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comScore, Inc. (NASDAQ:SCOR)

Q2 2008 Earnings Call Transcript

July 31, 2008 4:30 pm ET

Executives

Magid Abraham – President, CEO, and Co-Founder

John Green – CFO

Analysts

Jason Helfstein – Oppenheimer & Co.

Troy Maslin – William Blair & Co.

Sandeep Aggarwal – Collins Stewart

Sandeep Swadia – Jefferies & Co.

Hermin Leon [ph] – Deutsche Bank Securities

Operator

Good afternoon and welcome to the comScore second quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. Following today's prepared presentation, instructions will be given for the question-and-answer session. If anyone should require operator assistance during the conference, please press the star key followed by the zero on your touchtone phone. As a reminder, the webcast from this conference call will be archived and available on the Investor Relations section of comScore's website following the completion of today's conference.

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

John Green

 

Thank you. Good afternoon and welcome to comScore's earnings call for our second quarter and full year 2008. On the call today with me is Dr. Magid Abraham, comScore's President, CEO and Co-Founder.

Before we begin, please allow me to read the following statements 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 represent 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 Metrix, 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, comScore's Form 10-K for the year ended December 31st, 2007, and comScore's Form 10-Q for the quarter ended March 31st, 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 this presentation. comScore does not undertake any obligation to publicly update any forward looking statements to reflect new information after today's call or the reflective occurrence of anticipated events.

I will now turn the call over to Magid. Magid?

Magid Abraham

 

Thank you, John. Earlier this afternoon, we released our financial results for the second quarter which ended in June 30, 2008, and reflects the results of our acquisition of Ad Metrix which was completed at the end of May.

As stated in the press release, we will also be highlighting the results of the base comScore business excluding the impact of the Ad Metrix acquisition for this reporting period only to facilitate compare trends with the company's guidance that we issued prior to the acquisition.

I'm pleased to report that as our second quarter 2008 financial results show; we had an outstanding performance, achieving the highest levels of revenue and profitability in comScore's history. For the comScore base business, we exceed in the First Call consensus estimates and our own prior guidance in all respects.

Our momentum in the marketplace continues with strong new business and growth among existing customers. We are very excited about the additional value that we will bring to our customers by complying Ad Metrix's product and its leadership position in the measurement of the mobile internet and media markets, combining that with comScore's existing strong position in the global digital marketing and intelligence marketplace.

The integration of Ad Metrix business into comScore's existing operation is well underway and we are on track with our objective for Ad Metrix to make a positive contribution to adjusted EBITDA by the end of the fourth quarter of 2008 as we announce at the time of the acquisition.

I want to highlight some of the key financial results for the quarter. In particular, I want to highlight the base business, some of the key metrics, and John will provide some details later.

Our total revenue reached 28.8 million in Q2, which was an increase of 38% relative to the same period a year ago. For our base business, the revenue was $27.8 million, that's an increase of 34%, and that compares to a guidance of $27.1 million to $27.4 million.

Our GAAP net income was $1.7 million, and when we look at the base business excluding the Ad Metrix's results, it was $2.6 million, that's a 108% increase. Our GAAP EPS on a diluted basis was $0.06 per share. Our EPS on the base business was $0.09 per share, and that compares to a guidance of $0.07 to $0.08 per share.

Our adjusted EBITDA was $6.5 million and on the base business it was $6.8 million. That's up 63% and compares to a guidance of $5.8 million to 6.1 million.

Our non-GAAP EPS for the diluted business for the base business was $0.20 and that compares to our guidance of $0.16 to $0.17, and our total deferred revenue grew by 58% and on the base business they grew by 39%.

We continue to make progress with our goals to grow our subscription business and to add new customers to our expanding customer base. Our subscription revenue was $23.7 million for the second quarter, which is an increase of 45% over the prior year period. This accounts for 82% of comScore's total revenue for the quarter which is an increase of four percentage points versus second quarter in 2007, and one percentage point higher than the first quarter in 2008.

