comScore, Inc. Q3 2008 Earnings Call Transcript

Oct.30.08 | About: comScore, Inc. (SCOR)

comScore, Inc. (NASDAQ:SCOR)

Q3 2008 Earnings Call

October 30, 2008 5:00 pm ET

Executives

Magid M. Abraham – President & Chief Executive Officer

John M. Green - Chief Financial Officer

Analysts

Youssef Squali - Jefferies & Co.

Troy Mastin - William Blair & Company

Jason Helfstein - Oppenheimer & Co.

Analyst for Mark May - Needham & Company

William Morrison - Thinkpanmure

Analyst for Jeetil Patel - Deutsche Bank Securities

Heath Terry - Friedman, Billings, Ramsey & Co.

Sandeep Aggarwal - Collins Stewart

Operator

Good afternoon and welcome to the third quarter 2008 comScore, Incorporated earnings conference call. My name is Shaquana and I will be your facilitator for today. At this time, all participants are in a listen-only mode. (Operator Instruction).

I would like to the turn the call over to your host for today, Mr. John Green, Chief Financial Officer.

Magid M. Abraham

Hello everyone, this is actually Magid Abraham. I want to welcome everybody to this conference call. We have two announcements that we have issued this afternoon. One of them is related to a major, new service or enhancement to out Media Metrix service. It’s called comScore Extended Web and this has been published on PR Newswire and is also available on our website and we sent it to our mailing list, which I believe most of you on.

The earnings release, unfortunately PR Newswire has been having some trouble with it and I’m told it will be out in five minutes, but it has been on our website for the last fifteen to twenty minutes or so. And it has also been e-mailed. So for those that want to grab it from our website and read it, you are more than welcome to do so. We expect that PR Newswire will carry it live in a couple of minutes now.

And while we are doing that I want to ask John to read the introduction and the Safe Harbor statement.

John M. Green

Good afternoon everybody. Welcome to comScore's earnings call for our third quarter 2008.

Before we begin, please allow me to read the following statement to inform you of certain Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. During the course of today's presentation, as well as any discussions and question and answer periods to follow, represents that the company may make forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21-E of the Securities Exchange Act of 1934 regarding future events or financial performance of the company that involve risks and uncertainties, including without limitation, the expected strength of comScore's business, customer growth and clients' demand for comScore's products, the future quality of client relationships that result in renewal rates, expected results in profitability of comScore's acquisition of eMetrix, and forecasts of future financial performance, including related growth rates and assumptions for the second half and the full year of 2008. 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 enumerated in the documents comScore files from time to time with the SEC. Those documents specifically include, but are not limited to, comScore's Form 8-K filed earlier today relating to the subject matter of this earnings call, comScore's Form 10-K for the year ended December 31, 2007, and comScore's Form 10-Q for the quarter ended June 30, 2008. These filings may contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward looking statements. We caution you not to place undue reliance on any forward looking statements included in these presentations which speak only as of the date of these presentations. comScore does 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 anticipated events.

I will now turn the call over to Magid.

Magid M. Abraham

Thanks to those of you who are joining us today on this call. In the face of a challenging economic environment comScore had a very successful third quarter highlighted by strong revenue growth and better than expected profitability.

Our third quarter revenue of $30.7 million was up 37% year-over-year and 7% sequentially, which was at the top end of our guidance range. Had the dollar remained at the same level as at the end of Q2 our revenue would have been $30.9 million, which is up 38% from last year.

Our strong growth is being driven by the continued expansion of our existing customer relationships and a growing number of customers aligning with comScore to maximize the impact of their websites and advertising dollars.

During the quarter we saw strong growth from both new and existing customers on a year-over-year and sequential basis. Combined with a high level of executive and effective expense management, we were able to deliver profitability that was at the top and/or above our guided ranges for each profitability metric.

GAAP EPS for comScore’s third quarter was $0.02 per share, at the high end of our guidance range of $0.01 to $0.02. the $0.02 GAAP EPS includes a write-down of $450,000 in the value of our auction rate securities, which amounts to $0.015 per share.

EPS on a non-GAAP basis was $0.19 per share compared to our prior guidance of $0.13 to $0.14 and our adjusted EBITDA was $7.2 million, also above the top end of our guidance range of $5.4 million to $5.7 million. Needless to say, we are very pleased with this profit performance.

We are also pleased with this performance, particularly given the macroeconomic backdrop, considering the fact that the market environment deteriorated considerably during the last month of the third quarter due in large part to the turmoil in the financial markets.

