comScore Q3 2007 Earnings Call Transcript

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 |  About: comScore, Inc. (SCOR)
by: SA Transcripts

Operator

Good afternoon and welcome to the comScore Third Quarter2007 Conference Call. At this time, all participants are in a listen-only mode.Following today's prepared presentation, instructions will be given for thequestion-and-answer session. (Operator Instruction). As a reminder, the webcastfrom this conference call will be archived and available on the InvestorRelations section of comScore's website following completion of the call.

I would now like to turn the conference over to John Green,comScore's Chief Financial Officer.

John Green

Thank you. Good afternoon and welcome to comScore's earningscall for our third quarter of 2007. On the call with me today is Dr. MagidAbraham, comScore's President, CEO and Co-Founder.

Before we begin, let me read the following statementsregarding the certain safe harbor provisions under the Private Securities LitigationReform Act of 1995. Except for historical information, all the statements,expectations and assumptions discussed during this call are forward-lookingstatements within the meaning of the Section 27A of the Securities Act of 1933as amended. These forward-looking statements involve a number of risks anduncertainties, some of which cannot be predicted or quantified. It is possible thatthe assumptions made by management are not necessarily the most likely and may notmaterialize.

In addition, other important factors that could cause actualresults to differ materially include the following, the early stage of the marketfor digital marketing intelligence and the rate of development of that market;the rate of development of the Internet advertising and eCommerce markets;comScore's ability to retain existing large customers and obtain new largecustomers; continued growth of the Internet as a medium for commerce, content,advertising and communications; changes in comScore's data-collection methodologies;inability to sell additional products and attract new customers; dependence ongrowth of international operations; product obsolescence with technologicaldevelopments; volatility of quarterly results and analyst expectations;comScore's history of losses and the risk of future losses; comScore'sutilization of net operating loss carryforwards; and the other risk factors setforth from time to time in the company's SEC filing. comScore takes noobligation to update or correct forward-looking statements.

I would also like to point out that in addition to the pressrelease in Form 8-K relating to our third quarter 2007 results filed earliertoday, we filed a separate press release in Form 8-K relating to another matterimmediately prior to this earnings call. In accordance with our obligationsunder the securities laws and regulations, we will not be providing commentaryor answer any questions during this call that relate to the matters describedtherein. We appreciate your cooperation in that regard.

I will now turn the call over to Magid.

Magid Abraham

Okay. Thank you, John. Good afternoon. Earlier today wereleased our financial results for the third quarter of '07, which ended inSeptember 30th, 2007. I am pleased to report that our third quarter 2007financial results show that we are experiencing strong success as we continueto grow our customer base and benefit from accelerating operating leverage inour comScore business model.

We've been able to grow our revenue among existing customersby successfully upselling products and by increasing our penetration of ourexisting customer base. We've also continued to add new customer at a strongpace both in the USand internationally. With over 800 customers worldwide, we feel that comScoreis clearly stepping its leading position in enabling the monetization ofphysical medium.

Third quarter revenue was $22.4 million, which is anincrease of 39% compared with the third quarter of 2006. That's also anincrease of 8% sequentially over the second quarter of 2007. This revenueperformance is on the high-end of the range that we provided during theannouncement of preliminary third quarter results on October 8th, 2007. It alsocompares to the initial guidance of $21.5 million to $22 million for the thirdquarter of 2007 that we have provided on August 2nd, 2007.

Excellent performances across our product lines havegenerated the strong results this quarter. We continue to make progress withour goal to grow our subscription business and to add new customers to ourexpanding customer base. Our subscription revenue was $17.5 million for thethird quarter, an increase of 39% over the prior year period. It now accountsfor 80% of comScore's total revenue for the quarter compared to 78% of comScore'stotal revenue in the second quarter 2007.

Project revenue of $4.5 million grew by 38% in Q3 '07. And revenuefrom existing customers totaled $19.1 million, an increase of 40% compared tothe third quarter of '06, while revenue from new customers added up to $3.3million, and that is an increase of 29% compared to the third quarter of 2006.