Project revenue of $5.1 million grew by 13% in the second quarter relative to prior year period. The quality of our client relationship is as strong as ever, as reflected in our revenue amongst existing customers which totaled 24.3 million in the second quarter, that's up 37% compared to the second quarter of 2007, while our renewal rates continued to be well over 90% during that quarter. Revenue from new customers was $4.5 million, an increase of 43% compared to the second quarter of 2007.

In addition, our international revenue was 4.1 million in the second quarter. That's an increase of 75% compared to corresponding year ago period, and it now accounts for 14% of the company's total revenue compared with 11% of the total revenue mix in the second quarter of '07.

We've added a net of 74 new customers during the second quarter, which brings the total number of customers to 1104. We now have 1013 subscription base customers which is a net add of 64 customers in the second quarter.

Despite the general macroeconomic uncertainty, our confidence in the strength of our business remains high, and we continue to see strong demand for our products and services as reflected in the guidance for the full year that John will discuss later.

I will now turn the call over to John for a review of the detailed financial results for the second quarter and our outlook for the third quarter and the full year, and after that we'll open the call to questions and answers. John?

John Green

 

Thanks, Majid. Second quarter 2008 GAAP income before taxes was $3.2 million, an increase of 156% compared to the 1.2 million in the second quarter of 2007. Excluding the results of Ad Metrix, second quarter net income before taxes was $4.4 million, an increase of 249% compared to the second quarter of 2007.

GAAP net income was $1.7 million, an increase of approximately $500,000 or 38%, and reflected in the GAAP net income for the second quarter 2008 is the normalized effective rate of 46%, including cash tax rate of 4.4%. The normalized effective tax rate was negatively impacted by current year net losses incurred by certain Ad Metrix international subsidiaries, for which the full benefit is not realized by other comScore subsidiaries.

Excluding the results of Ad Metrix, net income was $2.6 million, up 108%, and then excluding the results of Ad Metrix, the normalized effective tax rate was 41.8%, including a cash tax for the 3.3% as we continue to utilize NOLs to reduce cash tax.

As Majid said, our GAAP EPS for the second quarter was $0.06, and approximately 30.3 million fully diluted shares. And then excluding the results of Ad Metrix in the quarter, the EPS was $0.09 per share.

The adjusted EBIDTA was $6.5 million, and then excluding the results of Ad Metrix for the quarter it was $6.8 million. Again as Majid said, it exceeds our guidance for the quarter $5.8 million to $6.1 million. Our company's adjusted EBITDA margin was approximately 22%, an increase of approximately three percentage points as compared to the second quarter of 2007. And this includes approximately two percentage points attributable to $650,000 in incremental costs incurred in the second quarter of 2008 due to our public company costs which were not yet applicable to comScore in the second quarter of 2007. And excluding the impact of Ad Metrix, our adjusted EBITDA margin was over 24% in the quarter.

Non-GAAP adjusted net income for the second quarter of 2008 was $5.6 million, an increase of 70% compared to the $3.3 million in the second quarter of 2007. Operating cash flow for the second quarter 2008 was $14.2 million, an increase of $9.7 million or 214% compared to the $4.5 million in the second quarter of 2007. And free cash flow was $7.8 million for the quarter compared to $3.4 million in the second quarter of last year.

As of June 30th, 2008, our company held $67.2 million in cash, cash equivalents, and short term investments, and $7.6 million in long term investments. A decline of approximately $37 million in these investments and cash holdings compared to the $111.6 million balance as of the end of March is attributable solely to utilization of approximately $44.3 million cash excluding transaction costs to acquire Ad Metrix at the end of May.

Looking at our company’s updated financial outlook for the full year 2008 on a consolidated basis including the results of Ad Metrix, we are forecasting full-year 2008 revenue of approximately $119.7 million to $120.4 million. This reflects an increase in the full year estimates for the base comScore business and also includes the impact of Ad Metrix.

For the full year 2008, comScore's projecting GAAP net income for the full year 2008 of $6.6 million to $7.2 million. This includes the effective certain nonrecurring asbestos and related expenses, stock-based compensation, and amortization of certain intangible assets.

An estimated normalized effective tax rate of approximately 44% including an estimated cash tax rate of approximately 4.9% is assumed to be applied against full year earnings before taxes. The estimated normalized tax rate for comScore excluding the impact of Ad Metrix is assumed to be approximately 41% including an estimated cash tax rate of 4.9%.