Despite what is likely to be a tighter spending environment across the global economy, we remain very confident in comScore’s long-term growth prospects. Our industry-leading suite of products enables web property owners and advertisers to measure and analyze behavior of Internet audiences so they can improve the effectiveness of their Internet presence.

It is critical that advertisers maximize the return on their advertising dollars, particularly in a tough economic environment and comScore becomes an even more integral component of how our customers maximize their efficiency and effectiveness.

This value is reflected by our subscription renewal rate, remaining above the 90% level during the third quarter.

We are really excited about our extended web service reporting that we announced earlier today. The extended web features allow publishers and advertisers to track distributed web content across third-party websites such as video, music, gaming applications, widgets, and social media. It will allow publishers to report audience reach and characteristics of their various sales packages, enabling them to market those packages more effectively and help agencies plan their campaigns at a more granular level.

Some examples of the types of [audio break] web can measure might include: a New York Times news widget appearing on a personal blog; NBC, The Office widget appearing on the My Yahoo! home page; and a National Geographic photo of the day appearing on a person iGoogle page.

We also are adding a measure of GRP, or gross rating points, to ease the comparison of online with other traditional media like TV and provide the ability to measure ad impressions at the individual level.

Finally, this would allow the measurement of multiple ad networks that can sell inventory on any given page at the multitude of third-party websites.

We believe these capabilities will help us attract new customers and further expand our relationships with existing customers.

This offering has been endorsed by a number of industry leaders such as: Ted Leonsis, Chairman of Clearspring and Snagfilms; John Battelle, Chairman of Federated Media; Bill Wilson, EVP of Programming at AOL; Samir Arora, Chairman and CEO of Glam Networks; Eric Porres, Partner and CEO, Underscore Marketing; Michael Matthews, CEO of YuMe; Gerard Broussard, VP of Media at WPP’s Group M; Russ Fradin, CEO of Adify; Fred Wilson, Managing Partner of Union Square Ventures; and Jameson Hsu, CEO of Mochi Media.

We have quotes like, “once again comScore comes to the rescue,” or “comScore continues to innovate,” or “unique solution,” or “vital information”, “comScore is at the forefront.” And “quality third-party measurement from the market leaders.” All of these reflect the value of this offering and the wide recognition of comScore innovation and market leadership.

On the eMetrix side we have been actively building out our road map that incorporates base comScore functionality in a mobile format, thus broadening that product line as early adopters look to comScore for leadership in this emerging space. We have rapidly integrated the eMetrix mobile data into the comScore infrastructure and product suite to leverage the scale and power of our platform and combined customer base.

In the coming months you can expect to see further expansion of our mobile measurement products and services, including the measure of additional platforms such as Android, Blackberry, and other important platforms.

We will also be significantly increasing the number of mobile Internet that we track as well as initiating the first panel that combines behavioral tracking on both mobile phones and PCs. This recent progress in the mobile space increases our confidence in the long-term vision for the eMetrix and our product line extension in the mobile space.

During the third quarter we signed an agreement to measure the mobile Internet behavior of millions of subscribers. We will have more news for you as this relationship progresses but we believe it represents an important springboard for comScore into the emerging mobile Internet market.

Over time we expect the mobile market to become increasingly mainstream, particularly in international markets and our early leadership position in this strategic space, combined with our peer market leadership position in the Web, will be clear differentiators for comScore.

Turning to customer metrics, from an overall perspective we also saw continued momentum expanding our relationships with existing customers as well as signing up new customers during the third quarter. During the quarter we added 107 new customers on a gross basis, which is comparable with the level of our customer ads in recent quarters.

While our dollar renewal rates remained as strong or even stronger than our historical levels, we saw a greater number of customers with prolonged approval processes for renewal agreements under a challenging economic environment.

We also saw a few smaller customers dropping out due to funding and economic difficulties. This led to net new customer additions of 32 and a quarter-ending customer count of 1,136.

This issue aside, we believe that comScore is well positioned to continue growing the business at a solid pace during these more challenging times, driven by continued high level of dollar renewal rates and expansion of our business with existing and new customers.

In fact, we expect to deliver fourth quarter revenues that are up 27% to 31% on a year-over-year basis and 4% to 8% on a sequential basis in spite of the fact that we expect less year-end spending relative to our project revenue that is normally funded from left-over 2008 budgets and we are facing greater foreign exchange head winds as the result of the strengthening U.S. dollar.