During the third quarter of 2007, comScore added a net of 51new customers, which brings the total number of customers to 837. That's a netincrease of 161 new customers in the 12-month period following the end of thethird quarter '06. Within this total customer count, the company added a net 52new subscriber-based customers in Q3, resulting in a total of 739subscription-based customers, which is a net increase of 151 subscriptioncustomers compared to the prior year period.

International revenue was $2.5 million in the third quarter,which is an increase of 61% compared to the prior period a year ago.International revenue now comprises 11% of the company’s total revenue, which isan increase from 9% of total revenue in the third quarter of 2006 and anincrease from 10% of the revenue mix in the second quarter of '07.

During the third quarter, we have launched five newproducts, bringing up to 10 the number of new products we have launched so farthis year. For example, we have introduced comScore Segment Metrix, our firstsite level behavioral targeting product. comScore Segment Metrix will enablethe media organizations, agencies and advertisers to track, analyze andidentify websites that target consumer group, such as healthy financialresearchers or sports enthusiasts outside of the normal financial and sportsite.

In addition, we launched qSearch 2.0, which is asecond-generation monthly scorecard of the search market. This product expandedthe tracking of the search market to include vertical searches and is nowavailable on a global basis. These unique capabilities enhance comScore'scompetitive position in the marketplace and create more revenue opportunitiesfor us.

We've also launched comScore Ad Metrix Publisher View,tracking what we call display ad view, which is a new industry metrix thatmeasures display and rich media ads delivered across the Internet. Theseproducts contribute to revenue in 2008.

With that, I will turn the call back to John for a review ofthe detailed financial results. And after that, we will make a few closingcomments and open up the call for questions. Thanks.

John Green

Thanks, Magid. Third quarter 2007 GAAP net income was $3.8million, which is up $2.2 million or 138% compared to $1.6 million for thethird quarter of 2007. We reported net income and earnings per share on a GAAPand non-GAAP basis. In addition, we also reported adjusted EBITDA free cash forthis non-GAAP measure. The reconciliation of comScore's GAAP results to thesenon-GAAP measures is included in the financial tables accompanying the earningspress release.

Adjusted net income for the third quarter of 2007 was $4.6million, an increase of $2.6 million or 131% compared to the $2 million in thethird quarter of 2006. Adjusted EBITDA was $4.5 million, an increase of 78%compared to the prior year period. This is on the high end of the range withthe adjusted EBITDA range provided when the preliminary third quarter of 2007 resultswere announced on October 8th, 2007. Results may exceed the original guidancefor adjusted EBITDA of $3.4 million to $3.5 million that we provided on August 2nd,2007.

The company’s adjusted EBITDA margin was 20%, an increase ofapproximately 4 percentage points compared to the second quarter of 2006. Thismodest improvement reflects the operating leveraged realized by comScore’sbusiness model and was realized despite being totally offset by approximately3.5 percentage points of margin attributable to approximately $800,000 inincremental public company cost incurred in the third quarter of 2007.

Deferred revenue was $29.1 million at the end of thirdquarter of 2007, an increase of 46% compared to the prior year period,reflecting the continued strong sales momentum through the first nine months of2007.

Operating cash flow for the third quarter of 2007 was $7million, which is an increase of $1.4 million or 25% compared to $5.6 millionin the third quarter of 2006. Free cash flow defined by comScore's operatingcash flow, less capital expenditures, was $5.8 million compared to $5 million inthe third quarter of 2006.

As of September 30th, 2007, comScore had $98.2 million incash, cash equivalents and short-term investments. Included in this amount isapproximately $76.7 million of net proceeds raised by our company through its initialpublic offering of 5 million shares of common stock that was completed on July2nd, 2007.

Looking at our balance year outlook, our company is forecastingforth quarter 2007 revenue of approximately $25 million to $25.3 million, anincrease of 37% to 39% compared to the fourth quarter of 2006. This translatesinto a sequential growth of approximately 12% to 13% compared to an alreadystrong third quarter of 2007. For the fourth quarter of 2007, comScore isprojecting adjusted net income $5 million to $5.3 million. We are alsoforecasting non-GAAP adjusted net income for the fourth quarter of 2007 of $6.2million to $6.5 million.