Given these assumptions, we are projecting GAAP EPS for the full year 2008 of $0.22 to $0.23 per share. These GAAP net income and GAAP EPS projections for the full year 2008 reflect the effects of purchase accounting and consolidating the financial results of Ad Metrix with our existing comScore results.

We're also projecting adjusted EBITDA for the full year 2008 in the range of $25.5 million to $26.1 million. This range reflects an increase in the estimates for the base comScore business and includes the impact of Ad Metrix. It also assumes the operations from the acquisition of Ad Metrix begin to contribute positively to adjusted EBITDA by the end of fourth quarter 2008.

We are forecasting non-GAAP adjusted net income of approximately $21.7 million to $22.1 million and non-GAAP EPS of $0.71 to $0.73 per share for the full year 2008. These non-GAAP adjusted net income and non-GAAP EPS projections for the full year 2008 reflect an increase in the estimates for the base comScore business and include the impact of consolidating the financial results of Ad Metrix with our base comScore estimate.

For the third quarter 2008, we are forecasting revenue of approximately $30.2 million to $30.7 million, an increase of 35% to 37% compared to the third quarter 2007. For the third quarter of 2008, we're projecting GAAP net income of $400,000 to $600,000. An estimated normalized tax rate of approximately 44% to 45% including an estimated cash tax rate of approximately 9.5% is assumed to be applied against third quarter earnings before tax. This compares to an estimated normalized tax rate for comScore, excluding the impact of Ad Metrix of approximately 41% in the third quarter of 2008, and this includes an estimated cash tax rate of approximately 4.3%.

We're forecasting GAAP EPS for the third quarter 2008 of $0.01 to $0.02 per share. Adjusted EBITDA for the third quarter 2008 is forecasted to be $5.4 million to $5.7 million. The adjusted EBITDA forecast for the third quarter 2008 results in adjusted EBITDA margin of 18% to 19%. We're also forecasting non-GAAP adjusted net income for the third quarter of 2008 of $4 million to $4.4 million and forecasting non-GAAP EPS for the third quarter 2008 of $0.13 to $0.14 per share.

The reconciliation to guidance for the third quarter and full year 2008 GAAP net income and EPS for the adjusted EBITDA, non-GAAP adjusted net income, and non-GAAP EPS is included in the table accompanying the press release.

And with that, I'll turn the call back to Majid for closing remark. Majid?

Magid Abraham

 

Thanks John. We're pleased with our strong results through the first half of 2008 and will remain confident about our business momentum continuing for the balance of this year. On a distant note, I'm very pleased to mention the launch of our "peace for knowledge" program, whereby we sponsor the planting of a tree for every panelist that joined our panel and stays in our panel for at least three days.

We're partnering with an organization called "Trees for the Future" to execute the planting in various developed countries. We have made a starting commitment of the "Million Trees" we planted in the third quarter. The cost for those "Million Trees" will be accrued in its entirety in the third quarter and is included in the Q3 guidance that John discussed earlier.

We're very excited about this program for a number of reasons. First, it has a valuable and relevant innovation for people to join our panel. We hope to also improve our retention efforts. We also received some positive feedback internally and externally for our (inaudible).

Finally, our acquisition of Ad Metrix demonstrates our continued pursuit of our strategic priorities of product innovation and increasing our industry leadership position.

And with that, I will open the call for question.

Question-and-answer session

Operator

 

If anyone does have a question, you can signal at this time by pressing star one on your touchtone telephone. If you're on a speakerphone, please make sure your mute function has been turned off to allow your signal to reach our equipment. Once again, if you do have a question, please press star one at this time. We'll hear first from

Jason Helfstein – Oppenheimer & Co.

