On slide 15 of the presentation, there is a guidance slide, which I will walk us through now.

The following guidance for the third quarter and full-year 2013 is provided on a non-GAAP pro forma basis excluding the financial performance of our non-health copy testing and configuration manager products, which we divested in Q1 2013.

For the third quarter of 2013, we anticipate revenues in the range of $69.5 million to $73.5 million representing an increase of 11% at the low end, 17% at the high end, or 14% at the midpoint over the third quarter of 2012 on a non-GAAP pro forma basis.

Our Q3 2013 revenue guidance does not have any pro forma impact.

As I mentioned before, we completed those divestitures in the first quarter of 2013.

We anticipate third quarter GAAP loss before income taxes in the range of a $3.6 million loss to a $1.9 million loss.

Our estimated basic share count for the third quarter is about 36.0 million shares.

We anticipate adjusted EBITDA for the third quarter of 2013 to be in the range of $13.4 million to $14.6 million, which represents an adjusted margin of 20% at the midpoint of our revenue and adjusted EBITDA guidance ranges.

We have increased our expectations for the full-year of 2013.

We expect the full-year 2013 non-GAAP pro forma revenue range of $280.5 million to $287.5 million.

On this non-GAAP pro forma basis, the 2013 revenue growth range is 14% at the low end, 17% at the high end, or 15% at the midpoint on a pro forma basis.

We anticipate full-year non-GAAP pro forma income or loss before income taxes to be in the range of a $4.1 million loss to pre-tax income of $1.0 million.

Our estimated fully diluted share count for 2013 is 36.1 million shares.

We anticipate pro forma adjusted EBITDA to be between $54.4 million and $57.6 million in 2013 representing an adjusted EBITDA range of approximately 19% to 20%.

We currently project a 2013 annual GAAP tax rate of approximately 64% and an annual cash tax rate of 19%.

We continue to hold significant net operating loss carryforwards in certain states within the United States and certain foreign jurisdictions, predominantly the Netherlands and UK.

For 2013, we expect approximately $8 million in amortization of intangibles and patents and $28.6 million in stock-based compensation.

For the full-year, we anticipate an average fully diluted share count of 36.1 million.

This excludes the potential impact of share repurchases that may occur in the second half.

A reconciliation of GAAP net income and net loss before income taxes to adjusted EBITDA guidance for the third quarter and the full-year of 2013 is included in the tables to our earnings press release as well as the slides accompanying today's presentation.

For your reference, we have also provided comparable 2012 and 2011 information for the pro forma products, which we divested or eliminated during the first quarter of 2013, so you get a sense of the financial contribution of those products during the quarters of 2012 and 2011.

Now with that, operator, we can open the lines to take questions.

Thank you.

(Operator Instructions) Jason Helfstein, Oppenheimer.

Hey, thanks.

A few questions.

Sure.

Good morning, Jason.

I'm sorry, his line got disconnected.

Youssef Squali, Cantor Fitzgerald.

Yes.

Hi, good morning.

Can you hear me?

Yes, we can.

Alright, great.

Thank you.

So, couple of questions.

First starting with the pro forma revenue growth that you just posted in Q2 and guidance for Q3.

So pro forma for Q2 was 21%, which was very good, higher than we expected and then guidance at the midpoint is around 14%.

I was wondering if you can maybe just walk us through the ins and outs of that deceleration and how do you see that evolving for 2014.

And on the gross margin, the jump was pretty substantial.

I was wondering if you can maybe give us a little more details as to what drove that and the sustainability of it.

And then I have a follow-up.

Okay, sure.

Good morning.

This is Ken, I'll start it off.

Let me start with the gross margin piece first.

I think again as we know that we have a very good business model here that permits a good flow through of strong revenue contribution down to gross margin and all the way down to EBITDA.

And accordingly, we had a very good quarter in the second quarter in terms of the revenue performance on a relatively fixed cost nature.

The variable cost related to the incremental revenue were quite low so the gross margin on the incremental revenue quite high, which allowed us to get to the 2-point better performance than last quarter.

And we know that the business can have the ability to operate north of 70% gross margin and we do see that as the direction we're heading in so we certainly think this 69% in the second half of the year is a good starting point with some expansion clearly as we're into the fourth quarter and as we head into next year.

So there was nothing one-time in nature that impacted Q3 that wouldn't render these gross margins sustainable going forward?

In Q2, no Youssef.

But we feel from a run rate standpoint, this 69% is a good place to start.

That's why we now kind of feel that for the year our EBITDA will be at 20%, we show 19% to 20% so we think that's a good starting point and we'll continue to work on expanding it from there.

To your first question regarding the revenue growth, again we did have very strong performance, exceeded our expectations we're pleased to report.

And I think in terms of how we've been operating over the last several quarters with our newer products, we have done very well as we've expanded on the volume-based products, both DAx and vCE.