Adjusted EBITDA for the fourth quarter of 2007 is forecastedto be $6.2 million to $6.5 million, an increase of 66% to 74% compared to the fourthquarter of 2006, and up 38% to 44% on a sequential basis compared to theadjusted EBITDA in the third quarter of 2007.

The adjusted EBITDA forecast for the fourth quarter of 2007assumes an estimated $500,000 in incremental public company expenses. Theadjusted EBITDA forecast for the fourth quarter results in an adjusted EBITDAmargin of 25% to 26% or 4 percentage points to 5 percentage points compared tothe prior year period.

Free cash flow for the fourth quarter of 2007 is forecastedto be in the range of $9 million to $9.5 million, an increase of 527% to 562%compared to the fourth quarter of 2006. We are also revising our full year 2007revenue forecast to a range of $86.9 million to $87.2 million compared to theprior year full year 2007 guidance of $85.9 million to $86.7 million. Thisrevised guidance represents full year growth of 31% to 32% over 2006 full yearrevenue.

Similarly, we are increasing the adjusted EBITDA forecastfor the full year 2007 in the range of $17.6 million to $17.9 million comparedto the prior full year period of 2007 guidance of $16.4 million to $16.9million. This revised adjusted EBITDA guidance represents a growth of 73% to76% as compared to the full year of 2006. It results in a projected adjustedEBITDA margin in the range of approximately 20% for the full year of 2007, upapproximately 5 percentage points as compared to the full year of 2006.

For the full year 2007, comScore is projecting GAAP netincome $11.6 million to $11.9 million. We are also forecasting non-GAAPadjusted net income for the full year 2007 of approximately $16 million to$16.3 million. Free cash flow for the full year of 2007 is projected to be inthe range of $20.9 million to $21.4 million, an increase of 143% to 149%compared to the full year of 2006. This compares to our previous full year 2007guidance of $13.9 million to $14.6 million.

I'll now turn the call back over to Magid for closingremarks.

Magid Abraham

Thanks, John. Again, we're pleased with the revenue andmargin momentum that we achieved in the third quarter. The company'sperformance has accelerated since we completed the IPO at the end of June. Webelieve that these achievements demonstrate the increasing recognition of comScore'sunique and industry-leading technological capabilities and its strong trackrecord of innovation.

It also reflects the increasing customer demand foractionable digital marketing intelligent solutions that comScore provides tosupport our customers in leveraging the power of the Internet to grow theirbusiness.

Now we'd open the call for questions.

Question-and-AnswerSession

Operator

(Operator Instructions)

We'll go first Maurice McKenzie with Signal Hill.

Maurice McKenzie -Signal Hill

Great. Good afternoon, guys. Just a couple of questions. Thefirst is solid improvement in margins. Can you discuss operating leverage inthe business model, particularly in the cost of goods sold and the sales andmarketing lines? And can you just talk about where do you see long-termmargins, both in the gross and EBITDA margin lines?

John Green

Good afternoon, Maurice.

Maurice McKenzie -Signal Hill

Good afternoon.

John Green

In terms of the third quarter, where we continued to realizeour greater leverage was in the cost of revenue area. Again, we found out we'vebeen able to maintain our panel cost at approximately $2 million on an annualbasis to support the continued strong growth in the business. So we're gettingsignificant leverage there, both our technology infrastructure in terms of thecapital that we're putting into the business as well as the increase in ouremployees in the technology side has continued to grow with probably about 40%of the rate of our topline growth. So that's where we have been realizing themost significant cost margin leverage in the business.

In terms of the sales and the marketing, we're also gettingreally strong productivity from our sales force. We now have 77 quota carryingsales people across our entire business, both Media Metrix and comScoreMarketing Solutions. We have been adding additional sales people ahead of thegrowth curve, given that we feel that the market potential is so strong outthere. So the leverage hasn't been quite as strong in the near-term.