 

Hi guys, how are you doing? So, two questions and then a question about the trees. So, you think like this quarter the revenue growth, obviously very healthy growth in customers, but ARPU was I guess somewhat flat year-over-year and maybe down sequentially. So, could you just talk about kind of the drivers affecting ARPU and how you think about that for the rest of the year? My math may have been off and so I got it. And then secondly, on expenses, it looks like G&A was a bit higher. I'm just wondering what was in that. And then also with respect to your full year guidance, you guys lowered GAAP EPS guidance to $0.22 to $0.23 from $0.34 to $0.38, even though the EBITDA guidance is exactly what we're looking for. So, can you just talk about what's going on below the line in a bit more detail that's impacting GAAP guidance because it seems like it's mostly below the line and tangible related Ad Metrix? And then lastly on the trees, so if somebody leaves the panel, does that mean you have to cut the tree down? Thanks.

Magid Abraham

 

So, Jason, first of all in terms of the ARPU, that's diluted by the very strong new customer growth in the amount of new customers that we added. But we want to emphasize that the existing customer growth was up 37% and

we were also realizing about 6% price increases which is in line with what our historical trends have been. So, we think that that's a very favorable factor. As it relates to the guidance, again, the reason why the guidance for the GAAP EPS is what it is, is that that's the full impact of the Ad Metrix acquisition including the purchase accounting, the amortization, the intangibles, and then the full costs including the nonrecurring costs which include people who will be terminated during the course of the balance of this year and related severance. So in fact, as we said elsewhere in terms of the guidance that implies that the base comScore business is showing an increase versus the previous guidance that we've given prior to the acquisition.

Jason Helfstein – Oppenheimer & Co.

 

Okay. And can you – what's the actual intangible number you're forecasting for the year?

Magid Abraham

 

That comes to us for about $350,000 per quarter.

 

Jason Helfstein – Oppenheimer & Co.

 

Okay. And then so, probably, about – it's basically about evenly excluding intangibles, does some of the employees would be let go and then interest. Is that fair?

Magid Abraham

 

Just a little bit in terms of interest.

Jason Helfstein – Oppenheimer & Co.

 

Okay.

Magid Abraham

 

Yes, but again, that's all in the reconciliation table accompanying the press release related to the guidance.

John Green

 

Of course, we have the $400,000 in the reduction in the value of the –

Magid Abraham

 

That's the $386,000 option rate security that we took in the second quarter.

Jason Helfstein – Oppenheimer & Co.

 

Okay. And then on G&A, it was like a million more than I would have thought, and was up sequentially. Can you talk to that?

Magid Abraham

 

While again, on a consolidated basis, the G&A is reflecting public company cost and then there's also costs related to Ad Metrix that are included in there, including increase in the stock-based comp.

Jason Helfstein – Oppenheimer & Co.

 

Okay.

Magid Abraham

 

And so, again for the base business, our G&A continues get very significant leverage and there was not anything unusual that was happening during the second quarter, or that's implied in our balance of the year guidance.

Jason Helfstein – Oppenheimer & Co.

 

Okay. And what about the trees? What happens if somebody leaves the panel?

Magid Abraham

 

Somebody leaves the panel, the trees continue absorbing CO2 and providing shades for people.

Jason Helfstein – Oppenheimer & Co.

 

Okay. Thanks.

Operator

 

Our next question comes from Sandeep Aggarwal with Collins Stewart.

Sandeep Aggarwal – Collins Stewart

Thanks for my questions John and Majid. Congratulations on the good quarter. A couple of questions. One is that I'm assuming that your project revenue did not include any contribution from Ad Metrix, and if that is the case, it's delivered on 12% year over year growth. Is that something we should be expecting from the project revenue going forward? And secondly, when I look at Ad Metrix, on a standalone basis, do you think it can grow maybe 2 to 2.5 ex of your core business growth?

Magid Abraham

 

I think on the project revenue that, we're not giving guidance specifically on that component. But I think some of the estimates that people have about the growth going down on single digit is probably conservative. You know the one thing about the project revenue is that that is probably the center point of our business, that's the most sort of timing dependent on either the age of the project or when the execution of that happens. But in general, as the size of our base business and our subscriber base increases, so does the project business. You know we've talked about how we do on purpose try to shift some of that project revenue into subscription revenue and how we used project revenue or project engagements to get a client to become a repeat client. And nevertheless the number of clients will influence the project revenue and would cause the growth to continue. As far as whether the project contained any Ad Metrix project revenue, I think very little?

John Green

 

No, it's primarily syndicated on the Ad Metrix side.