We believe this is a strong performance considering the economic environment and I should point out that we will continue to focus on driving profitability and cash flow as well.

To summarize, comScore had a tremendously successful third quarter from an overall perspective. There are fundamental market drivers for our solutions as web property owners and online advertisers need to measure and analyze behavior of their audience, particularly given the dynamic and increasing trends of customers utilizing new media channels for information and entertainment.

The ability to measure, analyze, and determine ROI in these areas are as important or more so in a softer economy as it is in a robust economy.

As John will cover in a moment, we have revised our top line outlook for the year, primarily due to three factors: less positive year-end seasonality in Q4 project revenue; the negative impact of the stronger dollar, which depresses our local currency-denominated revenue; and, to a lesser degree we adjusted our view as to the face with which we will ramp our efforts in the banking and institutional investor sectors, given the weakness and volatility in the financial markets, which you may be well able to appreciate.

We continue to expect strong revenue growth both quarter-over-quarter and year-over-year during the fourth quarter driven by strong growth of our subscription revenue. We will continue to invest in our strategic growth initiatives and at the same time managing expenses closely to ensure that comScore is positioned to deliver strong profitability and cash flow without sacrificing our long-term revenue growth potential.

While no company is entirely immune to the pressures of the current economic environment, we continue to believe that comScore is better positioned than most as a result of our large market opportunity, our proven value proposition, our blue chip customer base, and a clear market leadership position and significant [inaudible].

In addition we share the exciting news in our major new product launch that we believe will increase our value add and our ability to maintain and expand our customer relationships.

Now let me turn the call over to John for more specific comments on our financial results and our outlook for the fourth quarter and the full year.

John M. Green

ComScore’s third quarter revenue was $30.7 million, which is up 37% year-over-year and 7% sequentially. Within total revenue, revenue from subscription customers was $25.7 million, up 44% year-over-year and representing 84% of our total revenue. This large and growing base of revenue provides comScore with visibility into future revenue and the ability to manage our expense and investment profile to deliver targeted levels of profitability.

Revenue from project customers was $5.0 million, up 10% year-over-year and representing the remaining 16% of our total revenue.

From a detailed perspective, revenue contribution from both existing and new customers was strong in the quarter with revenue from existing customers at $25.8 million, up 35% year-over-year, and revenue from new customers was $4.9 million, up 49%. We believe this reflects an appreciation of the value proposition and return on investment that we bring to our customers.

International trends continue to be strong as well and grew 86% year-over-year to $4.6 million with 15% of revenue in the third quarter generated from outside the U.S. compared with 11% a year ago.

Turning to our profitability, third quarter 2008 GAAP income before taxes was $1.8 million compared to $3.9 million in the third quarter of 2007. GAAP net income was approximately $600,000 compared to $3.8 million in the third quarter of 2007.

Reflected in GAAP net income for the third quarter of 2008 is the normalized effective rate of 68%, including a cash tax rate of 18%. The normalized effective tax rate was negatively impacted by current year net losses incurred by certain eMetrix international subsidiaries for which the full benefit is not realized by other comScore subsidiaries, plus a moratorium that the State of California has placed through 2009 on utilizing NOLs.

GAAP EPS was $0.02 in the third quarter based on 30.4 million fully diluted shares outstanding.

Looking at the results on a non-GAAP basis, adjusted EBITDA was $7.2 million, an increase of 59% year-over-year. ComScore’s adjusted EBITDA margin in the third quarter was approximately 23% compared to the 20% level from a year ago. We were able to beat our adjusted EBITDA expectations as a result of strong revenue and effective cost controls while continuing to invest in growth initiatives.

Non-GAAP adjusted net income for the third quarter of 2008 was $5.7 million, an increase of 24% compared to $4.6 million in the third quarter of 2007.

Operating cash flow for the third quarter of 2008 was $3.8 million with capex of $2.0 million leading to free cash flow in total of $200,000 for the quarter. Excluding the impact of the eMetrix acquisition transition related to cost, free cash flow for basic comScore was approximately $4.0 million in the third quarter of 2008.

As of September 30, 2008, our company held approximately $67.6 million in cash, cash equivalents, and short-term investments and $6.4 million in long-term investments. This figure is up from about $400,000 from the end of the second quarter. The company continues to hold auction rate securities, which are our long-term investment balance, and during the third quarter we recognized, as Magid said, an unrealized loss of $455,000 associated with these investments.