As we look forward, we are building our guidance based on the best estimates that we can come up with at this point in time and therefore, there is a bit of a difference between the actual performance in how the guidance plays out.

So I would not read into that anything from the standpoint of a deceleration in the business, but rather the run rate of the new products as we've discussed is still an ongoing process.

We are able to report increasingly positive results and that will permit us to have a more normalized growth run rate I think as we head into next year.

So I hope that helps give you some color from that standpoint.

It does, it does.

And maybe for Serge, can you rank order the impacts from the different newer products that you have; vCE, DAx, MP, et cetera?

I would put on top of that list is vCE, that by far with the success that we've had in the first half of the year ranks the highest especially with the great client wins that we've had followed by DAx both in the US and worldwide.

And then obviously, I don't want to understate, it's probably tied for second as well is Media Metrix multi-platform.

That product has been one of our most successful, if not the most successful, product that we've ever launched in terms of generating revenue as quickly as it has had.

And then also the upsell that it has generated, it has helped significantly sell both Video Metrix and Mobile Metrix.

The video play here is exceptional and so is mobile.

So it's helping us not only sell that product, but it's also helping us upsell the product and video for example is on pace to exceed all of our internal expectations.

Okay.

Thank you very much.

Jason Helfstein, Oppenheimer.

Hey, can you hear me now?

Yes, Jason.

Thanks.

Not sure what happened there.

So just to ask a little more detail on just that point.

So clearly in the quarter, we saw a very nice implied ARPU growth.

I think the effective pricing was kind of flat-flat last few quarters and it was obviously very nicely this quarter.

How much of that is what we'll call kind of pricing versus additional products?

And then as you kind of go back and you kind of rank order vCE, multi-platform, and Digital Analytix; just talk a little bit about the levers kind of in price and volume.

That's my first question and then I've got two follow-ups.

Obviously, our Media Metrix multi-platform, we are able to provide an increase in the price anywhere between $15,000 to $20,000 additional in subscription.

But then as we have mentioned, Jason, it allows us to sell the additional products, namely mobile and video.

So that by itself will not only increase the price for the base subscription of Media Metrix, but then it also allows us to upsell increasing the overall ARPU.

As far as down the road the levers, we obviously are doing well in all of these three areas.

I think the biggest one that we've seen a lot of momentum is vCE and I don't see that slowing down anytime soon.

Okay.

And then kind of two follow-ups.

So it does look like you guys are on track for roughly 80% free cash flow growth this year.

Ken, is there anything kind of in the working capital that could inverse in the back half year, that's kind of helping you one-time in the first half that reverses in the back half?

And then secondly, can you clarify, I think there's probably some confusion out there with consensus estimate.

I think there's an estimate that's being included from Deutsche Bank out there in the consensus numbers that just is an old estimate that's not relevant for EBITDA and that's probably confusing some of the numbers out.

And so if you have your own internal consensus estimates, if you want to kind of share them on the call, I think people will probably appreciate that.

Okay.

So first, let me start with your first part about cash flow.

From the standpoint of cash flow, we're seeing the good leverage that's taking place in our business obviously continue down to the increased EBITDA and then the high conversion to cash, number one.

Number two, we're still getting the appropriate level of prepayments et cetera from customers as they went into contracts.

Again, the second quarter and first quarter are lower quarters from the standpoint of renewals, renewals overall in terms of our book of business that will pick up more in the second half.

Thirdly from a standpoint of capital expenditures, we do see ourselves spending some more this year than in the past, but not significantly so.

So we still see our free cash flow continuing to do well in the second half of the year, we don't see any obstacles there and that gives us more than enough cash to repurchase shares and return capital to investors.

From the standpoint of EBITDA, what I have in front of me is from a margin perspective kind of a call it 19% in this year going to roughly 20% next year.

That's what I show right now.

That's what I show from our group of covering analysts at the moment.

Okay.

Thanks.

Heath Terry, Goldman Sachs.

Great, thanks.

Magid, we've gone through over the last couple of years a cycle of acquisitions and even some divestitures that you got at your geographies and products to the portfolio.

Where's your head at right now in terms of the need for investment either through M&A or new product development for the Company, particularly now that we seem to have come through this last transition cycle?

Sure.

We have made a commitment at the beginning of the year and actually late in the second half of last year that we would be focused on execution and making sure that we take advantage of the acquisitions that we already made that we execute well on them and we integrate them well and we invest all we need to make those products best-of-class and I think we have done that.

We don't feel like there is anything that's a gap in our product offering right now.

There is the normal product roadmap that we do on a normal business cycle.

If there are any acquisitions that will come in, I don't anticipate anything that will be material at all.

And we have for all of this year a very disciplined investment approach where we have focused our investments on the things that will generate the biggest payoff and you have seen from the discussion here which products are really generating that and that's where we're focusing our investment.