And then, as we've been sharing in terms of our investorconferences and during the IPO road show is that we aren't giving guidance forthe next, hopefully, years right now. But in terms of our long-term target isthat that we see us growing from the full year adjusted EBITDA marginforecasted for '07 of 20% to at least 30%, again, long-term.

Maurice McKenzie -Signal Hill

Thank you, John. And second question is on mobile. Withmobile making many headlines, can you just discuss initiatives that you'vetaken in the mobile, area of mobile measurement? And then, can you discussunique challenges and opportunities that exist in developing a measurementtechnique around the mobile platform? Thanks.

Magid Abraham

Okay. We have been working on mobile since late last year.Obviously, it's a strategic opportunity for us. And we have a number ofsolutions that we are working on simultaneously to be able to address thechallenge from a number of different ways. Ultimately, we will choose the bestsolution, but we are not taking any chances.

Our plans are to provide a solution with the software thatwould fit on a handset and would be able to collect work usage and other typesof usage on the phone. And the technology will be -- and the kind ofinformation will conceptually be very similar to what we do on a PC.

There are some opportunities to get data from carriers, butthat involves negotiations with carriers. And that's probably something thatmight be reasonable to expect in the long-term, but our solution next yearwould at a minimum include a panel like the panel that we have on a PC.

Originally, our offering will not be as large, because wedon't really need to measure e-commerce on cell phones. That's still aminiscule market. But what we see a big opportunity is internationally -- infact, we have already lunched a mobile tracking service in Japan in August, I believe. And thereason why we chose Japanis that it is the only country where work usage on mobile phone exceeds workusage on PCs. And there is a significant portion of time that's now being spenton mobile phones.

The solution that we have in Japan right now is survey-based,but will be migrated to passive electronic monitoring sometime next year.

Maurice McKenzie -Signal Hill

Thank you very much.

Operator

Moving on, we'll take our next question from WilliamMorrison with ThinkEquity.

Bill Morrison -ThinkEquity

Hi. It's Bill Morrison from ThinkEquity.

Magid Abraham

Hi, Bill

Bill Morrison -ThinkEquity

Good afternoon. A couple of questions. One, Magid -- you'vebeen on a pretty torrid pace of new product development this year, and I waswondering if you could just comment on whether you expect that pace to continueinto next year, or maybe give us some kind of an idea on if the number ofproduct launches you expect annually over the next few years will continue inthe current pace. And then I was curious if you've got any initial feedback ordata points on comScore market, which I believe you launched recently? Thanks.

Magid Abraham

Okay. Well, you know some of the products that we have tolaunch next year such as the Mobile Tracking, and there are some of theproducts that we have launched this year that have sort of enhanced versionscoming out next year. This year has been an exceptional year in terms of numberof new products introduced.

But I would say that we, to some extent, we aremarket-driven and demand-driven, and the business continues to change, and wewill be responding to the challenge. You know, it's hard for me at this pointto make a forecast in terms of number of new products. But I'd say somethingaround half the number would be probably more reasonable, but that doesn't --that's not a firm number that we have on drawing board right now.

Sorry, there was another part of the question or --

Bill Morrison -ThinkEquity

Just an initial maybe -- could you share some of yourinitial experiences with the launch of comScore Marketer?

Magid Abraham

Yes. comScore Marketer seems to be pretty well received. Wehave gotten very positive feedbacks from the data clients and some of the earlyclients that have signed up. And interestingly, we saw that this was going tobe a product that would be somewhat competitive to hitch-wise. And we've gotsome feedback that people will consider it as complimentary.

So that was a surprise point of feedback. But we areoptimistic that this is a product that will successfully attract the long tailof marketers on the Internet and will represent a strong opportunity for usnext year.

Bill Morrison -ThinkEquity

Thank you very much.

Magid Abraham

Sorry, strong revenue opportunity next year.

Bill Morrison -ThinkEquity

Thanks.

Magid Abraham

Okay.

Operator

(Operator Instructions)

We'll take out next question from Jeetil Patel with DeutscheBank.