Most significantly, we continued to have a sizeable cash balance invested very conservatively which provides comScore with ample liquidity to invest in our growth initiatives, particularly when combined with our positive cash flows.

Turning to our updated guidance for 2008 and for the fourth quarter, for the full year 2008 comScore now anticipates revenue to be in the range of $117.8 million to $119.0 million, a growth of 35% to 37%. As Magid pointed out, the adjustment to our overall top line outlook for 2008 is based on three factors: revised seasonal spending expectations relative to project revenue as a result of a challenging global economic environment; foreign exchange impact from the strengthening of the U.S. dollar; and to a lesser degree, the softness in the banking and institutional investment management sectors.

We believe our customers continue to find tremendous value in measuring and analyzing online audience behavior and that we can continue to demonstrate a strong value proposition to them regardless of the macro environment.

With our strong third quarter results and increased focus on cost controls, we expect strong profitability for the balance of this year.

For the full year 2008 we are anticipating GAAP net income of $5.9 million to $6.4 million. This includes the effect of certain non-recurring acquisition-related expenses, stock-based compensation, and amortization of certain intangible assets.

An estimated normalized effective tax rate of approximately 48%, including an estimated cash tax rate of approximately 6%, is assumed to be applied against our full-year earnings before taxes.

Given these assumptions, we are projecting GAAP EPS for the full year 2008 of $0.19 to $0.21 per share. We expect adjusted EBITDA for the full year 2008 in the range of $25.4 million to $26.8 million, which is essentially in line with our full-year guidance provided on our last call.

We expect non-GAAP adjusted net income of approximately $21.5 million to $22.1 million and non-GAAP EPS of $0.71 to $0.73 per share for the full year 2008, also unchanged from prior guidance.

This full year guidance translates into fourth quarter expectations for revenue in the range of $32.0 million to $33.2 million, an increase of 27% to 31% compared to the fourth quarter of 2007.

For the fourth quarter of 2008 we expect GAAP net income of $1.1 million to $1.6 million, an estimated normalized effective tax rate of approximately 48%, including an estimated tax cash rate of approximately 6% as assumed to applied against fourth quarter earnings before taxes.

For the fourth quarter we are forecasting GAAP EPS of $0.04 to $0.05 per share.

Adjusted EBITDA for the fourth quarter of 2008 is expected to be $6.2 million to $6.9 million, representing adjusted EBITDA margin of 19% to 21% at the midpoint of our revenue guidance.

We anticipate non-GAAP adjusted net income for the fourth quarter of 2008 of $4.9 million to $5.5 million, or $0.16 to $0.18 per share. As always a reconciliation to guidance for the fourth quarter and full year 2008 GAAP net income and EPS to the adjusted EBITDA, non-GAAP adjusted net income, and non-GAAP EPS is included in the table accompanying our press release.

I would like to finish with two items that may potentially impact our GAAP results in the fourth quarter that are not currently factored in our current guidance.

First, as of September 30, 2008, the company had a valuation allowance of $26.4 million against certain deferred tax assets which consisted principally of net operating loss carry forwards. The company has continued to evaluate its valuation allowance position on a regular basis.

Depending on the actual results for the fourth quarter of 2008 and projected operating results for 2009 and beyond, there may be sufficient evidence to support the conclusion that all or a portion of the remaining valuation allowance in our deferred tax assets be reduced in the fourth quarter of this year.

It is expected that any such reduction of the company’s valuation allowance will have a material positive impact on its results from operations in the quarter when the reversal is recorded.

The company’s forecasted GAAP net income and non-GAAP net income figures we presented do not reflect any adjustments related to a reversal of the company’s valuation allowance. The potential reversal of the valuation allowance affects book income only. There would be no impact on operating or free cash flow until the net operating losses were actually utilized against taxable income.

Just a reference point and as a reminder, in the fourth quarter of 2007 the company realized a tax benefit of $8.1 million related to an adjustment of the valuation allowance.

The second item I would like to cover which could impact our reported fourth quarter results is a potential special charge related to the integration of eMetrix associated with lease terminations and modifications that could total up to $1.5 million.

Should both events occur during the fourth quarter the tax benefit resulting from any adjustment to the company’s valuation allowance would more than offset the one-time charges related to eMetrix.

Importantly, while these events have the potential to impact our GAAP net income results, even if they were to occur they would not impact our adjusted EBITDA or non-GAAP guidance.