Great.

Thank you.

Ned Davis, William Smith & Company.

Yes, good morning.

I just have one question.

On the international, could you give us a refresh on how your strategy there differs from the US and specifically what the competitive issues are and how you address them over there to keep this revenue momentum going?

So let me provide an answer and I will have my colleague, Cameron, here interfere.

So there are two sets of countries internationally.

There are countries where it is an open market where in a sense that it's free competition, there is no official industry body that kind of intervenes and appoints a quasi-monopoly in that market.

That represents pretty much all of Latin America, a lot of countries in Europe, and a lot of the countries in Asia-Pacific and those are countries where we're doing really well.

Our focus is that any products that can be applicable to those countries, we will introduce them as quickly as possible.

Now there's a second class of countries and so there are the UK, Spain, Germany, and France I would say that have what's called a Joint Industry Committee that basically makes a selection.

And Cameron has been very involved in those so I will let him comment on that.

Sure.

In the European markets typically, engaging with these industry bodies is a process of demonstrating best-in-class methodology, going through a process of review and audit with their technical committees.

And our strategy in Europe has been centered around building up a track record of demonstrating the capability of our products by winning specific markets, working through the process, and demonstrating a record of success.

And our experience in the UK and Spain have really given us that and that is a strength that we continue to leverage going forward.

Did the JICs in Europe restrict all platforms, both regular computer and tablets and social, or do they really include all digital type media?

I think that the JICs themselves evolve in their thinking and typically a big part of the partnership is working together with the industry to demonstrate how our technology and methodology can be deployed to help them stay current.

Committees in and of themselves are not terribly innovative so this is a partnership where we work together to demonstrate best-in-class technology and partnership moving forward.

Our advantage in multi-platform measurement is something that helps us in effect accelerate the transition to multi-platform measurement across some of these countries on cycles that are faster than normal cycles that they're used to.

So you benefit from both cross tabbing and fusion in Europe then?

Absolutely.

Good.

Okay.

Thank you.

Matt Chesler, Deutsche Bank.

Good morning.

I just wanted to drill down a little bit more on the gross margin comments from earlier.

So you talked about being able to take the business back up to the 70% --

Matt?

Operator?

Hi.

His line is -- Matt, can you please press star one again, please.

He's here, I'll put him through, sorry.

Go ahead, please.

Okay.

Can you hear me?

I can hear you now, Matt.

Okay.

So you want to talk about gross margins in terms of what's going on in terms of the ability to kind of move forward.

Yes, moving forward.

So let's just say that in the past you've talked about what type of leverage you get on the gross margin line.

Let's presume that you sustain this level of growth rate going into 2014, what type of leverage on gross margins can we expect to get on an annual basis?

Sure.

As we didn't talk before both at the Investor Day and previously, all the core products that we have in our product families enjoy a similarly high gross margin characteristic from a product standpoint and now we're starting to get scale on the ones, in particular vCE, that as we've discussed with investors, we needed to make investments in order to differentiate ourselves in the marketplace.

As we're doing that now, that will lift up and that allows us to get back in the near to mid-term a gross margin that overall is north of 70%, which is where we had been when we were strictly focused on being a measurement company years ago.

And we feel that that as we go through this year will be certainly later this year at that level and then positioned from there to continue to grow for 2014 and beyond.

And I believe some of our analysts covering us have kind of started to factor that into their modeling and I think our performance supports that.

Okay.

So you're talking about by the end of the year you're going to be at that type of run rate not that you're going to -- you think you'll print at that level for the full year?

Right.

That's correct, yes.

Sure, go ahead, Matt.

I was going to shift topics.

If you had more to talk about on that one, go ahead and finish.

I'm good, go right ahead.

Okay.

Really I just wanted to understand a little better the puts and takes on the guidance for the full year.

What would need to go right for you to either exceed the high level of that and conversely on the low end, what would need to not work out so well?

Obviously Matt, I don't know if there's something in our business that is not going well; at least in the first half of the year, the results speak for themselves.

Let me ask about the risks or what are the risks to the bottom end rather than not going well?

I think what we see it is just remain focused on execution.

We're really focused on that.

We want to continue the momentum that we have.

That is our number one priority is just continue the priorities that we've set and execute on them.

Thanks for that answer.

Thank you for your question.

We have no question and I would like to turn the call over to Mr. Magid Abraham for closing remarks.

Please go ahead.

Okay.

Thank you and thank you all for your participation today.

We delivered a strong first half performance for 2013 and we are bullish that we can sustain this momentum throughout the balance of the year using the same formula, remaining focused on executing our strategy and delivering value for our shareholders.

We look forward to speaking with you again on the next conference call and thank you very much.

Thank you, ladies and gentlemen, for your participation in today's conference call.

This concludes the presentation.

You may disconnect now and have a good day.