Jeetil Patel -Deutsche Bank

Hey, guys, a couple of questions. One, on Segment Metrix --can you talk about how or where you are accessing your data from to build thisproduct out? And I guess also, early feedback from customers or pricing orrevenue opportunity for '08, can you discuss a bit more the financial modelbehind Segment Metrix?

And then, typically in fourth quarter,there is always a big push towards renewals for 2008. Can you give us anearly glimpse as to how that's looking? I know it's still early in the quarter,but just an idea of what type of feedback you're getting on the renewals andlooking out into the next year, especially with the new suite of productsyou've rolled out recently?

Magid Abraham

Okay. First of all on Segment Metrix, let me just explainthat there are two types of behavioral targeting that you can do. The firsttype of behavioral targeting is by being able to find which sides have anaffinity to the target that you're looking for. And then, the second one isindividually personalize the advertising to be able to leverage the bestinformation you know about the individual.

Segment Metrix does the first level of behavioral targeting.So we have taken and we have divided it into over 300 segments. And those 300segments are available as an option and for a Media Metrix subscription that anagency or a publisher can leverage to say, "I have this high value kind ofcustomer. Instead of targeting them on the basis on demographics, I'm going totarget them on the basis of what I know about them, and I'm going to find siteswhere I can find them out of context, meaning if there are heavy financialresearchers, obviously, I can get them on a finance site. But I want to alsoget them outside of finance sites. Segment Metrix will allow us to do that."So that's the notion of being able to track the people as a group, not out of contextand being able to target them outside of that.

So that's what Segment Metrix is. There is no new data thatwe are acquiring for it. It is an upgrade to existing Media Metrixsubscriptions, and with a price range of about a 30% increase on the existingMedia Metrix subscription. As far as the renewal for the fourth quarter, wecontinue to enjoy high renewal rates in the 90s, and there is really nothing inthe fourth quarter that would change from that.

Jeetil Patel -Deutsche Bank

Got it. Are you getting any feedback or any sort of aspecific interest around the other five products you've launched lately, interms of your conservations with customers over the last couple of, call itfour to six weeks or eight weeks now? And then, is there any interest in goinginto the customer level segmentation behavioral targeting going forward?

Magid Abraham

Well, some of the products that we launched during the yearinvolve measuring some new forms of media, like widgets or conversationalmedia. We never expected those products to be strong revenue generators, but wewanted to be on the forefront of measuring those emerging form of media tomaintain comScore's leadership in terms of measuring whateverdigital media there is.

Some of the other products like CampaignMetrix that has been very successful in the marketplace and Ad Metrix weregetting good early reaction to it. We've talked about comScore Marketer andSegment Metrix also enjoying a good reaction.

The second part of your question was…Iforgot to note it.

Jeetil Patel -Deutsche Bank

The customer level behavioral targetinginterest?

Magid Abraham

Yes. We are looking very seriously into that. Obviously,that is going to entail new data sources that will allow us to track or developindividual level segment that publishers can be using to target advertising onan individual basis. That's something that we think has a lot of potential. Weare working on, and beyond that I can't really forecast what is going tohappen.

Jeetil Patel -Deutsche Bank

Thank you.

Operator

Moving on, we will take our next question from Heath Terrywith Credit Suisse.

Heath Terry - CreditSuisse

Great. Thank you. I was just wondering, given the 51 newcustomers that you added this quarter, can you talk about how the breakdownamong products is for those customers? How many of them are for the corecomScore audience measurement product versus search versus some of the newthings that you've added new products you've added more recently?

John Green

Well, we don't provide the breakeven, Heath.

Heath Terry - CreditSuisse

Even if it's just kind of rough, I mean, I'm not looking forexact numbers as to what's working.

John Green

Certainly, we continued to build our new customer base onthe subscriber side. That's been very strong internationally as well as in the US. Soit has come to core Media Metrix audience measurement products has certainlybeen one big source of growth.

Magid Abraham

To some extent, you can get a clue from the fact that weadded actually more subscribers in total customers, which means that there is avery, very strong subscription growth and that we're adding a lot of customerson the subscription side.

Heath Terry - CreditSuisse

Okay. Great. Thank you.