Magid Abraham

 

And, I'm sorry, what was the second question?

Sandeep Aggarwal – Collins Stewart

 

So, question was about Ad Metrix, just a high level, you know on a long term basis do you think Ad Metrix can deliver you know 2 to 2.5 times growth rate versus your core business?

Magid Abraham

 

I think it will depend by region. I think internationally as we expand Ad Metrix in tandem with the rest of the comScore business, I think we can see stronger growth than the entire comScore business. I think domestically we sort of look at it as it is going to grow proportionally to the rest of the business. They're depending on new products that we've had, at that point we will be able to ascertain if there is an additional differential growth.

Sandeep Aggarwal – Collins Stewart

 

Okay, and just if I may ask one housekeeping item. Out of these 74 new customers you added, how many were from Ad Metrix side?

Magid Abraham

 

We're not disclosing that. Obviously the majority are from the base comScore but we also got a very good growth from Ad Metrix.

John Green

 

Suffice it to say that higher, and it is in line or higher than what we used to on the core business – on the base comScore business.

Sandeep Aggarwal – Collins Stewart

 

Thanks very much.

Operator

 

And our next question will come from Youseff Squali with Jefferies & Company.

Sandeep Swadia – Jefferies & Co.

 

Hi, good afternoon. This is Sandeep Swadia for Youseff. Thanks for taking my questions. So Majid, the call was dropped, so apologies if you've already addressed it before. But from a broader perspective, are you – if you can just provide some color in terms of the impact that you're seeing or apparently not seeing from the economic slow down? What assumptions are you making into your guidance for the second half in terms of your ability to raise prices or thinking about sales cycle.

Magid Abraham

 

You know, on a macro basis, as you said, our second quarter results were pretty strong and the guidance speaks to itself. We have heard anecdotal evidence of some bulk pricings by some of our customers, but truly it hadn't added up to anything that has created any kind of material impact. Our renewal rates continue to be as strong as ever and we have averaged 6% price increases and that compares to the 6 to 7% price increases that we've been able to achieve. So there again, we sort of don't see the impact. You know at the same time it is – it would be an exaggeration or probably very imprudent to say that comScore is a special tool. We do believe that we delivered strong value to our customers and that by the information we provide is needed by most of them to run their business. But we are comfortable with the guidance that we provided that it will – it reflects a cautious outlook for the second half that may be affected by the economy.

Sandeep Swadia – Jefferies & Co.

 

And just curious, just to build up on that, did you see any impact especially during the last month of the quarter after Google's Ad Planner was launched in terms of adding either publishers? What have you been hearing? Any trend that you saw in terms of their adoption rate to Ad Planner or your product after the launch from Google?

Magid Abraham

 

Well, we haven't seen it impacted so far on our business. We haven't started any client that we will use it instead of comScore. We have heard concerns about – conflict and concerns about (inaudible) we have done a lot of research on that and we're quite comfortable with the differences that we see. We do actually see some of the bigger competitors will do though, are trying to become more engaged with us. So, you know, I can't tell you that there is one material impact one way or the other. We're obviously working very hard on trying to make it a positive impact.

Sandeep Swadia – Jefferies & Co.

 

Alright. Thank you so much.

Operator

 

Once again for our phone audience, if you do have a question, please press the star one now. We'll move next to Troy Maslin with William Blair.

Troy Maslin – William Blair & Co.

 

Thank you. Wanted to ask about your guidance for full year revenue. A couple of things there. I think in the past you characterized that at least earlier on this year as conservative. I'm curious, given the economic environment, if you still characterize it as conservative or not?

 

Magid Abraham

 

I mentioned that it is cautious I would say given the economic environment it's probably less conservative within that context but nevertheless we're still cautious and we feel comfortable with the guidance that we are providing. And you know I think that as we look at our revenue, as you know, with a high degree of predictability. So, when we look at when we need to get there, we are comfortable with how we can get there.

Troy Maslin – William Blair & Co.

 

Okay. And to make sure that I've got the numbers kind of straight in terms of the Ad Metrix contribution for the full year. I'm sorry if you've mentioned it, but I have (inaudible) contribution expected for the full year.