In summary, we are pleased to have met or exceeded our third quarter expectations. We remain very confident in our market opportunity and leadership position, which we believe will comScore to continue delivering solid financial results in the face of significant global economic pressures.

In addition to driving growth with existing and new customers, we will continue to focus on managing our expenses closely to deliver strong profitability in the margins while selectively investing in key initiatives to ensure that we are able to maximize our long-term growth potential.

With that, we are now ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Youssef Squali - Jefferies & Co.

Youssef Squali - Jefferies & Co.

My first question is about deferred revenues. These were down slightly quarter-on-quarter. Is this simply because the pace of subscriber growth slowed down or because you lost some smaller customers.

John M. Green

It’s primarily the reflection of Citadel not being renewed on an exclusive basis. One can also anticipate that deferred revenue gradually will move in line with what our revenue growth is.

Youssef Squali - Jefferies & Co.

Of the 32 new customers that you signed in the third quarter, can you say how many of these were subscribers and break out how many were for the core [inaudible] versus the eMetrix?

John M. Green

It was primarily on the subscription side as well as a number of new customers in eMetrix. We are also very encouraged that the average selling price was well above whatever attrition we experienced from smaller companies.

Youssef Squali - Jefferies & Co.

Can you update us on the percentage of you subscriber base that is under multi-year contract?

John M. Green

It’s now 32%.

Magid M. Abraham

And that’s again a reflection of the Citadel agreement which was a five-year agreement. Now that dollar amount is lower. So excluding Citadel that percentage actually has gone up.

Youssef Squali - Jefferies & Co.

So this is 32% a percentage of revenue or is it a percentage of the subscriber base?

John M. Green

That’s 32% of our overall subscription revenue base.

Operator

Your next question comes from Troy Mastin - William Blair & Company.

Troy Mastin - William Blair & Company

First I wanted to ask about the fourth quarter guidance and what sort of booking activity is anticipated in the guidance versus where you stood in the third quarter or where things were last year.

John M. Green

We don’t provide bookings activity. And I think that we have kind of shed light in terms of where we see the market conditions, that we have modified our full-year revenue guidance accordingly.

Troy Mastin - William Blair & Company

Is it fair to assume you are anticipating a slowdown in new customer additions on a revenue basis versus where you’ve been recently?

John M. Green

Again, we have identified it’s on the project side and related to the [inaudible] consolidation the [inaudible] that we are refining our revenue guidance for the fourth quarter.

Troy Mastin - William Blair & Company

So if it is bookings-related or new acquisition-related it would be solely from the financial vertical?

John M. Green

That’s where it’s primarily from.

Magid M. Abraham

But for the projects that we typically get at the end of the year due to left-over budgets, that will be across the board because we think that most companies are going to take everything off the table that is left over in fourth quarter money.

Troy Mastin - William Blair & Company

And on those three items you identified, projects, currency, and the financial vertical, it sounds like that’s in the order of magnitude of impact, is that correct?

Magid M. Abraham

Roughly.

John M. Green

Yes.

Troy Mastin - William Blair & Company

And if those are the only three things affecting the fourth quarter guidance production, then it sounds like the 90% of your business that is not related to the financial services vertical, excluding projects, has so far been relatively unaffected by the environment. Is that a fair statement?

Magid M. Abraham

Well, you know, it is a difficult environment. As we have said before, we have not really noticed a strong impact on it. I would say the this notion of a couple of dozen clients that we did not have in the customer accounts but we would characterize as pending renewals, that’s sort of a more recent phenomenon that is really driven by companies scrutinizing more what contracts they sign and having more approval processes and all of that.

And there are always puts and takes in our business. Bu the fundamentals are that those are the areas that we think the majority of the economic impact would be localized.

Troy Mastin - William Blair & Company

And then how should we think about a moderation in your growth rate in the context of what is primarily a subscription model? I think you sort of lose momentum and it takes time for these factors to work their way completely into your growth rate, so if you think through the three forces affecting the fourth quarter, if they carry into next year, how long does it take until we kind of normalize to a new growth level, if my question makes sense.

Magid M. Abraham

On the project side you typically have, on a project side that has shelf life of about four months, on the subscription side clearly has a shelf life of about a year. So those would be the factors. You know, compensating for that is that we, this extended web offering that we are making, clearly it is a new offering that will tap into additional budgets and so I would say under normal circumstances that would have been, I would be very excited about the potential that that brings.