Operator

(Operator Instructions)

We'll go next to Youssef Squali with Jefferies & Company.

Youssef Squali -Jefferies & Company

Thank you very much. Hi, Magid. Hi, John. It's YoussefSquali. A number of questions. First, John, your deferred revenues were, ofcourse, 6% year-on-year in Q3. I was wondering if you can provide us the samenumber for Q2 and Q1 of this year?

John Green

For Q2, it was up 50%. And then for the first quarter, itwas lower -- that number doesn't come to mind. But again, we've seen ourbookings continue to increase significantly during the course of the year.

Youssef Squali -Jefferies & Company

Okay. But do you think it was lower than 50%.

John Green

In the first quarter, yes. I think -- we'll dig it up. But Ithink it was--

Youssef Squali -Jefferies & Company

All right. Okay. We can follow up offline. And then,secondly, if I look at what your guidance implies for Q4 in terms ofincremental EBITDA margin, it's about 68%. If I do the same math for last year,it was 52%. So clearly, the model is working. I was wondering how sustainableis that 68%? Or said in a different way, can the incremental EBITDA margin stayat that kind of level as you continue to invest in these new product.

Magid Abraham

Well, again, this one kind of referenced the long-termtarget on a full year basis is 30%. And as you are aware, in the first half ofthe year, there is a higher seasonality of cost as it relates to -- you know,we bring on a lot of our plans, our new hirers in the first half of the year,plus the impact of vacation accruals. So we are seeing the real ramp-up in theoperating leverage with the adjusted EBITDA in the back half of the year. So weanticipate that on a seasonal basis that we would see similar ramp-ups infuture years.

Also, in terms of the new products -- that's what we havebeen touching upon before --Magid touched upon it as well -- is that we don'thave big incremental cost in terms of our panel size, and we are leveraging ourexisting R&D and product development people. So it's not where we have someincremental cost there. So the new product pipeline in and of itself is notcontributing as the person to our operating leverage.

Youssef Squali -Jefferies & Company

Okay. That's helpful. And also staying with these newproduct launches, is there any way for us to kind of quantify the lift that youhave gotten from a lift to growth rates that you have gotten so far this yearfrom all these products that you have launched? And I know and I understandsome of the them are just not generating any revenues. But has any of themreally moved the needle so far or driven in '08 impact?

John Green

Again, first I just want to get back to that the firstquarter deferred revenue was up 15% versus end of March of '06.

Youssef Squali -Jefferies & Company

15.

Magid Abraham

Yes, 15.

John Green

Yes, 15.

Youssef Squali -Jefferies & Company

Okay. Thanks.

Magid Abraham

From now until Q1?

John Green

From now until Q1, we progressed by 15 gross points.

Youssef Squali -Jefferies & Company

Okay.

John Green

So that basically says it was in the 31% range over thispoint -- discount. Right? Okay.

Youssef Squali -Jefferies & Company

Okay.

John Green

Okay. And then Youssef, again, we've said that we aren'tgiving kind of specifics of product level detail. Certainly, the new productshave been contributing some to the revenue growth in end of '07. But since mostof them were launched at the end of the second quarter for the balance of theyear, then we'll be seeing much more of a ramp-up in revenue growth from thenew products in '08.

Youssef Squali -Jefferies & Company

Okay. And then my last question is to you, Magid, on theinternational side, top 61% year-on-year, so 11% of total revenue. Is there --I know this isn't area of focus for you -- is there a goal there that you'dlike to kind of get to or achieve within the next, say, two or three yearsconsidering how successful your competitors have been internationally?

Magid Abraham

Sure. I would certainly like to see us over 25% of therevenue within two years internationally. And I think that as time goes on, weare getting much stronger from a product standpoint, and we have some uniquemarkets where we can leverage. So I think that the growth from 9% to 11% ininternational revenue contribution is something that we'd like to seeaccelerate.

Youssef Squali -Jefferies & Company

Okay. And you think you can get there organically?

Magid Abraham

We think we can. Yes, I am talking about organic growth.Now, whether we do an acquisition that will sort of accelerate our presencethere, you know, will give us more infrastructure and something alreadyexisting to build on, that's good. But I'm talking about revenue increasingfrom the core business.