Magid Abraham

 

Our particular guidance for Ad Metrix in this forecast...

Troy Maslin – William Blair & Co.

 

Okay.

John Green

 

I mean what we – I think what Tory is mentioning, when we announced the Ad Metrix we said 6.5 to 7 million. We still stand by – I mean I don't think we're going to – I don't think we're going to change that estimate or actually provide any further color on the Ad Metrix acquisition. I do want to point out that actually when we talked about the Ad Metrix, we did not make out some expected mobile revenue that we would have gotten on a comScore standalone basis. So to some extent, the net impact on comScore was a little bit lower than 6.5 to 7 million when you subtract some of the revenue that were going to be achieved with the product, we're planning that now was being picked up Ad Metrix.

Troy Maslin – William Blair & Co.

 

Okay. I was just adjusting the bridge between your old guidance and the new guidance and I was working into the assumption that you are going to see an extra 6.5 to 7 million from Ad Metrix, which suggests that couple of hundred thousand dollars increase in your full guidance range, revenue. Does that sound roughly accurate?

John Green

 

It's not unreasonable.

Troy Maslin – William Blair & Co.

 

Okay. And as you think about the P&L composition going forward with Ad Metrix included, should we expect see a meaningful change in the different cost line items in terms of a percentage of revenue, does the mix look alike, different there was we model company going forward?

Magid Abraham

 

We feel, Troy, in terms of running rate business, base business, there's no reason why we should be kind of replicating the EBITDA margins that we've given guidance on to the Street in terms of our long-term target. So, there's nothing related to the Ad Metrix business model that's going to certainly dilute the leverage in the margins of base comScore.

Troy Maslin – William Blair & Co.

 

And individual line items, do you think would look fairly similar in your long-term model?

 

Magid Abraham

 

Yes.

Troy Maslin – William Blair & Co.

 

Okay. So as we look into 2009 with the fourth quarter being one in which Ad Metrix starts to actually contribute to EBITDA, I would expect that the core comScore business on an EBITDA, adjusted EBITDA basis would have a significant improvement because you don't have to drag Ad Metrix and then you would get the incremental, albeit maybe minor contribution from Ad Metrix. Am I thinking about '09 in a right way?

Magid Abraham

 

I think in Q4 we said that Ad Metrix will start contributing positively but that towards the end of the quarter, not for the entire quarter. So, on a run rate as we exit the year, the adjusted EBITDA from Ad Metrix, we're forecasting now to be positive. But as you look at the map for the fourth quarter, that will be on a reported basis a little bit of a drag.

Troy Maslin – William Blair & Co.

 

In 2009, Ad Metrix, will be reasonable that it contributes to the adjusted EBITDA for the full year?

Magid Abraham

 

Yes.

John Green

 

Yes.

Troy Maslin – William Blair & Co.

 

Okay.

Magid Abraham

 

We think that you know the inflection point is essentially December and then after that it will be – it will get – we'll have very similar effect from this for the rest of the comScore business.

Troy Maslin – William Blair & Co.

 

Okay. And then is there any unusual seasonality to expect out of Ad Metrix on a quarterly basis.

Magid Abraham

 

There's – it's skewed towards the fourth quarter in terms of revenue.

Troy Maslin – William Blair & Co.

 

Okay. Great. Thank you.

Operator

 

And then as a reminder for our phone audience, please press star one on your touchtone telephone at this time if you have a question. We'll hear next from Jeetil Patel with Deutsche Bank.

Hermin Leon – Deutsche Bank Securities

 

Hey, thanks guys. This is actually Hermin Leon [ph] calling for Jeetil. Couple of questions. Just wanted to check if you can give us a fairly read on kind of like the contract renewals that you guys plan to have. I think most of the contract mills have it at the back half of the year. I was wondering if you can kind of give us comments on July. Second, I was wondering if you can talk about the number of product uptick that you have seen by your customers, have that increased more on a relative basis or has that kind of trended the same? And I have a quick follow-up.