Because if you think about it, companies may have dozens of advertising packages and those advertising packages for every one of them they would pay a fee for reporting on them. There are dozens and dozens of companies that we cannot measure right now, given sort of this distributed nature of the Web that we will be able to measure with the extended web service.

And so it would open the door for a number of either new customers or existing customers that have these kind of capabilities that will subscribe to this new service.

We just launched it. I don’t know if you had a chance to read the press release, but as you can see, there is some very enthusiastic response to it and how quickly that is going to translate into revenue is something I am not going to hazard a guess on. But fundamentally I think it is something that strengthens our competitive position. We are the only ones that are offering it in the market place. It brings more value to customers. It makes the planning of media more concrete. And it is something that is very important for us. I would say almost as close to a game changer as we can get with a new product introduction.

Troy Mastin - William Blair & Company

You announced the new mobile panel that you secured through a partnership with millions of panelists. Can you give us some idea of what type of partner this is, if there is a cost associated with getting access to these panelists.

Magid M. Abraham

We are actually getting paid for capturing this data but unfortunately I cannot, there are some confidentiality issues related to this agreement that we expect to be lifted sometime, hopefully in November, in which case we will be able to talk more about it.

Troy Mastin - William Blair & Company

Can you tell us if that data is yours to resell or if that would remain with the partner?

Magid M. Abraham

There is an agreement that is being negotiated about our ability to resell this data with obviously a revenue share but fundamentally, we are being paid for the building and the gathering of the system and the reporting infrastructure. And then incremental revenue beyond that will be generated and we are still in the negotiation process as far as what the revenue share is.

Operator

Your next question comes from Jason Helfstein - Oppenheimer & Co.

Jason Helfstein - Oppenheimer & Co.

On the margin guidance, it’s 24 for the fourth quarter versus 24 last year. Can you talk about what costs are weighing on margins and are these temporary or permanent costs and does this have to do with a new project launch.

And secondly, can you get any of that lost project revenue for the fourth quarter to become part of subscription revenues next year when you renew agreements?

John M. Green

We are continuing to invest in the business, in those initiatives that we have outlined earlier this year in terms of expanding overseas and into new products and into eMetrix, so that’s all reflected in our fourth quarter guidance and we anticipate that that’s going to yield very attractive revenue in 2009 and beyond. So that’s the one point.

And then in terms of its [inaudible] the project revenue that has been a big source of subscription revenue growth and so what we are anticipating is that if budgets are constrained at year end we certainly anticipate that we will realize that some of that project revenue will go into 2009 and then similar to what we have been able to realize in the past, convert a lot of that of into subscription revenue agreements.

Operator

Your next question comes from Analyst for Mark May - Needham & Company.

Analyst for Mark May - Needham & Company

What number of subscribers did you end with in the quarter? And what was the organic growth rate? If you ex out eMetrix.

John M. Green

We’re just fiving total customer account and so the total customer account was 1,136.

Analyst for Mark May - Needham & Company

And the organic growth rate ex eMetrix?

John M. Green

That’s something that we are not breaking out separately, we’re just reporting consolidated results.

Analyst for Mark May - Needham & Company

You mentioned you lost some of the smaller customers. I was wondering, in addition the macroeconomic environment whether this had something to do with the competitive landscape where lower cost providers are starting to take share?

John M. Green

No, we have not lost any competitive face-off situations.

Analyst for Mark May - Needham & Company

Given that you are expecting a slower ramp in the institutional investors and financial sector, selling to those verticals, when do you expect to be able to make up for the loss of the Citadel contract?

Magid M. Abraham

You tell us when the stock will improve and we will tell you when that is going to happen. It’s really hard to make a forecast on that before getting some visibility on the equity markets.

Analyst for Mark May - Needham & Company

You had mentioned that you had generated some interest before from potential clients. Have you lost any of those, is that why you are slowing down your ramp or is there something else?

Magid M. Abraham

Well, we have a couple of large contracts that are still in discussion. I think some of the more what I would call retail contracts, some of them have slowed down or being deferred. Frankly, I’m not optimistic that we are going to be in a position of getting into that again before people are investing in anything.

Analyst for Mark May - Needham & Company

How dramatic do you think the drop off in project revenues will be in the fourth quarter?

Magid M. Abraham

Relative to what we were expecting, we think it’s about $800,000.

Operator

Your next question comes from William Morrison – Thinkpanmure.