Youssef Squali -Jefferies & Company

Okay. Great. Thanks a lot.

Magid Abraham

Thanks..

John Green

Okay. We are going to try one more time. For the deferredrevenue, again, as of the end of our second quarter, that was up 50% versus theend of June of '06 that I stated earlier; and it was up 36% as of the end ofMarch of '07 compared to the end of March of '06.

Youssef Squali -Jefferies & Company

So the progression is 36, 50, 46.

John Green

Yes.

Youssef Squali -Jefferies & Company

Okay.

Operator

(Operator Instructions)

We will go next to [AB Mendes] with FBR Capital Markets.

AB Mendes - FBRCapital Markets

Sorry, that's AB. Thanks for taking my question, guys. Acouple of quick ones here. Did you guys -- I might have missed this early onthe call -- did you discuss Microsoft as a percentage of revenues quarter?

Magid Abraham

No we --

John Green

That's 11%.

AB Mendes - FBRCapital Markets

Okay. And do you also have any kind breakout as far as top10 or top 20 customers along the same lines.

John Green

Yes, the top 20 customers comprised 45% of total revenue forthe third quarter, and that group alone was up 3%, 4% again reflecting acontinued success in realizing real pricing and up-selling.

AB Mendes - FBRCapital Markets

Sure. Thank you. And in terms of the two-year goal of25%-plus of international -- are they are coming from international market?Does that assume entering any other major markets or is that based recurring onthe platform that you have put in place already.

Magid Abraham

Well, we have to answer other markets. Right now in Europe,we are primarily in the UK,and we need to target the larger markets in Europe.We just opened up in Japanand we're working on an entry point in China. Those are the key marketsthat I would expect to have physical presence in, and then there may be otherregions that will be more judicious in terms of where we invest our resourcesto start up commercially.

The key point to remind everyone is that the panel is there,the data is there. What we are talking about is really having a presence on theground or a marketing effort to try to market that data. And we are starting topay a lot more attention to it.

AB Mendes - FBRCapital Markets

Great. That's all I had. Thanks very much, guys.

John Green

Thank you.

Operator

We'll take our next question from Brian Freiwald with WilliamBlair & Company.

Brian Freiwald -William Blair & Company

Hi. This is Brian for Troy Mastin. How are you guys doingtoday?

Magid Abraham

Hi, Brian. Good.

Brian Freiwald -William Blair & Company

Given the financial downturn on the sub-prime fallout, haveyou guys seen any change in spending patterns from your financial servicesclient?

Magid Abraham

No. Not really.

Brian Freiwald -William Blair & Company

Okay. And you mentioned a little bit about your expansioninternationally. Can you comment on any acquisitions on that front that you'replanning on making, or any companies you have been talking to over there?

Magid Abraham

We can't really comment on acquisitions other than saying,you know, something that gives us a presence internationally is one of thedesired criteria for making acquisitions.

Brian Freiwald -William Blair & Company

Sure, sure. And can you give us any more color, I know youmentioned in Japan you are doing well with the mobile tracking, but any moredetails on how your launch in Japan in going?

John Green

We got a few contracts in Q3. We are getting good receptionfrom clients for a couple of reasons, I think. We are entering the market witha number of unique features, and then we are -- I think there has been a lackof innovation and client orientation in the market before our entry.

So those are two things that are creating a good reaction toour entry. So we are optimistic that in the next year Japan will be a good contributingcountry to our revenue.

Brian Freiwald -William Blair & Company

Okay. Thank you very much.

Operator

And there appears to be no further questions at this time. Iwill turn the conference back over to our speakers for any additional orclosing comments.

Magid Abraham

Well, thank you very much. As always, if there are anyfurther questions, John is more than happy to dig up statistics and I would bemore than happy to take calls as well. But we are happy with the quarter andwith how the year is going and we look forward to our fourth quarter call.

Thank you very much.

John Green

Thank you.

Operator

And that does conclude today's conference call. We thank youall for your participation and you may now disconnect.

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