John Green

 

Well again, as we've shared in the past about 60% of our bookings occurred in the second half of the year with a kind of heavier SKU towards the fourth quarter. And as we've discussed earlier, we haven't seen any impact from the economy or the overall industry conditions and our renewal rates. So that we feel that we're untracked in terms of continuing that trend during the balance of the year and our guidance reflects that accordingly. And then as it relates to the upselling as we've again talked about our existing customer revenue growth was up 37% and again, very significant traction in terms of upselling of our package of vast portfolio of products. And then our top 20 customers as well continue very strong, as well as continuing to build the next tiers of business.

Hermin Leon – Deutsche Bank Securities

 

Can you remind us what the average number of products that are being taken by your customers again?

John Green

 

We're kind of moving away from that metric. We do something that's meaningful especially because the denominator is denoted by the strong phase of the new customer growth and then, as Majid will talk about it, we have a real focus here in terms of looking at kind of a package of products rather than looking at kind of individual product transactions.

Magid Abraham

 

And I think that actually that number has picked up slightly. So, the reason – the main reason why we're moving away from it is that some of the feedback we've been getting from clients is that some of the products that we are introducing really fit better as a package rather than as an individual product. So to give you an example, Segment Metrix, is a good segmentation tool that you know we position that as an individual upgrade to the new Metrix, which is fine, that's a good individual upgrade to new Metrix. But in reality the people that want to have something like Segment Metrix are buying a number of planning oriented services from us. And what they're looking for is actually a planning package that include New Metrix, Plan Metrix, Segment Metrix, reach of frequencies, etcetera. So, you know being client responsive the one thing that we – if I take into feedback into account, we think it's smarter for us to go with fewer choices, but choices of our package that are towards a particular application or a particular complete solution that a client is asking us for. So better fit to that, is that those packages sort of illustrate the combined power of what comScore has to offer. So, when we are looking at a planning package, it is the best package that's out there and nobody can touch.

Hermin Leon – Deutsche Bank Securities

 

And I think more recently you guys had withdrew the paid search product from a lot of the paid sellside guys in our community that is, was wondering, and we also have a large financial contract kind of falling off sometime in the second half I think, it's sometime in July, and you have also opened up the ability to sell to the buy side. I was wondering how – if you can give us an update on how that's kind of going and whether or not you have the ability to kind of offset some of the facilities contracts falling off? Thanks.

Magid Abraham

 

Okay. First of all, I think the contract you're talking about is Citadel. Well, we don't talk about specific customer contracts. We have a new Citadel on a nonexclusive basis. Second, as you correctly mentioned, we are offering a product to more funds out there, and so far the reception had been good and we have a good pipeline. We have signed some contracts already. As far as the paid click information – as far as the paid click information is concerned we felt that that single number was generating so much attention in the press and on Wall Street, and was causing so much distraction to our management and our staff here that we believe that the individual elements that are needed here which are the ad coverage, the market share, the average number of search queries, the enhancements that we're going to be making on an international basis, you know are actually still very relevant for somebody that wants to model a search business. But we just did not want to continue spending the time that would take us every time a number came out and there was an underreaction or overreaction to it, we just have to spend a lot of time given the visibility of those numbers. And I think that we're still providing the same data. People can get to what they want in terms of analyzing their search business. We've always been – in modeling the search business, we've always been lacking the complete length to revenue, and in particular CTC has always been something that we have lacked. So you know no matter what, there is always some gap between what we provide and the revenue estimates, and we just want it to – we just wanted to make sure that you know when people are looking at the numbers, they're not just looking at single numbers, the number of factors and it's not comScore sets, and that's the end of it and then we have to go and spend all kinds of time trying to deal with the fallout of that.

Hermin Leon – Deutsche Bank Securities

 

Got it. Thanks.

Operator

 

And we have no further questions in the queue at this time. Now, I would like to turn the conference back over to you for additional or closing remarks.

Magid Abraham

 

Well, thank you very much. We are obviously very pleased about the quarter and the performance of the business, and we are confident as we go through the rest of the year. All of the indicators that we're looking at here are encouraging. We encourage people that have question to contact John and me after the conference or the next few days. And with that I want to thank everyone and until next quarter. Thank you.

Operator

 

That does conclude today's conference. Thank you for your participation. Have a great day.

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Source: comScore, Inc. Q2 2008 Earnings Call Transcript
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