William Morrison - Thinkpanmure

I was wondering if you could talk a little more about your expectations for customer adds going forward? Historically you’ve guided to somewhere around 40 to 50 in customer adds a quarter. Do you expect the levels to maintain around where they were this quarter or bounce back to that level over the next few quarters? Just where are your expectations on that customer adds?

And then secondly, can you talk a bit more about the types of customers that weren’t renewing, the smaller customers? Were they publishers, advertisers, or agencies?

Magid M. Abraham

We are highly confident that the number of new customer adds will continue to be strong and as we said earlier, it is 107 new customers that we added here. I think as far as the net customer add, I think it is going to be affected by how many customers don’t get funding or go out of business and that’s really hard to forecast.

And then the second thing is if the delayed approval cycles extend beyond the end of the year, then we may see some of the same phenomenon that we saw here. In other words, some of the customers that have been delayed from Q3 will turn up in Q4 but then the customers that would be expected to sign up in Q4 would sign up in Q1.

Now I want to say that some of these delays, by the way, don’t really have a revenue impact or that much of a revenue impact and the reason is that when a client customer expires, let’s say if it expires in September, they have the right to September data which would be issued in October. And the next data level that they would be getting would be in October which would be issued in November. So customers have the ability of continuing to get the data even though there is technically a gap of one month in terms of when they sign. Our ability to take revenue on that that is still preserved because we are delivering the same number of monthly data.

Now you asked if there is a pattern to some of these customer drop-offs. It tends to be fairly even. I would say the one area that it seems to be sort of proportionally slightly higher than the rest is in some of the start-up mobile companies that are dependent on mobile monitorization, which is slower in coming. So some of these companies are retrenching. But again, in terms of absolute numbers it is a very small number.

William Morrison - Thinkpanmure

What percent of revenue in the quarter was from the big four, Yahoo, Google, Microsoft, and AOL? And can you remind us when those, I believe you are on multi-year contracts with most or all of them, could you remind us when those renewals are up?

John M. Green

Microsoft is approximately 12% of total revenue and we don’t give out statistics for the others because the fact that Microsoft is about 10%. The only one.

In terms of the top 20 it was about 38% of total revenue on a year-to-date basis.

Magid M. Abraham

That’s a decrease in concentration from 42% from the quarter.

William Morrison - Thinkpanmure

And when is the Microsoft renewal up?

Magid M. Abraham

It was renewed.

William Morrison - Thinkpanmure

It was renewed this past year?

Magid M. Abraham

It was renewed in July or August.

William Morrison - Thinkpanmure

On a multi-year?

Magid M. Abraham

Usually Microsoft has a one-year cycle. They don’t sign multi-year agreements.

Operator

Your next question comes from Analyst for Jeetil Patel - Deutsche Bank Securities.

Analyst for Jeetil Patel - Deutsche Bank Securities

Quick question on the contract pricing. I think you talked about a little bit of prolonged renewal process on the contracts. Can you talk about what type of push back are you seeing and how October trends are tracking right now?

Magid M. Abraham

We don’t see anything significantly different in October than we have seen. In our core business we really don’t have any anxiety in terms of renewals and we’re constantly adding value to our clients so we are always striving to increase our revenue from existing clients.

By the way, the increase in revenue from existing clients this quarter was up 35%. So that’s again a reflection of our ability to increase the relationships and to be able to raise prices and upsell. So that is something we are very pleased with and it is not a dynamic that we, at this point, of course no one can forecast where things will exactly end up, but at this point it is not something that we are that worried about.

Analyst for Jeetil Patel - Deutsche Bank Securities

A bigger chunk of your contract renewals I think is in the back half of this year. Is there any push back on pricing, any term dynamics that you have seen a higher level of other than just the timing of the closing of the contracts?

Magid M. Abraham

Nothing unusual.

Analyst for Jeetil Patel - Deutsche Bank Securities

Have you assessed the profile of the nature of you 1,136 customers that you have, have you done any work assessing the profile and the risk profile of any more of these customers sort of going out of business or shutting down or things of that nature?

Magid M. Abraham

We have one statistic which is that the customers that have contracts with us of less than $25,000, they represent 4% of our revenue base.

Operator

Your next question comes from Heath Terry - Friedman, Billings, Ramsey & Co.

Heath Terry - Friedman, Billings, Ramsey & Co.

Can you give us an update on your certification efforts around data quality and what kind of initiatives are in place as you continue to work on the data quality front as far as securing that kind of certification and then also just continuing to kind of reassure customers?

Magid M. Abraham

As far as the MRC certification is concerned we have a five-phase process. We have completed two of them and we’re starting the third phase. As we said from the very beginning the MRC accreditation process is a process that is actually is actually not controlled by comScore and we expect that two years, so another year is a realistic time frame for it but it could take longer. There have been cases that have taken, the worst case I think has been 12 years.

Not, that said, we also have undergone a review by the Advertising Research Foundation and we have seen a draft of the final review, which we expect to be published in the next 30 days or so. So we think that’s one element of excellent validation that will be good. That doesn’t diminish in any way our commitment to work with the MRC. I think we are proceeding on parallel tracks and committed to transparency.

We have also come up with a number of ways to tighten up the accuracy of our projections. We have come up with some methodology that would leverage the availability of sensitive data on certain websites that would allow us to improve the projections of our website.

Needless to say this is an area that is very important for us and we will continue making progress on it.

In our extended web measurement service, one of the options that will be available to people is to be able to beacon every page. We are doing that already on videos and we are reporting the actual number of streams that we are seeing every time a user anywhere is running that video.

Operator

Your next question comes from Sandeep Aggarwal - Collins Stewart.

Sandeep Aggarwal - Collins Stewart

Given that when you acquired eMetrix the market was very different so I wanted to ask how is eMetrix meeting your internal goals in terms of gross sales as well as the margin ramp up.

And secondly, as we run into global weakness, how does it impact your international ramp up, especially in many geographies where you are highly under-penetrated?

Magid M. Abraham

Well, as we stand today we are not second-guessing our eMetrix acquisition. In fact, I am very glad that we made it. I think we need to keep in mind that, I’m not sure exactly what the stats are, 3 billion cell phones or so compared to less than 1 billion PCs. In many countries, like in India, that’s going to be the main source of access to the Web.

Certainly access outside the U.S. is very important. I think Android, in addition to the iPhone, have been game changers in terms of access. So we really wanted to be on the high ground and we achieved that on the high ground.

From that standpoint I think this was a very important acquisition for us and we were glad we made it.

I also think that some of the contracts that we talked about in terms tracking the behavior of millions of subscribers, that is something that has a good potential of expanding into many more countries and in a way it will accelerate our international expansion. It is somewhat early to tell whether the economy is going to have an impact on that. But as far as we see there is just an acceleration of demand for that.

As far as how eMetrix has lived to our expectations, I think we had two elements to the eMetrix plan. One element was that we inherited a cost structure that was in the $18.0 million to $20 million range. We had to whack the heck out of it and we did. And we had said that we expect that eMetrix would be break even to EBITDA positive at the end of the year and we expect that to be the case in December.

So I think that we are meeting those targets now. The only thing that I would say is a little bit of a disappointment is the attrition phenomenon that we are seeing with a number of these sort of wireless players. We are banking on a high increase in spending on mobile advertising and there is clearly some retrenchment in that.

Counter-balancing the effect of that is that we think there is a lot of potential in cross-selling eMetrix within the rest of our customer base. So while pure breed mobile advertising is something that is going to be slower to materialize, I think a lot of publishers are highly interested in making sure that their content can be viewed on the appropriate mobile devices.

And by the way, they generate revenue from that because the same way as someone sees a webpage on a PC, they see it on the mobile phone, they’re going to get credit for that ad. So there is revenue that would be generated from increasing the audience on those devices.

I think we still have a significantly untapped opportunity in terms of doing that and that is something that we are looking forward to next year.

The one thing that we have done is a couple of weeks ago we have actually fully integrated our sales forces to be able to encourage this cross-selling activity now that we have the operational integration completed.

Operator

Your next question comes from Analyst for Mark May - Needham & Company.

Analyst for Mark May - Needham & Company

Excluding Citadel, would deferred revenue have been up about $1.5 million given that the Citadel contract was about $3.0 million a year?

John M. Green

Between $1.0 million and $1.5 million.

Analyst for Mark May - Needham & Company

In terms of, I guess you divide your sales force into kind of hunters and farmers. I was wondering what the current numbers are and what the projections for the end of the year are.

John M. Green

We have 118 quota carrying sales people in total and so we’re still basically on track in terms of our goal that we set at the beginning of the year of adding an additional 30 to base comScore. And then on top of that we also had about 14 eMetrix sales people that came on board.

Operator

There are no further questions.

Magid M. Abraham

Thank you very much. We look forward to the next call.

Operator

This concludes today’s conference call.

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